Keep it cheap: Ten Tips for Minimizing IP Dispute Settlement Costs

By Jeremy Phillips

IPKat blogmeister Jeremy Phillips is once again contributing a list of top ten recommendations to the WIPO Magazine. Last time his advice was for businesses trying to use their IP to attract financing (see “IP Financing: the Ten Commandments” in issue 5/2008), this time he advises on how to save money in IP disputes.

Some things are so obvious they are easily overlooked. One of them is the contrast between IP laws and the rules that govern the resolution of disputes involving IP rights.

For more than a century, nations have worked to harmonize their IP laws, making IP law one of the biggest and longest-lasting areas of cooperation between countries and resulting in national laws that give citizens and businesses of other countries the same rights and benefits as they accord to their own. In contrast, every country in the world has a dispute resolution system that reflects its culture, historical roots and political ideology. Those national characteristics are deep-rooted, often cherished and tenaciously defended whenever talk of reform is in the air. Consequently, while IP rights are increasingly comparable the world over, the cost and effectiveness of their enforcement reflect each nation’s economic and cultural DNA.

The quest for global truths

This contrast raises the question: if IP enforcement mechanisms and costs are different everywhere, is it possible to point to any general truths that hold universally, and that can be applied in the litigation-happy U.S. and court-shy JapSan, in industrial economies such as Germany and in developing nations where enforcement of rights and the protection of legitimate interests may be viewed as a matter for tribal loyalties and local custom rather than – or as well as – the remote application of arbitrary rules?

Before answering this question myself, I sought the advice of readers of my weblog, who are drawn from nearly 150 countries. The one overarching truth that emerged came from readers of common and civil law backgrounds and from both developing and developed economies – that is, that anyone contemplating IP litigation, arbitration or another form of dispute resolution should think carefully before they act. The word “carefully” is mine. I was initially skeptical as to whether careful thought would help to reduce dispute settlement costs, as it could encourage would-be disputants to bring proceedings they otherwise might not have. However, on the basis that careful analysis (i) might persuade disputants to drop a claim not worth bringing and (ii) might more easily result in an early and satisfactory consensual settlement thus cutting out courts or other arbitral costs, it deserved to be included.

The 10 tips

Here, then, are my 10 tips for minimizing IP dispute settlement costs everywhere – or almost everywhere:

1. Think carefully before entering an IP dispute. This is not merely for the reasons given above, but because some IP disputes can be solved more cheaply or easily by treating them as business problems rather than as legal ones. For example, in the case of lookalike products or packaging, a business that has few or weak IP rights might find it cheaper to redesign its own product around stronger IP rights and use that as the basis of a re-launch rather than press ahead with expensive litigation of which the outcome is highly uncertain.

2. Identify the best and worst possible outcomes of the dispute. If even the best outcome will not get an IP owner what it wants or if the worst possible outcome is intolerable, the IP owner should hesitate before committing to a dispute.

3. Keep accurate, up-to-date and accessible business records. Small and medium-sized businesses are often poor record-keepers, and this can add to the expense and inconvenience of IP dispute resolution in many ways. For example, in disputes with a former employee over IP that a business claims for itself, it is imperative to have at hand copies of the employment contract and miscellaneous instructions, memos or e-mails amending its terms or the employee’s duties. Likewise, in an infringement claim relating to damages for loss of profits, it is a rare judge or arbitrator who will order payment of a sum in the absence of evidential guidance as to what those profits might have been. Also, where works are commissioned from independent designers, software writers or the like, has a document recording an assignment been executed? If so, in whose cupboard is it hidden? The cost of finding one’s own evidence, in terms of stress and disruption to the workplace if not in actual financial terms, cannot be ignored.

4. Seek specialist advice. Specialist IP professionals are not available everywhere, but a legal representative familiar with copyright, trademark or patent law should be better able to give advice based on experience than one who is not. To many laypersons, a lawyer is a lawyer, and it doesn’t matter what sort of lawyer they get. But that is not the thinking vis-à-vis other professions: a gynecologist and a brain surgeon may both be medically qualified, but rarely would a patient consider the one to be an acceptable substitute for the other. Additionally, while IP specialists may charge higher rates, the cost of obtaining their advice may be lower in the long term than if one were to consult a general legal practitioner who charged less but took longer.

5. Keep control of the decision-making process. A good professional representative will give clear, comprehensible advice but leave it to the client to make its own informed decision as to how to proceed. It is unfair for a business to ask a lawyer to decide whether or not it is worthwhile to continue with a legal dispute. That is fundamentally a business decision, just as choosing a new computer system is a business decision. A lawyer in private practice would not have the same information or knowledge as does the client regarding the potential consequences of such a decision, including the repercussions for the client’s shareholders, employees, suppliers and distributors. Also, legal representatives will be aware that they are open to being accused of recommending that the client sue merely out of self-interest.

6. Talk to your representative about likely and actual cost. “How much will this cost me?” is not a question that can usually be answered accurately in advance of a dispute, particularly if the losing party appeals or the IP owner is faced with counterclaims and attacks on the validity of its IP rights. That said, it is important to ask what the likely costs will be and what might happen in cases where the losing party pays some or all of the winner’s costs. The final amount is not the only issue: timing is everything for any business that watches its cash-flow. Do I pay up front or later? Can I have regular statements of the expense incurred and clear and timely warnings whenever actual costs jump above the estimated budget?

7. Remember that your IP representatives are not a clerical service. Not everything that lawyers and IP attorneys do can be described as a legal service. There is a lot of routine activity that goes on, such as photocopying and bundling documents to be sent to other participants in the dispute as well as judges, arbitrators or mediators. It is more expensive for law firms to do this than for the client to do it properly itself, and a lot of money can be saved this way (it was once unkindly remarked of a law firm that its photocopiers earned more revenue in a year than one of its lawyers). Likewise, lawyers are not a postal service, storage facility or secretarial back-up system for their clients. So remember to ask what you can do yourself rather than having your representative do it more expensively.

McDonald’s clearly-stated, identifiable and consistently-enforced IP policy has reduced their litigation spending. (Photo: McDonald's)

8. Watch the calendar, watch the clock. Almost as inevitable as rain and sunshine is the phenomenon of the missed deadline. Disputants fail to file responses, evidence, fees or other vital items within the period laid down by law and then have to apply to the tribunal to have their plea or right reinstated. This costs money and is an unnecessary expenditure, even when it succeeds. Litigants sometimes blame their legal representatives for not meeting deadlines for them, while representatives often complain that clients have “left everything until the last minute,” which is sometimes too late – particularly where no account is taken of public holidays, staff illnesses or the mechanical failure of faxes and computers. The forward-planning IP disputant can enter relevant deadlines into its diary twice, once on the day itself and once a few working days earlier, with a reminder to check with the legal representative that the deadline has been met.

9. Act in a firm, consistent manner. Where a dispute arises, one side having a clearly-stated, identifiable and consistent policy often enables the other side to take an early decision as to whether, and to what end, it is worth persisting with the dispute or better to settle sooner and at less expense. Examples of clearly and consistently applied dispute resolution policies may be found in the enforcement activities of McDonald’s – in relation to its fast-food services and products in nearly 120 countries – and those of the easy Group whose brands, prefaced with the word “easy-”, are found in some 60 countries. While these businesses’ vigorous pursuit of their enforcement policies has met with some criticism and unfavorable media publicity, there is no doubt that their deterrent effect has reduced not only their own litigation spending but that of others who might otherwise wish to contest IP issues with them.

10. Don’t turn a business dispute into a matter of principle. Courts almost everywhere bear silent testimony to the phenomenon of a dispute pursued beyond the boundaries of business reason and good commercial sense by a litigant who sues or defends an action “as a matter of principle,” “to teach the other side a lesson,” “as a point of honor” or for another such motive. This is often a consequence of one party perceiving its treatment by the other as based on some form of malice or personal slight. Little is gained from such suits in terms of genuine gratification by the time the party that has thus acted comes to pay its bills. It is wiser to choose the path of dignity. Treat each dispute as a business matter, and keep it as far as possible from the slippery slope of insults, invective or unsubstantiated allegations of impropriety – the fuel that fires such futile action.

Ten – or more?

Good practice in IP dispute cost management does not consist of ticking each box and then moving on to the next issue, but of re-evaluating one’s position. Factors that emerge after a dispute breaks out – such as the addition of further parties, the applicability of new laws or the reinterpretation of old ones, and the insolvency of a disputant or its merger with another entity – may make it critical to revisit the suggestions listed above.

The 10 items here are the author’s personal selection. Readers may have favorites of their own (whether generally applicable or focused on particular countries or types of dispute resolution). Since the cost of litigating IP will continue to trouble both IP owners and those with whom they are in dispute, one can never have too many helpful tips. It would be good to see more of them in a subsequent issue of the WIPO Magazine.