Feature Commentary: Alternative Dispute Resolution: Choosing between arbitration and mediation

By George H. Spencer

I.    Introduction

It is safe to say that almost all industrial businesses are involved in things that deal with intellectual property, and it is just as safe to say that sooner or later many if not most such businesses will find themselves in a situation where there is a disagreement with another business as to who has what rights in the intellectual property.  It would be nice if those problems would go away, but this does not happen in the real world so such disagreements must, in some manner or other, be resolved. So what are the possibilities? The best solution is for the parties involved to sit down, to talk it out, and to arrive at some solution; but this does not always happen, so someone else is called upon to resolve the problem.  Who would that be? The first thing that comes to mind is that one has to go to court and let a judge decide.  But there are other and often far better ways.

Everyone knows that court litigation, particularly in theUnited Stateswith its elaborate system of so-called “discovery” which allows each party to dig into the internal affairs and papers of the other party or parties, not only can be but usually is enormously expensive. Moreover, the proceeding is public, which is something that is often not to the best interest of the parties. So what has developed over the years is what has come to be known as “Alternative Dispute Resolution” which itself can take either of two quite different tracks. One is arbitration and the other is mediation.

II.   Arbitration

Arbitration is a proceeding where the parties choose the arbitrator. There are several organizations; some national, such as the American Arbitration Association in the United States, and some international, such as the World Intellectual Property Organization which is a branch of the United Nations.  Each maintain a list of technically, legally and, one would think, temperamentally qualified persons who could serve as arbitrators, and the parties can select an individual who appears suitable. The parties can decide when and where to conduct the arbitration proceeding and what guide lines the proceeding should follow. The proceeding is not open to the public, but it is a formal one in that the parties may call witnesses and present various evidence to the arbitrator who must observe the usual rules of conduct required of judges.  That is to say, the arbitrator cannot talk to each party individually but must conduct all proceedings with all parties being involved.  The decision of the arbitrator, which is binding on the parties, is generally not appealable to the courts as otherwise arbitration would be the start of, rather than in lieu of, court litigation.

A major advantage of arbitration as opposed to court litigation is that the parties do have more control of how the case is to proceed, and the fact that it is a private rather than a public proceeding is often of major significance, particularly if the parties have on-going business relationships in other areas and do not wish to let it be known that they have a disagreement in one particular matter. Moreover, arbitration tends to be significantly less expensive than court litigation, and it can frequently be resolved more quickly than if the matter were before a court.

There are, to be sure, some limitations to an arbitration proceeding. For example, if the matter involves a patent, the decision of the arbitrator has no effect on the validity of the patent, that is to say, the arbitrator cannot declare a patent to be invalid, though the decision can say that, for the purpose of that proceeding the patent is not a valid one. This leaves the patent fully in force for all purposes other than the matter at hand. Therefore, if a party which is accused of infringing a patent wants that patent officially invalidated, the only way to achieve that result would be to pursue litigation in court.

III. Mediation

Let us now turn to the other track, namely, mediation, which is a totally different type of proceeding, in that it is the function of the mediator – or, as I prefer to call it, the facilitator – to see if a way can be found for the parties to reach an agreement. The one who is to act in this capacity can generally be found in the same way as an arbitrator, though at times the parties, or more often their attorneys, may be aware of a pool of appropriate individuals.  Basically, we are here dealing in a situation where the parties are unable to reach an agreement and where it takes the participation of a neutral individual who might, after having spoken to each side individually – the concept of “shuttle diplomacy”, reminiscent of peace settlement between nations at war, comes to mind! – be able to suggest a way that may not have occurred to either party. The entire proceeding is confidential, and nothing said or done during the mediation can, should no settlement result, later be introduced in the course of a court proceeding.

I find that being  a mediator or facilitator is far more challenging, and ultimately far  more satisfying,  than being an arbitrator, because one must combine the functions of a schoolmaster, a parent, a psychologist and possibly a clergyman to learn what it is that each party really wants, and what each party will settle for. Here we are dealing not just with legal positions – whether a patent is valid or not might be less important than achieving a solution that will  result in a settlement that avoids litigation, be it by way of a license, a modification of the product which is said to infringe a patent, or some other alternative. Moreover, even if a mediation proceeding is not totally successful, it can frequently resolve some of the issues at hand, which, should the matter be litigated later, renders such litigation less complex than otherwise.  As I have had occasion to point out – in mediation, the parties have a far greater influence on the outcome of the proceeding than if the issues  were decided by way of  litigation or arbitration, where the parties generally have close to no control over the ultimate outcome.

IV. Conclusion

There exists an enormous amount of literature dealing with both arbitration and mediation, and it is obviously not possible to cover all points in a few paragraphs. It is, however, possible to alert businessman and lawyers representing them to the fact that alternative dispute resolution, particularly if it is entered into voluntarily by the parties rather than being forced on them by a court order, can bring with it substantial savings in time, money, and the expenditure of human resources that would otherwise be needed to engage in a long and stressful court battle.

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