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Companies increasingly turn to ADR to resolve IP disputes

Keeping cases out of the courtroom offers several advantages

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In today's uncertain economy, companies are using alternative methods to resolve all kinds of disputes, including those involving intellectual property issues.

The reasons for using mediation or arbitration are numerous. They can be less costly, quicker and achieve a more global settlement.

"It's enormously expensive to litigate patent matters, so clearly that has people thinking of lower cost procedures," said Thomas Barton, a professor at California Western School of Law and coordinator for the National Center for Preventative Law.

Barton pegs the average cost of litigating a patent dispute between $1 million or $2 million.

There are other considerations besides money.

"The big advantage of (alternative dispute resolutions) is you can maintain the confidentiality of a lot of your financial and technical information," said intellectual property attorney Howard Wisnia, a member of Mintz Levin Cohn Ferris Glovsky and Popeo P.C. "If you have a significant issue that gets tried in litigation, most times the judge will not close the courtroom, and it will become public information."

Mediation also can help prevent an acrimonious relationship from developing between two companies that may need to interact in the future.

"There are many advantages to traditional litigation, but often it's an emotionally draining and contentious procedure," Barton said. "People get angry. Sometimes it puts quite a strain on personal and business relationships to fight someone in court.

"In the hands of a creative mediator or facilitator, they can resolve the dispute so that people can easily work together in the future."

With a company's intellectual property being among its most valuable assets — and perhaps its most complicated — officials don't want just anyone handling the settlement process.

A general unease about the IP knowledge of mediators has created some resistance to the use of alternative dispute resolution (ADR) techniques.

But there is a growing list of mediators well versed in intellectual property matters.

California Western School of Law professor Jamie Cooper, co-director of the school's Center for Creative Problem Solving, said companies going to mediation have the freedom to choose the facilitator they want to use — unlike a trial — allowing them to pick one knowledgeable in patent matters.

"If you're dealing with the court system, then you're dealing with generalist judges who may or may not have the (IP) background," he said.

The use of ADR can hasten the settlement of a dispute, which is especially helpful in cases that involved patented technology.

"Given how fast technology changes, the delay can really start to impair the value of that patent right because you're eating up the best years of that patent," Barton said. "If you can turn to ADR and get it resolved in six months, there's opportunity to gain value in the market."

Additionally, mediation allows the two sides to consider a more global solution. While settling a dispute concerning one particular patent, the parties can agree to trade or exchange licensed technology in other areas, Mintz Levin's Wisnia said.

"They can reach broader business agreements and not just resolve the dispute at hand," he said.

Settlements can be worked out so they apply to multiple jurisdictions as well, an important factor when IP is in use in more than one country.

When going with arbitration, finding the right venue is key, according to Cooper.

"Intellectual property is important to the American economy," he said. "(You) want to make sure there's an equal playing field and that IP rights are enforceable. In context of economic growth, pursuing IP rights and making sure they pay off is increasingly important."

There are other alternatives to trial besides mediation and arbitration.

A federal district court in Northern California has a voluntary Early Neutral Evaluation (ENE) program that enables the parties to consult with an expert, who gives both sides an objective prediction as to how the case might play out in court.

The ENE program can serve as a reality check for people if the neutral expert shows them their case isn't that strong.

Disputing parties also can hold a mini trial, Barton said. This process involves an abbreviated mock trial, where lawyers and clients from both sides are present. The lawyers make the equivalent of an opening statement and a persuasive argument.

"It is for the purpose of clients to hear the other side of the story in a very persuasive way; to hear the other side's lawyer speak in court," Barton said.

Sometimes, companies may choose to go to trial so they can keep the full protection of the court, including discovery and the right to appeal.

In some cases, litigation is preferred because arbitration — which is effectively private litigation, Wisnia said — can be just as expensive as a trial and mediation isn't an option.

"If they're really bet-the-company issues or one party is trying to block the other from the market, it's very difficult to mediate those cases," Wisnia said.

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