OCTOBER 23rd WEBINAR ON HEARING MANAGEMENT

When conducting a hearing, your goal as arbitrator is largely twofold: to provide the parties with a full opportunity to present their case and to arrive at a fair outcome. Sometimes that can be difficult. The hearing landscape can be dotted with pitfalls that lead to a less-than-optimal experience.

In this 90-minute webinar, arbitrator Raoul E. Drapeau provides a step-by-step approach to conducting the hearing. His unique perspective--honed by 45 years of experience in business management, teaching, lecturing, commercial arbitration, product development, invention and marketing—will provide a solid base of information about arbitration procedures, while explaining the role of the arbitrator. If you are preparing to conduct your first arbitration, or have previously conducted an arbitration hearing and weren’t pleased with how it unfolded or how you handled it, or perhaps with the outcome itself, this webinar is for you.

Register for this program and you can expect to

   * Be guided through the practical aspects of all phases of the arbitration hearing, including the preliminary conference, document exchange, evidence, party management, witnesses, the award, and lots more.
    * Learn how to best manage hearings, exert control over the process, and avoid common pitfalls.
    * Hear best practices for managing preliminary and evidentiary hearings.

Remember, you can’t be too prepared when it comes to managing the arbitration hearing. This webinar will arm you with the knowledge and tools to manage it effectively.

WHO SHOULD ATTEND – New arbitrators and those with minimal hearing experience; ADR professionals who want to hear best practices and effective techniques for having better outcomes.

For more information, and to sign up, check out:

https://www.aaau.org/courses/fair-hearings-avoiding-the-pitfalls/14web026o/

THE SPECIALIST vs THE GENERALIST NEUTRAL

The usual rule of thumb in a high-tech case is for the parties to pick a neutral who is intimately familiar with the technology involved.  Makes perfect sense.  Or does it?

The case could be about pharmaceuticals, computers, medical devices, communications or anything else where the logical view is that the neutral(s) would know the manufacturers systems, models, specifications, processes and so on.

On the other hand, anyone so knowledgeable would no doubt have picked up some biases and prejudices about those very aspects; "this company's products are terrible"; "this product is great"; "nobody likes their execs", etc.

We all know that undisclosed conflicts of interest can be grounds for overturning an award.  But couldn’t an argument be made that prior knowledge about industry specifics is nearly the same as doing private research, also not allowed.

It seems to me that someone who is broadly familiar with science and engineering in general and having extensive business practice and ADR experience, could approach the case with an open mind and thus be even better qualified to hear a high tech case.

TROLLS

As an independent inventor, I’m in that class of inventors who have little to no effective representation in Congress.  The big boys - corporations, pharmaceutical manufacturers, universities and the like have the money to influence Congress to bend to their will.  As a result, there have been a succession of bills introduced that make life even more difficult for us.

The most recent was the America Invents Act (AIA), enthusiastically pushed by its sponsors, spoken against by the few legislators who are supporters of independent inventors, but eventually passed.  By the way, as is usually the case in such matters, knowledgeable independent inventors are never invited to testify on these pending laws.

One of the law’s notable features was the elimination of one of the most important features of the American patent system, "First to Invent".  In that scheme, in effect since 1790 and enshrined in our Constitution Article 1, Section 8, the first person to invent something is the one who gets the monopoly protection of a patent.  That seems eminently logical and “right”.

However, some corporations pushed to change the system, to First to File; that is, the first person to race to the patent office gets the patent.  If that seems to put the independent inventor at a disadvantage, you’d be right.

Imagine yourself working in your garage on your invention, and after expending much time and money, you finally got it to work, and decided that now was the time to file for a patent.  Meanwhile, MegaCorp with unlimited resources of money and personnel completed their proof-of-concept development months before you.  They apply and get the patent, even though they started work long after you did.

That was the AIA.  Now, in an attempt to address and abuse from organizations called Non-Operating Entities (NOE), but also called Patent Trolls, a new law is working its way through Congress.  Again, independent inventors are not being called on to share their views.

Patent trolls are accused of being abusive defenders of patent rights.  They will acquire patent rights and then vigorously defend them against individual companies and even whole industries; not because their own operating businesses are being affected by infringement, but because they know that the defendants often would rather settle than fight an extensive and expensive lawsuit.

The problem for independent inventors is that licensing our patents to a troll is one of the few ways for us to monetize our patents.  Manufacturing and marketing it ourselves costs a lot of money, something most independent inventors don'r have a lot of.  If the legislation removes that option, then only the richest inventors, or those who are successful in licensing it to an established manufacturer will succeed.

Again though, we have no say in the matter.

FINALITY

One of the most attractive features of arbitration as compared to litigation & courtroom trials is the finality of it.  When an award is issued by the arbitrator(s), it can only be challenged under extraordinary circumstances.

There are instances where an award can be effectively challenged in court.  But it isn't simply because one of the parties didn't like the result.  Among other reasons, it can be something like an undisclosed conflict of interest on the part of one of the arbitrators, or a refusal to hear a piece of evidence that proved to be important.

This avoidance of an appeals process naturally can save significant amounts of money and time.  Another advantage to the parties is that they can get back to their business instead of focusing so much time and resources on non-productive legal activity.


On the other hand, some litigants might not want to arbitrate, just because it is final.  But given the sure end point in sight with arbitration, win or lose, it is hard to see the benefit in litigation because of the significant cost in legal fees, expert fees, evidence collection costs and disruption of their business.

LITIGATE OR ARBITRATE?

You are the chief executive of a corporation that manufactures or uses technical or engineered products and systems.  You have become embroiled in a dispute with a supplier or customer about some deficiency, quality control, lateness, patent or other typical business problem.

You have heard the horror stories about how long a court case could take and the attendant costs.  Maybe you are getting advice from other principals in the company who think that your case is strong, and that "we should go to the mat on this one."

Then you realize that even if you win your case, it's not necessarily over.  Either you or your opponent can appeal any decision, thereby dragging out the case for who knows how long.  Meanwhile, the costs and aggravation will continue.

Fortunately, one of your executives is familiar with arbitration and suggests that might be a good way to resolve the dispute with some finality, and with arbitrators who have some knowledge about the technical fields involved.

Maybe you're lucky and you already have a standard arbitration clause in your contract with all your business partners.  In that case, you can call for arbitration and set the process in motion.

But even if there is no existing arbitration clause (and if not, that's something that you should incorporate into future contracts), then you could always discuss that possibility with the other party.  Since it will be in both your interests to gain the advantages of arbitration, it might not be a hard negotiation. 

But there is one thing that is very important in keeping the costs of an arbitration less than a litigation, and that is the the rules that apply.  More on this in a future posting.

SHIFTING TIDE?

Peter Benner has written a short article for the Connecticut Law Tribune on the possible effect of the revision of the Commercial Rules by the AAA, and whether that will solve the organic problems within arbitration.

The problem is that arbitration is becoming just as lengthy and expensive as litigation.  When that happens, the attorneys representing clients are likely to choose litigation (unless the contact between the parties prevents that), because it gives them more flexibility in chasing after evidence and offers the chance to appeal any decision.

It seems to me that this is an opportunity for administrative associations like the AAA to aggressively promote the use of arbitration clauses in corporate contracts.  If the parties do that, then at least the rules can be defined in advance, and if enforced by the arbitrator(s), will limits abuse of the process by overly-aggressive attorneys.  But success does require the arbitrators to take control of the hearings and not allow 'fishing expeditions' for evidence, for example.

If the parties do not have a arbitration clause already in force, and have to agree after the dispute to settle on rules, then those rules can be so loose as to defeat the basic purpose of arbitration - to provide a forum that is quick, final and relatively inexpensive.

It seems to me that arbitrations should be less expensive and quicker than litigation, but does require stern management of the process.

BAD BEHAVIOR

Three years ago, the America Invents Act replaced our 220 year old first-to-invent system with a first-to-file system.  Now, large corporations with their great resources have a decided advantage against independent inventors like me.

Now, Congress is at it again.  They are attempting to shield large corporations from nuisance lawsuits and demand letters by "trolls", non-operating entities who acquire patent rights from inventors for the primary purpose of extorting money from corporations whom they accuse of infringement. 

That problem has some validity in fact.

But the new legislation would go much further, and would undermine the ability of legitimate inventors to defend themselves from infringers, especially when they are deep-pocketed corporations.

Some of these changes would let infringers force a delay in proceedings by requiring the Patent Office to reexamine the validity of the patent in question, even multiple times. And worst, if the inventor loses, which would be likely if they are fighting the battle alone, then they would be required to pay the infringer's attorney fees.

Why does Congress continually side with large entities, when it was independent inventors who produced the inventions that have fueled our economy for so many years.  Why?  You know why.  Follow the money.

PRO-SE PARTIES

Sometimes, a disputant decides to represent himself in the arbitration, called pro-se.

Just as in a courtroom setting, this is not a good idea, since the party isn't likely to be familiar with the arbitration process, the kind of evidence to be presented, the applicable rules, and so on.

What's worse, most of the cases I've seen are an individual against a large corporation.  The fact that the resources are so stacked against the pro-se party makes matters even worse and can tip the balance in the corporation's favor when the evidence does not support such a condition. 

I have had parties self-represent themselves, and the problem it presents to the arbitrator is that the unrepresented person often will not know to challenge a piece of evidence that should be challenged, or not present evidence that exists and would be helpful to them.

The standard intelligence is that the arbitrator(s) should let the parties do what they are going to do, without interfering or trying to present a case or challenge either side.  But it is frustrating when we see that the case is being mishandled in that way.

In such a circumstance, and in an attempt to know the truth, if a key piece of evidence is not questioned by the pro-se party, I will ask a few clarifying questions that help define the differences between the two sides.

In my opinion, the best suggestion any arbitrator can offer to a pro-se party, since the stakes can be high, is to recommend in the strongest terms that they engage an attorney, or at the least, bring an adviser who can help present their case.

ONE, TWO OR THREE?

So you are a principal of an important case.  You feel confident that your side will prevail, since you think you have the best evidence and most credible witnesses.

One of the next decisions that need to be made, unless it already has been made in the pre-dispute contract, is how many arbitrators should be on the panel.

Generally, on small cases, perhaps under $50,000 claimed, a single arbitrator is sufficient.  The cost for a larger panel escalates quickly, particularly if transportation costs are involved.  Most such cases can be resolved in a day or so which also keeps costs down.

Yet, if the claims in the case are $1,000,000 or more, then the stakes are that much higher, and it can be useful or prudent to have a larger panel, usually three, to make sure that the issues are given full consideration.  In those cases, the ancillary costs including transportation and administration will be proportionally small.

For a three-person panel in a case involving technology, I strongly recommend that at least one of the arbitrators be technologically-knowledgeable.  He or she can then advise the other panel members when matters arise that are outside their experience.  You can check out my relevant background here.
Another possibility is that the arbitration clause calls for two arbitrators, where they appoint a third.  I don't have any personal experience with this arrangement, but it seems to me that whenever the parties appoint their "own" arbitrator, already the neutrality of the process is compromised.  

POST-DISPUTE ARBITRATION CLAUSES

You are the chief executive of a manufacturing firm, and have gotten embroiled in a dispute with one of your suppliers or customers.

Other executives in your firm encourage you to "go to the mat" on this one, meaning that you should spend what ever monies are necessary to win, since they think your case is so strong, and "it's the right thing to do."

Yet you know that a court case will be very costly, lengthy and will have no sense of finality and closure, since either side can appeal the decision of the court.

Your corporate attorney advises you that arbitration may be a viable option to litigation, but there is not an arbitration clause in your existing contract with your opponent.

No problem.  You should be able to convince the other party that it is in both your interests to arbitrate rather than litigate. Since the benefits are so strong, it might not take much convincing unless they are emotionally attached to their position.  The process then involves incorporating an addendum to your contract and adding one of the standard arbitration clauses, such as this one from the AAA:

"We, the undersigned parties, hereby agree to submit to arbitration
administered by the American Arbitration Association under its
Commercial [or other] Arbitration Rules the following controversy:
[describe briefly]. We further agree that a judgment of any court having
jurisdiction may be entered upon the award."

ARBITRATION COSTS - Part 2

There are so many aspects to the cost of any dispute resolution process.  One of the most significant is the fees charged by the attorneys and their staff on both sides of the case.  The fees charged by the arbitrator(s) are usually less, because their time is spent primarily on the hearings, and not on the extensive evidence gathering and client meetings performed by the attorneys.

In a courtroom litigation for example, the actual court costs can be a small percentage of the total costs.  Any attorney wishing to represent his client to the fullest will no doubt take advantage of every opportunity to confound his opponent by taking extensive depositions of every potential witness, preparing interrogatories, demanding copies of every possible document, relevant or not, and filing motions.  For obvious reasons, this aggressive effort is called a "fishing expedition."  Often it produces no more results than a true fishing expedition would.

All of this can run up the cost of the litigation to the point where it can make the principals wonder why they ever thought it was a good idea to pursue the case.

Enter arbitration.  While arbitrations are not cheap, they do avoid the kind of intensive investigation and evidence gathering that a litigation does, and so can have a much smaller bill for professional fees of all kinds.  When one considers the fact that arbitrations are not subject to appeal (except on the occurrence of various malfeasances on the part of the arbitrator(s), the time spent on the case is proportionally reduced, along with the cost.  

ARBITRATION COSTS - Part 1

One of the putative benefits of arbitration is that because of its relaxed rules and finality, it can cut costs compared to litigation with its lengthy and costly appeals and evidence-gathering processes. 

In order for this assumption to work, though, it is important for the arbitrator(s) to exercise control over the process.  For example, attorneys, in their zeal to represent their client, can aggressively challenge every piece of evidence, each instance of which disrupts the process.

To avoid these disruptions, the arbitrators must set the tone and discourage frequent challenges.  On one hand, they cannot refuse to allow an instance of evidence that later might have proven to be important.  So the way this is handled is by giving the arbitrators the flexibility to assign different weights to various pieces of evidence.

To avoid this becoming an issue, it is important that the arbitrators tell the attorneys at the start of the hearing, that generally speaking all evidence will be allowed, but not necessarily given the same weight when it comes to preparing an award.

In my view, this is one of the major advantages of arbitration versus a courtroom setting, in that the arbitrators being professionals, are able to make such determinations, whereas a citizen jury may not be.

WHY USE A SPECIALIST ARBITRATOR?

In our complex business system, there is an increasing dependence on technology, both for running the business, and in the products that the business produces. 

If the issues in a business dispute are labor-related, then there are arbitrators experienced in that field.  A business wanting the best outcome of the process would naturally make sure that at least one arbitrator sitting on the panel would be knowledgeable about labor matters.

Similarly, if the dispute was about construction where industry techniques and procedures are important, would certainly want an arbitrator who was intimately familiar with construction. 

In both those business cases, having arbitrator(s) with deep experience is only logical to make sure that the issues brought up in an evidentiary hearing are understood by the panel.  This is in fact one of the great advantages over arbitration compared to a courtroom setting where the jury is composed of citizens who may have no understanding or experience in the field.

So it is also logical that in a technology case that the arbitrators also need to be conversant with the technology at issue.

This is my strength - a wide and deep understanding of many technologies gained over my 45 years of business experience, both as an executive and technologist.

If you are a principal or attorney involved in such a case, I would be pleased to discuss what I can offer.  Just go to my website.

INTRODUCTION

This is the first posting on my new blog.

I have been a commercial arbitrator for the American Arbitration Association for more than 30 years, and am now promoting my services independently of the Association as well.

I will be frequently commenting on technology matters and arbitration of disputes in general, and those involving technology specifically.

If you want to find out more specifics on arbitration, my background and practice, please check out my web site.