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Litigation / US Litigation / Intellectual Property Dispute Resolution in The United States Alternative Dispute Resolution (ADR) There are two types of alternative dispute resolution
("ADR"), those which are adjudicative and those which are directed towards
reaching a consensus for settlement. Adjudicative processes are similar
to court proceedings in that they involve formal proceedings in which
attorneys play a dominant role -- the focus is on a presentation of
evidence and the legal rights of the parties, and a third-party decision-maker
eventually finds in favor of one party. On the other hand, consensual
ADR consists of informal proceedings in which the parties themselves
play a key role -- the focus is on the needs and interests of the parties,
and the parties seek to reach a voluntary decision which normally involves
compromises by all.
Increasingly, courts and parties themselves are turning
to ADR as a means of avoiding costly and protracted litigation. Several
courts offer a range of options for ADR and direct a case to a particular
form of ADR after a screening process. These same courts may, in fact,
require that the parties participate in ADR prior to engaging in litigation.
The disadvantage, of course, of consensual, non-binding ADR is that,
if it fails, a party has thereby spent yet additional time and expense
in resolving its dispute.
The parties themselves may, of course, agree either
contractually or at the commencement of a dispute to engage in ADR or
in an incremental series of ADR processes. For example, they may start
with negotiations between low level employees, move to negotiations
between higher levels of management, and then engage in mediation through
a neutral third-party. The parties may also choose to engage in a combination
of arbitration and consensual ADR by agreeing in advance to mediate
a dispute and then arbitrate any remaining issues that cannot be settled
through mediation.
Arbitration Agreement and Administration There has been an increasing tendency in recent years
to submit disputes to binding arbitration in an attempt to avoid the
high costs and general disruption that may result from litigation. Arbitration
is, in fact, the most commonly accepted form of ADR. It is a particularly
advantageous forum for the resolution of disputes where highly complex
and technical issues are involved, such as in a patent infringement
case, or where business decisions need be made quickly, such as in the
case of computer products, where the technology is constantly in flux.
Since the parameters of an arbitration can largely be determined in
advance between the parties through an arbitration agreement, many of
the disadvantages associated with court litigation may be avoided.
For disputes to be arbitrated, the parties must agree
to arbitrate either in a written agreement or subsequently. That agreement
between the parties is the key to whether the arbitration will be successful.
The parties may decide that all or only certain disputes between them
are to be arbitrated. The parties may also set forth in the arbitration
agreement the time frame within which the dispute must be resolved and
the type and duration of discovery, as well as whether arbitration will
be an exclusive remedy with no possible recourse to the courts until
a final arbitral award has been made or whether to permit access to
the courts under certain circumstances. Arbitration is, on the other
hand, procedurally similar to litigation in that the parties will usually
conduct discovery and then prepare witnesses, affidavits and legal memorandum
and arguments to the arbitrators. The arbitrators' decision is, however,
a final judgment binding only as to the parties to the dispute and generally
non-appealable, unless the parties have provided otherwise in the arbitration
agreement.
Arbitrations are usually administered by one of several
independent agencies. The most well-known agency in the United States
is the American Arbitration Association (AAA), which has three separate
sets of rules -- AAA Commercial Arbitration Rules, AAA Patent Arbitration
Rules and AAA International Arbitration Rules. The AAA, like other such
agencies, charges a fee for its services. This fee is calculated on
a sliding scale based on the amount in dispute, with a separate fee
for the arbitrator or arbitrators themselves. The AAA has discretion
to determine what amount should be deposited by the parties prior to
the start of the arbitration. The other well known agency which oversees
arbitration, particularly in the area of international disputes, is
the International Chamber of Commerce Court of Arbitration in Paris
(ICC), which also has its own special rules.
Procedure Arbitration is governed primarily by the Federal Arbitration
Act. With respect to patent disputes, arbitration is also governed by
the Patent Arbitration Act. The scope of the Federal Act is confined
to the arbitration of contracts involving interstate and international
commerce and maritime transactions.
Among other things, the Federal Act:
The procedures to be followed in arbitration may be
determined by the arbitrator if no other procedure has been agreed upon
previously by the parties. Alternatively, the parties themselves may
prescribe the rules of procedure and the scope of the arbitrator's power,
either by agreeing to detailed rules or by agreeing to be bound by a
particular set of rules, such as, for example, the appropriate AAA rules.
In this regard, the parties should specify in their arbitration agreement
which rules govern. The AAA has three sets of rules, and, unless otherwise
specified, the AAA Commercial Arbitration Rules will govern. It is particularly
important in the context of intellectual property rights disputes that
the parties should also state in their arbitration agreement whether
the courts are barred from granting preliminary injunctive relief either
before the appointment of the arbitrators or during the arbitration.
Some courts have refused to grant such relief absent an agreement by
the parties on this issue. Of course, the arbitrators themselves can,
once appointed, grant injunctions which are enforceable by the courts.
Arbitration under the AAA's rules is commenced by the
party wishing to initiate arbitration by giving notice to the other
party and filing a copy of the notice, together with a copy of the agreement
to arbitrate and the appropriate fee at any one of the AAA offices throughout
the United States. The AAA maintains a panel of arbitrators from which
an arbitrator or arbitrators are selected, unless the parties have themselves
either agreed upon the arbitrators or provided through the arbitration
agreement for a different means for appointing one. If the appointment
of arbitrators is left to the AAA's discretion, the AAA will choose
one arbitrator (although the AAA rules provide for a greater number
in appropriate circumstances).
Normally, arbitration proceedings will include a preliminary
hearing at which the issues to be decided will be clarified and a schedule
for further proceedings established. Following this, there may be a
period for discovery, after which the parties may file evidence and
further hearings will be scheduled as necessary. The Federal Arbitration
Act expressly provides to arbitrators the power to compel the production
of documents and the attendance at the arbitration of witnesses; however,
it does not refer to other conventional discovery vehicles, such as
interrogatories and document requests. Accordingly, parties are well
advised to expressly provide in the arbitration agreement for either
specific discovery, e.g., document requests and depositions of
parties only, or include a clause permitting all discovery methods provided
for in the Federal Rules of Civil Procedure. The parties should also
confer upon arbitrators broad powers to regulate and shape the discovery
process so as to avoid case and extensive and wasteful discovery as
might otherwise result.
Once the parties have agreed that all their evidence
has been produced and briefs, if any, filed, the arbitrator declares
the hearings closed and renders a decision, which must be done promptly
and, in any case, no more than 30 days from the closing of the hearings.
While arbitrators are not bound by all the limitations imposed by the
Federal Rules of Civil Procedure and the Federal Rules of Evidence in
reaching their decisions, they are required to act fairly.
The Federal Arbitration Act does not define the powers
of the arbitrator as to the type of awards which may be made. Such powers
are probably constrained only by the terms of the arbitration agreement
and may, as such, exceed those of a judge. Rule 43 of the AAA Commercial
Arbitration Rules specifically authorizes an arbitrator to grant "any
remedy or relief which he deems just and equitable and within the scope
of the agreement of the parties." Thus, for example, the award of specific
performance by an arbitrator has been upheld in circumstances when it
might not have been awarded by a court. It is, therefore, within the
parties' control to limit the types of award that an arbitrator may
make by so providing in the arbitration agreement. In intellectual property
cases, the parties should consider providing in the arbitration agreement
for all remedies available under the Trademark, Copyright, or Patent
Act, as appropriate.
After an arbitration award has been rendered, it is
final and binding upon the parties to the arbitration. Under the Federal
Arbitration Act, such an award may only be vacated if it was "procured
by corruption, fraud or undue means," obvious bias, corruption or other
misconduct on the part of the arbitrator, antitrust or serious public
policy issues were present, or the arbitrators exceeded their powers.
A failure on the part of the arbitrators to understand or apply the
law will not, without more, justify judicial intervention unless the
arbitrator knew, but manifestly disregarded, the law. Accordingly, it
is not surprising that, in practice, so long as the arbitrator's award
remains within the scope of the arbitration agreement, the courts are
generally deferential to arbitrators' findings.
After the arbitral award is made, and if the parties
have so provided in the arbitration agreement, a judgment on the award
may be entered by a court, which judgment would then have the same force
and effect as a judgment rendered in litigation. In order for the judgment
to be entered, one of the parties must file with the court a motion
for confirmation within one year after the award is made, together with
documents required by the Federal Arbitration Act. These documents include,
among other things, the arbitration agreement, the selection or appointment
of the arbitrator(s), each written extension of time within which to
make the award, the award itself and each notice or affidavit used in
an application to confirm or modify the award as well as the court's
order in connection with each such application. (In patent cases governed
by the Patent Arbitration Act, arbitral awards are not enforceable until
notice of the award has been filed with the PTO.) Confirmation proceedings
are generally quick and inexpensive given that there are very few instances
in which courts can deny confirmation and given strong public policy
considerations which encourage arbitration.
The Potential Advantages of Arbitration Arbitration can be preferable to court litigation in
resolving disputes of highly complex and technical intellectual property
issues. Arbitration proceedings, for example, can be concluded in far
less time than litigation, generally lasting from approximately 12 to
15 months. This is due, in part, to the fact that the parties can control
the duration of the arbitration by including in the arbitration agreement
a clause requiring that a decision be rendered within a certain period
of time. When, for example, proceedings must conclude by a date certain,
discovery, which constitutes the majority of time expended in litigation,
must necessarily be streamlined.
Moreover, the arbitrators presiding over a trade secret
or patent case are usually knowledgeable in the field and have the ability
to more readily understand the issues. The AAA, for example, has established
a National Panel of Patent Arbitrators which includes "individuals having
experience in patent law and/or special technical expertise" and appoints
arbitrators from this panel, as appropriate. This results not only in
time savings, but a significant reduction in costs to all parties and
possibly even a fairer judgment.
In contrast to court litigation, which is generally
open to the public, arbitration proceedings have the added advantage
of confidentiality. This is beneficial to companies which do not want
a case to be publicized. Arbitrations are also less formal than court
proceedings and can, through the arbitration agreement, be structured
to suit the interests of both parties in resolving the issues. Accordingly,
arbitration is less adversarial and thereby may be less damaging to
an existing business relationship between the parties.
Of course, the principal advantages of arbitration
may also be its potential disadvantages. Events unanticipated at the
time that the arbitration agreement was written can have consequences
unforeseen by the parties. Accelerated proceedings can impose unusually
high costs over a short term. And the finality of an arbitral award
can largely insulate what would otherwise be held to constitute clearly
erroneous findings or an arbitrary decision.
Consensual ADR Consensual ADR consists of a variety of types of processes
in which the goal is to permit the parties themselves to reach some
form of voluntary, amicable resolution of their dispute. In essence,
consensual ADR employs the services of a neutral third-party in order
to assist the disputants in resolving their differences.
Mediation In mediation a neutral third-party assists the adverse
parties in seeking to negotiate a settlement of their dispute. The mediator
does not render judgments, but instead helps the parties to find workable
compromises. It can occur at any stage of litigation and offers the
flexibility of allowing the parties to reach creative solutions that
go beyond the legal technicalities and advance the interests of both
parties and prevent future disputes.
In district court, mediation may be the result of a
court-wide program or may be initiated at the direction of an individual
district court judge. Moreover, the parties may decide to mediate their
dispute either contractually or at the time that a dispute arises. There
is, of course, no necessity that a dispute, in its entirety, be mediated.
Court-based mediation typically occurs either at the
courthouse or at the offices of an attorney-mediator. The first step
in the mediation process typically involves educating the mediator about
the dispute. Some courts require counsel for each side to submit important
documents and brief written statements to the mediator in advance of
the first meeting. These materials are not considered part of the court
record and are ultimately returned to the parties. Indeed, oftentimes,
court rules prohibit submitting copies to the judge or otherwise disclosing
statements made during the mediation process.
The mediation sessions are normally attended by both
a representative with authority to negotiate a settlement and counsel.
At the initial joint session, the mediator will seek to involve the
parties themselves, by explaining the process to them. Each side then
presents a statement of its case which is followed by questions from
the mediator that are designed to elucidate the parties' aims and define
their positions. Thereafter, the mediator meets privately with each
party and its counsel to help each party examine its own interests,
legal and non-legal concerns, and to set its priorities. Subsequent
joint and separate meetings allow the parties to formulate and develop
ideas, explore and assess various options, and contemplate the consequences
of failing to agree upon a settlement.
If the parties have formed a basis for reaching a settlement,
then the mediator usually writes an outline of their terms, and counsel
for one of the parties will prepare a draft document memorializing the
settlement. If a complete settlement cannot be reached, then the mediator
will encourage the parties to agree to a partial settlement and may
then advise them of other dispute resolution alternatives.
Mediators in district court programs tend to be lawyers,
who are chosen by the court based upon their experience in the substantive
areas of the law at issue, their standing in the local legal community,
and/or their negotiation expertise.
Early Neutral Evaluation Early Neutral Evaluation ("ENE") began in 1983 in the
Northern District of California and has since been expanded to other
courts. ENE is an automatic part of the court process and is designed
to help the parties evaluate the strength of their positions and consider
their settlement options, even as they simultaneously prepare to litigate
their case. The parties and their counsel meet together early in the
pretrial phase of the case to present summaries of their cases and receive
a non-binding assessment by an experienced, neutral attorney who has
expertise in the subject matter of the dispute. The neutral evaluator
provides assistance both in settlement negotiations and in the planning
of the case. Thus, ENE differs from mediation in that mediation is result
oriented, while ENE is process oriented. In other words, the fundamental
aim of mediation is for the parties to reach a settlement; ENE, however,
has the broader objective of increasing the efficiency of both the progression
of the litigation and the process of settlement.
There are primarily three channels through which cases
are directed to ENE. First, certain types of civil cases are automatically
referred to ENE at the time of filing. Second, some parties voluntarily
agree to participate and are referred to ENE upon obtaining the approval
of the assigned judge. Third, following an early status conference,
the assigned judge refers the case to ENE, either by the judge's own
motion or pursuant to a party's request. Normally, where reference is
automatic, the parties may make seek to opt-out of the ENE process for
"good cause."
The first step is the selection of an evaluator. Typically,
an ADR administrator selects an evaluator who has expertise in the relevant
subject matter, usually a lawyer with relevant experience who has volunteered
for participation in the ENE program. Following his or her appointment,
the evaluator schedules and notifies the parties of the ENE session.
The court rules typically define a time frame within which the first
meeting must be held. Because litigation normally proceeds concurrently
with the ENE program, the first ENE session must be held early in the
case if it is to be effective. Moreover, both parties and their counsel
are normally required to participate in ENE.
The evaluator opens the ENE session with a statement
explaining the objectives of the program and summarizing the procedures
to be followed. Counsel for the parties may then present statements
and "evidence" supporting their respective positions. The evaluator
may then ask questions with the intent of elucidating these arguments
and evidence and delving into the strengths and weaknesses of each side's
case. The evaluator then aids the parties in focusing their cases and
separating the areas in which they are in agreement from the areas in
which they are in dispute.
Upon the conclusion of the case presentations, the
evaluator prepares a written case evaluation. The evaluation includes
an assessment of the likely outcome with respect to liability (including
an outline of the reasons for the evaluator's conclusion) and a range
of damages that may be awarded (with an explanation of the major elements
and calculations). After the evaluator has prepared an assessment, he
or she then provides the parties with an opportunity to discuss settlement
before the evaluation is disclosed. If either party does not wish to
discuss settlement, then the evaluator presents the case evaluation
and the parties may again consider negotiating a settlement. If the
parties are amenable to exploring settlement, then the evaluator assists
them in initiating discussions in any format or process to which they
are all agreeable. The parties may also choose to schedule additional
sessions. In some districts, with the consent of the court, the parties
may schedule additional meetings with the evaluator on a compensated
basis.
If, however, even after the presentation of the evaluator's
assessment of the case, the parties choose not to settle or if they
are unable to reach an agreement, the evaluator helps the parties to
develop a pretrial case management plan. The case then returns to the
court for resolution through normal court procedures. All communications
and information that are disclosed during the ENE session are confidential
and are not disclosed to the judge or made of record in the case.
Summary Jury Trial The summary jury trial ("SJT") is a flexible, non-binding
process that is instituted at the time that a case is ready for trial
and implemented only in cases that will require long jury trials. SJT
consists of an abbreviated trial that provides the parties with an indication
of what the verdict might ultimately be in the entire case or some part
thereof. The resulting verdict is then used as a basis for settlement
negotiations prior to the full trial. The purpose of SJT is to encourage
settlement in large cases between parties who have substantially different
views as to the likely jury outcome. Plainly, only where both the courts
and the litigants have substantial resources is this process an option.
The SJT process is not rigidly structured but rather
is intended to be flexible enough to accommodate individual case needs
and court resources. Generally, it occurs after the completion of discovery.
In preparation for the SJT, the court may require counsel to submit
trial memoranda, proposed questions for prospective jurors and jury
instructions, and preliminary motions. The court may also require the
parties to submit lists of exhibits and lists of witnesses whose testimony
will be outlined during the proceeding.
Prior to the commencement of the SJT, jurors are selected
from the normal jury pool. Limited questioning of prospective jurors
is conducted. A six-person jury is chosen. The jury may or may not know
in advance that it is playing an advisory role only. A judge or a magistrate
judge then presides over the hearing and each party typically has several
hours to present its case. The process is intended to be completed in
a day or less, but for complex multi-party cases, it could extend for
as long as two weeks.
After closing arguments are made, the court provides
a summary charge to the jury and the jurors are instructed to reach
a unanimous decision. If a unanimous verdict cannot be reached, then
individual verdicts may be returned. The jury verdict forms frequently
include questions that are formulated to provide the parties with insight
into how the juries have responded to key issues. Moreover, after the
jury has concluded its deliberations and the verdict or verdicts are
announced, the judge and counsel are sometimes allowed to question the
jurors in order to probe their perceptions of the case.
Settlement discussions may occur at any time during
the SJT process. After the verdict is disclosed, negotiations may occur
immediately or only after several days or a week have passed.
Because SJT occurs only after the completion of discovery
and requires substantial, additional expenses by the parties for preparation
and presentation, SJT obviously does not allow for the same savings
of time and money that other ADR processes permit. In addition, in contrast
to the court minitrial, SJT frequently occurs as a result of a court
order. Thus, if one of the parties would prefer not to participate in
this process, that party might choose not to present a complete case
either because it is not fully prepared or because it does not wish
to disclose its trial strategy to the other side. Thus, if both parties
do not act in good faith, SJT may result in a substantial waste of time,
money and effort. Not surprisingly, SJT tends to be more expensive and
less successful than other forms of ADR.
Court Minitrial The minitrial is another form of confidential, flexible
and non-binding ADR process. Like SJT, it is employed only for the resolution
of large, complicated disputes. The purpose of the procedure, like other
such processes, is to force the parties to observe the strengths and
weaknesses of their cases and resolve disagreements about the relative
merits of their positions.
The minitrial process usually allows for limited discovery
and exchange of information between the parties prior to their meeting.
The minitrial can be presided over by a judge, a magistrate judge, or
a nonjudicial, neutral party. The actual minitrials are, however, informal
proceedings, in which there are few or no witnesses and there is not
strict adherence to evidentiary and procedural rules. Rather, an attorney
for each side presents, in abbreviated form, its best case to client
representatives, typically senior executives, who have been authorized
to settle the case. After each side completes its presentation, there
are generally rebuttals and questions by the opposing side.
After the hearing, which usually lasts a day or two,
the client representatives meet, with or without the neutral advisor,
and attempt to negotiate a settlement. The neutral advisor may, however,
assist the parties by acting as a facilitator or by issuing an advisory
opinion on the potential court outcome.
Settlement Conferences Settlement conferences overseen by a judge or magistrate
judge are a common form of ADR used by all courts. The parties may or
may not directly participate. The settlement judge expresses views about
the merits of the case and seeks to facilitate the exchange of settlement
offers. Sometimes the settlement judge also implements mediation techniques
to promote settlement. Depending on the court, a settlement judge may
be designated for that specific purpose or the judge assigned to a case
(assuming a jury trial) or another judge may host the settlement conference,
which may occur at any time during the litigation.
Appellate ADR Following issuance of a decision at the trial level,
ADR on the appellate level generally involves pre-hearing conferences
or mediation sessions, which are conducted by staff attorneys to the
appellate court or lawyer-mediators, who are chosen and trained by the
court to facilitate such good faith efforts.
The Potential Advantages of Consensual ADR Consensual ADR has many of the same advantages over
court litigation as arbitration. ADR proceedings are quicker with the
parties receiving the undivided attention of a neutral person who is
an expert in the field and is focused on reaching a prompt disposition.
ADR can, in a matter of weeks, dispose of litigations that would otherwise
take years to conclude.
Second, while judicial decisions tend to result in
winner-take-all decisions, involving technical issues of law, ADR may
result in workable compromises. Consensual forms of ADR allow the flexibility
of creative resolutions that take into consideration broader and future
business objectives and priorities.
Third, ADR may result in substantial savings by eliminating,
for example, the expense of discovery.
Fourth, ADR allows the parties to resolve disputes
without making a public record of their dispute and its outcome.
Finally, when disputes arise within the context of
a contractual relationship, e.g., a license or franchise relationship,
or between large companies that compete in one division of their business,
but work together in other areas, ADR can preserve long-term relationships.
By contrast, the expense of litigation, and the animosity generated
by depositions induces the deterioration of relationships.
Of course, these advantages of consensual ADR will
only be realized if there are good faith efforts at dispute reconciliation
by the parties and their counsel. Consensual ADR, like negotiations
initiated by the parties themselves, is wholly dependent upon those
efforts. Consensual ADR merely adds the framework of a neutral third
party to facilitate a settlement through good faith efforts on the part
of the parties themselves. In the absence of such efforts, consensual
ADR merely adds to the costs of litigation.
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