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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.

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Efficient Arbitration, Part III: Getting Control of Depositions

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In the last two articles in this series we noted that one of the main objections to arbitration is its cost.  Some folks are convinced that arbitration is just as expensive as litigation in court.  I have found that not to be true, but encounter that perception frequently.  I had a discussion about that with a lawyer just today, in fact.

The main thing that drives up the cost in arbitration – as in any adversary proceeding – is discovery.  So we began looking at ways used to reign in costs in arbitration starting with document discovery in general and electronically stored information in particular.

The next form of discovery that we will consider is depositions.

Do you need them at all?

Of course, the way to save costs would be to simply not allow depositions at all.  In fact, in some smaller matters, that is the default.  But, while arbitration matters usually don’t need the full range of discovery and cost we see in litigation, there shouldn’t be a “trial by ambush” either.  In fact, under AAA Commercial rules for example, the Arbitrator must “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.”  So if depositions are actually needed to obtain necessary information, they should be allowed.

When are depositions really needed?

The first question you will want to ask is whether depositions are needed at all.  If they are, you will want to ask how to take only as much time as needed for them.

Here is a way to think about that.  With the advent of e-mail and electronic document storage, there is often a record of day-by-day events for important matters in a case.  This is particularly true for the kinds of cases often the subject of arbitration.  The contracts and formal documents are likely to be stored electronically, of course.  And people really don’t talk on the phone or in person quite as much as they once did.  So there is often a record of the parties’ communications in e-mail exchanges and the like.  E-mails tend to be fairly informal and candid.  Thus, you often don’t need to rely on someone’s memory of what happened months or years ago at a meeting or in a call.  Key events are often reflected in real time in e-mail and attached documents.

This often means you can eliminate the depositions we often see in commercial cases these days that go like this:

Q:  Marked as deposition exhibit 278 is an e-mail that appears to be from you to Mr. George Johnson dated January 7th 2013. Did you write this e-mail?

A:  Yes.

Q:  And here you say, “You’re right.  The entire shipment was defective, and we are really sorry about that.” Did you write that?

A:  I guess so. There it is.

Q:  And when you wrote that, did you mean that entire shipment was defective, and your company was really sorry about that?

And on it goes.  It’s hard to see how this kind of deposition is particularly useful.  You have the e-mail admission, and that’s what you will be relying on at the hearing anyway.

And yet, there are times when depositions are needed to understand technical terms, the importance of a sequence of events or other matters.  You may also want to see what key facts are admitted and which are not.  Often in a commercial arbitration it is more often the inferences and conclusions to be drawn from underlying facts that is really in dispute.  But there are sometimes actually disputes as to what happened.  Sometimes even the authenticity of an e-mail is an issue.  But not very often.

This suggests that depositions be limited to matters where testimony can advance the inquiry.  But you can’t expect the arbitrator to micromanage every question or topic.  That would be too expensive.

So the way to think about your case is to see if there is important information that can be gained from a deposition and to be prepared to explain, at least in general terms, why that is so and why there isn’t a different way to get it.

There are then useful approaches to making sure that depositions are not just being taken for the sake of taking them.  As with document discovery, an arbitrator can be fairly helpful in “saving counsel from themselves” by requiring an efficient process that forces everyone to get to the point quickly.

Limiting depositions when needed

Here are four approaches to consider.  I have seen a number of them work very well.  First, is simply limiting the time for depositions.  Each party could be given, for examples, ten hours in which to take depositions.  They can call anyone they want during that time, but still have the time limit.  Then the arbitrator can build in an “escape valve,” so the parties can come back for more if they can show they need them.  They usually don’t come back because they have used their time very efficiently and gotten what they need.   I’ve seen this work very well in cases I have handled both as counsel in arbitration and as an arbitrator.

Second is deciding at or shortly after the scheduling conference who the limited number of deponents will be and the general time for each.  It may only need to be one or two for each side.  Again, this will tend to get everyone to the point.

Third is to make at least some use of 30(b)(6)-type depositions in the case.  The Federal Rules allow depositions on identified topics where a representative who has looked into the issues speaks for his or her company on pre-designated topics.  It may seem odd to import a fairly technical federal rules-type procedure into an arbitration.  But in the right kind of case, I have seen this work to speed things up while still getting the information a party needs to present its case or defense. This can be combined with limits on time or number to make sure things don’t get out of hand.

The fourth is to simply have counsel agree to interview a witness on some specific topics just to clarify key issues.  Of course, both counsel would be present and the interview would proceed in questions and answers.  But it may not be necessary to have a formal deposition with all its expense to allow counsel to understand some technical matters or specific things raised in some documents.  This alternative probably won’t serve the purpose in every case, but in some situations it may well be all you need.   You can even agree to record it to have a record for those few times where the exact answer might be critical.

Electronics are cheaper than cars and airplanes

One final thing.  For many matters, phone or Skype depositions or interviews can work very well. Again, you can record them if you feel a record is necessary.  That can save time and travel.  In fact, there probably isn’t much excuse for not using available technology for fairly routine matters that simply need clarification.

Third party depositions and subpoenas are another tricky and sometimes expensive area in arbitration.  We’ll take that up next.

Arbitrating the Patent Case Part XVI: Presenting the Evidence

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We have previously had a look at many aspects of arbitrating patent cases, beginning with the type of cases likely to be arbitrated, arbitration clauses, and the arbitration process up to the hearing.  We then began looking at the hearing itself, beginning with sequestration issues that can arise and, finally opening statements.  We have now arrived at the beginning of evidence and how most effectively to begin.

There is no one way to start, of course.  But the standard for admissibility for evidence in an arbitration presents some possibilities for efficiently presenting each party’s case that are worth exploring.  Let me give you a couple of examples I have seen that have worked well.

A first approach, and one that is very common, is having the most involved or responsible representative of a party narrate most of the facts involved, often in chronological order.  This is more likely to be effective in an arbitration than in court because of the standard for admissibility.  The standard set forth in AAA Commercial rules is, for example:

(a) The parties may offer such evidence as is relevant and material to the dispute and shall produce such evidence as the arbitrator may deem necessary to an understanding and determination of the dispute. Conformity to legal rules of evidence shall not be necessary.  .  .

Because the real key to admissibility is relevance and materiality, it is possible for one witness to “tell the story” of a party by both relating personal experience and relying on business documents that help to tell the story. This is particularly useful because many arbitration issues turn on contracts and written documents.  Thus, a knowledgeable witness can introduce the key documents and much of the evidence in the case in a logical order.  This may be more difficult to do in a court where there are strict standards for laying foundation, hearsay problems with documents and related technical evidentiary matters to address. Many of those are obviated in an arbitration where, in the words of AAA Rule 34 “[c]onformity to legal rules of evidence shall not be necessary.”

A note of caution is in order here.  Just because the rules of evidence don’t apply, doesn’t mean that anything goes.  First, again in the words of Rule 34, “[t]he arbitrator shall determine the admissibility, relevance, and materiality of the evidence offered and may exclude evidence deemed by the arbitrator to be cumulative or irrelevant.”  So taking things too far and having a witness introduce a document that he or she knows nothing about and isn’t part of what one would expect to be in a company’s normal business records, may not be seen by the arbitrator as useful or relevant.  Have in mind that it should be clear that the witness, the testimony and documents introduced have enough in common that it makes sense the witness would be offering the testimony and evidence to provide a genuine understanding of the issues.  After all, getting a document or testimony into “the record” only means it is in there.  It doesn’t mean anybody will be persuaded by it or believe it.

Still, you likely can get into evidence documents and evidence that may not have gone in under technical legal rules with your first witness, but that are helpful to understanding the important events in the case in a logical order.   But for contested matters at the heart of the dispute, keep in mind you should be prepared to present evidence from the witness who wrote the document or observed the events described in it to provide first- hand information necessary for the arbitrator to determine the truth of the matter.

Another effective way I have seen of presenting evidence at the outset to outline the case was use of a technical expert.  The key to the case was the expert’s opinion, which was based on most of the evidence in the case, including all the key documents.  Thus, as the first witness, the expert basically gave each of his opinions on liability and backed it up with the key evidence on which he relied.  This was not a patent case, but was a fairly complex dispute over whether a software system met the specifications and representations about its functionality.  But one can imagine a similar approach to whether, for example, license fees are owed for certain products under the terms of a license agreement and underlying patent or the like.

When representing a respondent, a similar approach is available, using an involved and responsible witness or perhaps a technical expert.  While a fair amount of groundwork for the respondent’s position will likely already have been presented on cross examination, a coherent overview of the most important defense points can be made through a single witness.  And, of course, the respondent will have the benefit of knowing what points the claimant has emphasized in their case and be able to outline the key evidence in response to each point.  Again, contested matters will need to be addressed by other witnesses more directly involved, but providing a well-organized overview of the defense through a first witness can be quite effective.

Of course, the above approach won’t necessarily work for every case.  There may not be one witness who was really involved enough with the key facts and circumstances to provide a useful overview.  It may be that one event or issue is so important to the case that you would want to lead with your best witness on the point.  Or it may be that the subject matter of the case best lends itself to a few witnesses that have knowledge in one or two of each of the key matters in the case.

But however you end up doing things, you will want to pay attention to the most effective and efficient way to provide an understanding of the key issues and evidence at the outset.  In the end, the arbitrator will likely be able to piece together the case from evidence you present during the course of the proceeding.  Yet, finding ways to get the key information and issues out at the outset is worth the effort.

Put another way, it is difficult to rule for you if your position is difficult to understand.  So anything you can do to clarify your position at the outset should be considered.

Up next:  Practical considerations regarding evidence.

Arbitrating the Patent Case Part XV: Opening Statements

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Earlier articles in this series explored various aspects of arbitrating patent cases, beginning with the type of cases likely to be arbitrated, arbitration clauses, and the arbitration process up to the hearing.  We then began looking at the hearing itself, beginning with sequestration issues that can arise and suggested an approach to avoid problems with sequestration.

We now arrive at the beginning of the substance of the hearing:  opening statements.  Should you make an opening statement?  If so, of what sort?

Should you open?  

It is not unusual to waive openings at the arbitration hearing.  After all, you are trying to be efficient and make good use of time.   In a patent arbitration, the parties have almost certainly filed detailed pre-hearing briefs.   You may have already done a Markman hearing and gotten a claim construction decision.  So why would you spend the time and energy preparing and presenting an opening?  Why not just get on with the evidence?

Skipping the opening may be appropriate in some arbitrations, but I would suggest that you be very careful in foregoing this chance in a patent arbitration.  Like anyone else, arbitrators appreciate someone who can clarify the dispute and define exactly what issues they are being asked to decide.  An opening gives the advocate a chance to do that.  First impressions count with everyone, and this is time that can be used to make a good one.

Because arbitrators are professional decision makers, trained and skilled in carefully analyzing facts and law and reaching the right decision, first impressions may not be as important.  But why waste an opportunity to make it clear that you have mastered the facts and law and can efficiently outline what you will be proving?

And, of course, there is no better way to prepare for the hearing than figuring out just how you will explain your case in a succinct way.  It forces you to deal with all the key issues and facts in the case.

What kind of opening?   In constructing your opening, you will want to keep in mind your audience and purpose.  In a patent case, your arbitrator will normally be a lawyer very familiar with patent law and patent issues.  This means you can explain the case with a fair amount of sophistication.  You don’t need to explain what a patent is, how it is like a legal description that provides the boundaries of the intellectual property much like the boundaries of real property and all the things you would normally tell a jury or judge new to patent matters.

Instead, think like an arbitrator. What would you want to know about the case that you are being asked to decide?  Thinking that way will likely lead you to (1) explain what exactly needs to be decided, (2) identify the key evidence you will present so that those decisions should be in your client’s favor, and (3) explain why those decision are fair.  Let me elaborate on this a little.

Issues to be decided

Although the briefs will certainly lay them out, how you describe the real issues for decision is critical.  The emphasis that you can give the key issues in person is different than you can do in your brief.  That’s why we have hearings instead of just deciding everything based on written submissions.  When you are done with your opening, the arbitrator or panel should have a very good idea of what issues you are expecting will be decided.  They probably will have them numbered in their notes.

The key evidence

You will also want to emphasize the key evidence that will support a decision in your favor.  All evidence at the hearing tends to come in as if it is all equally important, one question and answer at a time.  But, of course, some evidence is the key to a decision once the preliminaries are established while the rest is just background.  You want to allow the decision maker to easily fit what is being presented at the hearing into the framework you have presented.  Thus, you want arbitrators to be able to say to themselves, “Yes, I remember, this is the evidence that I was told at the beginning would be one of the keys to deciding the case.”

If there is key evidence you know your opponent will raise, you will likely want to begin to deal with it.  If they are going to say your client’s patent is obvious over two prior art references, you’ll want to explain what is missing or that your expert will explain why no one skilled in the art would combine them except with the benefit of hindsight, or whatever your position will be.  You will want to make it clear you have not only identified the evidence that will allow you to win, but have thoughtfully considered the opposing points of view and will deal with them.

A fair result

You don’t want to ignore the justice of the result you are asking for. Arbitrators are not robots applying some sort of legal algorithm to reach a mandated result.  To be sure, the law must be carefully considered and fact-finding must be carefully done.  But arbitrators, like anyone else, want to arrive at a fair result.  To be sure, that result is informed — and often dictated in large part — by the law and careful analysis of facts.  In the end, however, every decision maker is hoping to arrive at a just result.  Give them the information and perspective that will help them do that.

Keep it brief

This is not to suggest that your opening will do all these things in great detail and last for hours.   In most cases, you would like to open in about half an hour or less if you can.  Shorter and memorable is better.

Thus, a framework should be just that: something to give the arbitrators a place to “hang” the evidence you are presenting.  You will not describe in detail each important document and each important piece of evidence.  You don’t have time. But you can emphasize, for example, that Exhibit 27 is the letter sent on May 13, 2013 by respondent’s chief engineer to claimant admits that the respondent’s device does in fact include the element of claim 2 of the patent now under consideration, despite what they say today.  Or whatever it may be.

Generally, infringement disputes get down to one or two elements that likely cut across a number of claims.  Organize your explanation in a way that makes it easy to follow.  If you are defending, you will want to, for example, explain the “dataflow”  (mentioned in a hypothetical in our last article) limitation in independent claims 1, 5 and 13 of the software patent at issue rather than have a listing of claims and an explanation of the various missing elements of each.  Your framework should be efficient.

I can’t tell you here what the fairness and justice attributes of your case will be, but you must have some.  No one brings a case or decides to defend it without some underlying sense that the opponent has done or is asking for is unfair.  It may be as simple as breaking a promise to pay license payments.   Or it may be much more complex, arising out of the parties’ relationship or other matters.  It all will depend on your case.  You don’t need to dwell on fairness, but don’t ignore it.  Decisions on close issues can often turn on simple fairness.

Of course, in a patent matter, fairness is all viewed through the lens of the specific application of patent rights and principles, all of which will be well understood by your decision maker, the arbitrator.

Next up.  The hearing continues.

Arbitrating the Patent Case Part XIV: Sequestration at the hearing

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In past articles, we have been exploring various aspects of arbitrating a patent case.  These included the types of patent cases most likely to be arbitrated, formulation of arbitration clauses, the federal statutes governing arbitration of patent matters, considerations regarding use of experts in arbitration, and exchanges of information as well as witness lists, document lists and briefs.  We then turned to specifics of the hearing schedule including transcripts, the form of award to request, and finally the hearing itself.

One of the issues that may come up at the outset of the hearing is sequestration of witnesses.  I’ll illustrate the issues that can arise with a story.  It’s loosely based on a real dispute or two.

The situation.

You represent a respondent in an arbitration.  At issue is whether your client’s new software product infringes the claimant’s patent.  If it does, your client has to pay rather high royalties under the parties’ license agreement.

The rule

At the outset of the hearing you opponent suggests that the witnesses be sequestered.  You are subject to AAA rules.  You read AAA Commercial Rule 25 to assure yourself that your client will be able to attend.  It says:

The arbitrator and the AAA shall maintain the privacy of the hearings unless the law provides to the contrary. Any person having a direct interest in the arbitration is entitled to attend hearings. The arbitrator shall otherwise have the power to require the exclusion of any witness, other than a party or other essential person, during the testimony of any other witness. It shall be discretionary with the arbitrator to determine the propriety of the attendance of any other person.

Your client, the owner of the respondent, is a party.  So he can attend.  And you conclude it is helpful not to have your opponent’s witnesses listen to each other.  You think they may well contradict one another without first hearing the “party line.”  Thus, you agree to sequestration.  Now you will have to make your witnesses except your client wait in the lobby, but that isn’t too difficult.

The issue

One of the issues at the hearing is whether your client’s new software uses “dataflow” computing.  The claimant’s patent requires use of dataflow computing as an element of every claim.  Generally, dataflow computing is an alternative to standard computing where execution begins as soon as the data needed for computation become available rather than according to specific instructions. This is said to promote faster, parallel computing.   If your client’s software doesn’t use dataflow computing, it doesn’t infringe and no royalties are due.

During the hearing, your opponent introduces an ad for the new software that describes the “data flow” of you client’s program.  It shows the data happily flowing between typical business processes.  Claimant’s owner testifies the ad is proof positive your client’s software infringes.  “It says ‘data flow’ right here.  That’s part of how we knew their refusal to pay royalties on their new software was a breach of our patent license,” he testifies.

You are fairly sure that the ad uses those terms in a general descriptive sense, since data flows one way or another through all software. You doubt this is really an admission your client’s software uses dataflow computing in the technical sense used in the patent.  You client is more a business guy than a software designer.  He suggests that, to be sure “data flow” is used in the ad in the general and not the technical sense, you show the ad to the lead programmer, who will be testifying later.

During a break, while preparing the programmer to testify, you show her the document and ask her about the “data flow” reference.  She says she is familiar with the ad and that it surely uses the term in the general sense.  She says she designed the new software not to use dataflow computing.  She wishes the advertising folks would have stayed away from that term in the ad, but it was only loosely used. Anybody who knows about software, she says, would know the term was not used technically.

Later, you call the programmer testify.  She explains to the arbitrator that the ad uses “data flow” in the general and not infringing sense.  During cross, your opponent asks the programmer when she last saw the ad  She says she saw it earlier that day, when you showed it to her and asked about it.

Opposing counsel then exclaims, “Mr. Arbitrator, there has been a serious breach of the sequestration order in this arbitration.  It is clear that counsel for respondent flagrantly violated the order by showing this document to the witness and clearly was relaying the testimony of another witness to this witness in violation of the sequestration order.  As a sanction, you should conclude that it is now established that the term ‘data flow’ is actually used in the technical sense, establishing infringement.  Only in this way can you keep respondent from profiting by this misconduct!”

You are a little taken aback.  You quickly reread AAA rule 25 to make sure you haven’t missed anything.  You haven’t.  It says “The arbitrator shall . . . have the power to require the exclusion of any witness . . . during the testimony of any other witness.”  You point to the arbitrator that the rule talks only about excluding attendance during testimony.   It says nothing about not being able to prepare witnesses or clarify the meaning of documents during a break.

Your opponent, ready for all that, begins to cite federal cases where courts have forbidden witnesses to talk to each other to get their stories straight during trial.  That is true even though the Federal Rule of Evidence equivalent, Rule 615, only talks about excluding witnesses from the courtroom.  “After all,” he says,” the point of all this is to keep witnesses from getting together to ‘tailor their testimony to that of prior witnesses and to aid in the detection of dishonesty,’ to quote the case of United States v. Vallie, 284 F.3d 917, 921 (8th Cir. 2002).  Putting a lawyer in the middle of it to help them fabricate their story shouldn’t be allowed.”

You deny the idea that anybody fabricated anything and argue this is all just an attempt to invade privilege and interfere with normal witness preparation.

The law in some jurisdictions

Later, you do some research to find that, even having a police officer take notes during a hearing of government witnesses’ testimony and relaying that information to other government witnesses during the hearing did not violate a sequestration order under Federal Rule 615.   See United States v. Smith, 578 F.2d 1227, 1235 (8th Cir. 1978).

But this has been a fairly uncomfortable situation and you opponent has done his best to cast you as something less than completely forthcoming in your approach.  Besides, you handle arbitrations all over the country, and who knows what a criminal court somewhere has said about sequestration that might be used against you?

Of course, arbitrators normally won’t start making decisions based on court decisions, but will simply stick with the AAA rule.  In fact, as a technical matter, the arbitrator’s power under Rule 25 doesn’t extend beyond excluding witnesses from the hearing while others are testifying in any event.  But why not avoid all this?

The solution

Once you are aware of the issue it is fairly simple to anticipate.  When it comes up, just make it clear your understanding is that the rule applies only to presence at the hearing and not ability to prepare witnesses.  You can say you’ve read about problems that can arise in this regard and want to make sure everyone understands.  Everyone is bound to agree.  If not, you will need to do some education of the arbitrator on this esoteric issue.

Next up:  Opening statements.

Arbitrating the Patent Case Part XII: The hearing schedule

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In earlier articles in this series, we addressed the types of patent cases most likely to be arbitrated, formulation of arbitration clauses,  the federal statutes governing arbitration of patent matters, considerations regarding use of experts in arbitration, and the final pre-hearing schedule regarding pre-hearing exchanges of information as well as witness lists, document lists and briefs.  We now turn to the hearing schedule.

Planning for the hearing.  Counsel will be asked for their estimate of how long the hearing will take.  Here are a few guidelines for that.  Things tend go two to three times as fast in arbitration as in most courtrooms.  Breaks tend to be fewer and shorter, and there is generally much less need for preliminaries.  The arbitrator is already quite focused on your case and, having read your briefs and dealt with other aspects of the case, is likely to be familiar with the background.  Generally, the exhibits will go in faster and there is no need for sidebars and complicated evidentiary arguments, although at least some issues in that regard are bound to arise.  There may or may not need to be closings.  But when estimating your time for the case, remember that your opponent is allowed to cross-examine your witnesses and present witnesses.

It often makes sense to build in a “spillover day” into the schedule, so that everyone has their schedule clear if it some extra time is needed to complete the hearing.  Trying to resynchronize schedules of counsel, witnesses and an arbitrator or panel to finish testimony of  a witness or two can delay the conclusion of the arbitration by months.

Transcripts.  You will probably be asked whether or not you want the proceedings transcribed.  On the positive side, having a transcript provides a record that can be used in a complicated case for the arbitrator to study.  If the case requires post-hearing briefing, access to a written record can make those filings more meaningful.  And if you hope to attack the award on appeal a transcript is almost mandatory to give a reviewing court some idea of what occurred.

On the other hand, transcripts are expensive and taking time for their preparation can delay the proceedings.  The standard of review is so high for overturning an arbitration award that a transcript likely won’t assist you in any event.  In fact, you may not want to encourage judicial review of the award by having a transcript.

Most arbitrators I know like to have a transcript, particularly for a longer hearing with complicated facts.  It is likely more accurate than notes taken over many days.  On the other hand, most commercial cases involve documents which contain much of the evidence, so a transcript may not be as useful enough to justify the cost.

You may not need to make the decision regarding the transcript at the first pre-hearing conference.  For example, AAA Commercial Rule 28 requires that you notify the other party three calendar days in advance of the hearing that you will have a court reporter and has provisions for the use and payment of the transcript.  You will likely be in a better position to decide whether or not you want a transcript as you are closer to the hearing.  Just don’t forget to address the issue at the appropriate point if you don’t make a decision at the first pre-hearing conference.

Standard or reasoned award?  You probably will be asked whether you prefer a standard or reasoned award.  A standard award basically says, ” I find for party X in the amount of $X.”  No reasons are given. A reasoned award provides the decision and also the reasons for the decision.  Findings of fact and conclusions of law can also be requested, though I have never seen a party want that much detail.  Most parties prefer a reasoned award.  They like to see why the arbitrator decided what he or she decided.  It also can provide a basis for judicial review, which can be a positive or negative depending on how you did at the arbitration.

Under AAA Commercial Rules, you are not entitled to a reasoned award unless the arbitration clause requires it.  Most arbitrators will, however, provide such an award if both parties ask for it. But not all.

There are possible negatives to a reasoned award.  The first is you have to pay the arbitrator or panel to write it.  The second is it can encourage a party to seek judicial review.  Without it, there is little to review.

You will do well to think through the “details” of the matters addressed above so that the procedures make sense for the specifics of your case.  Knowing what makes sense and being able to explain why will help the arbitrator put procedures in place that will help keep the arbitration efficient and effective.

Next up.  In the next article we begin to address the hearing itself.

Arbitrating the Patent Case Part XI: the Prehearing Schedule

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In this series or articles, we first focused on the patent cases most likely to be arbitrated, formulation of arbitration clauses, and some matters to be addressed during the prehearing conference.  We then took a slight diversion to examine federal statutes governing arbitration of patent matters.  After looking at considerations regarding use of experts in arbitration, we are now ready to consider how all these pretrial matters fit into the final schedule.

As earlier noted, arbitrators factor in the amount of discovery and other prehearing matters that must be accomplished before finalizing the schedule.  They then tend to set the final hearing date and work back from there on prehearing deadlines.

Planning for pre-hearing procedures.  This can become complex in a patent arbitration, but if well planned, can provide some real benefits.  Let’s assume, for example that the parties are convinced – and convince the arbitrator – that a separate Markman hearing to construe the patent claims at issue will likely resolve the key issues in the case.  Time will need to be built into the schedule to allow the parties to exchange the information necessary to inform the Markman presentations.  And here is where the flexibility of arbitration can potentially save time and money.  If, in fact, if the claim construction has some possibility of resolving much of the case, it may well be the best course of action to assure discovery is tailored only to those facts that bear on claim construction and discovery of everything else, including sales and related information, be done later.  It may not need to be done at all.  The Commercial Arbitration Rules of the AAA, in fact, encourage consideration of “whether there are any threshold or dispositive issues that can efficiently be decided without considering the entire case,” including “bifurcation of the proceeding.”  Rule 21 and Checklist P-2.

But be careful.  One of the problems with patent litigation in court is the mandatory phases of the case – infringement contentions, invalidity contentions, claim construction contentions, claim construction statements, claim construction hearing, etc. –  under local patent rules, all of which can add to delay and expense.  As earlier noted, some cases need to proceed with attention to all these matters, but many do not.  As earlier noted, the attractive thing about arbitrating patent disputes is fitting the process to the problem and avoiding unnecessary activities.  Thus, if there is only a minimal chance that separate Markman hearings – or any other separate proceeding, including a dispositive motion – will actually save time and money, it isn’t a good idea.

That said, I think arbitrators should always be on the lookout, with the parties’ help, for procedures that will help focus the arbitration on threshold issues and otherwise save time and money.  But one also has to remember that, from an advocate’s point of view, it is attractive to focus first on the strengths of their case or the opposing side’s weaknesses, which may or may not actually save time and may just prolong the arbitration.  If a party sincerely thinks that focusing on an issue can genuinely structure the case in a way that could avoid some expense and that is fair to both sides, it should be prepared to explain why.  Better yet, it may be able to convince the opposing party it will save everyone time and money to have key issues determined first.

Information exchange.  Of course, the schedule also has to account for discovery, known in the language of AAA rules as “exchange and production of information.”  It is worth remembering that the arbitrator is charged with managing “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.”  AAA Commercial Rule 22.

You will need to build in some time for the exchange and also for resolving any disagreements.  Discovery disagreements normally should not need to be the subject of court-style motions.  Instead, a brief letter from each side explaining the need for the information or problems with providing it should suffice. The arbitrator can then ask any questions during a phone conference and quickly get the parties on track with a prompt ruling.  In routine disputes a conference call with counsel and the arbitrator may be all that is necessary.

To avoid expensive disputes over electronic discovery, guidelines should be set in advance to limit where the parties must search for electronic documents and the format in which they are to be produced.  Here the arbitrator is charged with “balancing the need for production of electronically stored documents relevant and material to the outcome of disputed issues against the cost of locating and producing them.”  Rule 22.  Give some thought to this in advance to help the arbitrator help you save costs and avoid frustration.  An earlier article in this series provided some further guidance on that issue.

I recall the time counsel for each side produced electronic documents in the format they preferred, which was different than the other side preferred.   After doing so, each asked me to order the other to use the format they preferred.  Each was sincere in their belief and could give good reasons why their preferred format made sense.  But the result was a complication that cost money.  Discussing the issue before producing documents would have saved a motion, expense, and aggravation.

Subpoenas.  Remember, as noted in an earlier article, if you plan to subpoena witnesses or documents you will need to start analyzing how to do that and allow for possible delays in that process.  If you foresee difficulties, it is best to address them at the prehearing scheduling conference.

Inspections.  It may be that your case involves a process or device that requires a visit by the arbitrator to allow you to explain it and allow the arbitrator to understand it.  It may be that drawings, photos and videos will be sufficient, but often there is no substitute for observing the real thing.  If that is true in your case, you will want to account for that at the scheduling session and address the logistics as is necessary.  If travel is involved, this can be expensive, so think through this carefully.  Field trips are fun, but like anything else in arbitration, you must balance the cost and benefit.

Expert reports.  If the case will involve experts, which as noted in the last article in this series it often will, time needs to be built in for exchange of reports and possible rebuttal reports.  Parties may want to take depositions of experts, but be cautious about that.  If the reports include sufficient information, expert depositions may be unnecessary.  This is particularly likely to be true if the expert reports serve as the direct testimony of the expert.  Foregoing expert depositions in favor of good expert reports can present a real cost savings and not really any disadvantage in being prepared to cross examine the opposing expert.

Prehearing filings.  Once you have accounted for the time necessary to get ready for the arbitration, you will need to set deadlines for providing exhibit lists, witness lists, and prehearing briefing.  You will have to work out whether these will be phased in, with the claimant going first with response by the respondent, or whether the exchange will be simultaneous.  You will also want to think about providing an “escape valve” if one party is genuinely surprised by a document or witness and believes it needs to call another witness or present another document to fully air the issue.  This could be in the form of an additional disclosure of witnesses or documents if necessary.  The point, from the arbitrator’s point of view, is to avoid surprises and provide everyone a fair chance to present a case or defense.

Planning for the hearing.  Counsel will be asked for their estimate of how long the hearing will take.  Here are a few guidelines for that.  Things tend to go twice as fast in arbitration as in most courtrooms.  Breaks tend to be fewer and shorter, and there is generally much less need for preliminaries.  The arbitrator is already quite focused on your case and, having read your briefs and dealt with other aspects of the case, is likely to be familiar with the background.  Generally, the exhibits will go in faster and there is no need for sidebars and complicated evidentiary arguments, although at least some issues in that regard are bound to arise.  There may or may not need to be closings.  But when estimating your time for the case, factor in time for your opponent to cross-examine your witnesses and present witnesses.

It often makes sense to build in a “spillover day” into the schedule, so that everyone has their schedule clear if it becomes some extra time is needed to complete the hearing.  Trying to resynchronize schedules of counsel, witnesses and an arbitrator or panel to finish testimony of a witness or two can delay the conclusion of the arbitration by months.

With the above in mind, as well as the particulars of your case, you should be equipped to do your part to help realize arbitration’s promise of providing a fair opportunity to be heard while minimizing time and expense.

Next up.  The hearing schedule.