Tag Archives: arbitration

Arbitrating the Patent Case Part X: Experts


In earlier articles in this series we focused on the patent cases most likely to be arbitrated, formulation of arbitration clauses, and the prehearing conference.  We then took a slight diversion to examine federal statutes governing arbitration of patent matters.

Because the prehearing conference shapes the arbitration process, to participate intelligently you will need to think through your case in terms of needed discovery, other prehearing matters such as claims construction and invalidity contentions, and whether to plan for summary judgment in your arbitration.  All these things will affect the case schedule.

We now will focus on experts in patent arbitration, another matter you will address at the prehearing conference.

There typically are two likely candidates for experts in a patent arbitration: a technical expert and a damages expert.  It is possible that the case could involve technical issues of patent prosecution procedure or the like, in which case a patent prosecution expert may be considered, but in most cases that is unlikely.

Technical experts.  I would suggest that different considerations often come into play in an arbitration than in a jury trial when it comes to technical experts.  In many cases, the real experts in the technology are the inventor or engineers with one of the involved companies.  In jury cases, you may prefer to use a seasoned technical expert who is accomplished at testifying – perhaps a college professor who has the appearance of impartiality and impressive credentials.  This may not be as important in an arbitration where your arbitrator is likely to be an experienced patent lawyer or patent litigator who is most interested in the substance of the testimony and the familiarity of the expert with the particulars of the involved art.

Of course, the most important thing remains that the expert is knowledgeable in the art and has enough understanding of patent principles so that his or her testimony stands up on the merits.  Thus, you may find the most knowledgeable expert is the inventor or another engineer employed by your client. There is still the appearance of bias or interest to worry about, but the testimony is most likely to be judged based more on its substance in an arbitration.  This is good news if you are trying to avoid the expense of experts in an arbitration that is important, but doesn’t have millions of dollars at stake.

But remember, in the end, arbitrators tend to be more technically savvy and will credit the expert who is truthful, knowledgeable and can communicate his or her position well.  If your in-house experts do not fill that bill, you will need to look elsewhere.

Damages experts.  Damages experts are on a little different footing.  It may well be possible to use your client’s CFO or other accounting professional in a relatively straightforward case where the only issue is which sales are subject to the royalty.  But in a case that may involve issues of lost profits or the like, an accountant or economist with significant experience in determining damages can be important.  Questions of lost profits on lost sales, incremental damages and the like require application of legal and accounting principals that accountants not versed in patent damage law may not have mastered.  Your arbitrator will likely know quite a bit about all those issues, so your expert will want to be conversant with them, too.  Thus, you will want to consider the background and experience of any accountant you may choose.  It may well be that you can save expense and time by using a client’s employee, but you will want to approach that choice carefully.

Expert reports.  I can’t imagine a case where you would not want a fairly detailed expert report before the hearing.  You should know, however, that you will need to address at the prehearing conference just what that report should contain.  Typical arbitration scheduling forms provide for expert disclosures, but do not require them to be as detailed as reports under the Federal Rules of Civil Procedure.  You will want to consider asking the arbitrator(s) to require detailed expert reports for your arbitration. First, it will avoid surprises at the hearing and allow you to be prepared to meet the report. Second, if detailed enough, you will likely be able to forego a deposition of the expert and simply rely on the report itself.

You can use Fed. R. Civ. P. 26(a)(2)(B) as a checklist for the detail the report should have.  You may not need everything in the rule, but you will probably not need any more.  AAA commercial procedures caution us, appropriately, that “care must be taken to avoid importing procedures from court systems, as such procedures may not be appropriate to the conduct of arbitrations as an alternative form of dispute resolution that is designed to be simpler, less expensive and more expeditious.”  Still, this is one area where we can get some guidance from court procedures that can help make arbitration more efficient, fair, and effective.

In some arbitrations, the expert’s report serves as the expert’s direct testimony. This eliminates questions as to whether the report sufficiently revealed the all areas of expert testimony and saves time. The arbitrator can study the report before the expert is called to testify, so will likely be well-informed of the issues involved rather than coming to them cold on the day the expert testifies.  The issues are then dealt with on cross and short redirect.

Consider whether this procedure would make sense in your next arbitration.  It may be, however, that you would prefer to have the expert build some rapport by having a brief direct examination.  You can be fairly sure the arbitrator will have read the report ahead of time if it is provided to him or her, so the expert need not testify in full detail, but can hit the most important points.

Next up.  The prehearing and hearing schedule.


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 IV: Crafting the basic arbitration clause

shutterstock_163379354 In earlier articles in this series we examined the types of patent-related cases most suited for arbitration, whether to use administered arbitration, and the considerations for determining who to choose as an arbitrator. In the next few articles we will consider drafting the arbitration clause for a possible patent arbitration.  As noted, that arbitration is most likely to arise from a patent license, employment agreement or development agreement.

Let’s begin with what not to do.  The easiest approach to an arbitration clause is to simply borrow the one out of the last agreement with an arbitration clause someone in your office did and copy it.  I have seen some pretty strange and even contradictory arbitration clauses.   I am convinced fairly mindless copying explains how they came into being.  Let me give you an example, only slightly changed from one I was once called on to deal with:

Any disputes between these parties about this contract shall be subject to binding arbitration under the Federal Arbitration Act and the Minnesota Revised Uniform Arbitration Act.  Before arbitrating, the parties agree that they will try to settle the case through mediation.  If they cannot so settle this matter, they will each pick an arbitrator and the arbitrators they pick will pick a third arbitrator.  The prevailing party will be awarded its attorneys’ fees and costs.

Right away, you are set up to possibly have to litigate over this clause. First of all, the federal act is actually different than the state act, so you don’t have consistent requirements.  Second, you don’t really have a set of rules to follow, just statutes.  The Federal Arbitration Act is quite brief and does not address procedural nuts and bolts like AAA or other rule making bodies’ rules do.  Third, you don’t have anyone to administer the arbitration.  Fourth, how long do the parties have to mediate? What if one party refuses to mediate?  Fifth, what if one party refuses to pick an arbitrator?  Do you really want to have arbitrators appointed by the parties?  What if one of them is your opponent’s brother?  Who will decide whether arbitrators have to be impartial or are impartial enough?  And so on.

There is a better way.  Let’s begin with the basics and then go from there.  To have an arbitration clause that will avoid litigation over the clause itself, begin with the standard form AAA clause.  (Go to adr.org to get it.)  Recognizing that a patent dispute may be involved,  you will include a reference to AAA’s supplementary patent rules as well.   Then decide where the arbitration will be (your city, your opponent’s city or a neutral city) and list it. Finally,  decide whether you will have a single arbitrator or a panel of three.   You will end up with this:

Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules and the AAA Supplementary Rules for the Resolution of Patent Disputes for any patent issues submitted.  Judgment on the award rendered by the arbitrator[s] may be entered in any court having jurisdiction thereof.  The arbitration shall be before a [single arbitrator] [panel of three arbitrators] in [insert city].

This works because it incorporates the AAA’s commercial and patent rules, which fill in the gaps and provide a framework of rules and procedures for the entire arbitration.  It also takes advantage of cases over the years that have found this type of clause is sufficient to put all controversies related to the contract into arbitration, including most contract formation issues.  Make sure that you are committed to having everything resolved in arbitration if you go this route.  By incorporating AAA rules, even the question of arbitrability is for the arbitrator.  But avoiding court is what you were hoping to do, and this should do that for you.

The AAA supplementary patent rules provide a useful structure for identifying and determining issues that typically arise in a patent dispute.  Thus, the patent rules require consideration of confidentiality agreements, disclosures of claims claimed to be infringed and devices claimed to infringe, provision of patent file histories, an element-by-element claim chart, provision of invalidity contentions, disclosing claim constructions, scheduling a claim construction hearing if appropriate, exchange of expert reports, and the like.  Note that the supplementary rules only mandate consideration of certain issues and procedures.  But they are not as rigid as the local patent rules in many jurisdictions that require detailed disclosures, claim constructions and other proceedings that may or may not make sense in every case.  The arbitrator(s) and parties are still able to create a balance between the expense and the value of a disclosure or procedure in ultimately determining the case.

Thus, in a fairly simple royalty dispute, there may be a question as to whether certain devices actually are covered by the licensed patent claims and therefore subject to royalty payments. But it may or may not be necessary to have a detailed claim construction hearing when, in fact, only one element or two are at issue.  None of the steps often mandatory for a patent case are mandatory in arbitration, so the parties and arbitrators can craft a structure for the case to “fit the process to the problem.”  This will save time and money so the parties can get the dispute decided quickly and get back to business.

In the next article, we will look at some possible “improvements” to the more standard arbitration clause. And we’ll look critically at whether such improvements are a good idea.