Six Things You Should Know About Mediating Licensing Disputes

Intellectual Property

By Zela ‘Zee' G. ClaiborneJanuary 7, 2014 | Print

Patent Disputes, Pending

The contention: Mediation is needed for intellectual property dispute management.

Why? Costs, of course. But here, even more than in other case categories, you don’t want to risk an unfavorable result by turning the outcome over to a third party, a judge, or jury.

The process, explained. This article covers six fundamentals to justify and succeed at using IP mediation.

Savvy business people are looking to mediation as a way to cut the transaction costs of managing intellectual property disputes by avoiding lengthy litigation. Only a small number of costly patent infringement cases go to trial, and about 90% of these are resolved, often by entering into a licensing agreement for future use.

Mediation is a low-risk process. It has an impressively high success rate when conducted by an experienced mediator. Participants value the confidentiality that cloaks the process and also the control that they gain over the resolution of the dispute.

Rather than risking an unfavorable result by turning the outcome over to a third party, a judge or jury, mediating parties can evaluate settlement offers, negotiate for modifications, and decide whether to accept one of them. Companies involved in the same or related businesses may want to use mediation negotiations to preserve business relationships.

In order to have the best chance of a productive mediation, businesspeople and their counsel should consider the following:

1. Understand Mediation Goals

Most mediators will start with a brief explanation of the process. In order to stress confidentiality, participants are asked to sign a formal confidentiality agreement. This is particularly important in an IP case, where proprietary technical information and infringement issues will be discussed.

Parties may also discuss confidential financial information when calculating a reasonable royalty. For example, in a recent case involving claims of infringement and misappropriation of trade secrets, there was discussion of one party purchasing the other, which meant that sensitive financial information had to be exchanged.

There is a significant difference between trial advocacy and mediation negotiation. Counsel can facilitate the process by educating their clients in advance, stressing that the goal is to find a business solution rather than focusing on trial arguments about which party is right or wrong.

Of course, there will be some background discussion of the validity of the patent, the case for infringement, and potential damages, but a skilled mediator will assist the parties in moving past those issues toward exploring settlement possibilities that may include a licensing agreement or other business solutions.

2. Tailor the Process to the Dispute

When mediation first became popular, mediators often used an identical framework for handling each case. Participants have now moved toward a more flexible process designed to fit the particular dispute.

Counsel generally exchange briefs to present the opposing side with their clients’ views and educate the mediator on the background of the case. But there may be private calls to the mediator to discuss obstacles to settlement. Counsel also may submit a confidential side letter to the mediator outlining concerns or offering confidential information that may be useful in negotiations. An attorney might even outline a proposed licensing deal but ask that it be kept in confidence until the appropriate moment in the negotiations.

A mediator may meet with each side separately at the beginning of the day to hear about settlement goals and may or may not then have a joint session, depending on the needs of the case and parties’ personalities.

Based on this author’s experience in hundreds of cases, the mediator may decide to hold a full-blown joint session, a short session just to introduce all participants and outline the process, or no joint session at all.

Sometimes a meeting can become so contentious that it polarizes the parties. A face-to-face meeting, however, may help each side to understand the goals of the opposing party and move past the demonization of the opposition that happens when parties have been engaged in contentious discovery disputes. IP cases often involve thousands of documents and the exchange often gives rise to disagreements.

The caucus process has changed as well. Rather than moving between the parties as the only communication link, a mediator may meet with all of the lawyers, the technical staff, or other stakeholders in various combinations.

Late in the process, a mediator’s meeting with a lead decision maker from each side may be the key to settlement. Wise mediators start by establishing the participants’ trust. They take great care with these meetings, respecting the attorney-client relationship. Final settlement may be reached, but only after these individuals have an opportunity for full discussion with their attorneys.

3. Consider Settlement Options in Advance

Before mediating, parties will evaluate issues such as the patent owner’s demand for royalties or damages, as well as the alleged infringer’s evidence regarding patent validity. Then, it is a good idea for them to look at some of the possible acceptable business solutions.

Parties need to think about an array of options and consider how the dispute looks to the other side. They must include an analysis of what their needs—as well as their adversary’s—might be.

Sometimes, parties lock themselves into consideration of a specific dollar range, including the highest amount to be offered or lowest amount to be accepted. This approach is a mistake.

After participating in mediation and hearing from the other side, views may shift. The mediator will point out some weaknesses of the parties’ positions. Parties may learn new facts that lead to a reassessment of settlement positions and a fresh look at solutions. There may be options in addition to a potential licensing agreement, such as an agreement to do business together in the future, a sale of part or all of a business, or the one-time payment of a sum of money.

Potential resolution options are to be weighed against the alternative of going to trial, tying up executives and senior management in the discovery process, and detracting from business-building efforts. A patent case typically takes years to get to court and costs millions of dollars.

4. Bring the Right People to Mediation

When a court orders mediation, all parties and their counsel are required to attend unless formally excused. Even when mediation is voluntary, this is a good rule to follow. This suggestion might sound like common sense, but it is surprising how many mediations fail because the right decision makers are not present.

Bring senior executives with settlement authority and try to be sure that the parties bring representatives of comparable authority. If one side attends with its chief executive officer and the other side shows up with a lower-level representative, there is a suggestion that the settlement effort is less than serious. Also, it is almost impossible to settle with the absent decision maker available by phone.

Mediation is a dynamic process that cannot adequately be summarized on the telephone or after the fact to an absent decision maker. It is just too easy for someone who was not present for all the interactions to say “no” to whatever proposal is offered.

This is especially true when a decision maker is in another country and time zone, and out of reach at the crucial moment. In a recent patent infringement case, settlement was impossible because the company’s key decision maker, its president, was in Taiwan, and the U.S.-based company representative lacked sufficient rank and settlement authority.

5. Decide When to Mediate.

Some lawyers and even clients will argue that they need full discovery before mediation, or that they have to wait for a Markman ruling, the pre-trial assessment that analyzes the language of a patent filing to determine the patent’s breadth.

But an early mediation offers the advantage of substantial time and money savings. Instead of full discovery, it is possible to exchange written information pursuant to a confidentiality agreement for the purpose of mediation only. Or counsel might decide to do focused discovery, including a limited number of depositions and an exchange of specific documents in advance.

Although it is not impossible to settle on the courthouse steps, an early mediation offers great advantages.

6. Document the Settlement

Before leaving the mediation, counsel should prepare a list of the deal points agreed upon and be sure that the details of any licensing agreement are spelled out. The client representatives must sign this short form agreement so that it will be legally binding.

After a long day of negotiations, it is not a good idea to try to draft a lengthy final settlement agreement with all the appropriate legal provisions. Decide who will prepare the first draft and when it will be sent to the other side for review. Failure to take this step may result in additional disputes that could undo the settlement.

Mediation is an opportunity to reach a result that may be better than the remedies available at trial, and therefore an essential IP management tool. Use it and make the most of this opportunity.

The author has been a full-time mediator and arbitrator since 1998. She works out of JAMS’ New York and San Francisco offices, and serves on the private ADR provider’s domestic and international panels of neutrals, as well as on the Panels of Distinguished Neutrals maintained by the CPR Institute, the nonprofit that publishes this newsletter. She also is a member of the Northern California U.S. District Court mediation panel.

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