A technology consulting company holding patents on three continents disclosed a patented invention to a major manufacturer in the context of a consulting contract. The contract neither transferred nor licensed any rights to the manufacturer. When the manufacturer started selling products which the consulting company alleged infringed its patented invention, the consulting company threatened to file patent infringement court proceedings in all jurisdictions in which it was holding patents.
Submission To Mediation And Appointment Of Mediator
The parties started negotiating a patent license with the help of external experts but failed to agree on the royalty as the multimillion dollar damages sought by the consulting company significantly exceeded the amount the manufacturer was willing to offer. In a further attempt to settle the dispute, the parties submitted their dispute to mediation under the WIPO Mediation Rules. The WIPO Arbitration and Mediation Center suggested to the parties potential mediators with specific expertise in patents and the relevant technology, and the parties agreed on one of those mediators.
Preliminary Issues
Following his appointment, the mediator held a preliminary telephone conference with both parties' lawyers to discuss preliminary issues such as the mediation terms of reference, the participants in the mediation session, the decision-making authority of such participants, the role of the mediator, and documents to be exchanged before the session. The parties further agreed to hold a two-day mediation session in a mutually convenient venue.
Before the session, the consulting company produced a new expert report, which significantly increased its possible damages claim. The other party threatened to abandon the mediation unless the report was withdrawn. The issue was settled through email exchanges and telephone calls between the parties and the mediator with the result that the report was not withdrawn, but given less weight without its author being present at the mediation session.
Informal Opening
To further a constructive working relationship between the parties and the mediator, the mediator met the parties' decision-makers alone at a dinner the night before the session on the understanding that this get-together would be "without prejudice" and that nothing said by either party was to be taken as an agreement.
Mediation Session
At the mediation session itself each party was represented by a director with full decision-making power. In addition, each party came with several executives, an external expert, and outside counsel. At the outset, the mediator sought and obtained agreement on procedural issues such as the order of presentations, rules of good behavior, and whether there would be scheduled breaks. The lawyers then made formal opening statements for the parties which were followed by various combinations of smaller group meetings at which the mediator met with the parties' lawyers without the parties, and vice versa. At one stage the lawyers were asked to jointly estimate the cost of parallel litigation in several countries as a likely alternative to the mediation.
Caucuses
Over the two days, the mediator held several caucuses separately with each party including its counsel. The caucus sessions served to canvass each party's alternatives to settlement, the relative strengths and weaknesses of their legal positions, their real interests that would need to be met by any agreement and possible options for settlement. The mediator did not provide his own evaluation of the parties' interests and legal positions. Instead, he questioned both parties' lawyers in the presence of their clients and thus brought the parties to a fuller appreciation of the cost and uncertainty of litigating as well as of the strengths and weaknesses of their respective positions without himself taking or appearing to be taking a view.
In addition, the caucuses enabled the mediator to appreciate the possibility that the parties' interests might be reconciled, and that each faced internal issues that the other could help resolve. For the consulting company, a court victory would not bring in new consulting work and might even inhibit its business from companies similar to the other party. The manufacturer faced the dilemma of either continuing to exploit the technology pending the outcome, thereby risking even higher damages, or going to the expense and effort of changing to a less suitable technology in order to limit financial exposure. Each party however assumed that the other would not be able or willing to cooperate in the future. All this was based on information acquired in confidence from the parties in caucus. The mediator now had to find a way, without disclosing confidential information, of enabling the parties to gain the same insight.
Breakthrough
An opportunity to achieve this objective came towards the end of the second day, when the mediator met with both parties' decision-makers alone, without their lawyers being present. Until this moment the parties had been discussing primarily the amount of damages or royalties payment. Now, however, the mediator could ask questions designed to focus both directors' attention on how each party could help the other solve its internal problem. As soon as the parties realized that their assumptions about the other were incorrect and that they were both willing to cooperate, one side made a suggestion which the other accepted in general terms.
Developing the Settlement
Following this breakthrough, a plenary session was convened at which the lawyers were instructed to draft a document reflecting the basic agreement. This first draft was not in itself intended to be binding, but to serve as a basis for further discussion between the lawyers, the parties and the mediator. A revised version was eventually signed at the mediation session itself. Subsequently the lawyers produced a formal agreement, which the parties executed some weeks later.
Result
Through this process, the parties were able to conclude a patent license and to reach agreement on its financial terms. The manufacturer further agreed to recognize the consulting company's technology on licensed products and marketing material, and the consulting company abandoned its infringement claims. Moreover, the parties agreed to conclude further consulting contracts of a certain annual value over several years.
The mediation was thus instrumental in transforming a hostile situation in which the parties were preparing to engage in prolonged and expensive multi-jurisdictional litigation into one in which they were able to conclude an arrangement which suits the business interests of each party and ensures the profitable use of the technology in the service of those interests.