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Arbitrating the Patent Case Part XXII: Attacks on the Award

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In earlier articles in this series we followed arbitration involving patent matters from drafting the arbitration clause through the award, motions to “reconsider” the award and, finally a motion to confirm the award.  We now arrive at attacks on the award.

The standard that applies to review of an arbitration award is much more rigorous than appellate review of a trial court judgment.  The whole point of arbitration is to have a quick, relatively inexpensive, final determination of the parties’ dispute.  The Federal Arbitration Act (“FAA”) and most state arbitration acts recognize that.  Because the FAA typically pre-empts state arbitration acts for transactions in interstate commerce – which will almost certainly include your patent arbitration – we will focus on the FAA.

Before we do, however, note that under the rules of most arbitral bodies, you can build in an arbitration appeal.  The newer AAA commercial rules, for example, allow the parties to agree to review of an award by a panel of arbitrators, acting much like an appellate court. But, as a practical matter, you must build that into your arbitration clause if you want an appeal. Nobody is ever going to agree to an appeal after they have won.  We’ll take a look at arbitration appeals in a later article.

Timing

Let’s begin with a timing issue.  You will recall from the last article that a party has one year to seek confirmation of an award.  9 U.S.C. § 9.  A motion to vacate, modify or correct an award must be brought within three months after the award is filed or delivered.  § 12.  So what happens if a party moves to immediately confirm the award?  Does the party wanting to vacate or change the award still get three months, so a confirmed award can later be undone and a judgment on it vacated?

I haven’t seen this be much of a problem as a practical matter. The party seeking to vacate the award usually does so in response to an application to confirm it, so the issue doesn’t arise.  I did once have a state court, applying rules almost identical to the FAA, postpone the hearing on a motion to confirm the award until over 90 days after the award to make sure the other party had a chance to move to vacate the award before it was confirmed.

Grounds for vacating awards

The FAA has only a few specific grounds for vacating the award.  They are:

(1)   where the award was procured by corruption, fraud, or undue means;

(2)   where there was evident partiality or corruption in the arbitrators, or either of them;

(3)   where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4)   where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S. C. § 10. Note first that none of these grounds are that the arbitrator improperly applied the law or that the findings of fact have no support.  To quote the Eighth Circuit, so long as “the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority,” the award must be confirmed.  Gas Aggregation Svcs., Inc. v. Howard Avista Energy, LLC, 319 F.3d 1060 (8th Cir. 2003).

Evident partiality

“Evident partiality” can be a ground for attacking an award in the right case.   For example, in a Second Circuit case, an award was vacated under the evident partiality standard where an arbitrator had reason to believe a conflict of interest might exist, but chose to ignore it and instead erected a “Chinese wall” in his company.  If he had investigated, he would have learned that his company had a significant contract in place with one of the parties.  But he disclosed neither that he had decided not to investigate further nor that he had erected the wall.  The award was vacated.  Applied Industrial Materials Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., 492 F.3d 132 (2d Cir. 2007).

The cases tend to be quite fact specific, so a party considering this ground will need to review all applicable cases in the jurisdiction and the specific facts of the case.

Of course, there is always the danger that a party will learn of a failure to disclose a relationship and keep it under wraps until they see whether or not they won.  Courts don’t like that type of gamesmanship.  The Fifth Circuit held that a party seeking to vacate an arbitration award based on an arbitrator’s evident partiality must object during the arbitration proceedings. Failure to do so results in waiver of its right to object.  Dealer Computer Services, Inc. v. Michael Motor Co., Inc., 11-20053, 2012 WL 3317809 (5th Cir. Aug. 14, 2012).

The district court found that rule that an objection must be made during the proceedings “paradoxical [because] if the arbitrator completely failed to disclose a potential conflict, the objecting party could not know about it in order to object.” But the Fifth Circuit noted that the arbitrator had at least generally disclosed that she had been in an earlier arbitration involving one of the parties.  That was found to be sufficient to provide notice to the objecting party. The Fifth Circuit upheld the award.

Because many courts are willing to define “evident partiality” to include unrevealed relationships with a party, this is one of the more promising grounds for vacating an award.  That law – and the ethical rules – keep diligent arbitrators making disclosures of just about anything that could cause their neutrality to be questioned.

Refusal to hear evidence

This ground seems to be at the heart of some arbitrators’ apparently limitless patience in hearing evidence of dubious value.  Arbitrators often simply take evidence “for whatever relevance it may have, if any,” to be determined later so as not to be accused of refusing to hear evidence.  Still, this ground is not as promising for getting an award overturned as one might suppose.

First, a party would have to show the evidence is “pertinent or material” not just that the arbitrator refused to consider all the evidence proffered.   Second, in AAA Commercial arbitrations, for example, the parties have agreed to the AAA rules which specifically give the arbitrator the power to “determine the admissibility, relevance, and materiality of the evidence offered and may exclude evidence deemed by the arbitrator to be cumulative or irrelevant.”  Rule 34(b).  Given that the parties typically will have agreed to these rules, the arbitrator would have to have fairly blatantly abused this authority for it to become a real issue.

But his ground has recently been applied in a fairly high profile case to vacate an award.  In National Football League Management Council v. National Football League Players Association, No. 15 Civ. 5916 (S.D.N.Y. Sept. 3, 2015), the district court vacated the arbitration award of the NFL Commissioner suspending quarterback Tom Brady for four games over the “inflategate” controversy.  In so doing, he noted that Brady’s counsel had sought to call for examination Jeff Pash, an announced co-lead investigator of the allegations against Brady.  Instead, the Commissioner, serving as arbitrator, refused to compel his examination, finding it would be cumulative of other evidence already submitted.

The court found denial of an opportunity the examine Mr. Pash was fundamentally unfair and violated the FAA.  While recognizing an arbitrator has authority to exclude cumulative evidence, the court found he could not simply do so ipse dixit without indicating “in what respects it would be cumulative.”  The decision is on appeal.

Exceeding authority

Another ground that could be promising in the right case would be an arbitrator exceeding authority.  The arbitrator derives all power from the parties’ contract, so only issues the parties have given the arbitrator power to arbitrate may be decided.  Of course, the parties may expand this authority by actually arbitrating issues before the arbitrator beyond these agreed.  And note that, if the parties’ contract incorporates AAA or other rules, the arbitrator’s power will include those given in the rules unless the parties contract otherwise.

As pointed out earlier in this series, parties will not want to get too elaborate about what is or is not to be arbitrated so that the arbitrator’s authority is unclear.  Otherwise the award will be subject to attack on this ground.

This ground may also be raised to attack a late award.  Many rules or arbitration clauses require that an award be made within a certain amount of time, often 90 days.  Some late awards have been vacated because the arbitrator was without power after the time for issuing the award had run.

There is room for gamesmanship here, with parties complaining about a late award only after it is issued and they lost.  Some state arbitration statutes specifically require that an attack on a late award be made before it is issued.  The FAA does not, but that doesn’t mean the award will be vacated automatically if it is late.  Still, it is best to avoid all this by getting the award issued on time.

Other statutory grounds

The FAA’s other grounds for vacation are fairly esoteric and will not come up very often.  Hopefully, you have vetted your arbitrator or arbitrators during the selection process so they are unlikely to engage in misconduct or write incomprehensible awards.

There are other grounds for attacking awards that have been raised and considered over the years, which we will take up in the next article.

 

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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 XIII: The hearing

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We have addressed the types of patent cases most likely to be arbitrated, formulation of arbitration clauses,  the federal statutes governing arbitration of patent matter, 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 then turned to specifics of the hearing schedule including transcripts, and the form of award to request.  We have now arrived at the point in the process when we begin to address the beginning of the hearing itself.

Final pre-hearing.  In many arbitrations, it will be well worth your while to ask for a final pre-hearing conference to iron out the details of the hearing and the arbitrator’s or panel’s approach.  Some arbitrators routinely set such a session, but many don’t.  Most will be happy to hold them if you request them to.

Another approach I have taken lately is to provide the parties with written guidance as to what to expect at the hearing by way of proceedings, approach to evidence and the like.  Below is a generic version of a communication I have used in past arbitrations.  It was developed with input from a couple of panels of experienced arbitrators.  Of course, your arbitrator or panel may look at things differently, so it is worth finding out.  But this will provide you with a checklist of issues to consider.  Here it is:

_________________

Arbitration Guidelines

Dear Counsel:

I am writing to provide some guidance for the upcoming hearing.  Please bear the following in mind:

We will start the first day at 9 am. We will finish by 5 pm. In subsequent days, if it appears we will need to work longer hours to finish on time, we will.

  • We are set to finish on Friday, May 25th. But we have all set aside Saturday as a “spillover day” if necessary to finish. I will check in with you daily as to our progress toward completing the hearing.
  • Each party will be allowed to make a brief opening and closing if they would like. Please plan not to exceed twenty minutes or so for each side.   It isn’t necessary that you do an opening, particularly if the pre-hearing briefs lay the issues out well.
  • All testimony will be under oath. Witnesses will be asked to “swear or affirm” the testimony they are about to give is the truth, the whole truth and nothing but the truth. If witnesses would rather not take an oath, they can opt to have their testimony taken “under penalty of perjury.” Please let me know if any of your witnesses would rather have the testimony “taken under penalty” rather than swearing an oath.
  • We will proceed by question and answer. I normally will allow some brief redirect to clarify matters from cross. Re-cross is appropriate only if necessary to refine or explain critical points. There is no particular advantage in having the last word. I take notes.
  • The rules of evidence do not apply. The standard of what is allowed into evidence is set forth in Rule 34 of the Commercial Rules of the American Arbitration Association:

(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. All evidence shall be taken in the presence of all of the arbitrators and all of the parties, except where any of the parties is absent, in default or has waived the right to be present.

(b) The 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.

(c) The arbitrator shall take into account applicable principles of legal privilege, such as those involving the confidentiality of communications between a lawyer and client.

  • While not controlling, the rules of evidence often provide some guidance as to admissibility and, importantly, to persuasiveness of certain evidence. For example, rank hearsay subject to no exceptions is not likely to be very valuable in sorting out the controversy. A first-hand account is likely to be more useful. If you want to object based on an evidentiary ground to remind the arbitrator of the weakness of the evidence, you may do so.   But such objections cannot be speaking objections. Stick with basic objections, e.g. lack of foundation, hearsay, irrelevant, etc. Admissibility will still be judged under the arbitration standard for admissibility set forth in Rule 34. I may let you know if a path of inquiry is not helpful and ask you to move on.
  • Leading questions, except as to preliminary matters and on cross, are disfavored. Arbitrators would like to know what the witness knows himself or herself and not what the lawyer would like the witness to agree to.
  • If an exhibit is referred to during an examination without objection, it is considered to be ‘in the record.” If you object to use of an exhibit, please state your objection when the exhibit is first mentioned. This keeps things moving without the “offer/receipt” ritual. Having an exhibit admitted means only that it is part of the record. It will only be given the weight, if any, deemed appropriate even if it is admitted. Please keep track of which exhibits have and have not been used. If the parties want to do so, exhibits not used can be taken out of the exhibit books at the close of proceedings. The lawyers will need to take care of that.
  • You should not assume I will look at any exhibit, even if admitted into evidence, if it has not been used in the examination of a witness or counsel has not expressly stated why I should consider it.
  • Your exhibits should be in three-ring binders, tabbed with the exhibit number. Please don’t use notebooks for your exhibits of over 3” or so. If you have a large number of exhibits, it is better to have more notebooks of a manageable size than large, unwieldy notebooks. Counsel should work to eliminate duplicates of exhibits. It wastes time if the same exhibit has two different numbers depending on which side is referring to it. If the exhibits are voluminous, it would be most helpful for you to email them to me in .pdf form so I can retrieve them on my iPad, too.
  • Please provide me with copies of any particularly important cases or legal authorities you rely on, preferably in alphabetical order by the last name of the first-named party in the caption. I am fine if you just email them to me in .pdf form.
  • One of the benefits of arbitration is that it is fairly informal. This leads to a spirit of cooperation that will keep things moving and keep things inexpensive. Also, because we are in a little more informal setting than a courtroom, it is a good idea to “turn down the volume” a little bit in the presentations. You may be reminded of that occasionally. Please don’t take offense. It often takes lawyers who are used to appearing in court some time to get used to the more informal setting.
  • On the other hand, we won’t be taking depositions either; you are presenting evidence critical to determining the outcome. There is sometimes a tendency because of the informality to go more into probing deposition mode than evidence presentation. You will do well to stick with presentation mode.
  • Another aspect to the informality of the proceedings is there is a tendency to want to chat between breaks. We have to be careful, though. I will not speak with counsel or witnesses about the merits of the case outside the hearing and tend to avoid talking to witnesses and lawyers at all (except for small talk about the weather) when we aren’t all together. Arbitrators would like to be social, but it’s more important that we be impartial, so please don’t take offense if I avoid much conversation. Please advise your witnesses that I’m not being unfriendly, but just trying to be impartial.
  • I may ask questions of the witnesses. This is normal. Some witnesses, unfortunately, have a tendency to try to determine what the arbitrator is getting at and answer so as to “agree” with the arbitrator. Please tell witnesses to answer my questions like any other questions. I don’t want agreement; I just want information. If you think I’ve gotten a wrong impression based on questions asked, you can ask to pose a few more clarifying questions to the witness.
  • Sometimes people don’t know what to call arbitrators. Please call me “Mr. Allgeyer” or “Mr. Arbitrator.”  There is no need to call an arbitrator “your honor.” Don’t worry too much if you don’t get it right all the time. I’ll use Mr. or Ms. Lawyers’ last names during the proceedings, unless it fits to become more informal.
  • It is fine to have beverages during the hearing.
  • We will generally take a break every 1 ½ hours or so. If you or a witness need a break, let me know. There will be no breaks while a line of questioning is pending.
  • We likely will discuss how to handle closing arguments and post-arbitration briefing, if any, during the course of the proceedings.
  • Please refer to AAA Commercial Rule 28 regarding use of stenographer. If either party uses real-time reporting, please arrange to provide that capability to me as well.

I hope these guidelines will help answer some basic questions to make our hearing as comfortable and productive as it can be.   Please feel free to seek any clarification or address any other questions you may have during any final pre-hearing conference or when we are together at the hearing.

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 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 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.