Mediation & Arbitration Alternatives For Intellectual Property Disputes

by Peter Grove*

The case included a software product developer, its client and an employee. The developer and its client had a long standing business relationship. The developer provided the client with support as well as new product. The employee had worked for the developer for a number of years and, in particular, had worked on the client?s files. I?m sure you?ve guessed where this is leading. The client hired the employee away from the developer. Lo and behold, the developer became very anxious. The employee had significant information in his head about the programs being used (why else did the client hire him, after all?) and how to maintain the existing software. There existed no ?non compete? clause between the developer and his ex-employee. The anxiety of the developer grew unchecked and soon turned to anger.

This is hardly an extraordinary scenario. What was extraordinary was the way it was handled. While the developer?s first instinct was to take the employee to court, someone suggested that the matter could be mediated. All three parties agreed to attempt a mediation. With the assistance of the neutral mediator, the problem was resolved to everyone?s satisfaction and, more importantly, maintaining decent relations between the parties. So much so that the developer kept its client and continues to do good work for it.

Who owns intellectual property? The technologies industry is a fertile ground for disputes around the issue. The opportunity for problems is evident at just about every level: clients duplicate programs; programmers change employment and take the knowledge and ideas from their former employers with them; client lists are stolen; the fruits of research and development are passed on to others.

It is the nature of creative people, particularly it seems in the high tech industry, to look forward with enthusiasm as they develop their new ideas and put them into production. And be creative they must, since the average life of software is limited. Such people generally do not like to think about what may happen down the road when they have developed and proven their technology and the sharks are circling.

Most people in the business will do what they can to protect the IP with the assistance of lawyers. The importance of carefully worded contracts with clients, suppliers, employees and contractors cannot be overemphasized.

Unfortunately, the reality of the industry is that many of these contracts are somewhat hollow and limited in what they can do, when it comes to resolving disputes. When a dispute occurs, litigation and the courts are generally not particularly effective in resolving the problem. The high-tech world moves too fast for traditional means of dispute resolution. It takes close to two years to get a court date and if the case goes to appeal, a further two or three years is not unusual. By the time the issue gets to court the technology is often no longer being used and the dispute all but forgotten.

At a conference I attended in San Francisco last year, one speaker noted that his company was in the 6th year of litigating a dispute with no end in sight. So far over $40 million had been spent on legal fees. The company no longer manufactured the product around which the dispute originated!

The high-tech community needs to deal with business disputes quickly and efficiently. Alternative Dispute Resolution (ADR), which includes mediation and arbitration, provide creative solutions.

I spoke with Ian Reid of Sierra Systems Consultants Inc. just recently on this very subject. Ian was emphatic about the need to avoid litigation. The cost, time involved and negative publicity are just too detrimental. He notes that Sierra?s contracts with suppliers and clients generally include an arbitration clause and he recognizes the value of mediation as a first step to resolving disputes. All staff at Sierra sign a non-competition contract and he believes that mediation would be a good way to resolve disputes involving past employees.

What are mediation and arbitration? The terms are frequently seen in the press these days but, it seems, frequently misunderstood. Very simply, a mediation is an assisted negotiation. The parties sit down with a mediator who is neutral and trained to ensure that both sides get to say their piece and to understand the interests of the other. Statistics indicate that over 80% of mediated disputes are resolved by the parties reaching their own agreement rather than an imposed decision.

It is important to understand that what happens in the mediation is confidential and without prejudice. That means what is discussed cannot be used by either party in court against the other, at a later date. Neither can the mediator be called to give evidence. The consequence is that the discussions are open, as all involved strive to reach an agreement.

Arbitration is an option where the parties, in effect, hire an individual or individuals to reach a decision about their dispute, just as a judge would do. The parties choose their arbitrator based upon his or her background and experience and the process moves forward, fairly formally but far less so than court procedures. The final award is binding and can rarely be successfully appealed.

The binding nature of the award makes some people nervous. However it should be remembered that the parties have selected a person to hear their case who they believe is competent and able to understand what the business is about. In court, while we have first class and experienced judges, there is no guarantee that the judge selected to hear your case will understand your technology and its peculiarities.

Both processes are confidential. For those whose business and livelihood depends on their reputation, this can be an extremely a valuable benefit. And being able to get on with the process over which the parties have significant control, is to everyone?s advantage.

Mediation and arbitration are voluntary processes unless they are written into a contract in a specific ADR clause. In its simplest form such a clause would require that disputes be resolved first by an attempt to negotiate, followed by mediation if the negotiation is unsuccessful and finally, by arbitration.

No matter what size your business, whether you?re just starting out or have been part of the technology scene for some time, you would do well to consider including ADR clauses in all your commercial and employee contracts. Most commercial lawyers understand the issues and have the necessary wording. Model clauses are available from the British Columbia International Commercial Arbitration Centre and from their Website at http://www.bcicac.com.

* Peter Grove is a Chartered Accountant and a Certified Mediator. He is Past Executive Director of the British Columbia International Commercial Arbitration Centre.