Commercial and Public Interest Issues
Introduction
Intellectual property (IP), a broad category encompassing several forms of legally protected creative works, has come to occupy an increasingly pivotal role in the domestic economy and international trade over the past several decades. Although the various areas of intellectual property law—patent, copyright, trademark, and trade secret protection—are based in different doctrinal frameworks and constitutional foundations, they share important commonalities within the legal system. The dynamic growth of technology and innovation has largely outpaced the development of relevant law, and intellectual property’s global reach only exacerbates shortcomings in traditional nationally-based dispute resolution methods.
In the absence of reform from the court system or legislatures, international intellectual property interests are increasingly embracing alternative dispute resolution (ADR) methods rather than litigation for commercial disputes. Mediation and arbitration offer significant benefits in this domain; the usual advantages of ADR are amplified in the complex, fast-moving world of commercial intellectual property rights. Since the public interest is nearly always implicated in IP disputes, however, this trend must be examined critically. This paper will discuss some of the commercial benefits and public interest concerns of ADR in international intellectual property disputes, and describe some of the specific institutional resources currently available in this realm.
Commercial Advantages
ADR comprises a spectrum of dispute resolution techniques, ranging from direct negotiation between the disputing parties to a legally binding arbitration proceeding. In the former case, the parties control the process entirely and are free to negotiate any settlement they want, or can choose to not settle at all. In the latter, parties hand over decision-making power to a neutral third-party, and are often prohibited from unilaterally withdrawing from the process. In some cases, parties are barred from judicial appeal from an arbitrator’s decision except under very limited circumstances (e.g., misconduct or incompetence on the part of the arbitrator). Mediation lies somewhere in the middle: a third-party is employed to help the parties resolve their dispute and potentially make non-binding recommendations, but the parties themselves ultimately determine whether or not a settlement is reached. Frequently cited benefits of ADR techniques over litigation include savings of time and money, increased confidentiality, more flexible and effective solutions, continued positive relations between the parties when they need to work together in the future, the ability to pick a process and a decision-maker specifically suited to the parties’ needs, and conservation of judicial resources.
International intellectual property litigation is extremely expensive and time-consuming, even relative to other large-scale commercial litigation. Due to the highly technical and fact-based nature of many IP disputes, discovery costs are elevated, and the need for highly-paid expert witnesses and detailed reports exceeds many other types of disputes. Furthermore, since the judge and jury are generally lay people, parties go to significant lengths simply to educate the fact-finder as to the basic nature of the relevant technology. Studies have found that the median cost of patent litigation through discovery is nearly $500,000, and the median cost of a full trial is $750,000. Costs for patent cases routinely reach over $1,000,000 per party, and legal fees have occasionally risen into the hundreds of millions of dollars. Travel costs in international disputes further increase the costs, particularly because the process can drag on for several years and proceed simultaneously in several different jurisdictions.
While mediator and arbitrator fees for intellectual property disputes are not cheap, they almost always represent a significantly more economical option. Even though the parties will still need to pay experts, they can select a mediator or arbitrator who is already knowledgeable in the field, thus obviating the need to educate a judge or jury from “square one”. They may also be able to rely on scientists and engineers from within their respective companies to explain the technical details particular to the dispute, rather than having to retain outsiders who will appear unbiased in laying out the foundational technical background for a case.
The advantages of an expedited process are particularly salient in IP disputes. Since patents constitute a time-limited entitlement (20 years from the time of filing in most cases), their value is significantly diminished when tied up in litigation. Complex IP cases routinely take years to litigate, and overworked federal courts with a statutory mandate to grant speedy trials to criminal defendants are unlikely to prioritize this sort of litigation on their dockets. Furthermore, the nature of technological innovation often renders the dispute moot with the passage of time. If the parties chose to engage in ADR, they can set their own time-table and not be at the mercy of a court system to resolve the dispute. Furthermore, potentially infringing activity becomes increasingly risky when the duration of the dispute is unknown, since damages and attorney’s fees are often awarded to victorious plaintiffs. If a defendant knows the matter will be settled one way or another within six months, she can decide whether to continue production and risk an injunction and damages for profits during that period, or to suspend production until the legality of her activity has been established. When the time line and potential costs are made more certain for all parties, they can make rational decisions that would be unavailable if they were subject to the vicissitudes of litigation. Matters are made even more certain when the parties have a pre-agreement not to appeal the resolution in court.
Another advantage of ADR that is crucial to intellectual property disputes is the confidential nature of the process. In a mediation, the parties and the mediator usually agree to strict confidentiality, with the understanding that only the settlement agreement itself will become public. Mediation confidentiality agreements are usually enforced by courts. Furthermore, in the international context, an ADR process allows the parties to avoid dealing with different rules surrounding confidentiality in multiple legal systems.
Since intellectual property and particularly trade secrets tend to lose their value when they become public information, the privileged nature of ADR proceedings often represents an invaluable benefit to the parties to the dispute. The common concern about bad publicity arising from any lawsuit is also addressed by the privacy available under ADR. In some situations, parties are prevented entirely from litigating because the business risks of exposing their trade secrets are too high. ADR provides an effective way to resolve these disputes when other options are unavailable.
Parties frequently will choose ADR when they want or need to have a continuing relationship past the dispute. Since IP disputes frequently involve joint research ventures, long-term licensing agreements, and other arrangements that may only bear fruit over extended periods of time, the ability to preserve a working relationship may be more important in these disputes. Technology can rarely be developed today without the involvement of numerous distinct entities; thus, the availability of ADR may be increasingly indispensable to scientific progress and collaboration.
The Public Interest
Alternative dispute resolution techniques for international intellectual property matters are not without shortcomings, however. In fact, many of the strengths described above raise significant public policy concerns. While one could argue that the public has some interest in every legal dispute, this interest is intensified when intellectual property matters are involved. Intellectual property protection is premised on a delicate balance between an inventor’s need to be compensated for her work and the public’s interest in accessing that work. As intellectual property rules are harmonized worldwide under organizations like the World Intellectual Property Organization (discussed below), the World Trade Organization, and the like, the framework for resolving these disputes is increasingly a global issue.
The Commerce Clause of the United States Constitution grants Congress the power to establish limited monopolies to establish incentives to promote creative work. The essence of this balance is struck in the judiciary, where a court is called upon to weigh various statutory and judicially-defined factors to determine whether or not the state will enforce this monopoly. While this legal framework underlies ADR as well as traditional litigation, the need for public access is likely to be weighed less heavily when ADR is used. In a mediation, all that is required is that the parties come to a mutually satisfactory solution within the bounds of the law. They are not required to consider the public interest in the same way a court of law would.
Patent disputes provide a salient example of the different role of the public interest in litigation and ADR. The Supreme Court has spoken about the importance of the public interest in patent cases:
A patent by its very nature is affected with a public interest …. [It] is an exception to the general rule against monopolies and to the right to access to a free and open market. The far-reaching social and economic consequences of a patent, therefore, give the public a paramount interest in seeing that patent monopolies spring from backgrounds free from fraud or other inequitable conduct and that such monopolies are kept within their legitimate scope.
Ordinarily, the first requirement in the prima facie case for patent infringement is to establish ownership of the patent on the part of the plaintiff, and secondly to establish that the patent is valid. Patents are found invalid for a variety of reasons, including lack of novelty, an overly vague patent description, abandonment of the invention, obviousness, etc.. When a patent is found invalid in a court of law, this finding is frequently the result of an extensive discovery process. Once the patent is found invalid, the plaintiff no longer has exclusive rights to the invention, and the public can benefit from competition amongst various producers. This benefit is particularly acute when the invention involves medical technology, where society as a whole bears a large burden in paying monopoly prices for patented medicines, and many suffer from lack of access.
If parties decide to mediate a patent dispute, however, the discovery process can be cut off and a patent’s invalidity may never be revealed. Furthermore, the parties may find a mutually beneficial arrangement that preserves the patent even if it would have been invalidated by a court. They may find that they can earn more profits by entering into a licensing agreement so that both can produce the invention, thereby preserving a duopoly, rather than losing exclusive rights altogether, which might be the result of litigation.
Congress has taken some steps to mitigate this problem, for example by requiring public disclosure of settlements involving patent disputes. Furthermore, as in most other types of litigation, the great majority of patent dispute cases never even reach a full trial. Even in the Patent and Trademark Office, 80% of interference (contested patent) proceedings settle before a final judgment is reached. These disputes most commonly result in a license agreement between the parties. Since we can’t force the parties to go through with litigation once they’ve reached a satisfactory conclusion (although usually the court will have to approve a consent decree), it may be preferable to have a mediator or an arbitrator who can at least nominally insure that the public interest be considered by the parties to the dispute, rather than leaving the issue entirely in the hands of the parties’ negotiators.
ADR proponents often identify the ability to retain an expert mediator or arbitrator as a key advantage over litigation, where the finder of fact is either a judge or a jury, neither of whom is likely to have the specialized knowledge required to comprehend the technical details of the matter in question. An expert fact-finder, however, may introduce certain biases in the process that work against the public interest. Contract law, for example, has evolved over hundreds of years, and is grounded in equitable common law principles that ostensibly serve important public policy ends. In intellectual property litigation, a non-specialized judge may reframe the dispute within these well-established principles. The parties may argue that their dispute ought to be treated differently because it involves a new technology, but a court is unlikely to create new exceptions in the law simply because a new invention is involved. An expert mediator or arbitrator, on the other hand, is more likely to see the dispute from the parties’ perspectives, possibly resulting in a process skewed away from legal principles that serve the public interest. Furthermore, while a jury may not possess expert knowledge, it does represent the conscience of the community, which is an important voice to be heard in resolving disputes.
Another public interest question is whether the shift towards ADR in intellectual property disputes actually encourages disinvestment in our legal system. For example, Canada has only recently embraced ADR, lagging behind the US and Western Europe. This is because, in the words of one commentator, “until recently, the Canadian system was sufficiently funded to ensure speedy access.” Although the federal court system backlog is frequently cited as a reason to engage in alternative dispute resolution, it is possible that the increasingly widespread availability of ADR could encourage Congress further to reduce funding for the judiciary, leaving the court system as a “worst case” option for those who do not have access to ADR for various reasons. As the backlog lengthens, parties can strategically refuse to mediate, and rely on the slowness of the courts to outlast their adversary. Perhaps the solution to an overworked judiciary isn’t necessarily to push parties towards ADR, but rather to provide sufficient resources for the courts to resolve disputes in a timely manner.
If the growing importance of ADR reflects a trend towards “privatizing” the judiciary, we should take stock of the long-term ramifications of this trend before public law loses its relevance entirely. It may be possible in institute safeguards to prevent ADR decisions from moving too far away from what a court would decide. For example, if contracts waiving the right to judicial appeal were found to be unenforceable as a matter of public policy, an arbitrated or mediated resolution would be more likely to hold closely to established law, since a significant departure would be overruled by a court.
International Intellectual Property Mediation in the Real World
An institutional basis for international intellectual property protection has been evolving since the late 19th century. Arising out of the Paris Convention of 1883 and the Berne Convention of 1886, the United International Bureaux for the Protection of Intellectual Property (BIRPI) was established to help nationals of treaty member States obtain international protection of their right to control, and receive payment for, the use of their creative works. In 1970, BIRPI became the World Intellectual Property Organization (WIPO), which today comprises 179 member states, has a staff of over 850 and a yearly budget of nearly half a billion dollars. Among other activities, WIPO facilitates the coordination and enforcement of treaties for the protection of intellectual property amongst all its members.
WIPO provides alternative dispute resolution services specifically tailored towards international intellectual property matters. Numerous other organizations exist which can also handle these sorts of disputes, including the International Chamber of Commerce Court of Arbitration, American Arbitration Association, and the London Court of International Arbitration; however, only the WIPO Arbitration and Meditation Center specializes in international IP disputes. The WIPO Center was only established in 1994, however, so potential clients have to decide between more well established but general ADR entities like the AAA and the intellectual property-specific Center.
Since confidentiality frequently weighs heavily in the decision to use ADR for IP disputes, the WIPO Arbitration Rules contain provisions for strong confidentiality. Furthermore, parties to the dispute have the option of having a confidentiality advisor appointed to their case. This advisor is an expert to whom trade secrets can be disclosed without fear that the information will be exposed to the other party. In some cases, the confidentiality advisor will even receive information that is kept secret from the arbitrator himself.
For mediation, the WIPO Center provides the parties with an option between a “facilitative” mediator who will focus on the process of helping the parties understand each other’s interests and bringing them to consensus, and an “evaluative” mediator who will take a more active role in resolving the dispute and make specific recommendations based on an expert background. In the latter case, the mediator’s recommendations are not binding but can help frame the mediation process.
Several other factors distinguish the WIPO Center from other ADR options. The Center provides specific rules for the introduction of technical and experimental evidence to serve the needs of their clients. It is located in Geneva, which may be seen as more “neutral” territory for international disputants than other locales. The Center’s staff, arbitrators, and mediators, come from dozens of nations, and the Center actively promotes its experience in working with situations that include cultural, linguistic, and institutional diversity. Some international companies view organizations like the American Arbitration Association as being more closely linked with the American legal system and the International Chamber of Commerce in Paris as being closely linked with European law, while the WIPO Center is not necessarily perceived as favoring one legal system over another.
The WIPO program provides meeting space free of charge to parties who want to engage in ADR at the Center in Geneva; alternatively, WIPO mediators and arbitrators are available throughout the world. Parties can choose to mediate in any country, in any language, and under any law. This flexibility is a great advantage to the WIPO ADR process, where technical disputes may involve many interdependent parties located in many different countries.
Finally, the WIPO Center can be somewhat less expensive than other ADR options for large commercial clients at the low end of its fee scale. The Center charges a registration fee equal to 0.10% of the amount in dispute, up to $10,000, and either an hourly or daily fee for the mediator’s services, based on a number of factors including the complexity and economic importance of the dispute, as well as the experience of the mediator. Hourly fees range from $300 to $600, and daily fees range from $1,500 to $3,500. By default, the parties share the cost of the mediation equally, although they are free to negotiate alternative arrangements.
The Center has had a fairly slow start in gaining acceptance in the commercial world. Although it was founded in 1994, by mid-1997 it had not yet handled any disputes. The Center attributed this slow start to the fact that ADR is most commonly entered as a result of a contract clause requiring it in the event of a dispute. Since the Center was only founded in 1994, one would expect several years to pass before contracts would be formed specifying the Center as the dispute resolution forum, and for those disputes to arise.
Today, the Center has found a niche in resolving international Internet Domain Name disputes, which frequently implicate trademark law. In 2001, the Center received 1,506 domain name dispute cases involving 94 countries. The entire procedure is conducted on-line, and usually results in an enforceable decision within two months. The Center’s process is based on the Uniform Domain Name Dispute Resolution Policy promulgated by the Internet Corporation for Assigned Names and Numbers (ICANN), which handles the technical aspects of the Internet “root server” system and ultimately has the power to enforce domain name assignments.
It is clear from the Center’s promotional materials, however, that its process is intended to favor trademark holders over the general public. They claim to be “the leading dispute resolution service provider for challenges related to abusive registration and use of Internet domain names, commonly known as ‘cybersquatting’.” Trademark holders come to the WIPO Center in order to claim domain names in a cheap and expedited fashion. In many cases, it might not be worth the trouble for a trademark holder to bring an alleged infringer to court, particularly given the expense and jurisdictional issues when the parties are in disparate countries and the infringement claim itself may be dubious. Providing a quick and inexpensive alternative, while theoretically in a “neutral” forum, may constitute an inherent bias for large corporate trademark holders over lone individuals. ICANN’s Uniform Domain Name Dispute Resolution Policy has been criticized on similar grounds.
Conclusion
ADR’s rapid growth in the world of dispute resolution over the past decades has paralleled that of intellectual property in the global economy. Given the increasingly complex and international nature of intellectual property creation, ADR solves a number of important problems with traditional nationally-based litigation. Some of ADR’s greatest strengths in intellectual property disputes, however, also raise serious public policy concerns. Institutions like the World Intellectual Property Organization Arbitration and Mediation Center provide valuable resources in the field of ADR, but too little attention is paid to the fundamental right of the public to access creative works in return for the benefits accrued to creators when they are granted limited monopolies. Increasing dependence on ADR in these disputes is probably inevitable, so national and international governments should take care to insure that the public interest is not foreclosed from this process.
Bibliography
Blackmand, Scott H. Alternative Dispute Resolution in Commercial Intellectual Property Disputes. 47 Am. U. L. Rev. 1709. 1998.
Elleman, Steven J. Problems in Patent Litigation: Mandatory Mediation May Provide Settlement and Solutions. 12 Ohio St. J. on Disp. Resol. 759. 1997.
Electronic Frontier Foundation website. http://www.eff.org (8/1/02).
Electronic Privacy Information Center website. http://www.epic.org (8/1/02).
Martin, Julia A. Arbitrating in the Alps Rather Than Litigating in Los Angeles: The Advantages of International Intellectual Property-Specific Alternative Dispute Resolution. 49 Stan. L. Rev. 917. 1997.
World Intellectual Property Organization Arbitration and Mediation Center Guide to Mediation. http://arbiter.wipo.int/mediation/mediation-guide/index.html. 8/1/2002. See also World Intellectual Property Organization website. http://www.wipo.org.
Zisk, Matthew B. Mediation and Settlement of Patent Disputes in the Shadow of the Public Interest. 14 Ohio St. J. on Disp. Resol. 481. 1999.
Footnotes
${documentURL}image_$1" alt="$1" />$&]g; s[<%rimage:(.*?)>] [