Addressing the IP Dispute Resolution Paradox: Combining Mediation with Arbitration and Litigation

Introduction

Clients and lawyers often consider negotiation or litigation to be their only options for resolving intellectual property (IP) disputes. While IP arbitration is on the rise, there is still a tendency to view these processes as alternatives to one another. A much broader range of processes can and should be considered to resolve IP disputes in most situations. While seasoned IP practitioners tend to focus on adjudicative processes (e.g., litigation and arbitration), non-adjudicative processes can help reduce the time and cost to outcome, improve settlement rates, preserve business relationships and provide higher satisfaction ratings. These non-adjudicative processes may be non-evaluative (e.g., mediation) or evaluative (e.g., conciliation or expert determinations). The inclusion of non-adjudicative processes (particularly mediation) in conjunction with adjudicative processes is likely to lead to significantly faster, cheaper and better outcomes, with higher compliance and satisfaction ratings in over 90 per cent of IP disputes, both in domestic and international matters. It should be considered in all IP disputes.

Despite its benefits, IP practitioners and in-house experts are still reluctant to include mediation or other non-adjudicative steps in resolving their disputes. This creates a paradox. Adjudicative processes remain the first port of call. This is despite non-adjudicative processes having been actively promoted within IP circles for over a quarter of a century (e.g., by the World Intellectual Property Organization (WIPO) and the International Trademark Association), as well as by national IP courts and judges. It is also despite the growing amount of evidence of clearly improved settlements rates (e.g., above 70 per cent when mediation is used on its own and above 80 per cent when it is combined with arbitration), reduced time to outcomes (measured in weeks instead of months or years) and significant cost savings, not to mention higher satisfaction ratings. This paradox seems to be due, in part, to a lack of personal familiarity with such processes, misunderstandings regarding the enforceability of settlement agreements reached through them, and a reticence of trying something new or too soon. This creates a perfect catch-22 situation. Unless and until IP practitioners and their clients become accustomed to using mediation and other non-adjudicative forms of dispute resolution (even if only to discuss the disputants’ procedural options), IP litigators are unlikely to try or recommend such processes early on and gain greater personal familiarity with such processes, or generate the savings these processes can offer their clients. This situation is further exacerbated by misunderstandings regarding the range and types of non-adjudicative processes that exist (e.g., mediation as distinct from conciliation), and how and when to include them in adjudicative IP proceedings.

This chapter will attempt to untangle and demystify some of the issues surrounding when and how to use non-adjudicative processes (particularly mediation as a distinct process from conciliation) and to propose some practical solutions, such as mixed mode and guided choice processes, allowing for mediation and other forms of non-adjudicative dispute resolution processes to be integrated earlier into litigation and arbitration for the benefit of all disputants and stakeholders.

The risks of purely adjudicative proceedings in IP disputes

Corporate expenditures on adjudicative IP proceedings have more than doubled over the past 10 years and continue to grow.^[2] The number of disputes and the length of these proceedings have consistently increased as well, across all IP categories.^[3] Furthermore, IP disputes are increasingly comprising a complex mix of technologies (e.g., with the rise of artificial intelligence and new interdisciplinary combinations of data or software-driven technologies, such as bio-informatics, neuro-informatics, DNA computing or theragnostics^[4]). This makes it more difficult to deconstruct some IP disputes into distinct IP categories, such as patents, trademarks, copyright, trade secrets and design rights, requiring greater expert involvement and potentially resulting in greater complexity, delays and costs. A forensic analysis of each issue on its own is likely to be too time-consuming and complex, even if were to be affordable (which is unlikely to be the case, given the need to find different experts in each key jurisdiction).

Resolving IP disputes solely by adjudicative processes is thus fraught with risk and can lead to highly unpredictable outcomes, even in the best of cases. This is true for patent (e.g., the Improver cases on the Epilady invention in the 1980s),^[5] trademark (e.g., the Budweiser disputes that started in 1907 and have still not been fully resolved)^[6] and other IP disputes. This is not only due to the amorphous, technical and nationalistic nature of IP rights, but also due to the growing importance of these same intangible assets on corporate balance sheets and in the global economy (usually greater than 80 per cent of any disputant’s corporate value) and the strong feelings IP owners may have towards their inventions, creations and brands. An IP dispute is not only a technical or forensic exercise in the assessment of objective issues of infringement or validity, but often a culturally shaped and at times deeply emotional ‘bet the company’ or ‘high-stakes’ conflict, which unavoidably depends on subjective determinations as well (e.g., assessments of scope or quantum/value, which are an art rather than a science as well as what is a copy or derived from someone else’s work or ideas). Adjudicative processes are not equipped to handle such subjective considerations, and even the ‘objective’ aspects are often subject to different interpretations in IP disputes, for a number of reasons.

Adjudicative IP dispute resolution processes such as litigation and arbitration tend to be fragmented, not only by applications of different national laws and rules of civil procedure but because of the different professionals who need to be involved to resolve them (e.g., the agents who registered them, the transactional lawyers and solicitors involved in commercialising them, and the trial lawyers and barristers who litigate them). They are also fragmented because of the different categories of overlapping IP rights that may exist in the same matter,^[7] requiring different expertise. It is extremely rare to find one person who can advise across several countries and categories of IP rights, and bringing several experts from different countries and fields of IP together can lead to disparate or even inconsistent advice being received.

Much ink has already been spilled on the variability in outcomes of the same IP rights being simultaneously litigated in several jurisdictions.^[8] The costs, time frames, outcomes, damages and types of relief available when litigating the same IP asset in many countries vary significantly (even if they originate from the same Madrid system trademark application, the same Patent Cooperation Treaty patent application or the same original copyrighted work), which makes any international IP dispute unpredictable.^[9] Not only do the application of applicable norms vary from country to country (despite repeated attempts to harmonise them), but IP disputes are often driven by the disputants’ subjective perceptions, needs, interests and concerns, and the tribunal’s own cultural approaches to the same IP rights. (The distinction between the words ‘copyright’ and ‘authors’ rights’, for example, reflect deep historical and cultural differences when considering the rights of authors.) Inventors, creators and brand owners are often personally invested in their ideas or products, and these subjective factors, coupled with different cultural influences and the devastating impact that inconsistent outcomes may have on the disputants’ careers or valuations or senses of justice can fuel conflict escalation and an adversarial system that would often benefit from a different approach earlier on.^[10]

Arbitration of IP disputes may seem at first glance to be a more attractive solution to domestic or multi-jurisdictional IP litigation. Appointing arbitrators with incontestable legal or technological expertise may be viewed as a solution to unpredictable jury trials, overloaded dockets or unspecialised court tribunals, but IP arbitration is also fraught with uncertainties, risks, costs and technicalities. Top experts can differ on their assessment of the evidence or facts, the outcomes of IP arbitrations remain just as unpredictable and arbitral awards may be unenforceable in other jurisdictions. They typically entail high costs, extended timelines and an unclear value proposition. Where the stakes remain high, large costs need to be sunk upfront and reputations become vulnerable. Relationships can also deteriorate during the course of an arbitration, not only between the experts, but also between the lawyers and external teams of experts who represent or advise them. This is particularly unfortunate in certain industries where people tend to meet one another repeatedly. Even in the event of a successful outcome, the applicability of the New York Convention is uncertain for some international awards (e.g., if the tribunal declared a registered IP asset to be invalid or as having effect erga omnes as opposed to only as between the disputants).

The members of an arbitral tribunal may perceive the facts and the laws differently from one another or from the parties. They may have significantly different appreciations of the scope or value of the IP rights at stake. This may be due to invisible cultural influences or original professional source training. The subjectivity and unpredictability of the relief and damages available, even in IP arbitration, combined with the costs, stress, complexity, management time lost, formality and length of the proceedings may render IP arbitration equally unattractive as a value proposition – especially if an outcome is needed within a matter of months rather than years, or if the disputants cannot afford to spend hundreds of thousands of US dollars on a case. Furthermore, applying the varying interpretations of the same legal concepts in each relevant jurisdiction can still lead to contradictory outcomes in arbitration, just as in multistate litigation. Arbitral tribunals cannot be expected to calculate a weighted average of likely country-by-country outcomes, given the diametrically opposed outcomes that may emerge, and given the inherent subjectivity and unconscious biases that may exist in the tribunal members’ own minds regarding what may be fair or equitable.

The probability of winning any adjudicative process (whether litigation or arbitration) remains a gamble, with odds of 60 per cent in the best of cases.^[11] There will always be evidentiary surprises and invisible subjective variables influencing the outcome, such as the composition of the tribunal, unconscious biases, and cultural, cognitive, social and emotional factors affecting interpretations of the dispositive facts or applicable laws.^[12] Even if an arbitral award is favourable, its extraterritorial effect and enforceability will remain uncertain, especially with respect to third parties. In licensing disputes, this may seem to be less risky, but if hundreds or thousands of royalties are at stake (e.g., in a fair, reasonable and non-discriminatory (FRAND) licence dispute,^[13] where many IP rights and multiple owners are involved), the generation and application of norms regarding what may be fair or reasonable may require mediative competencies or dialogue facilitation, where a broader and more inclusive range of skills may be needed to discuss criteria, brainstorm ideas and understand the subjective needs or interests of the various stakeholders involved, looking to the future and not to the past.

For all these reasons, arbitration on its own is unlikely to provide complete closure to the parties involved in an IP dispute. Resolving one dispute may simply lead to a new dispute arising between the same parties.

Appropriate dispute resolution: the choices available to IP disputants

‘ADR’ is often defined as alternative dispute resolution or amicable dispute resolution. This, however, is a limitative interpretation that restricts its true potential. A more inclusive approach is to consider mediation, conciliation, arbitration and litigation as all being parts of the same thing: appropriate dispute resolution. Thus, the use of ADR to mean appropriate dispute resolution becomes a more holistic way of generating dispute resolution proceedings that can lead to complete closure of disputes, providing access to justice that is effective, affordable, efficient, flexible and enforceable. This was the view proposed by Sundaresh Menon, Chief Justice of the Supreme Court of Singapore, in 2016 at the opening ceremony of the Global Pound Conference Series (the GPC Series), an international series of 28 multi-stakeholder meetings to examine ways of improving access to justice and collecting data with a more disputant-centric approach to resolving commercial disputes, both domestic and cross-border.^[14] It is an approach that is particularly appropriate for IP disputes and is the interpretation applied for the purposes of this chapter.

The data generated by the GPC Series is of particular relevance to the field of IP. Votes from hundreds of dispute resolution professionals and users of dispute resolution services from around the world indicated a universal lack of familiarity by disputants and their counsel with their non-adjudicative procedural choices when faced with a conflict. The data also highlighted the confusion surrounding what ADR could entail given the kaleidoscopic views of different stakeholder groups in response to various questions regarding what is currently available and accessible in the commercial dispute resolution market. The data identified significant gaps between what disputants want (the demand side of the market) and what is being offered (the supply side of the market).^[15] The four key findings of the GPC Series were as follows:

• efficiency is the key priority of disputants when seeking dispute resolution proceedings;
• disputants expect greater collaboration from their advisers (e.g., lawyers) in dispute resolution;
• there is a growing global interest in the use of pre-dispute protocols and mixed mode dispute resolution (i.e., combining adjudicative and non-adjudicative processes); and
• in-house counsel are the prime agents capable of orchestrating change (whereas external advisers are perceived – including by themselves – as the primary obstacles to change), although encouragement by judges, arbitrators and other providers of dispute resolution services is needed as well.^[16]

Seeking appropriate dispute resolution processes provides a broader spectrum of possibilities, which may all be used at different stages of an IP dispute. It provides greater choice, and provides for ways of combining or including different types of processes that can be considered earlier on. While disputants often tend to think in binary terms, with litigation being the main alternative when preliminary negotiations break down, there is a wide range of possibilities that exists between these two extremes, including mediation, conciliation and arbitration as discrete and separate processes that are distinct from one another. Each has its own benefits and inconveniences, as indicated in Figure 1.^[17]