CPR Patent Mediation Task Force Findings and Recommendations

Transcription

1 CPR Patent Mediation Task Force Findings and Recommendations John M. Delehanty Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. 666 Third Avenue New York, NY Direct: (212)

2 Our litigation system is too costly, too painful, too destructive, too inefficient for a civilized people. Former Chief Justice Warren E. Burger

3 Dispelling Myths About Patent Mediation Key Benefits of Mediation Over Litigation Selecting A Mediator Timing: When To Begin Mediation The Mediation Process

4 Dispelling Myths About Patent Mediation 1. Myth: Mediation Is Binding Unlike arbitration, mediation is wholly consensual; either party may discontinue the process at any time. A mediator is not an arbitrator or a judge. A mediator does not render a decision on the merits. A mediator s role is to facilitate the parties own negotiations and, when requested by the parties, to propose settlement solutions. The mediator selection process should reflect this fact.

5 Dispelling Myths About Patent Mediation 2. Myth: Initiating Mediation Is A Sign Of Weakness Suggesting mediation is nothing more than an expression of a willingness to negotiate in a structured setting. Companies should consider becoming signatories to the CPR Corporate Policy Statement on Alternatives to Litigation or the new 21 st Century Corporate ADR Pledge. Signatories to the Pledge agree to attempt resolution of their disputes through mediation or other form of ADR before filing suit. 4,000 companies have signed the Pledge. Companies should include a mediation provision in the dispute resolution clauses of their patent license agreements or similar documents.

6 Dispelling Myths About Patent Mediation 3. Myth: Mediation Requires Full Blown Litigation Discovery It is not necessary to pursue full-blown litigation discovery and motion practice in order to achieve a successful mediation. If the parties have sufficient information from initial discovery or the cooperative exchange of information to evaluate each other s cases, mediation can be effective. Proceeding with full discovery, especially electronic discovery, frustrates a principal goal of mediation, to avoid wasteful litigation expense. The likelihood of finding a smoking gun in discovery is rare. The 80/20 Rule.

7 Dispelling Myths About Patent Mediation 4. Myth: The Parties Can Rely on the Court to Force an Effective Mediation Most federal and state courts require some form of mediation to facilitate settlement. California and Florida have well regarded mediation programs. Some Magistrate Judges get high marks as mediators. However, the overall consensus is that court-ordered mediation often fails to take into account: the timing of the mediation in relation to the status of the litigation; the parties willingness to negotiate; and the impact of compulsion on a voluntary process.

8 Dispelling Myths About Patent Mediation 4. Myth: The Parties Can Rely on the Court to Force an Effective Mediation continued Volunteer mediators on court panels are of varying quality and training and may not be compensated. Mediators who are only part of a check the box effort before trial waste the courts' and litigants' time and resources.

9 Dispelling Myths About Patent Mediation 5. Myth: Mediation With Patent Trolls is Impossible Mediations of patent disputes are complicated by the participation of nonpracticing entities ( NPEs ), commonly known as patent trolls. An NPE almost never has products or services of its own, resulting in an asymmetric patent threat because the patents of the NPE's target are useless as a counter-weight against the NPE. Also, the NPE's lack of products or services make a business solution remote, if not impossible. Many companies, as a matter of policy, refuse to mediate with NPEs. The NPEs participating in our focus groups (admittedly self-selected) said they are eager to pursue mediation and suggested that their corporate targets differentiate between those NPEs that are merely extortionists and those that have valuable patents and legitimate claims.

10 Dispelling Myths About Patent Mediation 6. Myth: Mediation Is Unnecessary If Party Executives Cannot Agree There is no such thing as a "failed" mediation. Even if the dispute is not settled, mediation provides the parties with an opportunity to learn useful information about the merits of their case, as well as their opponent's case, while avoiding huge legal bills. The mediator helps the parties to identify key business concerns, assesses the risks and costs that the dispute poses, and works with each party to realistically analyze its case and develop an appropriate business solution.

11 Dispelling Myths About Patent Mediation Key Benefits of Mediation Over Litigation Selecting A Mediator Timing: When To Begin Mediation The Mediation Process

12 Key Benefits of Mediation Over Litigation 1. Reduced Costs In full patent litigation, parties typically incur substantial legal fees for pleadings, motions, document discovery, depositions, expert witnesses, court filing fees, Markman hearings, summary judgment motions, and trial. The median cost of litigation for a patent infringement suit with more than $25 million at risk is $5 million. (American Intellectual Property Law Association, AIPLA Report of the Economic Survey 2011, June 2011) Mediation, particularly if initiated early, substantially reduces the costs. Although the cost of mediation varies depending on the nature of the dispute and the type of mediation used, it is always a small fraction of the cost of litigation, on average $50,000.

13 Key Benefits of Mediation Over Litigation 2. Speed to Resolution Achieving a speedy resolution is especially significant in patent disputes because patents have a finite useful life. On average, patent infringement litigation takes 2.5 years to reach trial. Many cases can take as long as seven years to reach final judgment. (PricewaterhouseCoopers, PwC 2012 Patent Litigation Study) During litigation, executives often spend weeks, months, and sometimes years participating in discovery and preparing for trial. Parties can begin mediation well before completing all of the steps required in litigation. On average, mediated cases are resolved in less than one year. The preparation for and participation in mediation usually only takes 3 or 4 days.

14 Key Benefits of Mediation Over Litigation 3. Confidentiality During mediation, the parties are not required to disclose confidential company information, unless they choose to do so. Mediation sessions are totally confidential, and, unlike lawsuits, not a matter of public record. The parties decide what will be disclosed to the mediator and what will be disclosed to each other. This is particularly important in patent disputes where proprietary technical information must be disclosed in discovery to determine infringement, and where confidential financial information is used to determine a reasonable royalty or lost profits damages.

15 Key Benefits of Mediation Over Litigation 3. Confidentiality continued Any statements made during mediation sessions are inadmissible as evidence in litigation. The strict confidentiality of the mediation process protects both parties from the disclosure of any proprietary technical or financial information. Similarly, the fact of settlement and the settlement terms are not disclosed, even to the Court.

16 Key Benefits of Mediation Over Litigation 4. Certainty and Finality Reaching a final result in a patent dispute is the most critical factor to the companies involved. The lingering uncertainty of litigation over a lengthy period of time saps legal budgets, ties up the time and attention of executives, and interferes with corporate planning. Mediation can cut through the delay and uncertainty of litigation and allow the parties to reach a definite result, even if imperfect.

17 Dispelling Myths About Patent Mediation Key Benefits of Mediation Over Litigation Selecting A Mediator Timing: When To Begin Mediation The Mediation Process

18 Selecting A Mediator 1. Integrity Respect for the confidentiality of the mediation process. Strict adherence to each party's request that designated information not be shared with the other party. Unwavering neutrality.

19 Selecting A Mediator 2. Patience and Diligence Willingness to listen carefully to each party's presentation of the strengths and weaknesses of its position and that of its adversary and the ability to avoid prejudging the case. Commitment to devoting the time necessary to allow the mediation to succeed. If necessary, the willingness to follow through after the mediation sessions have concluded to help the parties continue their settlement discussions and to ensure that settlement documents are prepared and signed.

20 Selecting A Mediator 3. Testing of the Parties' Assumptions and Creativity After allowing each party to present its case and fully air its grievances, the mediator must have the ability to challenge the parties concerning any unrealistic positions and expectations. After each caucus, the mediator should have the skill to propose creative solutions to solve the parties dispute, including business solutions beyond the scope of the immediate dispute. A mediator should not simply convey one-sided settlement offers to the other party in the expectation that it will ultimately capitulate. "Splitting the baby" is neither creative nor welcome.

21 Selecting A Mediator 4. Experience and Training Parties are more likely to develop trust and confidence in a mediator with a well-established reputation as a mediator. Patent mediators must have sufficient experience to clearly explain the mediation process and make the parties comfortable with it. Since the parties rely on the patent mediator to conduct reality testing, thorough knowledge of patent law and procedure is essential. Although helpful, specific experience with the technology disclosed in the patent is not required. Mediators should regularly attend mediation training programs, not rely solely on their own experience. There is a substantial need for more training of patent mediators.

22 Selecting A Mediator 5. Preparation The mediator must be fully informed about the background of the dispute, the key facts and legal issues, the interests of the parties, and, most importantly, the business context in which the dispute arises. The mediator must be prepared to read the patent and all other relevant documents and to evaluate the infringement and validity contentions of the parties. The mediator must be willing to hold one or more pre-mediation conferences to meet the parties and counsel, establish the ground rules for the mediation and identify the potential obstacles to settlement. If necessary, the mediator should be willing to engage a neutral expert to advise on specific technical issues.

23 Selecting A Mediator 6. People Skills A mediator should have excellent communications skills and be sensitive to cultural issues. A mediator must be able to deal with the personal differences and even outright hostility that often arise in the mediation process. In those cases where parties bring emotional issues to the table, the mediator must be willing to allow the parties to "vent" and tell their stories. The mediator must have the ability to maintain a civilized process and foster harmony among the participants because personal differences inevitably arise not only between the parties but among their respective representatives.

24 Selecting A Mediator 7. Modesty Mediation is about the parties, not the mediator. A mediator should not use process to advance his or her own interests, but to identify and resolve the issues raised by the parties.

25 Selecting A Mediator 8. Former Judges Judging and mediating are entirely different skills. Some former judges are very good mediators; some are not. More important than judicial experience is the amount of mediation training and experience that the former judge has. A former judge is often in a good position to determine the proper point in litigation when mediation should be attempted. A former judge can also provide a generalist s reaction to the dispute and may be able to predict the reactions of jurors at trial. However, former judges must leave behind their judicial robes if they want to be effective mediators. They should clearly inform the parties at the outset that they will not act as decision-makers and will serve solely to facilitate the parties own negotiations.

26 Dispelling Myths About Patent Mediation Key Benefits of Mediation Over Litigation Selecting A Mediator Timing: When To Begin Mediation The Mediation Process

27 Timing: When To Begin Mediation 1. Counsel Should Propose Patent Mediation As Early As Possible Although there are no hard and fast rules about the optimal time for mediation, most focus group participants agreed that mediation in a patent case should take place as early as possible. Early mediation allows the parties to evaluate the strengths and weaknesses of their respective positions, determine their amenability to settlement, explore alternatives to discovery and lay the groundwork for further discussion. Many participants said that mediation should not be confined to either the beginning or the end of the litigation, but should be a continuing process. Many expressed the view that multiple mediations were very useful and often led to a settlement.

28 Timing: When To Begin Mediation 2. The Optimal Time to Mediate The optimal time to mediate is when both parties are unsure about their respective litigation positions. Examples of events which should cause counsel to consider mediation are: significant changes in the parties respective businesses or competitive positions; the filing of a counterclaim which introduces new issues into the case; the impending deposition of a person who does not want to be deposed (e.g., a party s CEO); an interim decision by the Court on an important procedural issue; an early Markman ruling.

29 Timing: When To Begin Mediation 3. Having Sufficient Information It is not necessary to know everything about your adversary's case to have a successful patent mediation. Remember the 80/20 Rule. There are many ways to obtain sufficient information to evaluate the strengths and weaknesses of the party's respective positions other than through full blown discovery. For example: counsel should try to persuade their adversary to provide necessary information voluntarily and, if necessary, seek the assistance of the mediator in this effort; counsel should determine what information is publicly available and use that fact as leverage to request additional information from their adversary;

30 Timing: When To Begin Mediation 3. Having Sufficient Information continued if the information is required to perform an infringement or invalidity analysis, counsel should consider having the confidential information disclosed to a neutral third party (other than the mediator) who can then render an evaluation without disclosing the information; counsel should consider having the mediator review confidential financial information, such as costs and marginal profits, in camera; and counsel could suggest limiting the disclosure of confidential information to one key person at the mediation and to the mediator.

31 Timing: When To Begin Mediation 4. A Markman Ruling Is Not Necessary Before Commencing Mediation The fact that a Markman ruling has not taken place should not be an obstacle to mediation. District courts often get Markman rulings wrong and are reversed by the Federal Circuit. The Markman process is frequently used as a procedural tactic to increase the expense of patent litigation even where the claim terms are not ambiguous. If mediation has not been commenced and if a Markman motion has been made, the optimal time to suggest mediation is when the Markman ruling is pending. That is when both parties experience the highest level of risk and uncertainty.

32 Dispelling Myths About Patent Mediation Key Benefits of Mediation Over Litigation Selecting A Mediator Timing: When To Begin Mediation The Mediation Process

33 The Mediation Process 1. Pre-Mediation Conferences Are Essential The mediator should conduct pre-mediation conferences with counsel and the parties. Pre-mediation conferences provide the mediator with an opportunity to learn about the dispute, explain the mediation process to the parties and set the ground rules; they also enable the mediator to identify any personal or business issues which may be obstacles to settlement. Pre-mediation conferences can also be used to shorten the length of the mediation, particularly if the mediator causes the parties to front load much of the work.

34 The Mediation Process 2. Submissions Written submissions by the parties are essential and should be given to the mediator in advance of mediation. The mediator, after consulting with the parties, can decide whether these statements should be disclosed to both parties and whether they should contain the parties' initial settlement positions. In addition to written mediation statements, some mediators ask the parties to submit PowerPoints, models, videos and expert testimony.

35 The Mediation Process 3. Party Representatives With Full Authority To Settle Must Be Present A mediation cannot be successful unless party representatives with full settlement authority are present. If only lawyers are involved, the likelihood of a resolution is substantially diminished. Mediations are not only about the merits of the patent dispute; they look forward to the parties' respective business interests, not backward to their litigation positions. Business representatives are in a unique position to fashion business solutions which are not directly related to the patent dispute e.g. supply agreements.

36 The Mediation Process 3. Party Representatives With Full Authority To Settle Must Be Present continued If there is another entity not party to the litigation or underlying dispute (e.g., a licensee, an investor, an insurer) to which one of the parties has an obligation, each party should identify all of the stakeholders on its side, speak to them in advance of the mediation, define settlement parameters, and get their buy-in. The telephone is a poor substitute for a party's physical presence.

37 The Mediation Process 4. The Parties Should Be Represented By Persons of Comparable or Equal Authority Parties should bring to the mediation representatives who have equal or comparable status. A party may view lack of attendance by a peer as a signal that the other side has no interest in settling the case. One side may even be insulted (especially if cultural differences exist) by lack of poor attendance. Disclosure of who is attending the mediation is critical; there should not be any surprises.

38 The Mediation Process 5. Opening Statements There is much debate over the merits of including opening statements by each party at the outset of the mediation. There is a recent trend in favor of foregoing opening statements in patent mediations. This trend may be short-sighted. The parties and the mediator should carefully weigh the advantages and disadvantages of opening statements in the particular case and reach a consensus at the pre-mediation conference.

39 The Mediation Process A. The Advantages of Opening Statements Opening statements allow the parties to try to convince the other side of the merits of their respective positions. Joint sessions often provide the parties with their only opportunity to directly address the principals of the other side without having their comments filtered by outside counsel. Opening statements allow the parties to vent". Allowing the parties to express themselves at the outset, even if time consuming, may lead them to proceed with the mediation in a more reasonable frame of mind, which may facilitate a settlement. The mediator can also question the parties in front of each other after the opening statements and use the information stated as a reference during later private caucus sessions.

40 The Mediation Process B. The Disadvantages of Opening Statements On the other hand, in some cases, opening statements can poison the atmosphere of the mediation, particularly if they merely echo litigation driven positions. Posturing by litigators in opening statements is universally seen as counterproductive. Argumentative opening statements harden positions and make compromise more difficult. They also tend to lengthen the process and increase its expense. When parties from outside the U.S. are present, an aggressive opening statement can also cause a party to lose face and, therefore, become an obstacle to settlement.

41 The Mediation Process C. Opening Statement by the Mediator A possible solution to the opening statement dilemma is to have the mediator present the opening statement. The mediator can explain the process and relevant issues (i.e., confidentiality) and can present a neutral description of the parties' positions without editorializing. A properly prepared opening statement by the mediator sets the tone for the mediation process to follow: it acknowledges the parties differences and sets a conciliatory tone.

42 The Mediation Process 6. Private Caucuses Private caucuses between the mediator and each of the parties are the core of the meditation process. Private caucuses are very time-consuming; the mediator should therefore educate the parties about the need for flexibility in their time commitments. The mediator should try not to waste the parties time; he or she should leave one party with homework such as preparing the outline of the settlement papers. While privately caucusing with one party, the mediator should regularly report to the other party on the status of the caucus; it is counterproductive to leave the excluded party in the dark for extended periods of time. The mediator should always present the parties' respective settlement positions to each other in the most positive light and should always try to present creative solutions to bridge the gaps between the parties.

43 The Mediation Process 7. A Written Binding Agreement Counsel should have draft settlement papers prepared before mediation begins so that wordsmithing delays will not be an obstacle to a successful settlement agreement. The drafting of boilerplate provisions relating to confidentiality, termination of the litigation, releases, etc. should not await the conclusion of the mediation. Importantly, if the patent dispute is to be resolved by the granting of a license, the licensor should have its standard terms readily available for review by licensee's counsel. Even if the terms of settlement have been generally agreed upon, no one should leave the mediation until an enforceable agreement has been signed by both parties.