Tag Archives: arbitrate

Arbitrating the Patent Case Part VIII: More on the prehearing conference

shutterstock_221441725In earlier articles in this series we looked at the types of patent disputes most amenable to arbitration, what to look for in choosing an arbitrator or arbitrators for the dispute, relatively foolproof clauses to make sure the matter actually goes to arbitration without having to fight about it in court, arbitration clauses that may be useful in your patent dispute, and clauses to avoid or at least skeptically consider before using.  We have now taken up the prehearing conference, the event that shapes the course of the arbitration and determines how effective and efficient the arbitration will be. These usually are conducted by phone conference.

Key questions you need to answer are: how much discovery do you need, what kind of discovery do you need, are there pre-hearing matters that we should take up before the hearing, and how long we should schedule for the hearing.  To answer those questions, you will need to plan the basics of your case, from discovery to pre-trial motions, and from experts to other testifying witnesses. .

We first considered the types of discovery available and suggested that, particularly in a smaller case, the focus should be on the basics of the case: the patent, prosecution history, the specifics of the accused product, and the basic financials that go into damages or royalty computation.  While some cases might justify more probing discovery, we noted that in many cases, limiting discovery to the main custodians of relevant documents and limiting depositions to those needed to obtain information not available from documents is the way to go.  Indeed, one good approach to deciding whether to do a particular deposition should be to determine what expect to learn, what it will cost — including preparation, travel, taking the deposition, court reporter fees and the like — and whether there is an alternative, less expensive way to obtain that information.

Subpoenas.  Another consideration is whether or not non-parties have critical information that will have to be subpoenaed.  If so, you will need to factor in time for doing that and also research what you can and can’t subpoena in the jurisdiction you find yourself in.  Many courts allow you to subpoena documents, but do not allow pre-hearing depositions. You will have to check the law in your jurisdiction.  Your arbitrator won’t do that for you.   You may want to negotiate with your opponent and the third party to obtain a deposition that can be used at the hearing rather than subpoenaing the witness for the hearing.  Of course, not all witnesses will be within the arbitrator’s subpoena power, so you may need to rely on documents.

And remember that arbitrators cannot themselves enforce subpoenas.  Only courts can do that.  So you may need to build in time for that process if the third party is unlikely to cooperate.

Infringement and Invalidity Contentions.  There are other activities in a typical patent case to consider.  Among the most important is the exchange of infringement and invalidity contentions.  The AAA Supplementary Patent Rules address these and other matters, by mandating their consideration but not necessarily requiring them in every case. (You can find these supplementary rules in the rules section at adr.org.)  It may be that your case does not require a full exchange of this information depending on the nature of the dispute, but most cases will benefit from this type of exchange.  Thus, you will want to set some time aside to have an exchange of this information.

Claim ConstructionYou may also want to provide for a relatively early claim construction hearing, as usually happens in a federal court patent case.  But think this through.  Typically, claim construction hearings are expensive and require the decision maker to consider things in a relative vacuum.  In some cases, this may be unnecessary.  I have arbitrated patent cases where “claim construction” was simply another issue to be determined after the evidentiary hearing on all issues.  The technology was quite complex, but the disputes about the claims were relatively straightforward.  Claim construction was much better presented and ultimately decided in the context of all the evidence presented at the hearing.  Because there is no jury to instruct on claim construction, the decision could be made along with all the other issues in the case.

On the other hand, there are cases where claim construction is the real issue driving the entire case.  I recently had just such a case.  The parties agreed that the key to the dispute was the construction of two or three claim terms.  If that is so, focusing the early part of the proceeding to what is needed for claim construction may well save time and money.

The point is to think about whether a separate claim construction hearing would genuinely make the proceeding more efficient, or it would just add unnecessary expense. That’s the advantage of arbitration.  The process can be molded to the requirements of the dispute.

Invalidity.  A separate, early hearing on invalidity is another thing to consider.  Again, there may be cases where the real dispute focuses on validity of the patent or patents.  It may be that there is a serious question whether the patent involves patentable subject matter, particularly in light of the recent decision by the Supreme Court in Alice Corp. Pty. Ltd. v. CLS Bank Internat’l.  It may be that one party thinks it has uncovered some prior art that renders the patent invalid, or the on-sale bar applies.  Determining validity early on may determine the whole case and, again, avoid other expensive discovery.  But many cases won’t be amenable to that approach.   You will want to determine the expense of a separate proceeding versus the likelihood it will actually resolve the case without need for a full hearing on all issues.

Summary judgmentParties often want to bring summary judgment motions.  Think that through carefully.  Many arbitrators are reluctant to decide a case on summary judgment given the lack of an appeal on the merits in most cases.  In many cases, it would be less expensive to simply present the facts at the hearing rather than take the time to present all the evidence in briefs and affidavits, only to discover that there is an important factual dispute that needs to be presented and determined.

The AAA rules now expressly provide for dispositive motions.  But they condition their use upon the arbitrator first determining that “the moving party has shown that the motion is likely to succeed and dispose of or narrow the issues in the case.”  AAA Commercial Rule 33.    Thus, if there is a discrete legal issue that will dispose of the whole dispute or part of it, providing for summary judgment may be in order.  But if there are likely to be disputed facts or if the issue isn’t clear cut as a legal matter until it is informed by delving into the background facts, summary judgment motions are likely to be a waste of time and money.

To be sure, there are cases where it makes good sense to focus on the legal effect of clear cut facts and foreclose the need for an expensive hearing.  But you will want to be prepared to explain how that is likely to be true in your case if you want to include a summary judgment motion in the schedule for your case.

Up next.  In the next article, we will take a look at the role of experts and other witnesses in the patent arbitration.

Arbitrating the Patent Case Part VI: Arbitration clauses to watch out for

shutterstock_277481231In the last couple of articles in this series, we looked at arbitration clauses to use in patent cases.   These clauses will most likely be involved in license agreements, employee agreements, or product development agreements.  We noted that a good place to start is not simply the last arbitration clause someone in your office did, but rather the AAA Commercial Rules form clause.  You will then want to add the Supplementary Patent Rules, and then state the number of arbitrators and the location of the arbitration.  This should avoid most litigation over whether to arbitrate and what to arbitrate.  We explored a number of other possible additions, to fine-tune the clause such as keying the number of arbitrators to the amount in dispute, stating the qualifications for an arbitrator, limiting or ensuring certain discovery and the like.  We also explored some more usual possible provisions such as “baseball” provisions, where the arbitrator(s) must pick one of the Award amounts suggested by each side.

How much detail you want to put in the clause will depend primarily on whether you think it best to leave the exact process to a skilled arbitrator after you know more about the nature of the dispute, or whether you think it best to control everything you can about the process in the clause while you have a chance to do so.   Reasonable minds can differ on that.  I tend to be a little more in the trust-the-arbitrator camp, but it depends on the nature of the contract and the type of dispute you foresee.

There are some provisions that might seem at first like good ideas, but upon further analysis, may not be.  Let’s look at a few of those.

One type of provision you may see is one that limits the arbitrator’s power to “interpreting the contract,” and not deciding any issues under any statutes, common law or other matters.  This is a perhaps laudable attempt to narrow the issues, but it could have some real problems.  By limiting the power of the arbitrator in that way, you may be simply setting up part of the case for arbitration and the rest for litigation.  The last thing you want in terms of expense is a two-front war, so to speak.

Another provision to think long and hard about is a mandatory award of attorneys’ fees and costs.  While this may seem like a good idea at the time, it can skew the arbitration.  Sometimes parties have legitimate disputes that simply need to be decided by an objective third party.  If the price of doing that can be, however, paying the other side’s fees, the dispute about fees can sometime overwhelm the real issues in the case.  It also creates an opportunity for the side that is sure of impending victory – whether there is reason to be sure or not – to put more resources and expense in the case since they will be sure that will be on the other parties’ dime.  An alternative may be to give the arbitrator the ability – but not the mandate – to award fees to the prevailing party, trusting the arbitrator to be able to make the judgment whether the position taken by a party warrants an award of fees or not.

Another provision I have seen that raises some confusion is one that forbids the arbitrator from awarding “consequential damages.”  Without a better definition, you are creating significant ambiguities.  Drawing the line between direct and consequential damages is not always easy.  Do consequential damages include incidental damages – which are separately defined in the U.C.C. — for example?  How indirect do damages have to be to be consequential?  At very least, some more definition is needed.  And is it really a good idea to foreclose recovery for your client of what might be an expensive breach that causes real, albeit consequential, damages?

It is not uncommon for arbitration clauses to forbid an award of punitive or exemplary damages.  Again, be careful.  While the instinct to avoid a possible punitive damages award may be justified, what if you find yourself in a situation where your client would be justified in seeking such damages?  Do you want to foreclose that?  The normal reason people include such clauses is to make sure the arbitrator(s) do go off-track and make a large award of punitive damages that isn’t justified.  But consider that you have quite a bit of control in who is chosen as arbitrator. You can strike arbitrators you don’t have faith in, for example.  In the end you may decide this type of provision is alright, but think through it.

Another clause that I have seen allows discovery as if under the Federal Rules of Civil Procedure.  I suppose whoever suggested thought they may have won their last case if only they had more discovery or were worried they wouldn’t get enough discovery.  I find, however, that most people’s complaint about arbitration is that there is still too much discovery if the process is not well managed.  Thus, expanding discovery to the scope of the Federal Rules strikes me as abandoning the flexibility, efficiency and cost savings of arbitration.  If you are really concerned about not getting sufficient discovery, you would be better off saying the parties shall each be allowed X hours of depositions and that there will be an exchange of key relevant documents or the like.  Remember, however, that the rules already give the arbitrator the power to order exchange of necessary information.  You are probably best off spending your efforts picking an arbitrator you trust to properly control the discovery process than trying to micromanage discovery in a future dispute, the contours of which you can only make guesses about.

Finally, some arbitration clauses say that the Federal Rules of Evidence will apply at the hearing.  I can’t imagine that is ever a good idea.  Relaxation of strict evidentiary rules is an advantage of arbitration.  And there isn’t any harm in it. After all, the rules of evidence are designed primarily to keep irrelevant or unreliable evidence from a lay jury.  Here your fact determination is being made by a skilled arbitrator, who is generally a lawyer and quite familiar with what kind of evidence is relevant and reliable.  Indeed I, like many arbitrators, often remind counsel that the rules of evidence don’t apply, but that doesn’t mean that unreliable hearsay will suddenly be useful in deciding the case.  Unreliable evidence will be disregarded as, well, unreliable.  Thus, the parties will want to bear in mind that the point of the rules of evidence is to assure that only reliable evidence will be used to decide the case and present evidence that conforms to the rules to make their case more persuasive. But there is little danger a skilled arbitrator will base a decision on unreliable evidence.

Arbitrating the Patent Case Part III: Who should arbitrate?

shutterstock_266973992 In the first two articles in this series we explored the types of patent cases most likely to be amenable to arbitration, whether to opt for administrated or ad hoc arbitration, and whether to provide for a panel or a single arbitrator.   The next decision to make is what the qualifications of the arbitrator or arbitrators should be in a patent case.

Of course, one of the prime advantages of arbitration is the ability to choose a decision-maker who has expertise in the subject matter of the dispute.  In fact, because arbitration is governed by contract, you can provide for a particular background right in the arbitration clause.

So, what kind of expertise are you seeking in an arbitrator in a patent case?  Given the need for subject matter expertise, you will want an arbitrator who is very familiar with all aspects of a patent case.  I still remember years ago when I asked a federal judge at a pretrial in California what kind of Markman/claim construction  procedures he typically used.  He told me he didn’t use any.  That told me we were in for a difficult educational process with someone who probably wasn’t all that interested in mastering the intricacies of patent law in any event.  You can avoid that in arbitration – and should.

Of course, if you have a panel of three arbitrators you could, as suggested in an earlier article in this series, require that one arbitrator have a technical background, another a financial background, and a third experience in the arbitration process itself.   But you may not have the luxury of a full panel, so you may well want to seek an arbitrator with a background in all the important aspects of patent issues.

Subject matter expertise in patent law is, of course, a must.  You don’t want to spend a great deal of time educating an arbitrator about the intricacies of patent validity, enforceability, claim construction, infringement and the like.  You  need an arbitrator who has dealt with those issues for years of his or her professional life.  Thus, your arbitration clause may provide that the arbitrator(s) must have a minimum of ten or even twenty years of patent litigation practice and experience.

But knowledge of patent law alone is not enough.  Given that your case likely will arise from a license, development, or employment agreement, you will also want to see some familiarity with those issues, which will often turn on issues of contract interpretation.

Technical familiarity is also important.  While it may be too much to ask to have and expert in the specific technology in your case, familiarity with the industry and subject matter in general is something you probably can expect.  Your arbitrator may not, for example, actually be a programmer, but he or she ought to be generally familiar with software issues in a case involving a software patent.

The financial aspects of patent cases can also be complex.  Experience with patent royalties and other forms of damages will be a plus in knowing your decision-maker can easily follow the points you are making concerning the financial aspects of the case.

Don’t overlook the need for some familiarity with the discovery process, particularly electronic discovery. Discovery in arbitration is typically more focused.   But that means you want an arbitrator with more experience in that area rather than less. That will allow the arbitrator to make informed judgments about the need for particular types of discovery and balancing the cost against the likely importance of the information to the case.  Because electronic discovery can be extremely expensive, it will need to be carefully managed by an arbitrator who knows the issues and can weigh costs and benefits.

Perhaps the easiest thing to overlook is the need for considerable experience and expertise in managing the arbitration process itself.  Good arbitrators make this look easy. But in a typical arbitration,  procedural, evidentiary, and process issues arise that require careful management by an arbitrator who has “seen it all,” or at least most of the tough issues that can arise. How will the arbitrator deal with a witness that won’t answer the question directly? The lawyer who won’t quit leading the witness?  The lawyer who objects to every piece of evidence the other side seeks to present as “unfair?”  The party that keeps stalling in providing information?  The party that insists on presenting previously undisclosed evidence and witnesses?  Claims of and attacks on alleged attorney-client privileged information?  None of these issues are unusual in an arbitration.  And each must be dealt with by an experienced arbitrator to obtain the necessary information to decide the matter, but in an efficient way that remains fair to all parties.

As noted in an earlier article in this series, one of the advantages of an administrated arbitration is access to panels of experienced arbitrators and provision of detailed resumes for those arbitrators.  In some circumstances, there are even opportunities for providing questionnaires to arbitrators or even a chance for interviews of potential arbitrators – with both counsel present.

Of course, you don’t get to choose your arbitrator yourself.  Your opponent is also involved in the process.  For example, in a typical AAA process, the parties discuss with the case manager the qualifications they think the arbitrator(s) should have. The case manager then provides a list of candidates.  The parties then can strike or rank each arbitrator on the list.  The arbitrator or arbitrators with the best rankings from both parties is appointed.  Thus, each party has plenty of input into the choice of arbitrator, and careful consideration of what qualities you want the arbitrator to have is critical.

In short, subject matter, legal, and procedural expertise are all things you will want in an arbitrator in a patent case. And because you have quite a bit to say about who the arbitrator will be, are all qualities you can expect your arbitrator to have if you are careful about it.