Mediating the IP Dispute Part VI: Memorializing the outcome

In the first five articles of this series, we explored the initial phases of the Intellectual Property mediation session through the time when the parties appear to have reached a settlement.  In this final article, we will explore the importance of documenting the settlement as fully as you can right at the mediation  In fact, this is especially important in an intellectual property case.

Let us assume that you have mediated a case involving a claim of patent infringement and misappropriation of trade secrets, with a counterclaim of infringement of another patent.  The parties have reached a settlement in principal that will involve a payment for alleged past infringement of the patent and misappropriation of trade secrets, followed by a license of all IP for use in manufacturing the defendant’s product.  In addition, the defendant will provide a license to the plaintiff for certain patents, again pertinent to the products the plaintiff is actually manufacturing, and the license payments will offset the payments under the plaintiff’s license to the defendant.  Thus, everybody believes they know what they want and even know the amount of past damages to be paid, the licensing rate for both licenses, and the products that are at issue.

In some instances, the agreement will be set out in handwritten memorandum similar to a term sheet that both parties will sign. They will contemplate a more robust settlement agreement being prepared, but just don’t want to do it all now.  Is that a good idea?

I suggest it is not.  There are any number of details that arise in an IP dispute that must be considered.  A few examples include: If the license is limited, what is it limited to?  Everyone may agree it is only to cover the defendant’s present product, but how exactly will you describe it and what about future improvements?  The license will be expressed as a percentage of some sales number, but how exactly will you define that value?  Net sales?  Gross sales?  What about returns and rentals?  How often will license fees be paid?  What rights does the other party have to audit sales on which license fees are paid?

Similar issues arise regarding alleged trade secrets.  What is licensed?  What is not?  How are those to be defined?

Other issues often arise about the exact scope of the release and the res judicata or collateral estoppel effect of the settlement.  And of course the parties eventually become very interested in exactly when and how payment will be made.

In some states, mediation statutes require that certain disclosures be made.  See, e.g. Minn. Stat. § 572.35 (A mediated settlement agreement is not binding absent agreement it is binding, disclosures of mediator’s role and similar matters). Be sure to include them in the final agreement. Most mediators know to do this, but be active in making sure the agreement meets any such requirements.

Because the issues that can arise in IP cases are complex, you may be tempted to leave the “details” for later negotiation and finalization. Again, I suggest that is often not a good idea. All too often, it seems that the parties make assumptions about what the “standard terms” for any IP settlement agreement or license are. These assumptions, with which the other side inevitably does not agree, can change the tenor of the agreement and eventually lead to a battle in court over whether there was a settlement at all.

The best way to deal with settlements at mediation, I have found, is to do the following: (1) think through most of the issues that are likely to arise in a settlement and have a plan for dealing with them; (2) map out some sample language from other settlement agreements as to, for example, the royalty rate and base, timing of payments, product definition, etc. and bring it with you to the mediation, and (3) do the same for the scope of release, confidentiality and other aspects of the settlement important to your client. Armed with those resources and a laptop computer, you can, with the help of the mediator, produce something close to a final agreement.

Of course, in many instances, counsel will want an opportunity to do a fuller version of the agreement. To accommodate that, we have often put in mediated settlement agreements that the parties contemplate a more complete agreement. But we also provide that if they are unable to agree on the more complete agreement within two weeks, the mediated settlement agreement will become the final, binding agreement. Another alternative is to appoint the mediator as arbitrator to resolve any disputes as to the exact provisions of the settlement. This may be in order for particularly complex matters where it is simply impossible to fully “wordsmith” the settlement in the time available at the mediation.

Some mediators will not become involved in the details of the settlement agreement itself as a matter of policy, feeling this is something the parties should work out on their own. Others think it is part of their role to help the parties with all aspects of a final agreement as necessary to ensure there is a final, binding conclusion to the dispute. It is worth learning this about any potential mediator before deciding who to choose as mediator so you can plan appropriately.

One final thought. Actually spending some time to map out the details of a possible settlement agreement will be helpful to you and your client in preparing for the mediation. It helps put in place a settlement mindset and will help address issues that are important to you that should be dealt with at the mediation session. That is, after all, the best opportunity you will have to come to a reasonable business arrangement so that everyone can put litigation behind them and get back to business.

Mediating the IP Dispute Part V: The Session Continues

In the first four articles in this series we explored the importance of timing the mediation in intellectual property disputes, mediator selection, preparation for the mediation session, and the beginning phases of the mediation session itself.     We will now begin to address issues that may arise later in the mediation session.  As the session continues, the parties will begin to explore the structure of a settlement and will begin to trade offers.  It will often appear at some point that the parties simply will not be able to narrow the gap.  For the initial stages of trading offers, patience is the key.  No party ever comes straight to its bottom line, nor should it.  The discussions necessarily proceed incrementally.  But in some mediations the process of simply trading offers may become unproductive.

It isn’t at all uncommon for one party to feel that it has “moved more” that the other side, and the negotiation is becoming lopsided.  This feeling needs to be explored.  Often one side expresses movement in percentages, while the other expresses it in actual dollars, which nearly always leads to an imbalance in perceptions.  Of course, one side is also likely to feel the other side started unrealistically high or low, so their concessions and movements “don’t really count.”

At this point, the discussion needs to be redirected to the main purpose of the mediation: determining what a reasonable settlement range is for the case that both parties can live with, within a structure they can agree to.  As some very good negotiators have noted, the focus needs to be on what their side needs and can live with, not what the other side has given up.  In the end, every case presents opportunities and risks that need to be weighed, understood and valued.  “Doing the math” most often leads to the conclusion that a fair settlement is a better alternative than continued litigation.

It is not, however, at all unusual for it to appear an impasse has been reached.  This is the point where a tenacious mediator gets busy.  I have come to the conclusion over the last few years that it is often a necessary part of the mediation to reach what would appear to be an impasse.  Only then can some of the key underlying issues be examined and solved.

Rather than giving up, the mediator and parties need to focus on an aspect of the settlement they can agree to, re-evaluate where they have come and the risks and opportunities of the case, and address the emotional issues that may be getting in the way of “doing the math” to determine a path to reaching a fair resolution. Here are a few questions to consider:

• You know what you could settle the case for.  How much will it cost you to try it?   Don’t forget that time of management and key witnesses away from the company is also a cost.  Also, what is the opportunity cost of putting your energy into a trial rather than your business?  Now compare that cost to the offer and see how the equation looks.
• What are the various outcomes, what dollar value is associated with each, and how likely is each?   How does that compare to where you are now?  What would it be worth to have an insurance policy to avoid the worst outcome?  The other not-so-good outcomes?  How does that affect your evaluation of the situation?
• Who is your best witness?  Why?  Who is their best witness?  Who is your worst witness?  Who is their worst witness?  Why?   How much of your case hangs on whether your witnesses are believed?  Theirs?  How does that affect your risk?
• What are we missing?  You solve business problems every day, and this is just another one.
• What do you think the other side’s real interests are?  What are yours?  Very few people aspire to simply win a lawsuit.  There has to be something more here each party is after.
• Is there something about the other side’s position you don’t understand or don’t know about that could change your evaluation of the case and value of a settlement?  What is it?

Of course, which of these areas to explore, or whether to explore some completely different, will depend on the specific case, personalities and what you have learned at the mediation.  Remember, for example, that many IP cases involve counterclaims which provide the opportunity for cross-licensing and other creative non-cash exchanges of value. Changing the focus to look at things in a new way is often in order at some point in the proceedings.

Finally, with the parties’ consent, the mediator may make a “last-ditch” attempt to settle the case with a “mediator’s proposal.”  This is not the mediator’s own evaluation of how much someone will win or lose at trial, but rather what the mediator thinks the case should reasonably settle for given all the input he or she has had all day.  Generally, each side will agree to hear the mediator’s proposal and say “yes” or “no.”  If both say” yes,” there is a settlement.  If not, there isn’t, but the mediator does not reveal who said yes and no.  Of course, if one side said “yes,” it will know the other side said “no” if there is no settlement.  But, importantly, a side who said “yes” when there is no settlement is not setting a floor or ceiling for any further negotiation, as the other side doesn’t know whether or not it agreed with the mediator’s proposal.

But don’t rush to the mediator’s proposal too fast, as it normally ends discussion for the day.  It doesn’t always though.  A tenacious mediator may learn something from that process that will allow him or her to find a new path forward.

Mediating the IP Dispute Part IV: The Mediation Session

 

          In the first three articles in this series we explored the importance of timing the mediation in intellectual property disputes, mediator selection, and preparation for the mediation session.  Timing can be critical to a successful mediation.  It involves balancing the need to have enough information for the parties to intelligently discuss resolution with the cost of obtaining information through discovery or other means.  Next, we suggested that you demand no less than a mediator who is skilled and experienced in intellectual property cases and can also bring significant mediation skills and experience to the process.  Finally, we addressed the importance of careful preparation for the mediation session, including a pre-session exchange of positions and offers to allow the mediation session itself to focus on finding a solution that meets the interests and needs of the parties.

          We will now begin to address the mediation session itself.   As with all aspects of the mediation, the mediation session must be carefully planned to maximize the chance of success.

The first issue to address is the opening session with the mediator.  In some areas of the country, it is standard to have counsel or even the parties make opening statements so that each party can hear the other party’s side of things unfiltered through their counsel.  But be careful.  In many cases, the opening statement is primarily an attack on the other side, much like a closing argument in a trial rather than a thoughtful exchange of ideas and positions.  Unless done thoughtfully and carefully, opening statements can inflame the dispute, making resolution more rather than less difficult.

In other jurisdictions, shuttle diplomacy is used exclusively, with the parties never getting together in any way.  This may, in many cases, lead to a sense of distance from the dispute that is not productive.

I mentioned in Part III of this series of articles that one way to proceed is to have the parties provide their positions to the mediator and the other party in writing, obviating the need for using opening statements to exchange views and information.   That way the parties can engage in a more dispassionate analysis and understanding of the other parties’ point of view prior to the mediation session.  It can also allow the parties to begin to explore different and creative approaches to settlement that can be continued at the mediation session itself.   If this approach is used, the opening session may be spent with the mediator explaining the process and exploring with the parties and their counsel questions that may help the mediator and the parties better understand each parties’ positions and interests.   The tenor of this session should be informational rather than confrontational.

Of course, in some cases, opening statements and an exchange of positions may well be the best format for the unique needs of the case.  If so, this should be brought to the mediator’s attention well in advance of the mediation session.  The mediator can then explore the pros and cons of proceeding that way with counsel.

Generally, if the parties are well prepared for the mediation, the next few hours after the opening session will be occupied with the mediator helping the parties analyze the various issues in the case and understanding the strengths and weaknesses of the parties’ positions, both on liability and damages.  Alternatives to going to trial, with the costs and benefits of each will also be explored.

As soon as reasonably possible, the discussion should turn to the structure of any settlement. For example, in a patent case, the mediator will explore whether the  settlement should take the form of a payment for alleged past infringement with a license for future sales or use, a paid up license, a change in design, or another of the many opportunities for a business arrangement presented in the mediation.

It is important to identify opportunities for a business resolution that are not available in court.  For example, it is not at all uncommon for the parties to have asserted infringement claims against each other.  If so, exploration of cross-licenses, covenants not to sue, design changes, or other possibilities may present themselves.  Resolution of invalidity challenges as part of settlement often presents a further area for discussion and agreement.  Again, the key is careful work before the mediation session itself to allow the participants to begin to understand what settlement format is most likely to be in both parties’ interest.

Trademark cases also can provide any number of settlement possibilities. These include changing the appearance, design, or use of the mark to avoid confusion; resolution of challenges to the validity of the involved mark; providing time to discontinue use of a particular mark; and a host of other business solutions available in mediation but not in court.  Similar possibilities present themselves in trade secret and copyright cases if the parties and mediator are well prepared and able to be receptive to new ways to resolve the dispute.

At some point, of course, the discussion must turn not only to the structure of the settlement but also to the final dollar amounts and other concrete aspects of the settlement.  It is not at all uncommon for it to appear in the middle or toward the end of the mediation session that the parties are at impasse on these issues.

In Part V of these articles we will begin to explore the later stages of the mediation session, including how to deal with apparent impasse.

Mediating the IP Dispute Part III: Preparing for the mediation session

In the first two articles in this series we explored the importance of timing the mediation in an intellectual property dispute and mediator selection.   Mediating too soon can mean there is too little information to allow an informed settlement decision.  Mediating too late can mean unnecessary expense and entrenched positions.  We further explored how the nature and stage of the case can help you to make a better timing decision.  Next we focused on mediator selection, suggesting that you demand no less than a mediator who is skilled and experienced in intellectual property cases and also one who brings significant mediation skills and experience to the process.

We will now address the next critical step of the mediation process:  preparing for the mediation session. No two disputes are alike, so the process should be molded to fit the problem and the unique issues in the case.  But a few general principles emerge.

            One approach that seems to work well in many cases, and particularly well in IP cases, is to focus the parties on the issues through the exchange of mediation statements, sharing with the opposing party and the mediator your side’s assessment of the case and settlement value of the case, as well as an exchange of opening offers.  This process can be enhanced by encouraging the parties to provide a confidential and candid statement to the mediator of any other issues or concerns a party believes would be appropriate to help the mediator understand the dispute and find ways to guide a settlement.

The flexibility of mediation can also be realized by helping the mediator explore various settlement options that wouldn’t necessarily be available in court including licenses, cross licenses, covenants not to sue, entry into a mutually beneficial supply relationship, and other creative solutions.

The key virtue of the exchange of positions in advance of the mediation is to forego the time — and often unproductive emotions — generated by the first exchange of positions at the mediation itself.  Exchanging written positions allows the parties to more objectively analyze the strengths and weaknesses of each party’s position and to begin to consider the “business case” for settlement.  Similarly, the exchange of offers before the mediation helps to avoid the often time consuming and frustrating games of who goes first, whether the other parties’ offer was actually made in good faith because it was too low or two high to be serious, and other distracting disputes that often arise as the mediation session begins.

In IP cases in particular, there is often a wealth of information the parties can make available to the mediator to help him or her understand the issues and guide the parties to a negotiated solution.   Depending on the stage the case is in, in a patent case for example, the parties often will have exchanged infringement charts, claim construction statements, invalidity charts, and expert reports on liability and damages.  There may be pretrial rulings on claim construction and other issues as well. Similarly, in a trademark case the parties may have exchanged survey reports and damages reports.  This background will enable the mediator help the parties objectively evaluate their risks and possible rewards to arrive at reasonable settlement value for the case.

Based on this preparation, the mediator may have questions or ideas to raise with the parties that will help move the parties toward a serious negotiation.  The mediator will often find it of great benefit to contact counsel for each party to begin to understand the dynamics of the situation and the human side of the dispute.

In short, the key to a successful IP mediation, as with any mediation, is careful and deliberate preparation that allows the parties to begin to understand and evaluate the business case for settlement.   Appended to this article is a sample mediator’s letter outlining the mediation process based on the mediation of a few patent cases in which I have been involved (changed, of course, so the parties and dispute are not identifiable.)  You might find it a useful checklist of matters to consider addressing in preparing for your next IP mediation.

April 1, 2014

Re:      Mediation:  Company v. Other Company

Dear Counsel:

The above-entitled matter is set for mediation at the offices of Lindquist & Vennum LLP, 4200 IDS Center, Minneapolis, Minnesota, at 9 a.m., on April 1, 2014.  Please come to the 42^nd floor and ask for me there.

Mediation Agreement

I have attached for your review the form of mediation agreement I use.  Please review it, execute it and send it to me by e-mail at dallgeyer@lindquist.com by March 15, 2014.  If you have any questions about the Agreement, please let me know.  Each side must have the actual decision makers for each side at the mediation.  The mediation cannot be successful without their attendance and participation.

Procedures at Mediation

Most parties find it helpful for me to outline the basic process I plan to use at the mediation.  I normally begin the mediation with all parties in the same room for my opening remarks and to allow the parties to address some questions I may have.  Please be prepared to address some questions as to the background of the case.

Normally, I engage in shuttle diplomacy using separate caucuses, although I am likely to bring the lawyers together at times and may bring the parties together if that would be productive.  Please let me know in advance of the mediation whether you have any strong feelings that opening statements would be productive.  I find they usually are not, but occasionally they can be useful in the right case.

Mediation Preparation and Materials

There are two things you must do before the mediation:  exchange settlement offers and provide background letters.

1.            Exchange of settlement positions.  By March 15, 2014, please exchange settlement offers.  That keeps us from taking time at the mediation to formulate initial positions.  If you have already had an offer, the party who has not responded yet to the last offer should go first.  If an offer has not yet been provided, plaintiff should go first.  If you want to involve me in passing the offers, please let me know.

2.            Mediation position letters (non-confidential and confidential). Please provide me by March 20, 2014, a brief non-confidential letter addressing the following:

a.            Brief factual background of the matter.

b.            Critical legal contentions.

c.            It appears that the parties may have exchanged claim charts and invalidity contentions.  If so, please provide those with your letter in their most current form.  Please address the key issues regarding infringement and invalidity and any other defenses in your letter.  Normally, this tends to boil down to a few important limitations or prior art references, so please concentrate on those.  (No one will be able to argue you have waived other positions by focusing on the key ones at the mediation.)

d.            Your damages analysis. (If any damages reports have been exchanged, please provide the summary portion of the report for your side).

e.            A summary of any settlement discussions to date and last offer and response.

f.             Any “nontraditional” approach to settlement that you would like to explore (e.g. some sort of business arrangement, receipt of or providing some sort of relief you would not be able to obtain in court, etc.)

g.            Please provide a copy of the basic pleadings you have filed (complaint or answer/counterclaims), any key orders affecting the merits, and any of your briefing you believe to be particularly useful to an understanding of the merits.

Please copy opposing counsel with the non-confidential letter.

Also, you may provide me at the same time a brief confidential letter.  The letter should address anything you are unwilling to tell the other side, but think will be helpful to getting the case settled.  Do not, of course, provide this letter to the other side.  I will keep its contents in confidence.

I look forward to working with you on April 1, 2014.

Sincerely,

Lindquist & Vennum LLP

David A. Allgeyer

 

 

 

Mediating the IP Case Part II: Selecting the right mediator

In Part I of this series of articles, we explored the importance of timing the mediation in an intellectual property dispute.   Mediating too soon can mean there is too little information to allow an informed settlement decision.  Mediating too late can mean unnecessary expense and entrenched positions.  We further explored how the nature and stage of the case can help you to make a better timing decision.

Once you have decided to mediate, you will need to agree with your opponents on the mediator.  The mediator for your IP case needs to be not only legally and technically skilled, but also skilled in conducting mediations.

One of the roles of the mediator is to help the parties test and explore their stance on the likely outcome of the case and strength of their positions.  A mediator with extensive experience in IP issues will be able to understand the issues and help the parties evaluate their positions.   In a patent case, for example, a mediator experienced in IP law will be able to understand the differences of opinion regarding likely claim constructions, the role of prior art, technical defenses based on indefiniteness, lack of enablement or written description, and a host of other issues typically arising in a patent case.  Similarly, a mediator who has actually tried a trademark case, been involved in Trademark Trial and Appeal Board proceedings or worked through the Abstraction-Filtration-Comparison test in a copyright case is in a far better position to help the parties evaluate the strengths and weaknesses of their positions and arrive at a reasonable and informed settlement.  A mediator who has not had these experiences may have a hard time keeping up with the parties’ positions.

But it is also critical that the mediator have significant mediation skills. Mediators are typically required to uncover, understand and weigh parties’ motivations, psychology and other human factors that underlie the litigation and settlement process.  After all, parties become involved in disputes not to satisfy some abstract legal principle, but because of their interests and their own view of fairness.  Being skilled at technical issues, the law and the human component of the dispute is a great deal to ask of one mediator.  But ask you must.  You best serve your client by identifying and using a mediator who can bring knowledge and experience in all these areas to bear on your case.  The more experience and skill he or she has in helping parties and their counsel work through all the issues and dynamics involved, the more likely the mediation will be a success.

Of course, the selection of the mediator is not up to you alone.  You will typically need to agree with opposing counsel on a mediator, although in some cases the Court may choose the mediator for you. That becomes more likely if you and your opponents can’t agree on the mediator.  In deciding who to propose as mediator or evaluating the other side’s proposals for mediators, focusing on skill and experience both in the subject matter and in mediation will be critical.  Proposing a mediator who has demonstrated those qualities makes it all the more likely the opposing party will agree with your selection.

Mediating the IP Case Part I: Timing

Intellectual property lawyers know three things for sure.  First, an intellectual property case, once filed in court, will almost certainly be taken though a settlement procedure at least once, either in the form of mediation or a judicial settlement conference.  Second, an IP case has a 90% or greater chance of settling rather than going to trial.  Third, your IP case will be very expensive to litigate.  This all suggests that we begin thinking about mediation of the case sooner rather than later.

But the timing of the mediation is critical.  Mediate too soon and the parties won’t know enough to make an intelligent business decision in deciding whether or not to settle the case.  How will the court construe the claims of the patent?  What sales or alleged infringing products are subject to royalties or damages?  Does the trademark at issue have secondary meaning?  What do surveys show about that and about likelihood of confusion?  Is there prior use of the mark by another?  Who owns the copyright?   Where have infringing works been distributed?  What are the damages likely to be?

Mediate too late and the parties will have significant “sunk costs” in discovery and motions that complicate the settlement process and harden the parties’ positions.

Each case will be different in this regard.  For example, if the construction of the claims of a patent by the court is at the heart of a patent infringement dispute, as it often is, it may be best to wait for the Court’s claim construction order so it is available to guide the parties’ assessment of risks and possible rewards from the litigation.  On the other hand, in some cases one or both parties might want to avoid claim construction and an upcoming ruling may be a catalyst for settlement, suggesting you mediate early in the case.  Similarly, in a trademark case, a pending motion for preliminary injunction will have a significant impact on the case.  Again, the outcome of the motion might be a catalyst for settlement.  In other cases, avoiding the injunction ruling may be a catalyst for settlement, depending on the case.

It is rare to have good data on potential damages early on in the case.  That often is easily remedied by the parties agreeing to an exchange of sales information early on, which is typically enough to give the parties enough information to analyze and closely approximate the likely damage range. Where damages are particularly complex, it might be that mediation should await exchange of damage expert reports.

In short, consideration of mediation early on is warranted in all IP cases. But it is critical that the parties carefully consider whether the time is right.

In the next installment of this series, we will look at choosing the right mediator for your IP case.