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Some time ago I conducted a survey about "bad faith" in negotiation.  I facilitate the negotiated resolution of lawsuits several times a week.  During at least half of those negotiations, one party or another at some point in the process will say "they're negotiating in bad faith!" 

This is a sign to me, the facilitator, that the speaker believes his bargaining partner is engaging in some type of conduct he believes to be unfair or oppressive. 

I'm going to talk about "bad faith" in negotiations in more detail soon.  But I want to provide you with the individual responses I got to the question "what is bad faith negotiation" when I asked the question several years ago.  These answers are by lawyers, mediators and clients.

Please feel free to add (or subtract) from the list in the comments section!

1.  'stonewalling' or frustrating the process unnecessarily
2. If party is primarily motivated by punishing the other, or by vindicating herself.
3. Party uses the process for 'discovery.' Party has no intention to explore opportunities for settlement.
4. Comes with no intent in even considering settlement except for some number decided by someone else who isn't present.  Then the negotiation usually is a total waste of everyone's time, money, and effort.
5. Takes advantage of a power imbalance which mediator does not address and ameliorate;
   consciously takes advantage of mediator's bias or close link to such party; is simply unreasonable and intractable; is unwilling to listen to the other side.
6. A party gets off topic so much they run the time out and both sides aren't given enough time (even if they are given "equal" time but one party isn't permitted to address things important to their position b/c of having to address the side issues ("distractions"))
7. A party uses hardball tactics meant to corner or trick the other party into submission.
8. If a party knows or should know the value of the case but refuses to acknowledge it.
9. Threats relating to future unfair behavior
10. Not willing to go through whole process
11. I don't equate "unfair" with "bad faith" Unfair could simply mean having a better lawyer, more experience, etc.
12. Asserting and maintaining an unreasonable position; being unprepared; not having decision-makers present
13. Fails to show up.
14. They don't listen.
15. By refusing to listen to the other side's position(s)/need(s)
16. Refuses to listen to the other party. Refuses to provide necessary documents.Parties can lie/withhold information/refuse to compromise (with or without good reason). None of that is "unfair." I can't think of anything a party can do that would be "unfair."
17. Unequal disparity of dispute resolution resources between (among) the parties.
18. Person doesn't have settlement authority.
19. A party shows up without the authority/will/information to settle.
20. Misrepresentation or characterization of the case to their own client.
21. Is unwilling to listen to the other party. Can't get off positions and into interests and needs
22. Trying to "bully the mediator or other party.
23. A party is not a decision maker but represents him/herself as one having authority
24. The more powerful party (like a big corporation) overwhelms the little guy with nomenclature, laws, etc.
25. Comes to mediation for other ulterior, reason, i.e., determine opponent's bottom line, conduct discovery... Etc
26. A party who does not give the other party a chance at understanding the reason for their actions or lack of action hinders a fair/helpful/just process.
27. Keeping information from a party that will directly effect a decision just because the other party didn't directly ask for it when the ramification is known and obvious if the information were shared. Unknown ramifications for information withheld probably would not constitute "bad faith." Unknown because communication is hindered by being stuck in a position, that is.
28. It is only form to get to court--let the judge decide, they say
29. Negative communication patterns continue; there is no self-analysis of what one contributes to the conflict
30. A party declares that he/she has authority to settle when such authority does not exist.
31. Aggressive behaviour. More comprehensively - a party that does not do as it would be done by.
32. They take advantage of a power differential (i.e., the other party is emotionally weak, afraid, a victim of some kind of discrimination, etc.)
33. Makes selfish, hurtful or threatening comments.
34. A Party acts unfairly when it refuses to settle because it wants to outspend its opponent in litigation or its attorneys want to keep billing their client, therefore they steer the case away from a fair settlement.
35. Manipulation of information, power, or communication process (verbal and non-verbal)conducted my survey two or three years ago.  If you have others, please feel free to add them in the comments section.

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Courtesy of Charles Fincher at the LawComix Blog. 

My own personal best deposition-settlement story:  our settlement team was in London while I completed the corporate designee deposition.  Condition of settlement:  the designee's deposition would never be transcribed.  My supposition:  our opponents never wanted to see the following questions and answers in writing:

Q:  "So when you used the term 'catastrophic,' in section ___ of the Agreement, it didn't add anything to the meaning of the clause in which it appeared?"   

A:  "That's right."

Q:  "You might just as well have used the word 'tulip'?

A:  "Yes." 

My settlement team told me the following day that the tulips were in bloom at Buckingham Palace.

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Seasoned mediators say that the negotiation does not really commence until the parties reach impasse.  The eight impediments to settlement of patent cases on appeal listed by Chief Circuit Mediator Amend in Patent Mediation on Your Horizon? are impasse creators, not settlement preventers.  It is helpful to anticipate and guard against some of these impediments (party representatives with full authority not being present for instance) but some of these (contingency fee cases for instance) simply provide a challenge to the mediator.  They are not arguments against mediation.

Chief Circuit Mediator Amend identified at the Conference eight impediments to settlement of patent cases on appeal. The impediments are:

1.  the case involves a "troll" (which might be defined as a non-inventive entity with no commercial product that acquires and asserts overbroad patents in an attempt to extort a toll from others) and the defendant company wishes to avoid a "bulls-eye" inviting further litigation;

2.  party representatives with settlement authority are not present for the mediation session;

3. the party having lost the judgment appealed is reluctant to mediate (although perhaps counterintuitive, because the winning party might seem more reluctant, the cost of rolling the die on appeal may appear small relative to the cost already sunk into the case);

4. the patent was held invalid (one solution might be to ask the district court to vacate its invalidity holding as part of a settlement award);

5. counsel is representing the appellant on a contingent fee basis;

6. an emotional, entrepreneur patent owner appeals a loss and seeks "justice";

7. a summary judgment of non-infringement is appealed and the plaintiff seeks millions (the "lottery" case); and

8. a party believes it is entitled to attorney fees or enhanced damages.

 

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Read all about it at Pez takes on the museum of Pez. 

Why don't the parties enter into an affordable licensing agreement with the fee reflecting the value to Pez of a Pez Museum.  I hate the term "win-win" but goodness gracious! this does seem to be more of a benefit than a burden for Pez!  And litigation is as yesterday as, well, Pez!! 

Thanks to Grant Griffiths of Blawg Tweets for making it so easy to cruise the blawgosphere and a special thank you to 3C Patent Law (a new IP Law Blog to me) for the great write-up and image which I'm copying here.

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by

of Sheldon Mak Rose & Anderson

 In 2005, following the lead of the other United States Courts of Appeals, the Federal Circuit initiated a pro bono Appellate Mediation Program.  James Amend is the Chief Circuit Mediator, and the program is administered by Wendy Dean, the Circuit Mediation Officer.  An overview of the program is published at “Let's Make a Deal: Negotiating Resolution of Intellectual Property Disputes Through Mandatory Mediation at the Federal Circuit,” 6 J. Marshall Rev. Intell. Prop. L. 365 (2007).  There are 15 outside volunteer mediators on the panel, who are not in active practice before the Federal Circuit.

 Since the panel mediators may still be associated with a law firm, however, the Mediation Guidelines require recusal on any case involving a party which the law firm has represented on appeal in the last five years.  Mediators must disclose all potential conflicts, including “issues” conflicts.

 The Mediation Guidelines require that at the initial mediation session a party representative with actual settlement authority also attend. This does not simply mean sending a person allowed to accept or offer a minimum or maximum dollar amount.  Rather, the party representative has to be a person “who can make independent decisions and has the knowledge necessary to generate and consider creative solutions.” This requirement may be modified or waived by the mediator only if the circuit mediation officers concur and circumstances dictate.

The Federal Circuit posts both quarterly and annual statistics for the program, reported by patent versus non-patent cases.  From 2007 to 2008, the overall success rate, measured as the percentage of cases settled that were selected for mediation, rose from 42% to 52%.  Patent cases make up most of cases in the program, with 84% of the cases in 2007, and 78% in 2008.  The patent case settlement rate rose from 44% in 2007 to 51% in 2008.

For the first half of 2009, however, the overall success rate has dropped back to 42% overall, and patent case settlements have dropped to 31%.  Second quarter 2009 patent results look especially dismal at 21%.  (Chief Circuit Mediator Amend has identified eight impediments to settlement of patent cases on appeal, which the IP ADR Blog lists here.)  Nevertheless, the program’s overall success still compares favorably with other circuits, which report between a 35% and 45% settlement rate.

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O.K., so this clip is not from In the Loop but from Armando Iannucci's BBC television series “The Thick of It," a series that "looks at the misadventures of a cabinet minister and the pressure he is under from the Prime Minister’s office and one particularly prickly policy enforcer, Malcolm Tucker, a character who also appears in 'In the Loop.'"

There are more clips of Iannucci's work at the New York Times Arts Beat Blog post "Before the 'Loop'."

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by Robert J. Rose of Sheldon, Mak, Rose & Anderson

The arbitration of all patent disputes, including patent validity, is governed by 35 USC § 294 and the Federal Arbitration Act, Title 9 of the U.S. Code.  Of special note, and likely to be overlooked, is the statutory obligation to give notice of any award by an arbitrator to the USPTO.  A copy of the award is then made a part of the file history for the patent in issue.  While the award is final and binding between the parties to the arbitration, it has no force or effect on any other person, and is unenforceable until the required notice is received by the USPTO.

The Rules for Non-Administered Arbitration of Patent & Trade Secret Disputes available on-line and published by the (known simply as CPR) are crafted specifically with patent disputes in mind.  The rules are non-administered, and can be tailored for use with any appointing authority.  The notice of arbitration requires a list of the patents, patent claims and/or the general area of alleged trade secrets involved.  Within the first six weeks the parties must make early disclosure, including a computation of damages.  An initial pre-hearing conference is spelled out, including each party’s proposed construction of terms in the asserted patent claims, plaintiff’s claim charts and defendant’s responsive claim charts, and the defendant’s identification of prior art, if any.  The scheduling contemplates six months from commencement to submission, including a discovery period.  Interrogatories are limited to 10 per party, and depositions are limited to 8 hours, 5 per party.  A confidentiality order is built into the rules.

The rules also allow for interim relief by a court in urgent circumstances, and provide that such requests are compatible with the agreement to arbitrate, and do not act as a waiver of that agreement.
 

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by Robert J. Rose * of Sheldon Mak Rose & Anderson
 
Both sides seem to be progressing to resolution, but have hit a wall.  Is it time for the mediator to make a proposal for settlement?  If so, should the mediator use the value that the case is worth (which one side or the other likely won’t accept), or the value that the mediator thinks will settle the case?

The typical “mediator’s proposal” is given to both sides as a take-it-or-leave-it proposition to resolve the case.  Each party can confidentially accept or reject the proposal without compromising their negotiating position.  The problem is that the mediator knows who accepted, and who didn’t, and it usually means the exit of the mediator from the matter.  In other words, the mediator only gets one bite at the apple.
 
The technique can have dramatic results.  A reluctant plaintiff will make a large jump if the money is really “on the table.”  Defendants will come up with money they otherwise deny having, if it means that the case is really over.  It also eliminates reactive devaluation.
 
Generally, the mediator should choose a number that both sides could agree to, rather than a number that the mediator thinks they should agree to.  If the parties think that the mediator might make an evaluative proposal, they will approach the mediation like a mini arbitration right from the start.
 
The mediator should not discuss a proposal until the parties ask for it, or at least until the mediation seems to be over.  It is best to set a cut-off time for a simple “yes” or “no” response, allow no negotiating with the mediator about the proposal, and unless there is a deal, don’t end the time period early.  Someone could change their mind at the eleventh hour.

____________________

*  Robert J. Rose is a registered patent attorney and practices patent prosecution and patent, copyright, trademark and antitrust litigation. Currently serving as Sheldon Mak's Managing Director, Mr. Rose has written, lectured and testified extensively as an expert in the areas of patents and antitrust.

Mr. Rose has authored patent litigation opinions in the fields of image compression, digital imaging, printer ink cartridges, industrial control of high-speed food processing machines, industrial lighting, geometric optics and remote control devices.  He has been chair of the Board of Advisors to the Physics Department of the University of Arizona since 2000. He is also a member of the Dean’s Board of Advisors for the College of Science at the UA. He is also Adjunct Professor of Law at the University of La Verne College of Law in intellectual property. He was also awarded the UA Alumni Association Professional Achievement Award in 2004, nominated by the College of Science. Mr. Rose was recently profiled in the American Physical Society newsletter, APS News, click here.  Rose is Chambers rated.

Previously employed as Senior Litigation & Antitrust Counsel and Assistant Secretary of Twentieth Century Fox Film Corporation, he has valuable insight into the needs and problems of in-house counsel.

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Follow LawComix on Twitter here and Charles Fincher's hilarious law partners Richard Prickman and BeatriceBitcher (of Bitcher and Prickman) here and here because practicing law is just too hard not to roll on the floor laughing out loud at least once a day.

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(right, Amy Poehler as the Dollar takes a beating from the Euro on SNL)

Because people often ask me about the wisdom of making aggressive opening offers, I'm summarizing one of my favorite articles on anchoring by a Kellogg Graduate School of Management Professor. His conclusion is that negotiators are not aggressive enough in their opening offers. 

Although we are often told that only "reasonable" first offers influence negotiation outcomes, I am unaware of the existence of any research to support this dictum. Unfortunately, I suspect that the "reasonable first offer" theory is from the Graduate School of Feeling Good About Ourselves at Kumbya University.

The research discussed below is typical of all of the research and statistical studies I've recently read. If you've got contrary authority, please do pass it along.

1. Research shows that how we respond to an offer is highly influenced by any number that enters the negotiation environment. (one study used zip codes to influence numeric estimates).

2. The greater the parties' uncertainty about the value of the item/s being bargained for the stronger the anchoring effect of the first offer.

3. That anchoring effect will continue to exert a strong pull throughout the rest of the negotiation THE SUPPORTING RESEARCH

The Supporting Research

Researchers had real estate agents inspect a house and estimate its appraisal value as well as its purchase price. they manipulated the house's list price, providing high and low anchors. All of the agents' estimates were influenced by the list price even though they denied factoring the list price into their decisions. When challenged, the agents cited features of the property that would justify their estimates.

In another study, researchers sent customers to mechanics to obtain estimates on the value of a car. The customers asked the mechanics for their opinions only after suggesting a value of their own. Half the mechanics were given a low anchor and half were given a high anchor. The mechanics estimated the car to be worth a thousand dollars (actually they were Deutsche Marks) more when they were given the high-anchor value.

 WHY ANCHORS AFFECT US THE WAY THEY DO

The author (see link below) explained the phenomenon this way: items being negotiated have both positive and negative qualities—qualities that suggest a higher price and qualities that suggest a lower price. High anchors selectively direct our attention toward an item's positive attributes; low anchors direct our attention to its flaws. A high list price directed real estate agents' attention to the house's positive features (such as spacious rooms or a new roof) while pushing negative features (such as a small yard or an old furnace) to the back recesses of their minds. Similarly, a low anchor led mechanics to focus on a car's worn belts and ailing clutch rather than its low mileage and pristine interior.

MAKING THE FIRST OFFER

The author found that when a seller makes the first offer, the final settlement price tends to be higher than when the buyer makes the first offer. The amount of the first offer affects the outcome, with more aggressive or extreme first offers leading to a better outcome for the person who made the offer. Initial offers better predict final settlement prices than subsequent concessionary behaviors do.

HOW EXTREME CAN IT BE?

The author's research suggests that first offers should be quite aggressive but not absurdly so. The fear that an aggressive first offer will scare or annoy the other side and perhaps even cause him to walk away in disgust is typically exaggerated. Most negotiators make first offers that are not aggressive enough.

A nonaggressive first offer requires small concessions or a decision to stand by the original demand. Because one of the best predictors of negotiator satisfaction is the number and size of the concessions extracted from an opponent, aggressive first offers give your opponent the satisfaction of extracting significant concessions from you. In that case, you'll not only get a better outcome, but you'll also increase the other side's satisfaction.

For the full text of this article, see "When to Make the First Offer in Negotiations" from Negotiation, July 2004, by Adam D. Galinsky, an assistant professor at Northwestern University's Kellogg Graduate School of Management, in Evanston, Illinois.

For exceptions to the high anchor = high ending price, see Starting Low But Ending High: A Reversal of the Anchoring Effect in Auctionsby Ku, Galinksy and Murnighan.

We'll talk about ways to avoid these anchoring effects in later posts.

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Our good friend John DeGroote talks with Law.com about Making Sense of Corporate Warfare.  Excerpt below.  Full must-read article at the link.

Creative litigation executives are adopting a new frame of reference resembling a business accounting program. Legalistic measures of progress are replaced with borrowed and hybridized concepts from the accountants, such as relative cash flow (managing two or more suits to push fee and cost investments from the nonpaying dead ends into the paying winners), mark-to-market values (discounting stated claim amounts by screening a claim's merits against case law) and income statement (organizing a number of suits toward cash settlements, the lawyer's equivalent of "sales," by month or quarter).

According to Settlement Perspectives, a blog covering corporate dispute resolution, considerations like these can be even more valuable when they are systematized through decision-tree analysis, which is a long-standing, graphically oriented decision-aiding exercise, using line and box shapes to resembles the trunk, branches and leaves of a tree. It proceeds somewhat like the creation of a flow chart. The person undertaking the exercise is forced to break down his or her expectation about a process into a sequence of actions and probable outcomes of those actions.

According to John DeGroote, the blog's author and himself a general counsel, managers who sit down with outside counsel to discuss the branches of a decision tree and answer the questions presented bring focus to one critical question: What is this litigation really worth?

In litigation management, suddenly the idea of cash flow is gaining a new and enthusiastic following. Business managers have long tracked a company unit's cash flow separately from its net income or the distribution of its working capital to snuff out incipient managerial problems within the unit. Unlike an income analysis, a cash flow statement illustrates when money is spent and collected and exposes any long periods of cash outflow not offset by cash influx. Litigation managers are finding that using cash flow analysis to study their lawsuits helps enable effective management of litigation.

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(image from Modern Humanist)

RIAA Wants Harvard Prof to Take Case Recordings Off the Web

Posted Jul 6, 2009, 03:25 pm CDT
By Sarah Randag

The Recording Industry Association of America says that Harvard Law Professor Charles Nesson is violating court orders and privacy laws by posting recordings of pretrial hearings and depositions to his blog and to the Berkman Center for Internet and Society website.

Wired's Threat Level blog provides links to examples of what the RIAA is referring to: a deposition of Joel Tenenbaum, who is being sued by the RIAA and represented by Nesson; a phone conversation between RIAA lawyers and U.S. District Judge Nancy Gertner “without the prior consent of participants"; and two expert depositions taken last week. Threat Level notes that Nesson was tweeting the July 1 deposition of copyright expert John Palfrey.

Continue reading here.

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(image from Lift Think)

On this Independence Day celebrating U.S. freedom from the tyranny of foreign rule, I'd like us to consider whether a new day might be added to our holiday calendar -- Global Inter-dependence Day.  This thought is spurred by the New York Times' Green, Inc. Blog post Climate Change and Intellectual Property.

In his Monday post here at Green Inc., James Kanter wondered what it would take to get the developing world to sign a climate change deal. Besides cash, some suggest that any accord must ensure developing countries have access to the proprietary mitigation technologies — that is, the intellectual property that companies in the developed world are creating to fight global warming — at bargain basement prices.

For instance, Nicholas Stern’s proposed “global deal” includes the following quid pro quo: “In return for increased R.&D. funding or extended developed-world I.P. protection, obligations could be imposed on developed-world technology providers that new technology be made available to the developing world on a marginal cost basis, or for some reduced license fee.”

For both the pro's and the con's, read on here.

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Though the recent Ninth Circuit opinion of Nutraceuticals v. Mucos Pharma (.pdf) is notable for setting the standard for preliminary injunctive product recall relief in a trademark infringement action, IP ADR's interest is stimulated by the settlement agreement that failed to head-off this expensive and protracted litigation (after the preliminary injunctive relief hearings; the appeal; and, the return of the case to the trial court, what further litigation damage do the parties have the stomach and budget to sustain?)  (with apologies for the hopelessly run-on sentence to Strunk & White & my 8th grade English teacher who first introduced me to The Elements of Style).

Leaving the holding of this case to Likelihood of Confusion, we weigh in on the Settlement Agreement that failed to settle the parties' dispute, which ominously provided that

[w]ithin 30 days after the Effective Date, MUCOS and Marlyn shall use their good faith efforts to enter into a formal distributorship agreement containing the following terms and such other terms as may be mutually agreed to or are customary in the industry.”

Though the impossible to define "good faith" provision saves this clause from being an illusory "agreement to agree," the parties - already having been at odds - cannot have realistically hoped a "formal distributorship agreement" would follow.

What are the parties to do when they are ready to settle their past disputes but not ready to craft the agreement that will govern their future relations?  Here are a few suggestions from someone who helps IP attorneys close deals the principals are not prepared to cast in stone:

• give the parties more than thirty days to conclude any deal that likely requires lengthy negotiations and strategic planning on both sides
• create consequences (or at a minimum, options) in the event the parties' "good faith efforts" fail to produce an agreement -- consequences could include grant or withdrawal of benefits likely traded to get the deal done in the first place
• include in the settlement agreement a detailed list of provisions both parties are required to negotiate in "good faith."  Such a list:
  • should anticipate those deal points the parties would have to agree upon (or concede) so that unexpected post-settlement demands would not prematurely scuttle negotiations over items left open; and,
  • should provide a structure for the parties to follow which should help keep paranoia about the other side's intent to over-reach or engage in bad faith somewhat at bay.
• Consider whether a neutral third party should be included in negotiating the future relationship, either as a facilitator of agreement or as a neutral decision-maker on terms the parties are willing to submit to third party decision.

There are dozens more ways future agreements premised upon "good faith" obligations to negotiate can be enhanced.  The parties to the dispute are always in the best position to brainstorm what those provisions might be.  Based on twenty-five years of litigation and five years of neutral practice, I give any skeletal "good faith" negotiation provision a 10% chance of success.  My pessimism is, of course, based on the fact that all I ever see is conflict and never the happily successful agreement crafted by a first-rate transactional lawyer.  That being the case, I ask friend Ken Adams -- he of Adams Drafting -- to chime in here if he has the time and inclination.

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(image from the Digital Standards Organization)

Thanks to Law is Cool (An Extraordinary About Face on Copyright Reform) we learn that Canadian Ministers Finally Embrace Canada's Digital Future.  Below, an excerpt from the LawBytes column of TheStar.com.

[Industry Minister] Clement went first, noting how much has changed in the year since Bill C-61, the much-criticized copyright bill, was introduced. He said it was ``at least a somewhat different'' public policy environment and committed to a broad copyright consultation this summer. Canada last consulted on copyright in 2001, so the promise of open consultation alone represents an important shift in approach.

[Canadian Heritage Minister] Moore was even more forceful with remarks . . .  emphasiz[ing] the power of new technologies, saying that standing in the way of digital developments is akin to "trying to lasso a locomotive with cobwebs."

Moore continued, acknowledging "the old way of doing things is over. These things are all now one. And it's great. And it's never been better. And we need to be enthusiastic and embrace these things."

Read on here.

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This Time, Tony La Russa Settles With Twitter for Real

St. Louis Cardinals manager Tony La Russa has officially dismissed his lawsuit over a fake profile on Twitter as part of a settlement in which the social media website did not have to pay him anything. A settlement of the case -– the first to be filed by a celebrity against Twitter –- was first reported in early June, with La Russa saying Twitter had agreed to pay his legal fees and make a donation to his Animal Rescue Foundation (ARF). Twitter responded with a statement in which it said, “Twitter has not settled, nor do we plan to settle or pay” and described the suit as “an unnecessary waste of judicial resources bordering on frivolous.” From On.Point - continue reading here.

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