Report of the CPR Patent Mediation Task Force: Effective Practices Protocol
January 28, 2013
III. REPORT AND RECOMMENDATIONS
Recommendations for Initiating the Mediation Process
Recommendations for Conducting and Participating in Mediation
Recommendations for Mediation With Non-Practicing Entities
PATENT MEDIATION TASK FORCE
In 2010, the International Institute for Conflict Prevention and Resolution (CPR) formed the Patent Mediation Task Force to examine the benefits of mediation in resolving patent disputes, and to identify and overcome the barriers to the effective use of mediation.
As a nonprofit alliance of global corporations, law firms, scholars, and public institutions dedicated to the principles of commercial conflict prevention, CPR has long been a pioneer in seeking improvements to private resolution in disputes involving intellectual property and patents.
The Task Force was convened in response to current patent settlement rates, which demonstrate that mediation continues to be underutilized in patent disputes. The Task Force’s main objective was to analyze methods and solutions for improving the use and efficiency of mediation as an alternative dispute resolution (ADR) in patent disputes.
To achieve their goal, the Task Force formed three subcommittees to examine mediation best practices from each of five stakeholder perspectives: in house-counsel/business people; outside counsel; mediators; judges; and provider organizations. Each subcommittee focused its evaluation on one of three distinct topics: pre-mediation, mediation, and unique issues in patent cases. They organized focus group meetings comprised of a variety of participants and used survey tools to gather facts about their respective topics. The subcommittees consolidated their findings into a best practices protocol that was then vetted by in-house counsel, attorneys, and leading ADR practitioners.
The Chair of the Task Force is Manny W. Schecter, IBM Chief Patent Counsel. The subcommittee members are:
Harrie Samaras (Chair)
Robert F. Copple
Anne B. Kiernan
Russell E. Levine
Phillip C. Swain
Kevin Casey (Chair)
Kenneth R. Adamo
Hon. Edward N. Cahn
Hon. John S. Martin
Robert T. Tobin
Unique Issues in Patent Cases
John M. Delehanty (Chair)
Bruce G. Bernstein
M. Scott Donahey
Don W. Martens
Hon. Paul R. Michel
Steven W. Miller
Maxim (Mac) H. Waldbaum
John K. Williamson
Thomas F. Fleming
Each subcommittee of the CPR Task Force held an initial meeting to identify prospective participants who could comment on and discuss their experiences with mediation. Each subcommittee then conducted between 3 and 8 teleconferences with a total of approximately 80 participants who were comprised of in-house counsel, outside litigators, mediators, judges, and representatives from non-practicing entities (NPEs). A total of 15 teleconferences were held between January and April 2012.
Each subcommittee chair prepared an agenda based on the subcommittee’s focus topic and a list of targeted questions to send out to participants in advance of each teleconference. On average, the meetings lasted between 1 – 2 hours and the chairs acted as moderators in order to steer the discussion and collect survey responses.
Out of the 80 participants, approximately 15 participants were in-house counsel, 26 participants were outside litigators, 22 participants were mediators, 15 participants were judges or former judges and 2 participants were representatives of NPEs.
The subcommittee chairs had each teleconference transcribed. After the final teleconference, each chair compiled and summarized the results of their discussions into a memorandum. The Task Force
held a meeting in June 2012 to discuss these results and begin drafting a report based on the input and recommendations received from participants.
The following report is the culmination of the Task Force’s project: the development of an “Effective Practices Protocol” (EPP) to highlight and promote the strengths of patent mediation as a means for providing an early resolution of patent disputes and saving companies from wasteful litigation costs.
III. Report and Recommendations
the Mediation Process
- The Parties To The Dispute Must Be Fully Educated About The Mediation Process
Parties to a patent dispute may resist mediation simply out of fear of the unknown, or because of a misunderstanding about the nature of the mediation process. To enable their clients to make an informed decision about the use of mediation, counsel should fully educate them about the process in the following ways.
- Mediation Is Not Binding And Has Many Advantages Over Litigation
Clients should be informed at the outset that the notion that mediation is “binding” is a myth. Unlike arbitration, mediation is wholly consensual; either party may discontinue the process at any time and the mediator does not render a decision on the merits. Clients should also be advised of the many potential benefits of mediation, including substantially reduced legal expenses, speed to resolution, and the avoidance of the disclosure of confidential company information. These benefits are 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. Even if these benefits do not materialize, or a settlement is not reached during mediation, the process enables each party to assess the strengths and weaknesses of its legal position and that of its adversary and to explore business solutions which may reach fruition at a later date.
- Mediators Are Not Arbitrators Or Judges; Nor Are They Mere Conduits For Self-Serving Settlement Proposals
Clients should also be informed about the mediator’s function. A mediator is not an arbitrator or a judge or a mere conduit for the parties’ positions. He or she should not be expected to simply convey one-sided settlement offers to the other party in the expectation that it will ultimately capitulate. A mediator’s role is to facilitate the parties’ own negotiations and, when requested by the parties, to propose settlement solutions. Clients should realize that senior executives with settlement authority must fully participate throughout the mediation; anything less would be correctly perceived as an unwillingness to compromise. Lack of full participation by senior executives also increases the risk that settlement will not be achieved because resolution of a complex patent dispute requires that the parties fully understand their respective positions, business needs, and opportunities for compromise.
- Patent Mediation And Patent Litigation Are Completely Different Species
Clients should be made aware that litigation and mediation in patent cases have very different objectives. One of the principal goals of litigation is to determine which party is right and which party is wrong (e.g., is the patent valid; is it infringed and, if so, what is the proper measure of damages?) In contrast, the purpose of mediation is to find a business solution to the parties’ dispute without necessarily determining which party is right and which is wrong (e.g., through a license or other business arrangement, which satisfies the interests of both parties.) It is essential that the parties understand the distinction between these two methods of dispute resolution from the outset because it affects their choice of a mediator, their decisions about who will attend the
mediation and their expectations about the process.
- Despite Its Drawbacks, Litigation Can Be A Useful Tool For Mediation
Litigation in patent cases does have purposes other than winning at trial, which can be helpful in the mediation process. It enables the parties to discover facts which they may not have known, such as the existence of prior art, the actual operation of the infringing device or method, and the factors relating to the calculation of a reasonable royalty or lost profits. Litigation may also clarify the meaning of any unclear terms in the patent claims which will have a bearing on validity and infringement.
Although these attributes of litigation are attractive in theory, in practice they often lead to delay and expense, driving up the cost of a typical patent case to over $5MM and the time to trial to over 3 years. It is not necessary to pursue full-blown litigation discovery and motion practice in order to achieve a successful mediation.
- Initiating Mediation Is Not A Sign Of “Weakness”
When discussing mediation with their clients, counsel must dispel the common belief that proposing mediation to an adversary is a sign of “weakness.” This is a myth. Suggesting mediation is nothing more than an expression of a willingness to negotiate in a structured
- Use the CPR Corporate Policy Statement on Alternatives To Litigation©
One of the ways that counsel can overcome this perceived obstacle to mediation is to suggest to their clients that they become signatories to the CPR Corporate Pledge. The CPR Corporate Policy Statement on Alternatives to Litigation©, which has been signed by over 4,000 companies and their subsidiaries, was developed in the 1980s specifically to overcome the concern that a party’s suggestion of mediation (or other form of ADR) would be seen as a sign of weakness. The Corporate Pledge compels the signatories to attempt resolution of disputes through ADR before filing suit. The names of the companies which have signed the Pledge are available on CPR’s website, http://cpradr.org/About/ADRPledges/CorporatePledgeSigners.aspx. In-house counsel can refer to this directory to see if the other party to the dispute is a signatory before initiating
- Use The Court (With Caution) To Support Your Mediation Initiative
Courts in many jurisdictions have attempted to remove the stigma of “weakness” associated with initiating mediation (and also to clear their dockets) by mandating the use of this process. Courts began to compel mediation to facilitate settlement and to overcome parties’ reluctance to reveal to their adversaries any suggestion that they question the strength of their legal
positions. Today, many federal and state courts require some form of mediation (see http://www.adr.org/aaa/ShowPDF?doc=ADRST G_011813). Although many of these programs are successful, the compulsion of mediation by Courts in patent cases has received mixed
reviews from focus group participants in the Task Force.
- Use Magistrate Judges Where Available; Be Wary Of Unpaid “Volunteers”
The consensus of focus group participants was that court-ordered mediation often failed 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 completely voluntary process. Coercion by a court to mediate when the parties are not ready to settle can cause many parties to simply go through the motions and not put much effort into the procedure. In addition, volunteer mediators on court panels are of varying quality and training and may not be compensated, factors which often lead them to achieve unsatisfactory results. Mediators who only encourage a “check the box” effort before trial are often wasting the court’s and litigant’s time and resources. This criticism of volunteer mediators does not generally apply to Magistrate Judges. The use of Magistrate Judges who have significant experience in patent cases can help assuage parties’ resistance to mediation and their concerns about appearing “weak.” Mediation of patent cases by Magistrate Judges is well known and accepted in many jurisdictions (e.g., Delaware) and many parties consider it to be a useful step in the litigation process. Referrals to experienced patent mediators are
also available from CPR (http://cpradr.org/FileaCase/CPRsNeutrals.aspx); JAMS (http://www.jamsadr.com/professionals/xpqProfResults.aspx?xpST=ProfessionalResults);
and AAA (http://www.aaamediation.com/
- Make Sure The Mediator Spells Out The Ground Rules
Mediators themselves can also significantly reduce parties’ fears of appearing “weak.” Experienced patent mediators can help the parties become comfortable with the mediation process and overcome any resistance or misconceptions. Confidential pre-mediation conferences between the parties and the mediator to set expectations and build trust were often cited by focus group participants as contributing to the likelihood of a productive mediation. Mediators should clearly spell out the “rules of engagement” and provide structure to what parties often perceive as an amorphous procedure. This is especially appreciated by and helpful to executives with engineering backgrounds who usually play a large role in the outcome of patent cases.
- Use Mediation Provisions In Patent License Agreements
Perceptions of weakness can also be avoided if counsel expressly includes a mediation provision into the dispute resolution clause of a patent license or other similar agreement. This can be mimicked after one of the CPR Model Mediation Clauses (http://cpradr.org/
Resources/ALLCPRArticles/tabid/265/ID/635/CPR-Model-Clauses-and-Sample-Language.aspx). While this option will not work with alleged infringers who have no preexisting contractual relationship with the patent owner, such a provision should not be overlooked in cases where there is such a relationship in place. Finally, once the mediation begins, any pre-existing issues about the strength or weakness of the case of the party
proposing it become irrelevant and are rapidly superseded by the actual positions of the parties.
- Before Initiating Mediation, Use Early Case Assessment And Decision Trees
Early Case Assessment (ECA) is a conflict management process designed to facilitate informed and expedited decision-making at the early stages of a dispute. It is an excellent tool to use in advance of commencing mediation. The process calls for a team working together in a specified time frame to: (a) gather the important facts and law relating to the dispute; (b) identify the key business concerns; (c) assess the risks and costs that the dispute poses for the company; and (d) make an informed choice or recommendation on how to handle the dispute. A related process is the use of Decision Trees. Decision Trees demonstrate the economic impact of litigation strategy and are particularly useful in patent cases as a tool for counsel to communicate effectively with clients about the costs associated with the various steps in the litigation process and the likely outcomes of their strategic decisions.
- ECA Helps The Parties To Focus On The Broader Business Context, Not Just The Specific Dispute
Most focus group participants felt that the use of ECA or Decision Trees enhances the likelihood of success of a mediation. Both methods increase the level of preparation for mediation, as well as cause the parties to focus on business issues beyond those that are directly relevant to the dispute. In patent cases, with or without licensing potential, mediations often focus on business solutions, and the use of ECA and Decision Trees ensures a thorough analysis of the available business options. In addition, ECA and Decision Tree processes provide the parties with a broader business context against which to weigh the advice of patent litigation counsel and the judgment of the executives directly involved in the dispute. These methods provide the decision-makers with objective criteria for evaluating the settlement proposals offered by the other side.
- When Selecting A Mediator, The Parties Should Focus On Mediation Experience and Skill
One of the benefits of private mediation is that the parties themselves select the mediator. When the parties choose the mediator, even if the choice is made from a list of court-approved mediators or from lists provided by CPR, JAMS or AAA, the mediation has a better chance of success. Even more desirable is for the parties to select the mediator from lists which each of them has prepared. Mediators must be fully informed about the background of the dispute and should understand the key facts and legal issues, the parties, and the business issues. Patience, optimism, persistence, neutrality, and good listening skills are all necessary qualities for a mediator. Focus group participants strongly preferred mediators who explored the nuances of the case, allowed the parties to fully express the strengths and weaknesses of their respective positions, and challenged the parties concerning unrealistic positions and expectations. Mediators are expected to work diligently with the parties and propose creative solutions to their business problems. Participants universally criticized mediators who simply conveyed settlement demands and responses back and forth between caucus rooms and tried to force the parties to meet somewhere in the middle. All agreed that mediation should not be used to force one side to capitulate.
- The Mediator’s Integrity And Ability To Elicit The Trust Of The Parties Is Critical
Selecting a mediator with a well-established reputation is also important because the parties are more likely to develop trust and confidence in such a mediator as well as in the process. Other necessary attributes for a mediator include: (a) integrity, which includes unwavering neutrality and the ability to convince the parties that their confidential communications will be respected; (b) excellent communications skills; (c) a commitment to devote the time necessary to allow the mediation to succeed; (d) a willingness to work with the parties to develop a mediation process that is effective for their situation and to implement it; (e) sensitivity to cultural issues; and (f) a willingness to follow through after the mediation session to help the parties continue their settlement discussions and to ensure the formal settlement documents are prepared and signed.
- Mediation Skills Trump Technical Skills In A Mediation
There was a general consensus among focus group participants that in order to be successful, a mediator in a patent case should have strong mediation skills, experience mediating patent cases, and a thorough understanding of patent law and patent litigation. Specific experience with the technology disclosed in the patent is not essential unless the dispute turns entirely on technical issues or the parties have requested an evaluative mediation. Moreover, with the parties’ consent, mediators can engage neutral experts to advise them on specific technical issues. A mediator who does not have strong mediation skills, notwithstanding his or her thorough knowledge of patent law, is unlikely to be successful because, as noted above, the purpose of mediation is to reach a consensus, not to render a judgment on the law. Conversely, since parties often rely on the mediator to conduct reality testing (e.g., asking probing questions) and to provide a reasoned explanation as to why they should alter their proposals, a mediator with strong mediation skills, but little or no patent experience, will be at a disadvantage. The optimal patent mediator combines both sets of skills.
- The Mediator Must Be The “Adult” In The Room
It is important that the mediator have strong “people” skills, i.e., the ability to deal with the inevitable personal differences that arise in the mediation process. An excellent way to exercise these skills is to conduct pre-mediation conference calls with counsel and the parties to expedite the mediation process and provide the mediator with an opportunity to explain it to the parties. They will also enable the mediator to assess the personal issues which may interfere with achieving a settlement. For example, in those cases where parties bring emotional issues to the table, focus group participants appreciated mediators who could help them deal with those issues by permitting some amount of “venting” and allowing the parties to “tell their stories,” before delivering reality testing and focusing on the business issues. Since internal differences can arise among the representatives of the parties, having a mediator who can maintain a peaceful process and encourage conciliation within a group during the mediation is essential.
- Former Judges Must Learn To Become Settlement Facilitators And Leave Their Judicial Robes Behind
Focus group participants agreed that former judges can be effective mediators if they have mediation training and experience. A former judge may add an extra layer of credibility, which makes clients more comfortable with the process, and is often in a good position to determine the proper point in litigation when mediation should be attempted. Former judges can also provide a generalist’s reaction to the case and some may be able to predict the reactions of jurors at trial, a perspective which is very helpful in reality testing. However, even those former judges who are committed to using mediation skills (rather than judicial skills) to mediate patent cases are often expected by the parties to predict who will win and who will lose and, if favorable to the party making the request, convey this message to the other side. This expectation clearly defeats the purpose of mediation. Former judges should disabuse the parties at the outset (i.e., in pre-mediation calls and the joint session of the mediation) that they will act as decisionmakers and emphasize that their role is solely to facilitate the parties’ own negotiations.
- Counsel Should Propose Mediation As Early As Possible
Although there are no hard and fast rules about the optimal time for mediation, most focus group participants expressed the view that mediation should take place as early as possible, when the parties have sufficient information to evaluate the strengths and weaknesses of their positions and before their views have been hardened by the emotion, and in some cases hostility, that is generated by the litigation itself. It is also advantageous to the parties to seek a mediated resolution before litigation expenses begin to mount.
Commencing mediation at the outset of a patent case may shed light on the parties’ amenability to settlement and their respective goals. For example, the alleged infringer can evaluate the patent owner’s demand for royalties or damages and compare that sum to the cost of litigation through trial. Similarly, the patent owner can evaluate the alleged infringer’s evidence concerning the validity of the patent and the likelihood that it will be
successful in obtaining a ruling of invalidity.
Parties in certain industries are amenable to early mediation even before they have developed a full factual record. For example, in the pharmaceutical industry, generic manufacturers generally prefer to pursue mediation quickly. Counsel for generic pharmaceutical clients often suggest mediation at the Rule 16 scheduling conference, and judges are often amenable to early mediations in these cases. In