Technology companies have choices to make at various phases of the mediation process for patent and trade secret cases. Part 2 of the article focuses on: making the most of pre-hearing conferences and oral presentations at the mediation; making a strategic opening offer; planning settlement moves, avoiding or breaking impasse and closing the deal; planning ahead for the settlement agreement and monetary payments; and planning ahead for potential licensing terms, business relationships and equitable remedies.
- Make the most of pre-hearing conferences and oral presentations at the mediation.
Most mediators conduct pre-hearing conferences with each party. Use your time to tell the mediator about any backstories, obstacles to settlement, issues you perceive with your client or the opposing party, and how settlement can be achieved. In more complex cases with large damages claims, separate pre-hearing conferences are sometimes in person and can be lengthy, including tutorials about the technology and key contentions.
Carefully plan client presentations, either for joint session or private caucus. The clients can best describe the issues and events that precipitated the litigation, and how they were impacted. Graphics are effective. Counsel should focus on the application of legal principles to the facts as well as the overall message. Trade secrets cases can provoke strong emotions and mistrust, but uncontrolled emotional venting should be avoided. On the other hand, it is important for the opposing party to listen respectfully. A civil, polite approach is advisable.
- Make a strategic opening offer.
The opening offer should be selected as part of the overall settlement strategy, potential settlement moves and concessions. It should be accompanied by a rationale. The opening offer can send a message with an anchoring effect. The opening offer must also take into account prior offers and not backpedal.
A reasonable opening offer would be within what each party sees as the likely verdict range, which views can be quite different. A plaintiff’s aggressive offer would be in the high end of its perceived likely verdict range, while a defendant’s aggressive offer would be in the low end of its view of the likely verdict range. Each party’s view of the facts, law and damages should credibly support its offer. An extreme aggressive offer may require substantial concessions to achieve a settlement. An insulting opening offer often becomes a boomerang, provoking an equally insulting counter-offer, which can lead to a large gap or early stalemate.
- Plan your settlement moves, avoid or break impasse, and close the deal.
The “middle rounds” are the heart of the mediation. Each party’s second move is often its most important in signaling its intentions. The next few moves also send key strategic signals, either firmness or conciliation. There is extensive information exchange through the mediator. It is important to have a negotiation plan regarding the end goal and the sizes of the concessions, making the moves more strategic and not emotionally driven.
As the parties move closer, they often will make smaller reciprocal moves to try to reach a fair mid-point. They may offer to split the difference, suggest conditional bracketed moves, or suggest conditional reciprocal moves to the midpoint.
The best way around impasse is to avoid it in the first place by positive attitude, strategic thinking and moves, making conciliatory moves at the right moment, and avoiding emotional responses to moves by the opposition. As impasse approaches or arrives, it should cause each party to seek the mediator’s insights to help re-evaluate the strengths and weaknesses of its position. The parties may then decide to make additional moves, suggest conditional bracketed moves, or request a mediator’s proposal. If the mediator’s proposal is not accepted, the parties may use it as a basis for further proposals.
If the parties are at “walk away” numbers but there is still a gap between their positions, they may bridge the gap by recalibrating, moving their “walk away” numbers, or “enlarging the pie” by exploring additional interests and issues to create value to bridge the gap. A party’s last, best and final proposal is often accepted if the other party concludes that it is the best achievable result at that point in time.
- Plan ahead for your settlement agreement: monetary payments.
Any settlement should be memorialized in a written memorandum of understanding or bullet point agreement, stating that it is enforceable and admissible in court, signed by the parties before they leave the mediation. Final documentation can follow. Given the complexity of the likely settlement terms in a technology case, the parties should pre-prepare term sheets reflecting the key points to be agreed upon.
Potential patent settlement terms to be considered: payment amounts and the terms; tax issues; release or covenant not to sue; no-challenge clauses; admissions of validity, infringement or enforceability; most favored nations clauses vis-a-vis other settlements; dispute resolution mechanisms; and confidentiality and marking of patented products. Trade secret payment terms can include lost profits, disgorgement of profits or a reasonable royalty.
- Plan ahead for potential licensing terms, business relationships and equitable remedies.
If a patent license is contemplated, determine which patents will be involved, including patent families, continuation patents, continuations in part, pending applications and foreign patents. Identify the licensed products by description and product number. Define the royalty base and how the royalty will be computed, and whether cross royalties will be involved. Look at definitions used in other licenses. Royalty payment terms may be lump-sum or installments, running royalties and percentages, or include caps or minimum payments.
If an patent injunction is likely, that may lead to business negotiations concerning whether defendant must agree to exit certain products or sales channels or focus on different product lines or different geographical areas, depending on the scope of the patent. Any future business relationship among competitors or vertical arrangement should be carefully reviewed by antitrust counsel.
Trade secret equitable remedies may include agreements or orders to return or destroy certain materials, to limit use of information or technology for specified time periods or fields of use, or to limit certain employees from working in a competitive line of business for a period of time. Business terms may include licenses, cross licenses, royalties, shared royalties, buy-sell agreements, mergers, or if not direct competitors, agreements that would allow each to focus on its core business.
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.