New Push for Arbitration in US Patent Cases

March 29, 2012

Yesterday, the Federal Circuit Court of Appeals reaffirmed the strong U.S. policy in favor of arbitration. The Federal Circuit also reaffirmed that it does not matter  what kind or type of contract, or clause, the agreement to arbitrate is found in — if the arbitration clause binds the parties, and the language is broad enough to cover the dispute (even a patent infringement dispute), then arbitration must trump….PROMEGA CORPORATION, et al. v. LIFE TECHNOLOGIES CORPORATION, 2011-1263 (Fed. Cir. March 28, 2012)(precedential opinion).

U.S. Courts have long favored arbitration.  In the U.S., arbitration is generally a dispute resolution mechanism that can only be created by a contract or contract provision to resolve future disputes by arbitration instead of the courts:  It is an agreement to move the dispute from a public court of record to a private self-funded and managed setting chosen by the parties.

An arbitration panel’s authority is limited to the bounds of the parties’ arbitration language:   That is the parties’ agreement to arbitrate if a problem arises between them.

Should businesses with disputes (or anticipating possible future disputes) in patent, licensing or commercial matters arbitrate? Or ask for arbitration agreements?  Yes.

Why? Because arbitration gives those who contract for it the ability to set the ground rules for resolution of their future disputes in their original arbitration contract or contract clause.  The parties can modify the arbitration by agreement later or even in arbitration if they agree to do so.  These contracts give businesses the ability to require more expertise in the decision-maker (e.g., minimum qualifications for arbitrators), to limit or constrain issues to be arbitrated (e.g., infringement and damages but not invalidity), to set time limits to start and complete the process of dispute resolution.  (Some arbitration organization’s rules have built in time limits, albeit subject to change).  Parties can also limit or eliminate discovery.  If an arbitration clause is given serious thought at the time a product sale, indemnity agreement, patent license or settlement is entered into, then a streamlined, effective, informed decision-making process can be structured for future disputes of any kind (whether license, infringement, indemnity, FRAND, or others).

There is also a catch:  The catch is many business forms have arbitration clauses embedded in them in the fine print (typically as part of a long list of terms and conditions).  Under the Uniform Commercial Code in force in most U.S. state jurisdictions, and the Federal Arbitration Act, you may already have an arbitration clause in place with the party suing you if the two of you have bought and sold product from each other in the past or done other business deals in the past.  It does not matter if the present fight between you is completely unrelated to the past deal, purchase or invoice, IF THE LANGUAGE OF THE ARBITRATION CLAUSE IS BROAD ENOUGH to cover your fight (for example, “any and all future disputes of any kind”).  Check all contract, purchase orders, and invoices with parties that sue you if you have done business with them in the past: You may find an arbitration clause — and it may permit you to force arbitration if it is broadly worded, regardless of the scope of the prior contract itself.

Arbitration clauses trump U.S. District Court and U.S. ITC proceedings.  There is little room for appeal or to challenge a final award — or even whether arbitration is required if the trial court or arbitrator say it is required.  Federal law requires arbitration clauses to be enforced (as do most state laws), and do not permit for appeals from the merits of a decision.  Challenges after arbitration are limited to narrow catagories of procedural problems or issues of due process or fraud.  Arbitration awards are enforced by Federal District Courts.

If you want the old fashioned dispute resolution:  Crowded docket; trial judge with hundreds of cases and limited brain space and time for yours; and a lay jury; then blow this off.  But don’t be scared by a past bad experience in arbitration:  Arbitration is a contractual dispute resolution system.   In any case arbitration is only as good as the terms in the contract on which it is based.  One bad arbitration experience, does not mean you will have a second bad one.  Indeed,  this is not much different than any other life for business experience:  For example, one jury trial win does not mean you will win the second jury trial.  The distinction between a good and a bad arbitration process is “in the details” of how you draft and implement the arbitration clause.  (The risk of a bad experience in arbitration can be minimized by designating a reputable arbitration provider with good rules and time limits in your clause, e.g., International Chamber of Commerce Court).

Think about it — especially non-U.S. entities doing business with U.S. entities…..

Filed under: American Arbitration Association,arbitration,choice of forum,choice of law,contract,contract clause,damages and remedies,jury in patent case,license,licensing strategy,litigation planning,Uncategorized,USPTO

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Dave Healey

Dave Healey

Dave's Bio

I am a principal in the Houston office of Fish & Richardson, a leading global intellectual property law firm. I have been practicing law for twenty-five years, specializing in patent lawsuits. During that time, I have watched IP become more important than ever as a business asset. And I’ve gained some perspective on the best way to protect and exploit IP assets. I hope my ideas offer a unique perspective, and help you create your own practical solutions.

The ideas and opinions on this blog are my own as of the time of posting, have not been vetted with the firm or its clients, and do not represent the positions of the firm, its other lawyers, or any of its clients. None of these posts is intended as legal advice and if you need a lawyer, you should hire one. If you make a comment on the post, the comment will become public and beyond your control to change or remove it.

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