Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Whenever the topic of alternative dispute resolution would come up, one of my partners, who’s now retired, loved to growl: “If you want quick and cheap, flip a coin.” He was right. On the other hand, slow and expensive does not always meet your client’s needs either. One way to walk the middle ground between resolving a dispute by chance or by all of the resources of the judicial system is arbitration. Because the arbitration is governed by the details of whatever agreement is reached between the parties, the process is what the parties make it. And when it comes to arbitrating a patent infringement dispute, that agreement can result in a process that can be fairly quick and cost effective � and much better than flipping a coin. The first issue to consider when deciding how to arbitrate a patent dispute is whether the arbitrator’s award will be binding or nonbinding. I do not favor nonbinding arbitration because this approach adds cost with little to show for the expenditure. When the result is not binding, litigators often focus less attention on the process. In contrast, a binding award will usually guarantee that all parties pay attention and treat the process with respect. For similar reasons, I do not favor appealable awards. If the parties cannot live with a nonappealable award, however, consider an agreement that places limits on an appellate court’s review. For example, you might limit the review to issues of law or fact but not both. Alternatively, consider whether you would prefer the reviewing body to apply the standards of review set forth by the Administrative Procedures Act. Regardless of whether the award is appealable, parties will have the right under the Federal Arbitration Act to have the award vacated if particular injustices occur, such as fraud. Another threshold issue to consider is whether the arbitration will be coordinated by the parties or by an administrative association. While it may be cheaper to handle administration without outside assistance, I favor using a third party, such as the American Arbitration Association, because such an association has experience and facilities and can limit ex parte access to the decision maker. Regardless of whether an administrative association is brought in, it is a good idea to use its rules largely because the federal statutes are inadequate for structuring an arbitration. For example, the AAA’s patent arbitration rules have many useful procedures (along with a few you might want to do without). Perhaps the most important matter to be considered when crafting an arbitration agreement is what issues will be submitted to the decision maker. Prior to 1982, there was some doubt about whether patent validity issues could be arbitrated at all. But federal legislation enacted that year (codified at 35 United States Code �294) erased all such doubts. While most patent arbitrations will likely include issues of infringement or invalidity or both, not every issue that may arise in patent litigation may need to be considered. For example, if the dispute is between parties with an otherwise good business relationship, it might make sense for those parties to agree not to press the hot-button issues of inequitable conduct and willful infringement. Also, parties to a patent cross-license may agree that disputes about whether an activity or product is covered by the license are to be decided without consideration of invalidity issues. This ability to control the issues is one of the best aspects of voluntary arbitration. While the parties could contract for a procedure that allows dispositive motions, I strongly believe that such motions should have no place in an arbitration. To further avoid any doubt about such motions, I would encourage the drafters of an arbitration agreement to explicitly make clear that these motions will not be allowed. Considerable attention is often paid to how many arbitrators will be used. A single arbitrator will be cheaper and scheduling issues will be easier. On the other hand, a panel of arbitrators can share thoughts, while debate among them may help to focus and resolve disputed issues. Regardless of the number chosen, the arbitration agreement should set forth the manner of selecting the arbitrator or panel. For example, I favor selecting by mutual agreement (with a deadline for agreeing) or, if agreement is not reached, by using a default provision from one of the administrative associations. If three arbitrators are to be used, each side typically appoints one, with the third chosen by the two arbitrators from a list of qualified neutrals. In my experience, the best aspect of arbitrating patent matters is the ability to select the qualifications that the arbitrator or arbitrators must possess. For example, you can make it a condition of serving as an arbitrator that the person have any combination you want of specific scientific education, patent prosecution experience or legal expertise in patent infringement litigation. Attention to these qualifications can reduce anxiety about the rationality of the outcome and increase the speed of the presentation. How much case-management authority you want to give your arbitrators is another issue worth considering. If there is going to be discovery (and I favor at least some discovery), who sets the limits on interrogatories, document requests and depositions? Limiting or eliminating discovery mechanisms, such as depositions, can save money and get you to a hearing more quickly. But it can also lead to interesting surprises during the arbitration hearing. I prefer arbitration agreements that include discovery limits, including a standard for allowing the arbitrator to extend those limits. I do not favor an open-ended duration for the arbitration. A tight schedule controls costs and forces the parties to focus on the issues that matter. Bifurcation of a threshold issue may be desirable if this issue can be anticipated. Otherwise, bifurcation may be an option left to the discretion of the arbitrator. In my opinion, it is best if the agreement contains deadlines for concluding discovery, conducting the hearing and issuing the award. It is also a very good idea to append a mutually agreeable confidentiality agreement and to include provisions for third-party discovery. If there is discovery, there inevitably will be discovery disputes. It is best to incorporate into the arbitration agreement a procedure for resolving those disputes. Depending on the complexity of the dispute, the parties may want to agree on any number of details relating to the hearing. For example, it may be useful to set the length of the hearing (in days or weeks), the location of the hearing, whether the parties will submit pre-hearing briefs, whether the parties will designate witnesses before the hearing begins, whether there will be a transcript, the maximum number of witnesses, whether the parties will submit post-hearing briefs and the length of any submission. It also may be useful to explicitly set forth the evidentiary standards that the parties want applied. For example, if you want hearsay to be excluded, you had better say so. It’s also wise to set a deadline by which the arbitration award must be issued and the law that will govern the decision. As to the award itself, it is wise to agree beforehand as to the form and length. Simply put, there is no good reason for paying the arbitrators to write a treatise when a five-page decision will suffice. It also is wise to specify the scope of the award. The agreement to arbitrate should address injunctive relief, attorney fees, enhanced damages and costs in order to avoid any ambiguity as to the powers of the arbitrator. Arbitrators can be creative in fashioning an award, sometimes going beyond what a court could do. For example, an arbitrator may be able to hear a licensee’s challenge to the validity of a licensed patent for which the licensee continues to pay royalties. On the other hand, an arbitrator may not be able to award some forms of relief available from a court, such as correction of inventorship or other errors in a patent. The arbitrators may make findings on such issues that are binding on, and determinative of, the dispute between the parties. But these and other findings may not have any effect outside of the arbitration itself. Mark D. Rowland is a Palo Alto-based partner in the Fish & Neave IP Group of Ropes & Gray. Also contributing to this article were counsel James T. Canfield and associate Christopher J. Place, both of whom also work in the firm’s Palo Alto office.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.