Efficient Arbitration Part VI: Discovery Motions

In this series of articles we have been considering ways to make arbitration more efficient and inexpensive, while maintaining a fair opportunity for both sides to present their case.  We first focused on discovery in general, noting that the flexibility of arbitration can help provide ways to obtain necessary information while avoiding the expense of court-like discovery.  We then dealt with issues of non-party discovery and then took up dispositive motions, other areas of possible unnecessary expense.  We now arrive at discovery motions.

Discovery motions in general

For the first part of my career as a civil litigator, discovery motions took up much time and effort.  After serving and negotiating over elaborate requests, the parties would often reach an impasse and move the discussion to the court house.  The parties would prepare elaborate briefs with citation to the rules and citation to somewhat similar cases to justify the request for information or to justify a refusal to provide it.  Since knowledge is power, the side seeking the information was convinced the other side was holding out, hiding key information that would be the key to the case.  The party opposing discovery was often convinced the other side was simply trying to spend it to death.  And so the fight carried on.

In many courts, magistrates and judges now take a different approach to the whole matter.  They first require a letter-brief or phone call to go over the issues and resolve them more informally.  This is not uniform, but is becoming more common around the country.

Arbitrators have always had this tool available and use it all the time.  Perhaps we should use it more and use some other available tools as well.

A holistic approach to discovery and motions

AAA Commercial Rules require the arbitrator to (as I have noted in a couple of these articles) “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.”

I have found the best way to make discovery efficient is to take it up at the first conference.  And in some detail — not just generally.  The parties and arbitrator can discuss the sort of discovery the parties contemplate and then set a deadline for completing requests and answers.  Here is an example:

The parties shall serve their written requests for documents by November 1, 2015.  The parties shall provide their responses to those requests and responsive documents by December 2, 2015.

Setting the dates is generally preceded by a discussion of what type of discovery, if any, is necessary for each side.  We also discuss the time realistically needed to complete the request and response.

Anticipating that the parties may not completely agree on what it or the other party actually needs to “fairly present its claims and defenses,” I usually provide an informal process for resolving that. I build in a time for a party to obtain arbitrator input on the request, if a discussion with the other side doesn’t resolve the issue, by addressing what more it believes it needs in a letter to be provided by a set date.  The other side has a week or so to respond, and the first party may reply if necessary.

Some arbitrators prefer a brief conference call to use of letters.  But to assure that necessary information is available without breaking the bank, it can be important to allow each side an opportunity to present its position, albeit concisely, in writing.   Normally, the relatively short letters provide enough information to decide whether the discovery makes sense or not. But if not, a quick conference call can usually clear things up.

Importantly, the pretrial order should also make it clear that court-like discovery motions are not allowed, and this more informal procedure should be followed instead.

Planning and discussion – not motions

So really, there is no need for formal discovery motions in arbitration. Instead, discovery planning should set the basic contours and dates of information exchange.  This is then followed by an informed discussion about the extent of discovery that must be provided.  That way we can balance the cost of getting the information with the need for getting it.

This is all not to say that all these issues are easy or can be treated superficially.  Arbitrators are, for example, required to respect attorney-client privilege, which can involve some fairly complex issues in some cases.  And discovery of electronic information can become technically challenging. But this more informal process suffices for most discovery issues and provides the background needed to know whether there is a need to explore some very specific issues a little further if they arise.

Arbitrating the Patent Case Part XX: Post Hearing Motions

The hearing in your patent arbitration is over, the briefs are in, and you receive the award.  Let’s assume it is not what you hoped.  Not bad, but not great either.

You asserted two patents.  The arbitrator found no infringement of the first patent based on a claim construction you think is just plain wrong.  You are certain the arbitrator relied on a particular embodiment shown in the specification of the patent to limit a broader claim term.  You are disappointed because your arbitrator is quite experienced, having been a patent litigator for twenty years. Still, there it is.  While the arbitrator said in her award she was using the specification to interpret the claim, you are convinced she used it to limit the claim.  While this is a pretty subtle distinction in some cases, you don’t think it is in yours

You did prevail on the second patent, but you are a little disappointed in the amount of damages.  While you would have preferred lost profits on lost sales – who wouldn’t? – you were happy with the royalty rate.  But you think the base is simply mistaken.  This issue was a little confusing during the hearing as there were a few different products that you claimed infringed the patent, but you are confident she either missed a year of sales or one of the products.  There seems to be no other explanation for the amount.

You also question the pre-judgment interest award.  Your proposed amount was based on sales under both patents and for all products.  The amount awarded is, of course, less than if you won on everything, but after checking with your expert, you think the prejudgment interest calculation appears too low and appears uncompounded even though your opponent didn’t object to compounding.

Overall, you think the award is pretty favorable, but not as favorable as it could be.  If this was a trial, you would bring post-trial motion to straighten things out or at least set the stage for an appeal. There is enough at stake to do that.

But, because this is an arbitration you wonder what your options are.  Where do you start?

The rules

Your first order of business is to see what set of rules you are under.  Let’s assume AAA Commercial Rules apply.  The rules specifically address the type of post-award requests you can bring.  Rule 50 provides:

Within 20 calendar days after the transmittal of an award, any party, upon notice to the other parties, may request the arbitrator, through the AAA, to correct any clerical, typographical, or computational errors in the award. The arbitrator is not empowered to redetermine the merits of any claim already decided.  (Emphasis added.)

Is that it, you wonder?  It is.  To understand why, let’s revisit what arbitration is all about in the first place.  The idea of arbitration is to have a knowledgeable decision maker consider and decide a private dispute.  And the process is to be fairly quick, inexpensive and informal.  Thus, by design, there are not to be complex motions, review, and appeal.  Decisions are to be fast, fair and final.  So it is little wonder that the typical post-trial motions available in court are not available in arbitration.

What can be corrected?

With that background in mind, how do your issues stack up in terms of being eligible for post-hearing consideration?

The infringement issue likely provides little hope. The arbitrator has determined the merits of the dispute and found no infringement for one patent.  This was not a matter of a clerical, typing, or computational error.  The arbitrator couldn’t revisit the issue even if she wanted to. If she did, she may be operating outside her authority, which is one of the few grounds for vacating an arbitration award in court.  Save your time and money.  Efficiency and finality will trump you urge to reargue this issue.

What about the mistake you think was made on the royalty base?  That shows   more promise.  If the arbitrator truly made a mistake and overlooked a year or a product, you may well obtain some relief.  Hard as they try, decision makers sometimes do make errors, particularly in situations where accounting can become somewhat complex.  If the arbitrator concludes she “added it up wrong,” she will fix it.

The same is true for the pre-judgment interest award.  If it truly is just a computational error, or maybe even a typo, the arbitrator will likely fix it.  If, on the other hand, it is based on a finding that, for example, a lower interest rate should apply based on the evidence presented, it will stand.

Avoiding the issue

This is probably a good time for some advice on presenting computations in a patent arbitration.  Your side likely has the benefit of a trained accountant or, in a bigger case, even a forensic accounting expert with access to programs and information allowing fairly sophisticated calculations.  The arbitrator probably does not.  Thus, you are far more likely to avoid mistakes if you break your damages down into smaller categories, depending on how the underlying substantive decisions could go.  If, for example, there is an issue whether or not three products infringe, you would want to separate out your proposed damages by product in the event the arbitrator finds some but not all products infringe.  That makes it easy to add up.

The same would be true for prejudgment interest calculations which can become pretty complicated pretty fast, particularly if there are different interest rates for different years and compounding is involved.  The arbitrator is more likely to get things right if you provide the tools to allow him or her to do so.

Think of it as having the arbitrator take a multiple choice test on damages rather than an essay test.

Next up

We will next take up confirming the arbitration award.

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

In 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 Construction.  You 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 judgment.  Parties 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.