Technology companies have choices to make at various phases of the mediation process for patent and trade secret cases. Patent and trade secret litigation remain important tools to protect the intangible assets of technology companies. They are among the most costly matters to litigate, and there is a significant financial incentive for parties to consider mediation and settlement as early as possible. Mediation is also increasingly required by local court rules or contracts between parties.

Part 1 of the article focuses on: selecting the right time to mediate patent and trade secret cases; realistically assessing liability, damages and equitable remedies; selecting the team to attend the mediation in a patent or trade secret case; developing a plan to deal with two tier protective orders; and writing a persuasive mediation memorandum.

  1. Select the right time to mediate patent and trade secret cases.

 Patents 

 A benefit of early dispute mediation is the informal exchange of information, producing cost savings over traditional discovery and possibly settlement. If a settlement does not result, the parties and mediator can narrow the focus of discovery and return quickly to a subsequent mediation, producing litigation savings.

Cases between competitors involving core technology are the most difficult to settle and may not be susceptible to early dispute resolution. Cases between competitors involving noncore technology or involving nonpracticing entities may prove easier to resolve earlier.

In patent litigation, there is a case progression continuum where the parties gain more knowledge about the strengths and weaknesses of their cases but also incur more costs. There are opportunities for mediation along that continuum, some of which result from required early disclosures under local patent rules, and others from the risk of adverse rulings.

The first window of opportunity occurs after a required exchange of asserted claims and infringement and invalidity contentions and preliminary damages contentions. The second window occurs if there is a patent-eligibility motion under Alice. The third window occurs before or after the claim construction Markman hearing or ruling. A fourth window occurs at the conclusion of fact discovery. A fifth window occurs after expert disclosures and discovery and summary judgment and Daubert motions regarding expert testimony.

Separate parallel processes providing mediation opportunities include: an inter partes review of patentability at the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board, or a Section 337 exclusion proceeding at the U.S. International Trade Commission.

Trade Secrets

 Trade secret cases arise from employee departures, violations of confidentiality obligations by partners or licensees or intrusions by outsiders. The trade secret owner usually seeks preliminary relief to prevent misuse or disclosure of the trade secret and also damages. Such litigation is expensive and permeated with emotions and distrust.

There are several opportunities for a mediated solution. The first is at the temporary restraining order or preliminary injunction stage. A second is during the disclosure and definition of the trade secret. A third is during discovery whether the trade secret is truly confidential or is generally known or readily ascertainable, or whether the defendant possessed pre-existing know-how included in the trade secret. A fourth is during discovery regarding breaches of confidentiality agreements or fiduciary duties. Later opportunities are at expert reports and motions, and motions for summary judgment.

  1. Realistically assess liability, damages and equitable remedies.

 Parties should approach a mediation with realistic expectations about what will occur and the need for compromise. This requires candid consultation between lawyer and client. To value the case, each party should explore its best, most likely and worst verdict results to develop three numbers: its opening offer, the likely settlement range and its walk-away number.

Client legal and business teams must gather the facts and law, identify business concerns, assess risks and costs, and make choices about how to approach and resolve the dispute, including monetary, licensing or business resolutions. This requires a clear-eyed assessment of liability.

In a patent case this includes analysis of validity, prior art and infringement. In a trade secret case, this includes assessment of the validity and strength of the trade secret. In both types of cases damages should be assessed in relation to litigation cost, including lost profits, reasonable royalties, price erosion, convoyed sales, entire market value, apportionment and in a trade secret case, also unjust enrichment/disgorgement. Assessment of likelihood of success may include decision-tree analysis, jury verdict research, mock juries or less formal approaches.

Another key leverage factor is the likelihood of plaintiff securing an injunction barring the sale of the accused products. That can produce significant leverage over damages and in negotiations concerning whether defendant must agree to exit certain product lines or enter a license or business arrangement.

  1. Carefully select the team to attend the mediation in a patent or trade secret case.

 Mediations should be attended by outside counsel and a client representative with settlement authority. Selection of the client representative should be undertaken with care.

An in-house litigation or intellectual property counsel should participate, who has a good understanding of the technology, USPTO and other litigation proceedings, and other licenses. A business executive should participate who has knowledge of the market for the technology, sales, the impact (or not) of the infringement or misappropriation of the technology, and other licenses. The executive is important in the business aspects of any settlement. Some parties prefer the attendance of retained experts, while others prefer pre-mediation sessions where each side and its experts may present a tutorial to the mediator on the technology and damages issues.

  1. Develop a plan to deal with two-tier protective orders

 Most technology cases have two-tier confidentiality agreements, where highly confidential materials may be designated for review only by outside counsel and experts, with a patent prosecution bar for those who review such materials. When entering into mediation, additional mediation confidentiality protections should be adopted.

To promote settlement discussions, some protective orders allow designated in-house counsel or business executive with no involvement in competitive decision making to review certain highly confidential materials other than source code. Other variations involve exchange of summary financial data, subject to later verification, supplying cost or profit financial data to the mediator, and supplying confidential technical information to a neutral technical adviser assisting the mediator.

  1. Write a persuasive mediation memorandum.

 Write a persuasive summary of the claims, facts and law relating to liability, causation and damages, and make a good faith settlement demand or offer. These should be exchanged. A private letter can be given to the mediator to highlight confidential information.

The patent owner should identify the asserted claims in the patents in suit, as well as the accused products, whether infringement is direct or indirect, and the claimed priority date. The alleged infringer should identify the bases for invalidity contentions, including patent eligibility, relevant prior art supporting anticipation or obviousness, and specification/written description/enablement and indefiniteness grounds. Both sides may include relevant preliminary or final claim constructions and should exchange damages contentions.

In a trade secret case, the trade secret owner should specifically identify the trade secret, how it was kept confidential, other contract or tort claims, how the trade secret was used by the defendant, and damages. The alleged misappropriator should describe any lack of confidentiality, whether the alleged trade secret was in the public domain, whether the defendant had pre-existing know-how, any reverse engineering, and damages contentions.

 

 

A very high percentage of employment claims are resolved through mediation. This article addresses best practices in planning, strategy and advocacy in the mediation process. Part 2 of this article discusses the middle and end stages of mediation- from first offers through planning settlement moves in the negotiation process, through closing the gaps between the parties, breaking impasse, reaching an agreement and documenting it.

  1. Set the stage with your opening offer.

Given your case valuation, your opening offer should be selected as part of your overall settlement strategy and potential settlement moves and concessions. It should be accompanied by a rationale, so the opposition is not left guessing. There is no right or wrong strategy. The opening offer can send a message, good or bad, with an anchoring effect. The opening offer must also take into account prior offers. It is not advisable to backpedal from prior offers.

A reasonable opening settlement offer would be in what each party sees as the likely plaintiff verdict range, which each may view quite differently. If a reasonable offer is met with a reasonable counter-offer, both sides should see the likely settlement range fairly quickly and be able to achieve a settlement in a few moves.

A plaintiff aggressive offer would be in the high end of its perceived likely verdict range, while a defendant aggressive offer would be in the low end of its view of the likely plaintiff verdict range. In this range each party’s view of the facts, law and damage calculations should credibly support its offer, but a wider gap will make a settlement more challenging. First offers often lean towards aggressive due to over-optimism and a natural inclination to not leave money on the table. A party making an extremely aggressive offer must anticipate that it may become necessary to make substantial settlement concessions to achieve a settlement.

An insulting opening offer would be “over the top” or “pie in the sky” on the plaintiff side, and a waiver of costs or de minimis offer on the defense side. Rather than being an anchor, it often becomes a boomerang, provoking an equally insulting counter-offer. This can create a very wide divide which will require either significant patience and very large conciliatory moves, or lead to early impasse and termination of the mediation or walk-out.

  1. Plan your settlement moves in mediation.

 The “middle rounds” are the heart of the mediation, consuming the most time and where most of the movement occurs. Each party’s second move is often its most important in signaling its intentions, particularly if its opening offer was aggressive. The next few moves also send key strategic signals to the opposing party, either firmness or conciliation. It is important to have a negotiation plan regarding the end goal and the sizes of the concessions. Parties should think multiple settlement moves ahead, making the moves strategic and not emotionally driven.

In the first few moves, there is extensive information exchange, through the mediator, of each party’s positions. The mediator is working to keep the momentum moving, and the counteroffers flowing. An early stall, where one party refuses to counter unless the other party makes a double move, can lead to the response “I’m not going to bid against myself” and a potential impasse.

  1. Work with the mediator to avoid or break impasse.

 The best way around impasse is to avoid it by positive attitude, strategy and moves, making conciliatory moves at the right moment, and avoiding emotional responses to moves by the opposition. As impasse approaches or is upon you, it should cause each party to seek the mediator’s insights as the “angel of reality” to help re-evaluate the strengths and weaknesses of its position, to consider positions articulated by the opposition, the risks of achieving the litigation result it seeks, to discuss comparable discounts or results in similar matters, the remaining fees and costs, fee shifting, and the benefits of settlement and getting the matter behind them.

Upon re-evaluation, the parties may decide to make additional moves, may suggest conditional bracketed moves where both move in unison (though not necessarily in equal amounts), or may ask the mediator to suggest brackets. There are many other possible options such as late joint sessions, lawyer-to-lawyer or client-to-client or expert-to-expert discussions. The parties may request a mediator’s proposal which may either settle the case or scuttle the mediation. If the mediator’s proposal is not accepted, the parties may still use it as a basis for further proposals.  In the case of a strong deadlock, a cessation may be advisable to allow a cooling off period which can cause rethinking.

  1. Close the deal.

 If the parties have been exchanging offers, they will often reach a point where they sense that a settlement might be achievable but may take additional moves to reach closure. They often will revert to smaller reciprocal moves to try to reach a fair mid-point. They may offer to split the difference, suggest conditional bracketed moves, or suggest that conditionally one party would move to the mid-point if the other will move to the mid-point.

In contrast, in another scenario one party or both may be at or near their “walk-away” number but there is still a gap between the parties’ positions. Either party may signal that it has little bargaining room left or has reached its final number. This creates a negative bargaining range. Parties often do find a way to bridge such a gap. The parties may recalibrate and move their “walk-away” numbers. Another method is to “enlarge the pie” by exploring interests and issues that can be exchanged to create value to bridge the gap.

The parties may exchange further proposals, or a party’s last, best and final proposal may be accepted if the other party concludes that it is the best achievable result at that point in time. Sometimes this occurs through follow-up calls, when the parties have had time to reflect on the totality of the circumstances. When the heat of the moment passes, parties often recognize that settlement is the best outcome in an uncertain litigation setting.

Once a settlement is reached, it should be memorialized in a written memorandum of understanding or generic settlement agreement, stating that it is enforceable and admissible in court, signed by the parties before they leave the mediation. This can be followed later by a more formal settlement agreement.

Conclusion

Following the best practices described in this article to carefully plan and make strategic moves throughout the early, middle and late phases of the mediation process can help lead to successful results and durable settlement agreements.

 

Recently, courts across the country have seen an increase in employment law claims. Given its strict Labor Code and discrimination laws, this trend has been especially prevalent in California. A very high percentage of these employment claims are resolved through the mediation process. Skilled advocates addressing these types of issues can work with their clients to utilize the following best practices in planning, strategy and mediation advocacy in that process.

Part 1 of this article will focus on the early stages of an employment mediation: preparation and planning, valuing the case, considering non-monetary solutions, and the initial presentation of the case through writings and first conferences, joint or otherwise.

  1. Explore your best, worst and most likely alternatives to a negotiated agreement.

Parties should come to a mediation with realistic expectations about what will occur and the need for compromise. This requires advance consultation between the lawyer and the client, preparation and planning. Counsel must learn what their client wants and frankly discuss whether that is realistic. To value the case, each party should explore its’ best, worst and most likely verdict results. Approaches include decision-tree analysis, jury verdict research, mock juries and less formal approaches, impacted by fact developments, witness strengths and weaknesses, motion practice and court rulings, the venue and likely jury panel. This should be done prior to the mediation to avoid making important settlement decisions on the fly.

There are multiple factors that can impact this valuation in employment cases. The economic damages should be subject to calculation, but noneconomic damages including emotional distress and punitive damages are more subjective and subject to dispute. In wage-hour cases, there is often a sharp dispute over whether meal and rest breaks were taken. Another factor is the availability of recovery of attorneys’ fees by the prevailing party. Finally, the cost of prosecution or defense will impact each party’s positions.

Develop three numbers: your opening offer, the likely verdict range and your walk-away number and seek to anticipate your opponent’s likely ranges. Each side’s bargaining range is bounded by its opening offer and its walk-away number. The overlap between the parties’ ranges is the zone of possible agreement. If plaintiff’s walk-away number is higher than defendant’s walk-away number, a negative bargaining range exists. Unless one or both parties recalibrate, in such a case there will not be a settlement.

  1. Take into account non-monetary considerations: apology, reference letter, reinstatement.

 Employment settlements may include non-monetary interest-based concessions. The most common are an apology, a positive or neutral reference letter, or reinstatement. Other possibilities include re-employment in another capacity or extension of the termination date, to enable the vesting of benefits or continuation of health care, or to enable the employee to secure alternative employment. Tuition payments, training or retraining, outplacement assistance, and company stock buy-backs should also be considered.

  1. Create an effective and comprehensive mediation memorandum.

Write a persuasive summary of the claims, facts and law relating to liability, causation, damages and collectability, including a chronology. These should be exchanged. A private letter can be given to the mediator to highlight confidential information, negotiation strategy, client issues or problems. The goal in the exchanged memos should be to tell your client’s story and help the opposing party understand your position and support and thereby assess their risks.

Important documents, employment contracts and policies and e-mails should be included. Describe the evidence regarding alleged discrimination, pretext, retaliation or sexual harassment or underpayment of wages or denial of breaks. Charts, graphics and other visual aids can persuasively summarize chronologies, data or organizational relationships.

Explain the alleged damages and calculations, including unpaid hours, rates, overtime, meal and rest breaks, how alleged errors occurred, lost back and front pay, lost benefits, mitigation, emotional distress, punitive damages, lost commissions, stock options or deferred compensation, including the sales cycle, vesting periods, and contractual protections. Prior settlement demands or offers should be disclosed.

  1. Make the most of your prehearing conference with the mediator.

Increasingly mediators conduct separate prehearing conferences with each party after the exchange of memoranda. Make this your start of the mediation discussions to jump-start the beginning of the in-person sessions. Use your time to tell the mediator about any backstories, obstacles to settlement, issues you perceive with your client and the opposing party, insurance coverage, and how settlement can be achieved.

  1. Prepare yourself and your client for more effective oral presentations in mediation.

Plan client presentations, either for joint session or a private caucus. The clients can best describe the interpersonal or performance issues that preceded the litigation, and how they were impacted, with a level of granularity and emotional detail that cannot be matched by their lawyers. When lawyers describe the facts, they tend to overplay the rhetoric and repeat what they have written in their memoranda. The lawyers’ roles should focus on the application of legal principles to the facts presented by the clients as well as the overall message. A civil, polite approach is advisable. An overly aggressive joint session presentation can easily backfire. Charts, graphics or visual aids are highly effective in such a presentation.

  1. Deal with emotion in the mediation.

Emotions should be expected and are natural in employment litigation. This is a forum for the participants to tell their story, and emotional catharsis can begin a healing process for the participants. If in a joint session, it is important for the opposing party to listen respectfully, with no overt negative responses, verbal or nonverbal. Many employers do not want their personnel to make emotional or negative counter-presentations in joint session, as they may be counter-productive. Depending on the circumstances, the parties may wish to look for an opportunity later in the mediation for the employee and an employer representative to have a face-to-face meeting to explain their feelings and actions and, as appropriate, to offer an apology. When an apology is heartfelt and spontaneous it can help bring emotional closure to the events.

Part 2 of this article will follow in a subsequent post.

 

 

San Jose, California

Please join us for the national webcast of “Effective Mediation of Technology Litigation” involving trade secret misappropriation and patent infringement on December 12, 2018 from 12-2 p.m. PST. You may register at the following link: https://buff.ly/2JMvI0b  It will also be presented live at the Santa Clara County Bar Association Seminar & Conference Center in San Jose, CA, and will be available On Demand thereafter.

I am serving as the Program Chair and Moderator of this interactive program presentation. A highly experienced panel of experienced Silicon Valley patent and trade secret litigators, mediators and a federal judge will focus on best practices in the timing, case assessment, presentations, settlement moves and final agreements and documentation in mediations. The panel consists of Hon. Susan van Keulen, United State Magistrate Judge, Northern District of California; Karen Boyd of Turner Boyd; Shella Deen of Hoge Fenton; Sara Petersen Graves of Bergeson LLP; and John V. Picone III of Hopkins Carley.

Panel topics include:

•  When is the right time to mediate trade secret and patent infringement cases?

•  Case assessment of liability and valuation of various damages scenarios

•  Who should attend and dealing with attorneys’ eyes only protective orders?

•  Effective mediation memoranda, pre-hearing conferences and oral presentations at the mediation

•  Opening offers and settlement moves, avoiding or breaking impasse and closing the deal

•  Final settlement agreements and documentation: monetary payment calculations, potential licensing terms, business relationships, equitable remedies and release versus covenant not to sue

Please join us live or on the webcast or on demand. You may register at the following link: https://buff.ly/2JMvI0b

Frank Burke

ADR Services, Inc.

 

 

 

Welcome! ADR & Conflict Management Strategies at https://www.adrconflictstrategies.com will  offer ideas on alternative dispute resolution best practices in planning, strategy and advocacy in the full spectrum of conflict resolution methods, from early conflict resolution before litigation or arbitration has begun, early dispute resolution in the litigation process, mediation, and arbitration. Please visit the blog  and sign up to receive blog posts via e-mail.

The target audience for this blog includes plaintiff and defense attorneys and inside counsel and the parties who participate in ADR and conflict management processes prior to and during litigation and arbitration. In addition, the blog will focus on consultants, business owners and employees involved in other conflict management situations or processes who want to utilize principles and techniques of negotiation and mediation to resolve such issues.

Just as we discuss the strategies for the various phases of litigation, now we are discussing the strategies for the various phases of mediation and other forms of conflict resolution. That will be our focus in this blog. Litigators have historically received trial practice training based on methods steeped in history but ADR training and methods are still evolving. We have viewed the litigation and arbitration processes as early (framing the claims), middle (discovery concerning the claims) and late (the trial or hearing through the verdict or arbitration award). Likewise, we are now viewing the mediation process as early (from mediator selection to presenting the case through writings and first conferences, joint or otherwise), middle (first offers through early negotiation rounds) and late (closing gaps, breaking impasse, reaching agreement and documenting it).

My strategy suggestions are based upon a lengthy 42 year career as a business trial lawyer representing plaintiffs and defendants in federal and state courts in 26 states, China and Canada. More recently I am serving as a busy mediator and arbitrator in a wide spectrum of cases experiencing a variety of party strategies and techniques. As mediation and arbitration have evolved and developed, best practices are becoming clearer and there is less need for parties and counsel to proceed solely by trial and error.

We will discuss ADR and conflict resolution across a wide variety of subject areas, from business, contract and UCC disputes to real estate, leasing, IP, trade secrets, technology, employment, personal injury, professional malpractice (legal and accounting), antitrust, securities and false claims and whistleblower matters, corporate governance, business divorces, partnership dissolutions and family business and tenants in common disputes.

I hope to include Guest Posts by trusted colleagues covering content within the scope of this blog. The blog site offers the ability of recipients to offer feedback and comments. I look forward to discussing ideas and best practices via e-mail or through the comments section on the blog site.

This blog will appear in the industry leading LexBlog network within the Corporate and Commercial channel. Please visit the blog at https://www.adrconflictstrategies.com and sign up to receive blog posts via e-mail. Thank you for reading and visiting and advancing the dialogue.