Tag Archives: arbitrator

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.

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.