IP: Should you mediate your patent dispute?

Five practical considerations to keep in mind when mediating disputes

The costs of defending patent infringement cases are skyrocketing.  Hard transaction costs (e.g., lawyer fees, expert fees, e-discovery fees) have never been higher.  And the same goes for information costs.  Poorly written patents cloaked with the presumption of validity and adjudicated in hostile fora make handicapping even the strongest defense difficult.  Summary judgment, once a powerful tool, is virtually unknown in several jurisdictions now popular with patent plaintiffs.  Obviously, mediation is a less-expensive option.  But an unsuccessful mediation simply wastes more time and money.  So, how do you know when your case is suitable for mediation?  And how do you maximize the chances that your mediation will yield favorable results? 

Here are a few practical considerations that have proven useful over the course of mediating numerous patent disputes, both big and small:

  1. Assess whether your case is about money or something more.  Cases between competitors involving legitimate claims for injunctive relief and market share tend to be bad candidates for mediation.  But if your case is mostly about money, mediation likely will be more efficient than traditional settlement discussions.  Even skilled litigators are often bad negotiators, especially when negotiating via e-mail, an approach that is now as frequent as it is ineffective.  Business executives speaking candidly in a conference room before a sophisticated stranger will assess risks and allocate value more accurately than will opposing counsel trading Outlook messages.
  2. Assess how important it is to obtain a broad industrial peace with the plaintiff.  Does the plaintiff own a large portfolio of patents and/or pending-patent applications?  Is the plaintiff in the business of acquiring patents for the purpose of litigation?  If so, mediation offers an opportunity to negotiate a broad and lasting industrial peace.  Remember, if your defense at trial is non-infringement, even a complete defense win yields the narrowest of victories.  You can still be sued on the same patents when you introduce new products and, more commonly, you still need to worry about new claims, with even broader scope, that may issue from the very same patent family.  Under these circumstances, negotiating a broad industrial peace (e.g., covenants-not-to-sue, even for a term of years, or broad licenses under present and future patent portfolios) can be an important strategic objective, and can be the spoonful of sugar that helps a specific settlement go down.
  3. Make sure you pick a good mediator.  This may sound obvious, but too often parties fall into common traps.  True, a mediator is supposed to promote an atmosphere of cooperation, but tepid mediators who merely shuttle between conference rooms conveying messages are useless.  Instead, choose someone who is going to form opinions on the merits, especially the economics, and who will convey those opinions freely.  Another frequent mistake is to insist on someone with patent prosecution experience, an especially bad decision if your defense is based on patent invalidity in light of specific prior art.  Remember, patent prosecutors distinguish prior art for a living, and thus are unlikely to be impressed by yours.  Instead, pick a professional mediator with highly sophisticated economic sensibilities.  In most cases, an economist would make a better patent infringement mediator than many patent lawyers. 
  4. If you reach an agreement, don’t leave without a signed term sheet.  Drafting a term sheet, especially late in the day, is burdensome and requires a level of care that is difficult after a long day of negotiations.  But it also is critical.  Nothing ruins a successful negotiation like buyer’s remorse, and the better you fare in mediation, the more likely the other side will try to wiggle out of the deal, or at least into a better one.  Outside counsel will squawk that a formal agreement can’t be reduced to a bar napkin, but it can and should before you leave for the airport.
  5. Mediate early in the life of a case. Some lawyers worry this shows weakness.  But nothing shows weakness more than an invitation to mediate after discovery, claim construction and the deposition of your 30(b)(6) witnesses.  Deals also become harder after the parties have invested vast sums in the case; the plaintiff needs more to recoup its fees and the defendant has less to spend based on previous budgets or reserves.

In the end, patent litigation is rarely about moral principle; rather, it is about discharging one’s fiduciary duty to remove a cloud on your company’s business in the least-expensive and burdensome way.  If done correctly under the right circumstances, mediation is the single best way to discharge that duty.  

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Jeffrey Dean

Jeffrey Dean is a partner of Marshall, Gerstein & Borun LLP, and concentrates on the defense of patent infringement claims on behalf of corporations....

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