IP ADR Blog

I've always said that the biggest lie in any business is "I don't take it personally."

It seems that some personal-offense-taking may be one of the reasons the lawsuit between billionaire J.K. Rowling and Fan-Lexicon-Site-Builder Steve Vander Ark has not settled (covered by our own Mike Young here and here). 

See Tim Yu's Talk of the Town piece Fan Feud in this week's New Yorker for the slight that may account for taking this spat to the bitter end.  Excerpt and link to full column below.

Last summer, at a “Harry Potter” convention in Toronto, a fan named Steve Vander Ark made a similar mistake when he dared to compare himself to Joanne (J. K.) Rowling. “It is amazing where we have taken ‘Harry Potter,’ ” he said to a crowd of dedicated “Potter” fans. Many readers dislike the epilogue in the final book; Vander Ark urged them to disregard it entirely, and even invented his own spell to do so (“expelliepilogus”). “Jo’s quit, she’s done,” he told the audience. “We’re taking over now.”

Comparing yourself to a living god can be risky, and Vander Ark has suffered cruel fates, in court and in the world of “Potter” fandom . . .

Continue reading here.

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Harry Potter and Copyright Fair Use junkies know this already -- there is a firestorm brewing between the not insignificant powers (and financial resources) of JK Rowling and her Harry Potter franchise (which includes Warner Brothers) on the one hand and RDR, the wanna-be publisher of a fan's "Lexicon" or reference guide, on the other.

And the battleground is copyright's amorphous fair use doctrine.

Potter fan and Michigan middle-school librarian Steven Vander Ark has a very popular and comprehensive website that is considered to be the most authoritative reference to the Harry Potter series. 

Among other things, the Lexicon collects in alphabetical order information on the series' characters, places, spells, potions, and more, quoting liberally from the original language in the Potter books. The Lexicon was so popular, and so comprehensive, that JK Rowling herself frequented it as a reference guide and awarded it a "fan site award" in 2004.

Rowling's views changed, however, when she learned that Vander Ark had cut a deal with book publisher RDR to create the Lexicon in hard copy and sell the book in stores.  Before it could be published, Rowling brought suit in New York, claiming copyright infringement.

Her legal position is that the Lexicon merely reorganized, but otherwise copied, her words and ideas -- a blatant infringement of her most basic copyright in her creations.

As Rowling notes, she has the exclusive right to create derivative works which is what the Lexicon is.  Rowling further asserts that she intends to write her own Harry Potter encyclopedia of sorts in the next decade, with proceeds to be donated to charity.

RDR is screaming fair use, arguing that the Lexicon is transformative of the original work -- that is,  taking the original and creating a wholly new and different work of authorship. RDR points to reference guides that have been published for innumerable other works of fiction, including ones for The Lord of the Rings and The Chronicles of Narnia.

So which is it, an infringing derivative work, or a transformative fair use? My fellow panelist on last month's USC IP Institute Fair Use Panel, Tony Falzone has an opinion -- Fair Use.

Indeed, Tony and the Fair Use Project are representing RDR books in the trial currently pending before New York Federal Court Judge Robert Patterson Jr. while Dale Cendali of O'Melveny and Myers' New York office leads the charge for Rowling's camp, and not surprisingly sees nothing transformative at all about the Lexicon. 

For details on the trial, take a look at the WSJ blog here the gothamist blog here.   Both are providing terrific day to day coverage of the trial.

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In the epic Harry Potter copyright fair use battle now under way in a District Court in New York, the mortal judge is wondering out loud -- from the bench -- why these parties can't just settle their dispute.

For background on this fascinating Copyright dispute, click here.

U.S. District Court Judge Robert Patterson Jr., after referencing Bleak House -- Charles' Dickens tale of endless litigation -- noted that it was “a very sad story. Litigation isn’t always the best way to solve things."

He went on to ask the parties: "Can it be resolved another way? I feel that this case could be settled and should be settled."  "I think this case, with imagination, could be settled."

Despite the invitation, even Rowling's apparently boundless imagination could not be tapped to think creatively about a global settlement.  As reported by the WSJ Law Blog here, the parties have reached a settlement of the relatively inconsequential false advertising and deceptive trade practices claims, but the copyright/fair use dispute -- the meat of the case -- continues.

Is the judge wrong to think that a high profile copyright case that makes a star of the fair use doctrine could be settled?  Or as one of the participant's asked, how do you settle with a billionaire?

Answer:  To settle with a billionaire, you need to offer something that the billionaire wants more than money.

The first task, then, is to figure out what that is. Why is Rowling fighting in the first place? What is her motivation?

We get some indication of what propels her from her own testimony at trial: protection of her characters, her "17 years of . . . hard work," her desire to write a Potter encyclopedia of her own one of these days, proceeds of which she says she will donate to charity.   Indeed, in the preliminary injunction papers filed by Rowling, she made a point of saying that she has already donated $30 million to charities.

This gives any good mediator plenty of things to work with in trying to explore settlement possibilities.  Rowling may want good press; she may want to build an image as a philanthropist; she may want to be seen as a protector of authors' rights. 

What about exploring a settlement where the Lexicon is published but some of the proceeds are donated in  Rowling's name to a charity of her choice.  If she is interested in giving young writers a leg up, the publisher could offer to open doors for young writers, one of whom could co-write or co-edit the Lexicon.

To protect Rowling's characters, RDR could agree to a licensing arrangement, thereby ensuring that no precedent is set.

A little imagination, as Judge Patterson so aptly noted, can go a long way towards finding ways to satisfy the underlying interests and motivations of all parties.

The conflict resolution side of me would love to explore ways to end the Rowling/RDR dispute in a way that satisfies all interested parties.  I am convinced there is a settlement out there to be had, if only the parties would explore it with an open mind.

On the other hand, the fair use junkie in me is avidly interested in how this monumental battle will shake out.  Fair use is an amorphous concept at best, as was made clear at the USC IP Institute Fair Use Panel last month.

Further judicial guidance -- and this one is definitely headed to the appellate courts -- would be a welcome contribution so long as it helps to clarify, and not further muggle, er, muddle, what constitutes fair use.

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Mike Young writes to tell us that the USC IP Institute is coming up on March 17 and 18. See brochure below. 

Mike is moderating a panel on fair use with a a group of experts, including Tony Falzone. Tony is with Stanford's Fair Use Project, and is currently in hot litigation with J.K Rowling over a publisher's right to publish a "reference guide." The case is set for trial on March 25th in New York. 

At the special interactive in-house counsel forum on March 17, the panelists will ask -- while in-house counsel have led the charge for ADR and mediation in other fields, why are they reluctant to take their IP disputes to an ADR forum, mediation in particular?

The Rowling litigation may also be worth a mention at this forum.

Mike asks why not mediation?

Don't know what to offer a world famous billionaire author? How about an enhanced reputation or donating some of the boooks' proceeds to charity? How about establishing a Rowling Fellowship for an aspiring author with a disadvantaged childhood, similar to Rowling's.  Just because someone is not motivated by money doesn't mean she is not motivated. Mediation allows the parties to explore just what that motivation might be.

The Rowling docket sheet is here.  

The Rowling motion for injunction is here. 

The RDR Books opposition is here.   

The Court decided to turn the injunction hearing into a trial on the merits.

IP Forum - Get more free documents

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From ALTERNATIVES TO THE HIGH COST OF LITIGATION, INTERNATIONAL INSTITUTE FOR CONFLICT PREVENTION & RESOLUTION VOL. 26 NO. 3 MARCH 2008

UPDATE: DESPITE MEDIATION RELATED INCARCERATION, GIRLS GONE WILD FOUNDER IS HEADED FOR MORE ADR

A federal judge has rejected a recusal motion from the maker of the Girls Gone Wild videos, who challenged the judge’s impartiality for first ordering mediation, and then sending the producer to jail for contempt based on his ADR conduct. That means the civil case against still incarcerated Joseph Francis will proceed. And, surprisingly, the case will go back to mediation.

In an order accompanying the . . . . opinion . . . U.S. District Court Judge Richard Smoak . . . told the parties to try mediation again. Smoak ordered . . . . mediation by June 27, with a “mediation report” deadline six days later.

In his 22-page opinion, Smoak strongly defends his record as a mediation supporter, and rejects claims that he tried to force Francis to settle before sending Francis to jail for contempt.  The defense charges stem from a suit brought by Francis’ video subjects.  . . . .  

The support for the defense motion included Los Angeles attorney Michael Young’s 2007 Alternatives article, “Mediation Gone Wild: How Three Minutes Put an ADR Party Behind Bars,” 25 Alternatives 97 (June 2007) (available at WileyInterscience. com). Young wrote that Smoak’s moves intruded into the mediation process and hurt ADR.

Court's opinion below:

 

Court Opinion re Girls Gone Wild Producer Joe Francis - Get more free documents

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(image from the U.K. Trademark Application Blog)

What's the difference between an IP arbitrator or mediator and a general commercial arbitrator and mediator?  Some of us -- like Les Weinstein and Michael Young -- have devoted substantial parts of their careers to patent (Les) and trademark (Michael) litigation.

The rest of us -- the Hon. John Leo Wagner (Fed. Magistrate, Ret.), Eric van Ginkel, the soon-to-be-added Jay McCauley and I -- have litigated patent, trademark, copyright and other IP cases in the course of our more general commercial litigation careers.

What unites us is an avidity for the topic and an interest in keeping up with the law.  So in addition to being the quick studies that all general commercial litigators are, we're already all the way (Les, Mike) or half way there when you lay your fabulously instructive briefs on us.   

To help our clients and ourselves, we print tutorials from time to time by law firms who our statistics page tells us are reading our blog.  Today we excerpt and link to Lindquist and Vennum's terrific Trademark tutorial -- The Trademark Dilution Act of 2006 -- A Summary of Changes Affecting Trademark Owners

When is a mark famous?

A mark is famous if the general consuming public of the United States widely recognizes it as a designation of a source of goods or services.

In determining whether a mark is famous enough to merit protection under the Trademark Dilution Revision Act, a court may consider all relevant factors, including:

1. The duration, extent, and geographic reach of advertising and publicity of the mark, including whether the mark is advertised or publicized by the owner or third parties
2. The amount, volume, and geographic extent of sales of goods or services offered under
   the mark 
3. The extent of actual recognition of the mark 
4. Whether the mark was registered

Because no registry of famous marks exists, determining whether a particular mark is famous requires the court to evaluate these factors on a case-by-case basis.

What constitutes tarnishment and blurring?

Dilution by tarnishment is an association arising from the similarity between the famous mark and the diluting mark that harms the reputation of the famous mark—that is, when the diluting mark is used in connection with undesirable or inferior goods or services that could create a negative association with the use of the famous mark.

Dilution by blurring is an association arising from the similarity between the famous mark and the diluting mark or trade name that impairs the distinctiveness of the famous mark. Dilution by blurring reduces the connection in the minds of consumers between the famous mark and the goods and services for which it is used.

In determining whether a mark is likely to cause dilution by blurring of a famous mark, a court may consider all relevant factors, including:

1. The degree of similarity between the mark or trade name and the famous mark 
2. The degree of inherent or acquired distinctiveness of the famous mark 
3. The extent to which the owner of the famous mark is engaging in substantially
   exclusive use of the mark 
4. The degree of recognition of the famous mark 
5. Whether the user of the mark or trade name intended to create an association with the
   famous mark 
6. Any actual association between the mark or trade name and the famous mark

For the remainder of this excellent article, click here.

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(above, floodgates along the Bitan Dam by Poagao)

The U.S. Supreme Court just denied review of Convolve Inc. v. Seagate Technology.

Why do we care?

Because in Seagate, the Federal Circuit reversed a long established precedent and announced a new and higher standard for obtaining treble damages in patent cases, which could have the impact of making some patent cases more receptive to mediation or other ADR processes.

Prior to Seagate, a patent holder seeking to prove that a defendant willfully infringed (which opens the door for treble damages) had a pretty low burden to satisfy; the court even suggested that it was as low as a negligence standard. Infringers who had actual knowledge of the patent at issue had an affirmative duty to "exercise due care," which most sought to satisfy by way of an opinion of patent counsel.  See Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983). In fact, because of Underwater Devices, a whole new market opened for patent lawyers, the drafting of patent opinions. (This also raised numerous knotty privilege issues during discovery of these opinions, as one might imagine.)

The landscape changed last year with Seagate. There, the Federal Circuit overturned Underwater Devices, and abandoned the defendant's affirmative duty to demonstrate it had exercised "due care." Instead, the Court imposed a more stringent burden on patent holders to demonstrate that the defendant had willfully infringed. Under Seagate, a plaintiff now must show "by clear and convincing evidence" that the infringer acted "despite an objectively high likelihood that its actions constituted infringement of a valid patent," and that this objectively-defined risk was known (or should have been known) to the infringer.

So with the sweep of the pen (a click of the keys?) twenty-four years of precedent was wiped out, along with the need for patent counsel opinion letters (and some of the thorny privilege issues).

Needless to say, patent holders were less than thrilled, and the matter was taken to the U.S. Supreme Court.

To no avail. On Monday, the Supremes allowed the Federal Circuit opinion to stand as-is, without further review by the Court.

So what does this have to do with ADR?

Plenty. Assuming courts apply the new standard properly, the ability to trigger treble damages has just been significantly curtailed in patent cases. There is less of an upside to taking a flyer at trial. Which should meant that there is more of an upside in trying to work out a resolution that is based on the actual value of the dispute in question.

The dispute can be settled by the application of objective standards of value or other measures without having the settlement process derailed by the wish to achieve (or avoid) the home run treble damage award.

This cries out for a more cost effective resolution process, be that mediation or arbitration. Or some hybrid of the two.

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O.K., we admit it.  We were a little bummed that no ADR Blawgs made the ABA Journals' Blawg 100 List.  But, as always, our spirits were lifted by our fellow bloggers who are, after all, our community, our posse, our homes, our peeps.

So thanks to Tom Mighell over at Inter Alia for making the IP ADR Blog Blawg of the Day yesterday. 

And while we're giving thanks, a big IP ADR bear hug to the folks at Mediate.com who featured Michael Young's post on . . . . yes . . . copyrighting flatulence . . . . this week. 

That's the first appearance of our blog in the Featured Blogs section of the Mediate.com site and we're happy to have finally made it there.

Finally, we're happy to announce that IP ADR Blogger Victoria Pynchon's Settle It Now Negotiation Blog has become part of the Forbes.com Business and Financial Blog Network.

While you're clicking on links, you might consider subscribing to Tom Mighell's great Internet Legal Research Weekly here!

 

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Sometimes you've got to wonder whether anyone really cares about intellectual property at all. Or class and culture for that matter.

Take the case of the Pull-My-Finger Fred doll versus Fartman, the epic battle of the farting plush dolls. Now I'm not that far removed from teaching my boys about the incredible magical powers of the pulled finger not to understand how a Pull-My-Finger Fred doll could enjoy a certain amount of commercial success. (In fact I have a brother who probably rushed out to buy the first one.)

But is a "white, middle-aged, overweight man with black hair and a receding hairline, sitting in an armchair wearing a white tank top and blue pants" who farts "when one squeezes [his] extended finger on his right hand," and "makes somewhat crude, somewhat funny statements about the bodily noises he emits, such as 'Did somebody step on a duck?' or 'Silent but deadly'" really worthy of emulation?

Our thanks for this bit of IP whimsy to Judge Diane P. Wood of the Seventh Circuit Court of Appeals for the fine description in her March 2007 opinion.) 

Apparently Novelty Inc. thought so. It created Fartman, described by the Court as (and this may sound familiar to you):

a white, middle-aged, overweight man with black hair and a receding hairline, sitting in an armchair wearing a white tank top and blue pants. Fartman (as his name suggests) also farts when one squeezes his extended finger; he too cracks jokes about the bodily function. Two of Fartman's seven jokes are the same as two of the 10 spoken by Fred.

Does the world really need two white, middle-aged, overweight, balding, flatulating, wise-cracking male plush dolls? But that's not the point.

The point is, what was Novelty Inc. thinking? Why blatantly infringe on someone else's copyright? If you really must have a gas passing plush doll to fill out your product line, why not create one with a full head of blond hair, or standing with a green shirt, or ... a woman! (You women know you do it. Don't deny it. I think Judge Diane Wood might have been feigning innocence when she wrote:

Somewhat to our surprise, it turns out that there is a niche market for farting dolls, and it is quite lucrative.

O.k., that's not the point either. Nor is it to critique the legal issues raised by this case, including the ever fascinating and difficult idea/expression distinction. That has been done admirably and more timely by others, including William Patry in his post Fartman Appeal Fizzles.

Rather, my point is this:

Dispute resolution in the IP field comes in all shapes and sizes.

One of the best means of dispute resolution is to avoid the dispute in the first place.

Call it pre-dispute resolution.

In this case, Novelty Inc., is now liable for nearly a million dollars in infringement damages, more than half of which were the plaintiff's attorneys fees.  Clearly, Novelty could have used a little pre-dispute IP counseling.   With professional guidance, it could have avoided a case that stunk from the start. (Come on, you knew it was coming eventually.)

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. . AND THEN SETTLE YOUR COPYRIGHT CASE.   

 

(right, IP ADR attorney, mediator and blogger Michael D. Young of Weston Benshoof and Judicate West; case link courtesy of Thelen Reid)

$27 million will buy you a whole lot of cake. And you can eat it too. That’s one of the lessons from the Tennessee Court’s unprecedented sanctions award against an apparent copyright infringer who just refused to stop copying. 

In MGE UPS Systems v. Titan Specialized Services  (OPINION HERE), the copyright owner not only obtained a sanctions order worth $27 million against one of its primary competitors (and apparent copyright infringer), but was still entitled to pursue its claim for copyright damages. 

How is that for protecting your intellectual property while also setting the stage for a pretty advantageous settlement negotiation?

Using the lingo of ADR/negotiations, MGE UPS Systems showed how a copyright owner could effectively utilize the litigation process to change the parties’ respective leverage, and then set itself up for the perfect negotiated outcome.

Here’s the short set-up: MGE UPS Systems, Inc. sells, and then services, “Uninterruptible Power Supply” equipment, equiqment  systems customers (such as hospitals) install to ensure a constant supply of power in the event of an outage. 

Because this equipment must be regularly serviced and maintained, not surprisingly, there are a number of competitors who provide such services to UPS users -- and who compete head to head with MGE for that business.

Things were pretty competitive…until MGE built a better mousetrap. It developed new software that was so good it allowed UPS to service its equipment 2-4 times faster than its competitors, and with greater accuracy and efficiency. The software was, of course, proprietary and copyrighted. The competitors were starting to feel the pinch.

Beware the Mobile Employee

One competitor apparently pinched back. If you’ve worked in any technology-based business, you know how prevalent employee mobility is – and how easy it is to download secrets onto a simple pen drive that fits in your pocket.  According to complaint's allegations, defendant JTP solicited one of MGE’s former employees who just happened to have a pirated copy of the MGE proprietary software. JTP obtained the software, distributed it to its service personnel, and began competing against MGE with MGE’s own copyrighted product.

Why JTP thought it could get away with this thievery is never explained.  Why it believed it could then go out in the market place and start miraculously servicing UPS equipment in 1/6^th the time without raising suspicion is also never explained. 

What needs no explanation is what happened next. As soon as MGE learned of the theft and infringing use of its software, it filed suit. 

The Leverage of Time

With the suit filed, is it time to call in fellow blogger Vickie Pynchon to mediate the dispute? JTP probably would have loved this. Settlement takes time, and every day that passed setting up and conducting the mediation would have been another day JTP could have been in the field utilizing MGE’s own copyrighted software to steal business from MGE. JTP would have been incentivized to drag the process out for as long as it could. 

But for MGE, this would have been a mistake. The leverage of time was working against it. With MGE bleeding every day, what it needed was litigation triage. So MGE sought to staunch the blood flow by applying for – and obtaining – an emergency restraining order against JTP prohibiting it from using the MGE software at all for any purpose whatsoever. 

Now who was in a hurry to settle? Not MGE, certainly. The leverage had flipped. Back in sole control of its proprietary software, it could now regain control of the Service market as well. It was JTP who should have been in a hurry to settle before it became locked out of the market altogether. Maybe it could cut a licensing deal?

Time to Call the Mediator

This is the time JTP should have called Vickie to seek out a mediated solution. But it didn’t. Instead, it took a seriously wrong turn. According to the opinion, rather than comply with the Court order, JTP ignored the thing altogether and continued utilizing the copyrighted software in competition with MGE. 

The Leverage of Sanctions

When MGE learned about JTP's contumacious conduct, it returned to court and sought sanctions. And what sanctions they were.  After a two day evidentiary hearing, the court, noting that a third of JTP’s income was based on its service of MGE equipment, awarded MGE “a monetary sanction of thirty (30%) of JTP's gross revenues from July 21, 2004 to date.” 

Thirty percent!  $27 million! 

(The court also ordered an inspection of JTP’s computers – at JTP’s expense of course – and awarded MGE its attorney’s fees.) 

And this doesn’t include MGE’s infringement damages!

An entire blog could be dedicated to litigation sanctions.  (I looked, but couldn’t find one -- readers should feel free to start one.)

Unless JTP had a rabbit up its sleeve, this would have been a good time to call Vickie to get this one settled or at least to read the chapter on negotiating from a position of weakness in Malhotra's and Bazerman's Negotiation Genuis.   

$27 million and damages? 

That’s what I call having one’s cake and eating it too. 

(Though I’m a pie guy myself.)

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(right: author and IP litigator and mediator Michael D. Young, an IP practitioner at Weston Benshoof and mediator with Southern California's Judicate West)

Is the IP world ready to mediate its disputes yet?

While many of us believe IP practitioners are late in coming to the mediation party, at least one prominent mediator is banking that the right time is now.

London's Mark Jackson-Stops, founder of In Place of Strife and a fellow Fellow with the International Academy of Mediators has recently established a specialty mediation panel for  disputes "in the UK and jurisdictions around the world in unfair competition and passing off, patents, trade marks and copyright and competition and anti-trust law, as well as franchise, music, media and domain name disputes."

Jackson-Stops noted "this is an excellent fit with the often cross-border nature of disputes in intellectual property and technology."

Obviously, I support the efforts of any mediators who band together in a specialty mediation practice or joint venture (or even simply a cross-pollination site like this one).

Mark's efforts do, however, raise a question that has been nagging me for some time.

Why has it taken IP attorneys and disputants so long to hear the siren call of negotiated resolution?

I have heard some disputants say that sophisticated high-stakes patent infringement disputes are so significant that the parties simply can't afford to "compromise."

Aside from the fact that negotiated resolutions needn't result in compromise, no one specializing in the field could give this explanation much credence.  

Almost all of these disputes end up settling -- sometimes before and sometimes after Markman hearings -- so compromise is a fact of life unless you're able, with the help of a great mediator, to expand the parties' opportunities to obtain better benefits from a negotiated agreement than they could obtain by victory at trial.  

Given the opportunties created by interest-based negotiation and the inevitability of compromise if the parties wait to settle on the courtroom steps, why does the mediated or negotiated resolution continue to be a "last step" and one of "giving up" and "giving in" rather than "finessing impasse by transforming it into an opportunity to make a deal" (as our friend Lou Meisinger so often counsels).

Are IP litigators pessimists who just don't believe that mediators are up to the intellectual challenge of mediating complex technology and business disputes?  Or are they overly optimistic, believing that they can win by turning over their own and their client's decision-making to a judge or a jury?

Whatever the reasons, reluctance seems to be the rule.  

Case in point.

In the Oracle v. SAP lawsuit concerning claims that SAP employees stole Oracle's copyrighted software by hacking into a website to steal software codes, the parties are preparing for a February 2009 trial. Despite the looming trial date (and the misery of the holidays caused by a February trial) the parties apparently had no intention of attempting to mediate their way into a happy holiday season with their families.  Rather, the Court took matters in hand and ordered counsel and litigants to proceed to mediation.  

Still, the parties resist.

Granted, there are often legitimate means to postpone a mediation -- particularly when information gathering is incomplete and necessary to asses the risks of trial.  But is seems to me that more arm-twisting is necessary to bring IP litigants to the negotiation table than required in most other civil disputes.  

Another case in point.

A few days ago, LeapFrog Enterprises settled an East Texas patent dispute involving devices that allow children to use blocks or other objects to control their computers. The details of the dispute (claims of patent trolling, forum shopping, etc.) can be found on any number of blog sites, including The Prior Art here.  

It was just reported yesterday that the plaintiffs in LeapFrog -- two attorney/inventors -- will share the $7.5 million settlement.  A very good day for plaintiffs.

For present purposes, I note that the settlement occurred, "literally on the courthouse steps in Marshall, Texas, with jury selection 15 minutes away." (quote from the Los Angeles Daily Journal which, unfortunately, requires a subscription to read). 

Again, why the wait? Wouldn't an earlier negotiation with a bang-up IP mediator have made more logical sense, not to mention far greater financial cents.

After all, preparing a patent litigation case for trial in East Texas is not for the feint of heart, or shallow of pocketbook.

Some say the attorneys are to blame -- that they are reluctant to bring a significant IP matter to mediation any earlier because it's "bad for business."  But I'm not that cynical.  And my colleague Victoria Pynchon has to be positively restrained when someone suggests that attorneys, by and large, settle late to maximize the dollar value of litigation.

"That strategy," she says, "is a recipe for client-retention failure and a cynical, not to mention, unsupported libel of some of the most ethical people I have ever had the pleasure to know -- litigators -- particularly those engaged in IP and other sophisticated commercial litigation."

I refuse to believe this explanation as well.

So I'd like to open the floor to our IP litigators to weigh in on this issue:

Why the hesitation to use mediation for complex IP disputes?

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It is hard for an ADR junkie like me to admit this (and don't spread this around please), but sometimes you just need to try the darned case. I am referring to, in particular, the trademark lawsuit between Internet giant eBay and scent seller PerfumeBay.

The lawsuit was fairly simple.

eBay, naturally protective of its distinctive "Bay" web-moniker when it comes to on-line sales, was none too pleased when "Perfume Bay" (aka "Perfumebay" and sometimes "PerfumeBay" sought to register the Perfume Bay trademark for use in on-line perfume sales.

The fact that "PerfumeBay" actually contained the entirety of "eBay's" name did not help matters.

As an eBay trial witness testified, eBay has a "fragrance section" which moved approximately $6 million in cologne and perfume during a 2-1/2 year period.  eBay was concerned that consumers might confuse PerfumeBay as an eBay affiliate of some kind. Or, it might dilute the eBay name.

PerfumeBay, for its part, argued that the "bay" in its name reflected "a bay filled with ships importing perfumes from all parts of the world and this bay would be the place where perfume lovers could go to locate its selection of fragrances . . . .”

Uh, okay.

In any case, the two parties entered into negotiations to resolve this dispute, without success and apparently without a mediator. There's a rant in this but I'll do that later.

PerfumeBay predictably brought a declaratory relief action in federal court, asking for a ruling that it was not infringing the eBay trademark. eBay prevailed at trial with the court finding a likelihood of confusion based upon survey evidence concluding that 70% of consumers, when faced with the word "Bay" and internet shopping, thought of "eBay."

The Court ordered Perfume Bay to un-conjoin the two parts of its name.

The Ninth Circuit affirmed in part and reversed in part, approving the order forcing Perfume Bay to separate the "e" in Perfume from the "B" in Bay.  

So what does this have to do with ADR?

On the one hand, the parties clearly could have settled this case with an equally good, or better, resolution for both sides. 

On the other hand, eBay possesses something it could never have obtained in mediation or arbitration: precedent, glorious, future-designing precedent, contained in a Ninth Circuit opinion suitable not only for framing, but also for demand letters to any other online company slipping little "e"-big-"B" Bay into its tradename.

For the price of a single trial, eBay earned itself a great tool for dominating the online market, one that shoud effectively dissuade other internet marketers who might have been thinking of climbing onto the eBay wagon as a portal to successful online sales.

Maybe that's why the names "WineBay" and "GameBay" are still available in the url market.

By NOT using an ADR process to resolve this dispute, eBay will, in the long run, likely save considerable grief, conflict, and legal fees.

It's difficult for an ADR junkie to admit this, but sometimes -- very rarely, I submit -- when important public policy issues are at stake or when precedent is needed to resolve likely future disputes, the alternative dispute resolution of the future -- litigation -- is often called for.

If you are interested in Perfume Bay's take on all this, the company's owner, Jacquelyn Tran, has a blog of her own at here.  Jacquelyn vows to continue the fight to the Supreme Court, stating:

This battle has been exhausting and expensive, but I refused to give up. Too often, Goliaths are victorious in these types of battles. I am fighting for small businesses everywhere, for our more than 300,000 customers (YOU!), and for my American Dream.

Coverage of this matter along the way has been provided by DomainNews.com here; the IP News Blog here; and a helpful article on How Entrepreneurs Can Survive Trademark Lawsuits here. 

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(photo Quiet Please by Ian Grainger)

Post by Michael Young

Speaking of mediation confidentiality, there's a new horrible "opinion" from New York that is making the rounds in the ADR community. While in the context of a divorce case, the opinion could have ramifications for all New York mediated disputes, including IP cases.

But let's hope not.

In the one paragraph Hauzinger v. Hauzinger "opinion" (and I use that term generously, I'd prefer "mistake"), the Supreme Court of New York, Appellate Division, upheld a trial court order compelling a mediator to testify in court. While facts are sketchy, it appears that the mediator did nothing more than assist a divorcing couple negotiate a separation agreement, all pursuant to a signed confidentiality agreement.

After the mediation was concluded, one of the parties challenged the separation agreement in court.  New York law required the trial judge to determine whether the terms of the separation agreement "were fair and reasonable at the time of the making of the agreement." To prove this, the moving party subpoenaed the mediator to obtain his testimony about the confidential mediation negotiations.  

The appellate court's affirmance of the trial court's order requiring the mediator to testify was bad enough.  More troubling is the absence of any analysis to support this decision.  The "opinion" merely states that the Court rejected the mediator's contention "that the court abused its discretion in refusing to enforce the confidentiality agreement...."

Though providing no rationale to reject the mediator's adherence to the parties' agreement, the Court did state that its decisioon was "a matter of public policy,"  citing another one-paragraph opinion of the New York Supreme Court appellate division in which the court upheld the confidentiality of a mediation report pursuant to the parties confidentiality agreement.

Where is the discussion on the importance of mediation confidentiality to the entire mediation process? Where is the recognition that by simply ignoring mediation confidentiality, despite the parties' clear acknowledgment of confidentiality at the time, the court is undermining all future mediations in the State? How about an explanation for why this unspecified "public policy" is so important that it outweighs another appellate division's recognition that strong "public policy" favors keeping mediations confidential?  How about a citation to a precedent that supports the court's conclusion, rather than to authority that completely contradicts the ruling.

Any New York attorneys out there who can explain this to me? I would welcome your comments, because I just don't get it.

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The IP ADR Bloggers have just gone "live" with our new web site:  ipadr.com.

Come on by and check us out!  

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If you're going to the 80th Annual California State Bar Meeting, you'll want to sign up for IP ADR Blogger Michael Young's Presentation on Mediation Advocacy.

If you don't yet know, the Meeting will be in Anaheim this year on September 27-30.  Mr. Young's presentation will take place on Saturday, September 29 between 8:30 a.m. - 10:30 a.m.

Mr. Young's presentation -- Effective Mediation Advocacy, or How To Let The Other Side Have Your Way:  The Prince meets The Art of War -- is one of the must-see seminars of the Annual Meeting.  After all, 95% of your cases are going to settle, many of them during mediation.  Develop "winning" mediation strategies and your clients will be happy, your business robust and your pocket-book full. 

How much better does it get?

But that's not all, Mike will also be speaking at the 4th Annual Conference Film & Television Law to be held on October 11-12, 2007 at the Hyatt Regency Century Plaza, Los Angeles.  

His topic?  

The hot hot hot mediation issue of the day -- Deception and Manipulation in Negotiations with Co-Presenter Ted Russell, Esq., Senior Vice President, Litigation Fox Entertainment Group, Los Angeles.

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by Michael D. Young

Once again, the trial courts are trying to mess up mediation confidentiality by judicially creating (legislating?) exceptions to the confidentiality statutes. When faced with a public policy that competes with California's strong public policy favoring mediation confidentiality, the trial courts too often seem to tip the balance the wrong way by inventing unwritten exceptions to the law.

Luckily, in the recently-penned decision in Wimsatt v. Superior Court (Kausch) (Cal. App. No. B196903), the appellate court fixed things up...although it was clearly not happy about it.

Wimsatt involves a legal malpractice action against a prominent plaintiff's personal injury firm. In the trial court, the former client and malpractice plaintiff claimed that the law firm "breached its fiduciary duty by significantly lowering [the client's] settlement demand without his knowledge or consent."

The client claimed he first learned of this fact from the confidential mediation brief that was provided to the mediator. You can see the public policy conflict already, can't you?

In the malpractice action, the client reasonably enough wanted to obtain and introduce the smoking gun mediation brief, the one on which his entire case rested. However, as California practitioners should know by now, there is a slight problem with the plaintiff's wish: Evidence Code Sections 1115 et seq., and in particular Section 1119.

California is serious, and rightfully so, about protecting the very cornerstone of mediation -- confidentiality. Under Section 1119, no mediation communications, including mediation briefs, are admissible in court. This has been reaffirmed time and time again by the Supreme Court (go reread Foxgate and Rojas if you don't believe me).

So what happened in the Wimsatt case?

Continue Reading...

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We're pleased to bring to you the considerable talent, experience and intellect of IP litigator, mediator and ADR professor, Michael Young.

Mr. Young has been mediating cases since 1989.  He was the founder and long-time chair of the Neutral Services Department of Weston, Benshoof, Rochefort, Rubalcava & MacCuish LLP, a prominent Los Angeles law firm.

Mr. Young has extensive experience litigating and mediating all varieties of intellectual property disputes, with a particular expertise in the area of trade secrets, trademarks, copyrights, and restrictive covenants.

Mr. Young is active in the dispute resolution community, speaking publicly and publishing on the use of ADR in the resolution of complex disputes.

He is an adjunct professor of law at the University of Southern California Law School, teaching negotiation and mediation.

For links to Mr. Young's law firm and ADR web sites, see our sidebar on the left.

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