Richard Birke

Once in a while it seems the people who design live-action war-based video games get into real-world non-virtual disputes of their own. When “Timegate” promised to “Southpeak” that it would design a videogame named “Section 8,” the parties agreed to split profits.

Things went badly and Southpeak alleged that Timegate used Southpeak’s money to do a number of things that didn’t involve the development of Section 8, and that Timegate failed to live up to its promise to devote its own money and resources toward the game’s development.

The matter went to arbitration and the arbitrator awarded Southpeak more than $7 million and a perpetual license to use everything Timegate had developed for the Section 8 project.

A district court judge thought the arbitrator overstepped his authority when he granted a perpetual license and the award was vacated.

On further appeal, the U.S. Court of Appeal for the Fifth Circuit reversed the district court and reinstated the award. The Court wrote, “[t]he entire Agreement can accurately be summed up as the creation of a mutually beneficial business relationship between two parties with distinct expertise: a video game developer and a video game publisher. The parties were to work jointly to create, market and popularize a video game whose success would yield financial benefits to be distributed between the two parties in accordance with their respective contributions to the joint effort as required by the contract…..The perpetual license furthers these general aims of the Agreement.”

In conclusion, the Court noted that “the Section 8 perpetual license is rationally rooted in the Agreement’s essence. Timegate committed an extraordinary breach of the Agreement, and an equally extraordinary realignment of the parties’ original rights is necessary to preserve the essence of the Agreement.”

Hon. Ann Kough (Ret.)

Hon. Ann Kough (Ret.) served in the Los Angeles County Superior Court as a complex litigation judge and earned a reputation for fairness and efficiency in handling the most difficult and contentious cases. Since joining JAMS, Judge Kough has arbitrated a wide range of disputes that span a broad spectrum of legal issues across several industries. She can be reached at akough@jamsadr.com.

With cash-strapped court systems across the country making cuts that result in ever-growing dockets, achieving efficient dispute resolution through litigation is becoming more challenging. In California, one remedy could be the use of judicial references. This involves appointing a neutral to serve the same role as a sitting judge.

The authority for judicial references comes both from the California Constitution, Article VI, section 21, which provides for the appointment of temporary judges, and CCP sections 638 and 639, which provide for the appointment of a referee to hear all or less than all issues in the case. Under Article VI, section 21, with the stipulation of the parties, the court may order the matter to be tried by a temporary judge. Under CCP section 638, the parties may agree to the appointment of a referee to either 1) hear and determine any or all of the issues in the action and render a statement of decision, or 2) ascertain a fact necessary to enable the court to determine an action. This agreement may either be pre-dispute, as a clause in a written contract, or post-dispute. The scope of the neutral’s work may be as wide or as narrow as the parties would like, and may be expanded at any point in the case. A court has the authority to appoint a neutral to 1) handle discovery disputes, 2) hear and determine accounting issues, or 3) determine questions of fact the trial court deems necessary.

The advantages of a judicial reference are many: parties choose their own decision-maker, get reliable and convenient trial/motion dates, receive all of the attention their matter needs and retain full procedural rights, including appellate rights, as if in court. Counsel may select a temporary judge/referee with subject matter expertise and can schedule motions and hearings at their, and their clients’, convenience.  A judicial reference can also save money.  Although the initial cost is more than court filing fees, in the long run parties save money because neutrals can tailor case management to minimize the expense of discovery, identify threshold issues, which may resolve or streamline the matter and devote full days to trial if the matter must be tried.

As access to the courts for civil matters is drastically curtailed, counsel should consider the use of judicial references.

Zela “Zee” G. Claiborne, Esq.

Zela “Zee” G. Claiborne is an arbitrator and mediator with JAMS in San Francisco. She can be reached at zclaiborne@jamsadr.com.

The number of IP disputes resolved in mediation has continued to increase as attorneys make efforts to find speedy resolutions and cut litigation time and cost for their clients. Only a small percentage of costly patent infringement cases actually go to trial; approximately 90 percent of them are settled.

Business people and their counsel recognize that mediation is a cost-effective, low-risk process with a remarkably high success rate when conducted by an experienced mediator. In mediation, parties avoid the risk of trial and remain in control of the resolution. Mediation is a good way to preserve business relationships. In order to have the best opportunity for settlement, counsel should consider the following three points:

1. Bring the right people to the mediation. That might sound like common sense, but it is surprising how many mediations fail because the decision-makers are not present. Mediation is a dynamic process that cannot be adequately summarized on the phone or after the fact to an absent decision maker.

2. In advance of mediation, consider some possible business solutions that might be acceptable to your client and to the opposition. Look at various options, giving thought to how the dispute looks to the other side and analyzing what their needs might be. Considering only a specific dollar range is a mistake. Your client’s views may shift after the mediator points out weaknesses of your client’s position.  You may learn something new to cause rethinking of the settlement position. The benefits could be great because many licensing disputes involve an ongoing business relationship. Options could include something other than money.

3. Finally, do not leave the mediation without preparing a short list of the deal points agreed upon.  The end of the mediation is not the time to draft a lengthy final settlement agreement with all the appropriate legal provisions. Decide who will prepare the first draft and when it will be sent to the other side for review. All client representatives should sign the short-form document so there is a legally binding agreement.

Mediation is an opportunity to resolve an IP dispute by reaching a settlement that makes more business sense than a litigated outcome. Use your professional skill to assist your client in making the most of the mediation opportunity.

The budget cuts to the court system have perhaps been felt more severely in California. In March, California Chief Justice Tani Cantil-Sakauye lamented in a speech to the state legislature, “our judicial branch budget has been cut greater and deeper than any other court in the United States.” The roughly $1 billion in reductions have led to closure of a large percentage of civil courtrooms. The impact on ADR, however is less clear. The panel generally felt that the desire for swift justice would increase the demand for mediation and arbitration, but that hasn’t always been the case.

On the international front, there is a similarly mixed message. Changes like the 2007 Mediation Directive passed by the European Union have had little impact on the demand for ADR in Europe. In other parts of the world, arbitration has seen slow but steady growth, while mediation has yet to become a significant part of the ADR process.  Brazil was cited by the panel as a prime example of a rapidly expanding economy with an active and growing litigation market, but a lack of interest in commercial mediation.

Online dispute resolution (ODR) has become a hot topic in ADR. A number of ADR providers are exploring piloting online offerings. Although the panel was clear on the inevitable growth in ODR, interest and momentum is more apparent in smaller commercial disputes where human facilitators are often not involved.  The panel also felt that the use of ODR in more complex disputes will become more common as technologies and offerings improve.

The panel concluded with a robust discussion of diversity in ADR, highlighted by a recognition that the ADR industry reflects the same challenges as most law firms where women and minorities represent a small percentage of equity partners. JAMS, for example, recruits its neutrals primarily from the judiciary, but also from the senior ranks of law firms where the vast majority of partners are white males.  ADR providers have focused diversity programs in place, but are struggling to achieve as much progress on the demand side of the equation, where women and minority neutrals are not chosen proportionately to their population in those organizations.

We found it difficult to draw any single conclusion about the future of ADR. However, the message of slow, steady growth stood out as well as the need for ADR organizations to innovate in terms of efficiency, cost effectiveness and flexibility to adapt to changes driven by a more sophisticated clientele and an anemic domestic economy.

Richard Birke

While all arbitrators aim for the highest level of quality control, errors occur. Sometimes these errors are pretty egregious, which is why we always recommend using a trusted and well-respected ADR provider and arbitrator.

In a recent case coming out of Michigan, the Thomas Kinkade art company alleged that one of its dealers failed to pay for art it received. The dealer counterclaimed that Kinkade had fraudulently induced it to enter the dealership agreement. The matter went to arbitration where the dealer chose an arbitrator, Kinkade chose an arbitrator and the two arbitrators chose a third. The court opinion noted “Per the arbitration rules, each party was entitled to appoint one arbitrator, who would de facto advocate that party’s position on the panel.”  In this system, most people refer to the appointed arbitrators as “party arbitrators” and the third as the “neutral arbitrator.”

Despite years of delays, the matter was finally in arbitration when Kinkade discovered that the dealer had hired the third arbitrator’s law firm to do a large batch of business, and the dealer’s arbitrator had done the same. Kinkade was facing two arbitrators doing business with each other and with the dealer.

Kinkade asked the arbitrator to withdraw. He refused. Kinkade asked the arbitral organization overseeing the matter to disqualify him. They refused.

The arbitral panel closed proceedings and then sua sponte asked for documents that the dealer had told Kinkade “do not exist.”  The dealer provided 8,800 pages of business records to the arbitrators but not to Kinkade. The panel noted in an interim award that no one was entitled to attorney’s fees.

The panel made a final award giving the dealer $1.4 million, including nearly $500,000 in fees and costs.

The Sixth Circuit found an arbitrator committed both transgressions, and affirmed the district court’s decision to vacate the resulting arbitration award.

On appeal, the courts said this was about the most egregious example of “evident partiality” that they had ever seen. Compounding this was the fact that the dealer’s law firm had switched lawyers several times – once because counsel had been convicted of tax fraud.

While the courts can fix things like this – and they did – it’s clearly a better course to avoid doing business with a bad arbitrator in the first place. The vast majority of arbitrators and organizations do the right thing in nearly every case, but it’s that rare case – like this one – that keeps us all on our toes.

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Richard Birke

As our population ages, more and more people are being admitted to nursing homes at or near the end of their lives.  But when a person is admitted to a nursing home and they sign a contract agreeing to arbitrate any disputes arising out of the care they receive, should their heirs and the estate be bound by that contract?  The situations typically arise when the admitted person has died and the heirs or estate want to bring a tort action against the nursing home. The nursing home moves to compel arbitration and the heirs or estate wish to avoid arbitration.

There are strong arguments on both sides.  On the one hand, the only person who could effectively contract with the nursing home is the person being admitted, and that person should be able to contract with anyone they want to resolve their disputes. On the other hand, the estate and the heirs may have claims against the nursing home that are independent of the claims that the admitted patient may have had.

Courts across the country have not reached consensus on this topic. Recently, there was a case from the United States Court of Appeal for the Eighth Circuit, GGNSC Omaha Oak Grove, LLC v. Payich, which held that Ivan Payich could sue on behalf of himself and the estate of his mother Nada Payich. This was despite the fact that Nada had signed a form agreeing to arbitrate any claims “relating in any way to the Admission Agreement or any service or health care provided by the Facility to the Resident shall be resolved exclusively by binding arbitration.”

Contrasting this case is Laizure v. Avante at Leesburg, Inc., in which Debra Laizure was made to arbitrate the wrongful death of Harry Lee Stewart who signed a similar agreement to the one in the Payich case. In Laizure, the Florida Supreme Court held that “in wrongful death actions in Florida, the defendant’s liability flows from actions toward the decedent, and the ability of the estate and heirs to recover is predicated on the decedent’s entitlement to maintain an action and recover damages if death had not ensued.”

Courts across the nation make decisions every day about whether a particular set of litigants are required to arbitrate or whether they will process their disputes in court. Lawyers also try to shape arbitration contracts to serve their clients’ desire to achieve prompt and efficient resolution of disputes. As courts and attorneys continue to debate this topic and work to reach more of a consensus, we’ll continue to monitor and report any updates that may occur.

Following are just some of the conference session highlights. Please visit the JAMS Events Page for more information about JAMS presenters and their sessions.

• Arbitration Ethics: Practical (and Ethical) Solutions to Real Problems
  This program features three experts who deal with ethical issues on a day to day basis for three major arbitration organizations, AAA, CPR and JAMS, who will discuss the ethical, and practical, guidelines they use to navigate successfully through these issues to solutions.
  • Sheri Eisner, JAMS
  • Eric Tuchmann, American Arbitration Association
  • Helena Erickson, CPR

• The Present and Future of ADR 
  This moderated panel will discuss developments and trends in domestic and international ADR. Leaders in dispute resolution including the American Arbitration Association and JAMS will discuss the topics and themes around what is happening today in dispute resolution.
  • Deborah Masucci, Chartis
  • India Johnson, American Arbitration Association
  • Chris Poole, JAMS

• Mediator Ethical Guidance Committee Update 
  Members of the Mediator Ethical Guidance Committee will present various scenarios that have been considered by the Committee, and the process by which the scenarios are evaluated and opinions issued. We will discuss the kinds of topics that come before the Committee in prior scenarios and more recent issues of interest in the mediation community, presented in a Q&A format. 
  • Kimberly Taylor, JAMS

• International Committee Workshop: A Window into the Future: Adding Mediation to the Process Choices in Global Investment Disputes
  Much of the discussion will be dedicated to the theme of investment treaty arbitration: why and how mediation could be integrated into such processes. 
  • Lorraine Brennan, JAMS International Managing Director
  • Jeremy Lack, JAMS International panelist

James McGuire, Esq.

James E. McGuire, Esq., a JAMS neutral in Boston, has extensive experience in all aspects of ADR including mediation and arbitration, as well as serving as a special master and neutral evaluator. He can be reached at jmcguire@jamsadr.com.

Effective March 2013, the United States joined most other countries to provide patent priority to the first inventor to file, rather than the first to invent. This is the latest change to U.S. patent law created by the Leahy-Smith America Invents Act (AIA). The impact of the first-to-file rule on private resolution of disputes through mediation is likely to be minimal since most patent disputes do not turn on the priority of competing claims for the same invention. Other changes created by the AIA, notably the ability to terminate post-grant review procedures by settlement, will make mediation matter even more in resolving patent disputes.

The AIA became law in 2011 as the first major overhaul of the U.S. patent system in more than 50 years. The general goals of the AIA are to make the patent process more efficient, more transparent and to allow greater public participation in the process so that good applications result in strong patents and weak claims are weeded out.

The primary advantage of mediation is to avoid the costs and risks of litigation. A secondary advantage is the ability to tailor the resolution of the dispute to meet the true interests of the parties. The range of possible solutions is far broader than the remedies available through a court in litigation. These concepts apply with equal force to IP disputes.

Frequently, mediation is used early in the resolution process for copyright, trademark and trade secret disputes with great success: three out of four settle at or soon after the mediation. Most patent cases are resolved without a trial, but patent cases tend to stay in the legal system longer and accordingly consume more corporate and legal resources. Though some courts require early mediation of patent cases (before claim construction), in many cases the mediation occurs later in the litigation process. Experienced mediators recommend early use of mediation and encourage participants to think of mediation as a process to help parties narrow the range of disputes and streamline the conflict management process even if some disputes will still require the expertise of the Patent Trademark Office (PTO) or the assistance of the federal courts.

Flexibility in the mediation process helps the parties settle claims that do not require the assistance of the PTO or the courts. The ability to terminate post-issuance challenges adds to that flexibility. Consider using mediation early for maximum control and effectiveness.

Richard Birke

Natural disasters create a wide spectrum of pain and loss among a broad array of individuals and businesses and Hurricane Sandy is a recent example of the type of disaster. The federal government, through FEMA, has the ability to step in and administer relief programs, but sometimes the process is hampered by questions about who is entitled to disaster relief and who is not. These disputes can slow the process of providing relief and courts are simply not nimble enough to keep pace with rapidly evolving situations.

The Robert T. Stafford Disaster Relief and Emergency Assistance Act was recently amended in late January to require that ADR (including binding arbitration) be used to decide who is eligible for disaster relief aid.

Section 1105(b) of the Act states (in pertinent part) that within six months, an ADR mechanism shall be created that allows any applicant to resolve dispute relating to eligibility for assistance.  This ADR mechanism may include binding arbitration by “an independent review panel.”   The panel must issue a written decision, but it may only set aside an Agency decision found to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”  The standards are clearly quite high for a reversal of an agency decision, but nonetheless, the rights of applicants have been significantly expanded with the passage of this bill.

The results of the first 270 days of the program will be reported by the Comptroller General to the Committee on Homeland Security and Governmental Affairs of the Senate and the Committee on Transportation and Infrastructure of the House of Representatives to analyze the effectiveness of the program.

We send our best wishes to everyone who suffered losses as a result of Hurricane Sandy.