Author Archives: David Allgeyer

About David Allgeyer

For over 30 years, I have been a partner at the law firm of Lindquist & Vennum, located in Minneapolis, Minnesota. I have litigated, arbitrated and mediated cases in state and federal trial and appellate courts and hearing rooms throughout the United States, including those involving intellectual property protection and licensing, patents, trademarks, trade secrets, and copyrights, as well as related issues of unfair competition. I have been appointed an arbitrator in over sixty commercial arbitrations and have successfully mediated dozens of cases ranging from patent, trademark, copyright and other commercial disputes to disputes in most areas of civil law.

Arbitrating the Patent Case Part XXII: Attacks on the Award

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In earlier articles in this series we followed arbitration involving patent matters from drafting the arbitration clause through the award, motions to “reconsider” the award and, finally a motion to confirm the award.  We now arrive at attacks on the award.

The standard that applies to review of an arbitration award is much more rigorous than appellate review of a trial court judgment.  The whole point of arbitration is to have a quick, relatively inexpensive, final determination of the parties’ dispute.  The Federal Arbitration Act (“FAA”) and most state arbitration acts recognize that.  Because the FAA typically pre-empts state arbitration acts for transactions in interstate commerce – which will almost certainly include your patent arbitration – we will focus on the FAA.

Before we do, however, note that under the rules of most arbitral bodies, you can build in an arbitration appeal.  The newer AAA commercial rules, for example, allow the parties to agree to review of an award by a panel of arbitrators, acting much like an appellate court. But, as a practical matter, you must build that into your arbitration clause if you want an appeal. Nobody is ever going to agree to an appeal after they have won.  We’ll take a look at arbitration appeals in a later article.

Timing

Let’s begin with a timing issue.  You will recall from the last article that a party has one year to seek confirmation of an award.  9 U.S.C. § 9.  A motion to vacate, modify or correct an award must be brought within three months after the award is filed or delivered.  § 12.  So what happens if a party moves to immediately confirm the award?  Does the party wanting to vacate or change the award still get three months, so a confirmed award can later be undone and a judgment on it vacated?

I haven’t seen this be much of a problem as a practical matter. The party seeking to vacate the award usually does so in response to an application to confirm it, so the issue doesn’t arise.  I did once have a state court, applying rules almost identical to the FAA, postpone the hearing on a motion to confirm the award until over 90 days after the award to make sure the other party had a chance to move to vacate the award before it was confirmed.

Grounds for vacating awards

The FAA has only a few specific grounds for vacating the award.  They are:

(1)   where the award was procured by corruption, fraud, or undue means;

(2)   where there was evident partiality or corruption in the arbitrators, or either of them;

(3)   where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4)   where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S. C. § 10. Note first that none of these grounds are that the arbitrator improperly applied the law or that the findings of fact have no support.  To quote the Eighth Circuit, so long as “the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority,” the award must be confirmed.  Gas Aggregation Svcs., Inc. v. Howard Avista Energy, LLC, 319 F.3d 1060 (8th Cir. 2003).

Evident partiality

“Evident partiality” can be a ground for attacking an award in the right case.   For example, in a Second Circuit case, an award was vacated under the evident partiality standard where an arbitrator had reason to believe a conflict of interest might exist, but chose to ignore it and instead erected a “Chinese wall” in his company.  If he had investigated, he would have learned that his company had a significant contract in place with one of the parties.  But he disclosed neither that he had decided not to investigate further nor that he had erected the wall.  The award was vacated.  Applied Industrial Materials Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., 492 F.3d 132 (2d Cir. 2007).

The cases tend to be quite fact specific, so a party considering this ground will need to review all applicable cases in the jurisdiction and the specific facts of the case.

Of course, there is always the danger that a party will learn of a failure to disclose a relationship and keep it under wraps until they see whether or not they won.  Courts don’t like that type of gamesmanship.  The Fifth Circuit held that a party seeking to vacate an arbitration award based on an arbitrator’s evident partiality must object during the arbitration proceedings. Failure to do so results in waiver of its right to object.  Dealer Computer Services, Inc. v. Michael Motor Co., Inc., 11-20053, 2012 WL 3317809 (5th Cir. Aug. 14, 2012).

The district court found that rule that an objection must be made during the proceedings “paradoxical [because] if the arbitrator completely failed to disclose a potential conflict, the objecting party could not know about it in order to object.” But the Fifth Circuit noted that the arbitrator had at least generally disclosed that she had been in an earlier arbitration involving one of the parties.  That was found to be sufficient to provide notice to the objecting party. The Fifth Circuit upheld the award.

Because many courts are willing to define “evident partiality” to include unrevealed relationships with a party, this is one of the more promising grounds for vacating an award.  That law – and the ethical rules – keep diligent arbitrators making disclosures of just about anything that could cause their neutrality to be questioned.

Refusal to hear evidence

This ground seems to be at the heart of some arbitrators’ apparently limitless patience in hearing evidence of dubious value.  Arbitrators often simply take evidence “for whatever relevance it may have, if any,” to be determined later so as not to be accused of refusing to hear evidence.  Still, this ground is not as promising for getting an award overturned as one might suppose.

First, a party would have to show the evidence is “pertinent or material” not just that the arbitrator refused to consider all the evidence proffered.   Second, in AAA Commercial arbitrations, for example, the parties have agreed to the AAA rules which specifically give the arbitrator the power to “determine the admissibility, relevance, and materiality of the evidence offered and may exclude evidence deemed by the arbitrator to be cumulative or irrelevant.”  Rule 34(b).  Given that the parties typically will have agreed to these rules, the arbitrator would have to have fairly blatantly abused this authority for it to become a real issue.

But his ground has recently been applied in a fairly high profile case to vacate an award.  In National Football League Management Council v. National Football League Players Association, No. 15 Civ. 5916 (S.D.N.Y. Sept. 3, 2015), the district court vacated the arbitration award of the NFL Commissioner suspending quarterback Tom Brady for four games over the “inflategate” controversy.  In so doing, he noted that Brady’s counsel had sought to call for examination Jeff Pash, an announced co-lead investigator of the allegations against Brady.  Instead, the Commissioner, serving as arbitrator, refused to compel his examination, finding it would be cumulative of other evidence already submitted.

The court found denial of an opportunity the examine Mr. Pash was fundamentally unfair and violated the FAA.  While recognizing an arbitrator has authority to exclude cumulative evidence, the court found he could not simply do so ipse dixit without indicating “in what respects it would be cumulative.”  The decision is on appeal.

Exceeding authority

Another ground that could be promising in the right case would be an arbitrator exceeding authority.  The arbitrator derives all power from the parties’ contract, so only issues the parties have given the arbitrator power to arbitrate may be decided.  Of course, the parties may expand this authority by actually arbitrating issues before the arbitrator beyond these agreed.  And note that, if the parties’ contract incorporates AAA or other rules, the arbitrator’s power will include those given in the rules unless the parties contract otherwise.

As pointed out earlier in this series, parties will not want to get too elaborate about what is or is not to be arbitrated so that the arbitrator’s authority is unclear.  Otherwise the award will be subject to attack on this ground.

This ground may also be raised to attack a late award.  Many rules or arbitration clauses require that an award be made within a certain amount of time, often 90 days.  Some late awards have been vacated because the arbitrator was without power after the time for issuing the award had run.

There is room for gamesmanship here, with parties complaining about a late award only after it is issued and they lost.  Some state arbitration statutes specifically require that an attack on a late award be made before it is issued.  The FAA does not, but that doesn’t mean the award will be vacated automatically if it is late.  Still, it is best to avoid all this by getting the award issued on time.

Other statutory grounds

The FAA’s other grounds for vacation are fairly esoteric and will not come up very often.  Hopefully, you have vetted your arbitrator or arbitrators during the selection process so they are unlikely to engage in misconduct or write incomprehensible awards.

There are other grounds for attacking awards that have been raised and considered over the years, which we will take up in the next article.

 

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Arbitrating the Patent Case Part XXI: Confirming the Award

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We have now arrived at a point in our discussion of patent arbitration where a party has won an award and wants to enforce it.  Now what?

It depends.  You may not need to do anything but speak to the other side.  In many cases, once there is a final award of money, the other side pays it.  Given the limited nature of review or arbitral awards, unless the parties have agreed to an appeal procedure, there is often very little reason to spend time and money on further disputes.  Presumably, the parties chose arbitration to save time and money.  They may simply agree it’s time to settle up and move on.

But what if your opponent doesn’t see it that way or if the award involves some sort of injunction you may need to enforce one day?  How do you collect and enforce?  The arbitrator can’t issue a judgment that can be enforced by a sheriff or marshal.  For that you need a court.

Finding the right statute

You will first want to consider what statute governs.  There are two possibilities: the Federal Arbitration Act (“FAA”) or a state arbitration act, which most states have.  The FAA generally pre-empts state law in cases involving interstate commerce, which your patent case almost certainly will.  Easier yet, Congress said the FAA governs patent arbitrations. Recall from an earlier article in this series that 35 U.S.C. § 294 specifically allows arbitration of any dispute relating to patent validity or infringement and that the arbitration is governed by the FAA. (You can find that article at http://daveadr.com/2015/05/21/arbitrating-the-patent-case-part-ix-statutory-provisions/.) So you will almost certainly look to the FAA.

Finding the right court

Next, you will want to consider which court to go to.  Federalism can be confusing, so spend some time figuring out the particulars of your case.  I’ll skip ahead and say the answer is almost always the federal court in which you held the arbitration or in which the losing party resides, but getting to the answer takes some doing.

While the FAA pre-empts state law, it doesn’t automatically confer jurisdiction in a federal court.  For that you need to find an independent source of federal jurisdiction. Often that will be diversity jurisdiction, requiring citizens of different states and over $75,000 at issue.   28 U.S.C. § 1332.

Another obvious source of jurisdiction is 28 U.S.C. 1338 that confers original jurisdiction in federal district court “of any civil action arising under and Act of Congress relating to patents . . .” But be careful. Fairly recently, the Federal Circuit, albeit in a non-precedential opinion, refused to hear an appeal from a district court’s confirmation of an arbitration award, noting that “[c]auses of action based on contractual rights in a patent assignment or license agreement as a general rule do not arise under the patent laws.” DeRosa v. J.P. Walsh & J.L. Marmo Enterprise, No. 2012-1401(Fed. Cir. 2013)( citing Luckett v. Delpark, Inc., 270 U.S. 496, 502-03 (1926)). The case was in federal court, so there was federal jurisdiction, but diversity was pled as the basis – not federal patent jurisdiction.

On the other hand, if a party can “establish[h] either that federal patent law creates the cause of action or that the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal patent law,” then federal jurisdiction will lie. DeRosa (quoting Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. 826, 830 (2002)). Presumably, a counterclaim for invalidity and other patent-related issues would establish patent jurisdiction in federal court

There are no reported cases I can find that authoritatively address all this, so do yourself a favor. You didn’t get into arbitration to get into the vagaries of federal jurisdiction under the patent laws. In many cases, there will be diversity, so rely primarily on that. If not, and the case involves issues of infringement or validity – which it usually will – rely on 28 U.S.C. § 1338 and 35 U .S.C. § 294. If not, consider state court.

Don’t forget the Director

Recall that Section 294(d) requires that notice of an arbitration award be given to the Director of the Patent Office for each patent involved. Until the Director receives the notice, the Award is unenforceable. The same goes for Section 135 if you have agreed to arbitrate a derivation proceeding. Of course, if the real issue is payment, and the respondent just pays up, this filing may be unnecessary. It could be that failure of a patentee to file an award might have some inequitable conduct implications if the decision involves validity issues, so I commend consideration of that to you if you are thinking of skipping this step.

Applying to the court

Once you have figured out the right court, you will need to file an application – often styled a “petition” – to confirm the award. As noted, despite the complexity of federal jurisdiction over patent matters mentioned above, that court will usually be the federal district court in the jurisdiction where the arbitration hearing was held or where the loser resides. The FAA provides the basic procedure for confirming the award at 9 U.S.C. § 9. Basically, you have to apply to the court within a year to confirm the award. The court must confirm it, unless the award is vacated, modified, or corrected, pursuant to sections 10 or 11 of the FAA.

Because the statute is fairly general, naming and crafting the pleading you file isn’t a standard thing. Generally, you will want to file an application or petition to confirm that states the basis for the Court’s jurisdiction, summarizes the Award, and seeks that the award be confirmed and judgment be entered. The name probably doesn’t matter, but the statute says you “apply” for confirmation, so I’d call it the pleading an “Application for Confirmation of an Arbitration Award.”

Normally, you will attach the arbitration demand, any answer and counterclaim, and the Award itself. But check local practice and local rules for the particulars. And, of course, you will need to obtain a summons and serve it and the application on your opponent. If your arbitration agreement requires the proceedings to be kept confidential, you will need to determine what exactly is confidential and how to file confidential information, which may include the award itself, under seal.

You will next need to bring a motion to confirm the award. Again, check local rules and procedures on how to do that. If the motion is not contested, you will have your award confirmed and a judgment entered that can be enforced like any other judgment.

But it is not uncommon for your opponent to seek to vacate the award and avoid its confirmation. We’ll take that up in the next article.

Efficient Arbitration Part VI: Discovery Motions

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In this series of articles we have been considering ways to make arbitration more efficient and inexpensive, while maintaining a fair opportunity for both sides to present their case.  We first focused on discovery in general, noting that the flexibility of arbitration can help provide ways to obtain necessary information while avoiding the expense of court-like discovery.  We then dealt with issues of non-party discovery and then took up dispositive motions, other areas of possible unnecessary expense.  We now arrive at discovery motions.

Discovery motions in general

For the first part of my career as a civil litigator, discovery motions took up much time and effort.  After serving and negotiating over elaborate requests, the parties would often reach an impasse and move the discussion to the court house.  The parties would prepare elaborate briefs with citation to the rules and citation to somewhat similar cases to justify the request for information or to justify a refusal to provide it.  Since knowledge is power, the side seeking the information was convinced the other side was holding out, hiding key information that would be the key to the case.  The party opposing discovery was often convinced the other side was simply trying to spend it to death.  And so the fight carried on.

In many courts, magistrates and judges now take a different approach to the whole matter.  They first require a letter-brief or phone call to go over the issues and resolve them more informally.  This is not uniform, but is becoming more common around the country.

Arbitrators have always had this tool available and use it all the time.  Perhaps we should use it more and use some other available tools as well.

A holistic approach to discovery and motions

AAA Commercial Rules require the arbitrator to (as I have noted in a couple of these articles) “manage any necessary exchange of  information among the parties with a view to achieving an efficient and economical resolution of the dispute, while at the same time promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defenses.”

I have found the best way to make discovery efficient is to take it up at the first conference.  And in some detail — not just generally.  The parties and arbitrator can discuss the sort of discovery the parties contemplate and then set a deadline for completing requests and answers.  Here is an example:

The parties shall serve their written requests for documents by November 1, 2015.  The parties shall provide their responses to those requests and responsive documents by December 2, 2015.

Setting the dates is generally preceded by a discussion of what type of discovery, if any, is necessary for each side.  We also discuss the time realistically needed to complete the request and response.

Anticipating that the parties may not completely agree on what it or the other party actually needs to “fairly present its claims and defenses,” I usually provide an informal process for resolving that. I build in a time for a party to obtain arbitrator input on the request, if a discussion with the other side doesn’t resolve the issue, by addressing what more it believes it needs in a letter to be provided by a set date.  The other side has a week or so to respond, and the first party may reply if necessary.

Some arbitrators prefer a brief conference call to use of letters.  But to assure that necessary information is available without breaking the bank, it can be important to allow each side an opportunity to present its position, albeit concisely, in writing.   Normally, the relatively short letters provide enough information to decide whether the discovery makes sense or not. But if not, a quick conference call can usually clear things up.

Importantly, the pretrial order should also make it clear that court-like discovery motions are not allowed, and this more informal procedure should be followed instead.

Planning and discussion – not motions

So really, there is no need for formal discovery motions in arbitration. Instead, discovery planning should set the basic contours and dates of information exchange.  This is then followed by an informed discussion about the extent of discovery that must be provided.  That way we can balance the cost of getting the information with the need for getting it.

This is all not to say that all these issues are easy or can be treated superficially.  Arbitrators are, for example, required to respect attorney-client privilege, which can involve some fairly complex issues in some cases.  And discovery of electronic information can become technically challenging. But this more informal process suffices for most discovery issues and provides the background needed to know whether there is a need to explore some very specific issues a little further if they arise.

Arbitrating the Patent Case Part XX: Post Hearing Motions

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The hearing in your patent arbitration is over, the briefs are in, and you receive the award.  Let’s assume it is not what you hoped.  Not bad, but not great either.

You asserted two patents.  The arbitrator found no infringement of the first patent based on a claim construction you think is just plain wrong.  You are certain the arbitrator relied on a particular embodiment shown in the specification of the patent to limit a broader claim term.  You are disappointed because your arbitrator is quite experienced, having been a patent litigator for twenty years. Still, there it is.  While the arbitrator said in her award she was using the specification to interpret the claim, you are convinced she used it to limit the claim.  While this is a pretty subtle distinction in some cases, you don’t think it is in yours

You did prevail on the second patent, but you are a little disappointed in the amount of damages.  While you would have preferred lost profits on lost sales – who wouldn’t? – you were happy with the royalty rate.  But you think the base is simply mistaken.  This issue was a little confusing during the hearing as there were a few different products that you claimed infringed the patent, but you are confident she either missed a year of sales or one of the products.  There seems to be no other explanation for the amount.

You also question the pre-judgment interest award.  Your proposed amount was based on sales under both patents and for all products.  The amount awarded is, of course, less than if you won on everything, but after checking with your expert, you think the prejudgment interest calculation appears too low and appears uncompounded even though your opponent didn’t object to compounding.

Overall, you think the award is pretty favorable, but not as favorable as it could be.  If this was a trial, you would bring post-trial motion to straighten things out or at least set the stage for an appeal. There is enough at stake to do that.

But, because this is an arbitration you wonder what your options are.  Where do you start?

The rules

Your first order of business is to see what set of rules you are under.  Let’s assume AAA Commercial Rules apply.  The rules specifically address the type of post-award requests you can bring.  Rule 50 provides:

Within 20 calendar days after the transmittal of an award, any party, upon notice to the other parties, may request the arbitrator, through the AAA, to correct any clerical, typographical, or computational errors in the award. The arbitrator is not empowered to redetermine the merits of any claim already decided.  (Emphasis added.)

Is that it, you wonder?  It is.  To understand why, let’s revisit what arbitration is all about in the first place.  The idea of arbitration is to have a knowledgeable decision maker consider and decide a private dispute.  And the process is to be fairly quick, inexpensive and informal.  Thus, by design, there are not to be complex motions, review, and appeal.  Decisions are to be fast, fair and final.  So it is little wonder that the typical post-trial motions available in court are not available in arbitration.

What can be corrected?

With that background in mind, how do your issues stack up in terms of being eligible for post-hearing consideration?

The infringement issue likely provides little hope. The arbitrator has determined the merits of the dispute and found no infringement for one patent.  This was not a matter of a clerical, typing, or computational error.  The arbitrator couldn’t revisit the issue even if she wanted to. If she did, she may be operating outside her authority, which is one of the few grounds for vacating an arbitration award in court.  Save your time and money.  Efficiency and finality will trump you urge to reargue this issue.

What about the mistake you think was made on the royalty base?  That shows   more promise.  If the arbitrator truly made a mistake and overlooked a year or a product, you may well obtain some relief.  Hard as they try, decision makers sometimes do make errors, particularly in situations where accounting can become somewhat complex.  If the arbitrator concludes she “added it up wrong,” she will fix it.

The same is true for the pre-judgment interest award.  If it truly is just a computational error, or maybe even a typo, the arbitrator will likely fix it.  If, on the other hand, it is based on a finding that, for example, a lower interest rate should apply based on the evidence presented, it will stand.

Avoiding the issue

This is probably a good time for some advice on presenting computations in a patent arbitration.  Your side likely has the benefit of a trained accountant or, in a bigger case, even a forensic accounting expert with access to programs and information allowing fairly sophisticated calculations.  The arbitrator probably does not.  Thus, you are far more likely to avoid mistakes if you break your damages down into smaller categories, depending on how the underlying substantive decisions could go.  If, for example, there is an issue whether or not three products infringe, you would want to separate out your proposed damages by product in the event the arbitrator finds some but not all products infringe.  That makes it easy to add up.

The same would be true for prejudgment interest calculations which can become pretty complicated pretty fast, particularly if there are different interest rates for different years and compounding is involved.  The arbitrator is more likely to get things right if you provide the tools to allow him or her to do so.

Think of it as having the arbitrator take a multiple choice test on damages rather than an essay test.

Next up

We will next take up confirming the arbitration award.

Arbitrating the Patent Case Part XIX: Closing

shutterstock_68724649In earlier articles in this series, we have gone from considering what types of patent cases are most amenable to arbitration to many specifics of the hearing itself.  We have now arrived at the final article, the closing. I suppose this is fitting as we also close this series with this article.  So, let’s consider final arguments and post-hearing briefing as well as related considerations.

Closing.  In less complex arbitrations, it is common to simply have closing arguments right after the end of the testimony.  This is the most efficient way to approach the matter.  After the arguments, the arbitrator will announce the record is closed and the decision (which in “arbitration-speak” is the “Award”) will be issued, typically, within 30 days.  This saves time and money, but may not be the most effective way to proceed in a patent arbitration.

Waiving a closing.  Occasionally, parties may consider waiving final arguments.  Be careful.  It is the rare case where counsel should forego the opportunity to explain and clarify some factual, technical or legal issue.  And it is almost always helpful to have counsel put the evidence in context.  Closing argument also gives the arbitrator or panel a chance to ask questions and ask for clarification of issues, which in turn gives counsel a chance to determine what particular issues the arbitrator is wrestling with and deal with them.  None of this can happen without final arguments.

Timing.  One of the advantages of arbitration is that the final arguments need not be held immediately after the completion of testimony.  There isn’t a jury waiting impatiently to have the case over and be excused.

A typical patent arbitration hearing is quite fast paced, with evidence coming in quite a bit faster that it would during a trial, often with longer days and fewer breaks.  Counsel is typically working pretty hard getting the testimony in order, so the need to prepare – or at least revise and refine — a closing argument during the hearing is an added burden counsel may prefer to avoid.  Thus, counsel may well agree that a separate session for closing is a sensible way to proceed. Also, the quality of the closings will usually improve with a little more time to prepare.

It is important, however, not to delay the conclusion of the hearing unduly by postponing the closings, particularly when coordinating schedules for the final session may be a problem.  In many patent arbitrations, this does not present a practical problem because the parties will want to prepare post-hearing briefs in any event.  If that is to take place, then it makes sense to have the closing shortly after the final briefs are in.

Alternatives.  Depending on how the hearing went, it may or may not be necessary to have formal arguments during which everyone gathers together again.  Some cases are more efficiently handled by having the briefs filed and then simply having a phone call or video-conference during which counsel can make the summary remarks they think necessary and during which the arbitrator or panel can ask questions.  Larger, more complex matters may justify a fuller presentation.  The exact nature of the presentation that will be the most efficient and effective can be determined at the close of the evidence in conference with counsel and the arbitrator or panel.

Post hearing briefing.  Most patent arbitrations will benefit from some sort of post hearing briefing. This is not always a given, though.  You will always want to consider whether there actually is a need for more briefing.  Typically, the parties have addressed the applicable law in pre-hearing briefs and it may be that none of that has changed. It may be that the issues have developed clearly enough at the hearing that there is no need to rehash them in yet another brief.

But that is often not the case.  In many case the issues evolve and the focus may even shift from what was anticipated by the pre-hearing briefs as the result of the testimony and evidence at the hearing.

If post-hearing briefs are deemed useful, the nature of those briefs will, of course, depend on how the issues have developed.  Generally, the brief provides a good chance to direct the arbitrator to the exhibits and testimony you think most important.  While the arbitrator or panel has heard the evidence and read the exhibits, this is counsel’s chance to put final emphasis on those most important to them and put them in context.  Similarly, counsel will want to provide and explain the law the arbitrator needs to know in light of the evidence that has been presented at the hearing.

Many arbitrators will give you a list of points, often legal or application of law to your facts, they would like you to address in your briefing.  You may even want to ask the arbitrator or panel if there are any points they particularly would like to see covered if they don’t volunteer a list.  You may not be thrilled with the implication of all the question, but you should welcome the insight.  It is a great advantage to understand any areas of concern so you can address them.

Order of briefs.  It is common to have parties provide simultaneous post-hearing briefs.  I no longer routinely embrace this practice.  Too often, it seems as though these briefs are like ships passing in the night.  Since it will typically be the claimant’s burden to prove its case, it often will make more sense for the claimant to go first.  The claimant may have decided to pursue fewer issues in light of what happened at the hearing than you would have supposed from the pre-hearing briefing.  This will help focus and narrow the case and those issues that need to be addressed in the response.  Generally, the claimant should have a chance to file a brief reply to respond to any new matters raised in the response.

If invalidity or another affirmative defense on which the respondent bears the burden of proof is prominent in the case, you may want to have simultaneous briefing, but have the party with burden of proof file the first brief on the issues on which it bears that burden.  The best approach will often be apparent by the time the evidence closes.

Page limits. Short page limits seem to be all the rage these days.  The idea is, I suppose, the less said the less there is to decide and the more efficient things will be.  But it doesn’t always work out that way.

Some legal issues or factual matters don’t lend themselves to summary, superficial treatment.  If the page limits don’t allow full treatment of important issues, the briefs don’t really help very much.  The arbitrator may then find him or herself having to dig through the law to discover the actual nuances and specifics of the law as necessary to decide the issues presented.  It is far better that counsel have a fair chance to explain all that needs explaining.

Generally, I find it adequate to suggest to counsel that they take the pages they need to make their point.  I have yet to have a situation where counsel doesn’t recognize that putting in a brief that is more a filibuster than an explanation is more harmful than helpful.  Counsel voluntarily limit themselves accordingly.  Having said that, if counsels are adamant that they want page limits, I am happy to hear their suggestions and put something reasonable in place – together with margin requirements and typeface and size requirements – if it makes everyone feel more at ease.

Planning ahead.  With the above in mind, you will want to start thinking about how closings and briefing will proceed in your next patent arbitration before you get to the hearing.  If you are going to be expected to do a closing right after the testimony finishes, you will want to know that so you can prepare.  As noted, issues as to briefing will be usually be ironed out before the close of the hearing.  But you will want to have thought through what will be most efficient and effective so you provide your views to the arbitrator.

Next up.

            We will next turn to post-award motions to the arbitrator.

Efficient Arbitration, Part V: Dispositive Motions

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In earlier articles in this series we addressed the main thing that makes arbitration expensive: discovery.  We then suggested some strategies for balancing the need for information with the expense of getting it.

We are  now going to move on to another area of expense in arbitration: motions.

Motions in general

It seems as though civil litigation has become an endless series of motions.  First, comes a motion to dismiss, now more viable in light of heightened pleadings requirements imposed in Bell Atl. Corp. v.Twombly, 550 U.S. 544, 579 (2007) and cases following it.  Next comes a series of discovery motions.  These are likely to become even more common as the courts work through the new “proportionality” analysis put in place by recent amendments to the Federal Rules of Civil Procedure.  Then come the summary judgment motions, where the Court has a “trial on paper” to see whether all or part of the case can be knocked out or established.  These will be followed in many cases by Daubert motions where experts’ opinions and methods are challenged, possibly leading to a failure of an element of proof for one party or another.  Although that usually doesn’t happen.  Then come motions in limine followed by a trial, with other evidentiary and procedural motions during trial.  After a verdict, there will be more motions seeking to knock out the verdict or parts of it.

No wonder trials are so expensive.  Motions require lots of work by the lawyers and lots of effort by the court.

Motions in arbitration

It is, of course, tempting for lawyers who are accustomed to working in court to seek to bring all these motions in an arbitration, or at least as many as they can.  Every motion provides some promise of achieving a great advantage for the moving party, possibly knocking out all or part of the opponent’s claims, establishing all or part of the claims in its favor, or at least “educating the decision maker.”  But usually the dispute remains, and a hearing is needed

So it is tempting to “just say no” to motions.  They often do little to move things forward, take up quite a bit of time, and are very expensive.  Let’s just get to the merits, some say.

But what about those cases where the claimant just doesn’t have a claim or the respondent really has no defense?  They may be rare.  But it would be a tremendous waste to go through a lengthy hearing on the merits only to have the arbitrator conclude that the claim fails as a matter of law, is barred by a statute of limitations, or something of that sort.  So the possibility of some sort of motions in arbitration shouldn’t just be dismissed out of hand.

Dispositive complications

Certain types of motions appear problematic in arbitration.  Take a motion to dismiss for failure to state a claim.  The general standard under the Federal Rules of Civil Procedure is whether the complaint contains “enough facts to state a claim to relief that is plausible on its face” and contains facts with enough specificity to “raise a right to relief above the speculative level.”   Bell Atl. Corp. v.Twombly, 550 U.S. 544, 579, 555 (2007).  But arbitration demands aren’t subject to the same pleadings standards as complaints under the Federal Rules.  For example, an arbitration is commenced under AAA rules by the claimant filing a demand for arbitration which must contain names and addresses of the parties, a statement setting forth the nature of the claim including the relief sought and the amount involved.  AAA Commercial Rule 4(e).  There is no further pleading requirement and no other standard to measure the “pleading” against.

And, while arbitrators have the power to exclude irrelevant evidence, it is still one of the grounds for overturning the award that the arbitrator refused “ to hear evidence pertinent and material to the controversy . . .”  9 U.S.C. § 10.  A party who is foreclosed by a dismissal on the “pleadings” – whatever those would be in an arbitration – before there is even a hearing is likely to be convinced it was not afforded a reasonable opportunity to present evidence.

A motion for summary judgment raises similar concerns.  Again, Rule 56 of the Federal Rules of Civil Procedure provide some fairly detailed guidance on the evidence to be considered on a motion for summary judgment, what the standard for granting the motion is, and the like.  There are no such rules in arbitration,.  But the AAA Commercial rules do now explicitly allow for “dispositive motions.”  R-33.

Cost vs. Benefit

The key to all this, like many things in arbitration, is to do a careful cost/benefit analysis.  In fact, AAA Rule 33 requires the arbitrator to do that before he or she allows a dispositive motion.  The arbitrator may only allow a party to file a dispositive motion if it can first show “the motion is likely to succeed and dispose of or narrow issues in the case.”   Thus, the real issue is whether a party has or can develop facts to support a claim  or defense so there is any point in having a hearing.  A party could well support or oppose such a motion with affidavits and documents,  just as one would in court.

Of course, it may well be that a party has a reasonable basis to believe it can prove certain facts, but will need a chance to review the opposing parties’ documents or other information before doing so.  The arbitrator  must then “ manage any necessary exchange of information among the parties with a view to achieving an efficient and economical resolution of the dispute, while at the same time promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defenses,” as AAA Commercial Rule 22 requires.  Thus, before entertaining a motion to dismiss or for summary judgment of a claim or the whole case, the arbitrator must be sure the parties had adequate information available to fairly present claims and defenses.

Putting it all together, then, before entertaining a motion to dismiss the arbitrator needs the moving party to make a showing that such a motion could actually increase the efficiency of the proceedings.  Similarly, depending on the case, the arbitrator will need to be sure the party opposing the motion has had sufficient access to necessary information to address such a motion.  While there can be room for disagreement on these issues, requiring consideration of them before allowing a motion assures that expensive motions aren’t just filed willy nilly, unnecessarily increasing the expense of the arbitration.

Thus, a motion to dismiss based on an applicable statute of limitations,  particularly where there are no underlying factual disputes, could be a good candidate.   Similarly a motion to dismiss a claim because it is not recognized under applicable law is another good candidate.  Similarly, a motion based on undisputed facts that establish a right to relief, rare as that may be, could be a good candidate.  Motions that are likely to have underlying factual disputes won’t be good candidates.

The point is to “do the math.”  Does undertaking the expense of the proposed motion likely to add up to more efficiency or not?  If so, the motion should go forward.  If not, just move on to the hearing on the merits.

Generally, I have found that the possibility of a motion often comes up at the preliminary scheduling conference.  As often as not, both parties will recognize that it is a good idea to get a legal issue that could determine the outcome of the matter decided before spending time and money on the other aspects of the case.  The parties then can focus on exchanges of information and positions efficiently focused on the threshold issue, often saving time and money.

Next up; discovery motions

Efficient Arbitration, Part IV: Non-Party Discovery

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In the earlier articles in the series we addressed the main thing that makes arbitrations expensive: discovery.  As arbitration expanded over the years, many lawyers who were used to litigation-style discovery got involved. They demanded – and often got – litigation-style discovery with its attendant expense.  We have been exploring ways to get the parties the information they need to present their positions, but cut down on unnecessary expense and effort in getting it.  This includes limiting document discovery and e-discovery to the specific needs of the case and limiting depositions to those that are actually necessary.

So far we have been focusing on discovery between or among the parties to the arbitration.  We now take up non-party discovery.

There are a few things to keep in mind at the outset to help you plan any needed non-party discovery.  First, arbitrators have subpoena powers, but they are not the same as courts’ powers, and the power differs among jurisdictions.  Second, arbitrators can’t enforce subpoenas.  Courts must do that.  Third, because of the first and second things, some creativity may be necessary.

Arbitrator subpoena power in general

Most commercial arbitrations will be governed by the Federal Arbitration Act (“FAA”) because the issues typically involve interstate commerce.  The FAA preempts state law.

The FAA provides at 9 U.S.C. § 7 that arbitrators may “summon in writing” any person to “attend before them” as a witness and bring material documents.  The written summons is served in the same manner as a subpoena to appear and testify before a court.  So that is easy enough for arbitration hearings.  Arbitrators can issue subpoenas to require witnesses to appear and bring documents.

But what if they don’t appear?  The FAA also answers that in section 7.  The federal court in the district where the arbitration is being held can compel the attendance of the witness and can punish the witness for refusal to attend, just as if a court proceeding was involved.  Note the arbitrator can’t do that.  Arbitrators don’t have marshals, jails and the ability to charge fines.  But courts do.  The actual process to enforce the subpoena may be cumbersome, requiring a court filing and appearance.  But the power to subpoena is clear enough that witnesses will normally obey an arbitration subpoena.

Of course, not even a federal court can subpoena everybody anywhere.  Generally, a non-party witness can only be required to travel 100 miles, or within the state for a trial.  Fed. R. Civ. P. 45(c).  A witness outside that area isn’t subject to a subpoena issued by a court and also, presumably, not one issued by an arbitrator, either.

Discovery: documents

But what about discovery before the arbitration?  Different courts treat that differently.  For example, the Eighth Circuit has decided that the power of an arbitrator to issue a subpoena for testimony and documents implies the power to subpoena documents for review by a party prior to a hearing.  In the Matter of Arbitration Between Sec. Life Ins. Co. of Am. & Duncanson & Holt, 228 F.3d 865. 870-71 (8th Cir. 2000).

By contrast, the Third Circuit recognizes no such power. The only power explicitly stated in the FAA is to require a non-party to “attend before” the arbitrator and bring documents.  This, the court reasoned, does not allow a subpoena for pre-hearing document discovery.  Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 407 (3d Cir. 2004).  You will need to check the law of your jurisdiction to determine if a third-party document discovery subpoena is allowed.

But the courts in your jurisdiction may not have addressed the issue.  It will not be very efficient for you to take a trip to court and possibly an appeal to get it figured out in your jurisdiction.  This may affect you choice of location for the arbitration in your arbitration clause if you think that third-party document discovery is likely to be important.  Or you may be able to be a little more creative, as discussed below.

Discovery: depositions

The Eighth Circuit has ruled on documents but not witnesses.   An Eighth Circuit trial court, however, has concluded that arbitrators do not have to power to subpoena witnesses for discovery depositions.  The court reasoned that production of documents is less onerous and imposes a lesser burden than does a witness deposition.  ShlumbergerSema, Inc. v. Xcel Energy, Inc., 2004 WL 67647 (D. Minn. 2004).  Of course, in the Third Circuit, for example, a deposition subpoena likely isn’t any more available than document discovery since the subpoena has to be tied to an appearance before the arbitrator – not just discovery.  This issue is open in other jurisdictions. The bottom line is this: don’t count on non-party depositions in your next arbitration. You may be disappointed.

Other avenues

Interestingly, the Revised Uniform Arbitration Act does provides arbitrators the power to require prehearing depositions and documents production, at least in the Minnesota version.  See Minn. Stat. § 572B.17 (c) and (d).  So this might provide a route for non-party discovery depositions in jurisdictions that apply the act, although that may be preempted by the FAA. Recall that the FAA preempts state law on matter involving arbitration if the dispute involves interstate commerce, which most do.  You’ll have to check your state’s arbitration act and address the possible preemption issue.

Another possibility is for the arbitrator to hold a separate hearing to take the testimony of a non-party witness and review of subpoenaed documents.   The Second Circuit recognizes an arbitrator’s power to compel testimony and documents from a non-party at a preliminary hearing.  Stolt-Nielsen SA v. Celanese AG, 430 F.3d 567 (2d Cir. 2005). Thus, so long as the arbitrator is there, the testimony could be taken and documents provided at a preliminary hearing set up for the purpose of obtaining that information.

But consider this.  This is an expensive way to proceed that would require you to convince the arbitrator that the information is vital and this is the only way to obtain it.  And you still have the problem of a witness beyond the arbitrator’s subpoena power.  It may be possible to convene the arbitration, with the parties’ permission, in a place where the witness is subject to jurisdiction if the information is that vital.

Another alternative is to take the deposition and get the documents by agreement of the parties and witness.  If everyone agrees, the deposition can go ahead.  You can make it less expensive by taking it over the phone or by Skype or satellite.  Counsel for the parties are likely to agree to the deposition if both sides have some non-party discovery they think is important. Non-parties may be willing to cooperate if the issues are discrete and the process is not burdensome.

Efficient?

This all suggests that you may or may not be able to force non-party discovery in an arbitration.  You will want to think long and hard whether the information is really needed and is worth the cost of obtaining it. That will be on the arbitrator’s mind.  To once again quote the AAA Commercial rules, the arbitrator must seek to achieve “an efficient and economical resolution of the dispute, while at the same time promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defenses.”

The bottom line is, if the information is vital to a claim or defense and a deposition or document demand on a non-party is the only way to get it, an arbitrator will likely try to find a way to help a party obtain it.  If, on the other hand, a party is simply “fishing,” it is unlikely to get much help from the arbitrator.

Up next

Litigation-like things that add to the expense of arbitration are not limited to discovery.  We will take up pre-hearing motions next.