© 2006 Woodcock Washburn LLP Drafting ADR Clauses in IP Agreements

© 2006 Woodcock Washburn LLP Description of Presentation Preparing effective and encompassing ADR clauses in your clients’ contracts can be a challenge. Attend this session to obtain practical guidelines and tips for drafting ADR clauses to cover intellectual property agreements, including cross-border licensing and third-party developer agreements, among others. With this course, attendees will also learn how to utilize the contract clause to manage delay and discovery in a potential arbitration case.

© 2006 Woodcock Washburn LLP Outline  What is an IP Agreement?  Issues in IP Agreements  Three Examples  Considerations in Drafting ADR Clauses  Analysis of Three Examples  Sample ADR Clause  International Considerations  Typical Mistakes  Conclusions

© 2006 Woodcock Washburn LLP What is an IP Agreement?

© 2006 Woodcock Washburn LLP Types of IP Agreements Assignment Licenses  Patent, TM, ©, Trade Secrets Franchise Agreement Contract R&D Development  Contract development, Joint development Joint Venture Mergers and Acquisitions Idea Submission Non-Disclosure Consulting Services Outsourcing Agreements Purchase Employment

© 2006 Woodcock Washburn LLP Issues in IP Agreements

© 2006 Woodcock Washburn LLP Issues in IP Agreements  Validity  Ownership  Coverage (Infringement)  Field of Use/Scope of License  Inventorship  Royalty  Warranties – infringement, validity  Obligation to assert IP

© 2006 Woodcock Washburn LLP Examples

© 2006 Woodcock Washburn LLP Example # 1  Assessment of technology for promotional device  Individual  Alleged patent protection  Simple device  Relative short duration  $1M initial investment  Potential profits > $10M  Issues  Existence of Trade Secret  Breach of Agreement  Misappropriation

© 2006 Woodcock Washburn LLP Example # 2 Joint Development and license for vending machine  Key Vending machine manufacturer  Issues  Ownership of IP  Exclusive License  Global Scope  What is covered by license?  Meeting milestones  Trigger for purchase commitments  Potential Purchase Commitment > $50M

© 2006 Woodcock Washburn LLP Example # 3 # 3 – Bottlers Agreement – (Franchise Agreement)  French Franchisee  Issues  Performance  Scope of Authorization  Terminations provisions  Rights After termination  Trademark issues  Revenues >$200M/year

© 2006 Woodcock Washburn LLP Considerations in Drafting ADR Clauses

© 2006 Woodcock Washburn LLP ADR Spectrum Cost of Resolution Degree of Hostility Control of Outcome More Less Negotiation Mediation Arbitration Litigation

© 2006 Woodcock Washburn LLP Considerations for Drafting a Dispute Resolution Clause  What are the Business Objectives of the Agreement?  #1 – Short term tactical  #2 – Long term strategic  #3 – Related to material % of revenues  What are the issues that may lead to a dispute?  #1 - Allegation of misappropriation of trade secret  #2 - Ownership of IP, purchase commitments  #3 – Termination rights (Ownership & Validity of TM)  What other business considerations affect the dispute resolution method selected?  Confidentiality, cost, speed  Other external considerations that may affect the dispute resolution method selected?  Adverse publicity

© 2006 Woodcock Washburn LLP Analysis of Three Examples

© 2006 Woodcock Washburn LLP Analysis LitigationArbitrationMediationConsiderations Confidentiality Publicity Finality Speed Cost Need to Establish Precedent Effect of Precedence Neutrality of Fact Finder Emotional Appeal Need for Discovery Relationship Leverage Complexity of issues Remedies Likely dispute issues Deal Importance Given the importance of the deal would I prefer a dispute to be subjected to mediation, arbitration or litigation? Given the issues likely to arise in a dispute would I prefer a dispute to be subjected to mediation, arbitration or litigation? Will the ADR method selected impact the likelihood of obtaining the remedy we need? (e.g. Injunction) Are the issues likely to be so complex that they would be better decided by an expert? Is there an on-going relationship that should be maintained? Does the client have on- going leverage in the relationship? Are the facts readily available or do we need discovery to get at the facts? Is the fact finder likely to be neutral to my client’s case? Based on the emotional appeal of the issues what form of dispute resolution would be more fair for us? Is the law well developed and do I want the decision maker to follow the law? Is cost an issue? If the law is not well developed, do I need to establish a legal precedent on an issue likely to arise in a dispute? Is speed an issue? Will we receive adverse publicity in a trial Which type of ADR will allow us to get the issue finally decided? Is there a need to safeguard confidential information

© 2006 Woodcock Washburn LLP # 1 - Analysis License to a (trade secret) promotional idea LitigationArbitrationMediationConsiderations Confidentiality Publicity Finality Speed Cost Need to Establish Precedent Effect of Precedence Neutrality of Fact Finder Emotional Appeal Need for Discovery Relationship Leverage Complexity of issues Remedies Likely dispute issues Deal Importance

© 2006 Woodcock Washburn LLP # 2- Analysis LitigationArbitrationMediationConsiderations Confidentiality Publicity Finality Speed Cost Need to Establish Precedent Effect of Precedence Neutrality of Fact Finder Emotional Appeal Need for Discovery Relationship Leverage Complexity of issues Remedies Likely dispute issues Deal Importance JDA for core technology

© 2006 Woodcock Washburn LLP # 3 - Analysis LitigationArbitrationMediationConsiderations Confidentiality Publicity Finality Speed Cost Need to Establish Precedent Effect of Precedence Neutrality of Fact Finder Emotional Appeal Need for Discovery Relationship Leverage Complexity of issues Remedies Likely dispute issues Deal Importance Bottlers (Franchise) Agreement

© 2006 Woodcock Washburn LLP Sample ADR Clauses

© 2006 Woodcock Washburn LLP Characteristics of ADR Clauses  Mediation prior to arbitration  Issues Subject to Arbitration  Agreement to Arbitrate  Rules and Arbitral Body  Entry of Judgment  Language  Location  Substantive and Procedural Law  Number of Arbitrators  Form of Award  Interim Relief  Limitations of Damages  Confidentiality  Attorney’s fees

© 2006 Woodcock Washburn LLP Sample ADR Clauses Negotiations The parties shall attempt in good faith to resolve any dispute arising out of or relating to this agreement promptly by negotiation. The negotiations will be conducted by the [title] of [Party 1] and the [title] of party 2. If the dispute has not been resolved by negotiation within [45] days after notification of the dispute, then the parties shall… Objective: Escalate issue within organization of the parties. #1 – Probably unnecessary #2 – Would insert #3 – Probably unnecessary

© 2006 Woodcock Washburn LLP Sample ADR Clauses Mediation If a dispute arises out of or relates to this contract, or the breach thereof, the parties agree first to try in good faith to settle the dispute by mediation under the Commercial Mediation Rules of the American Arbitration Association. If matter is not resolved within 30 days, the dispute will be resolved under the arbitration provisions below. #1 – May want to skip this provision if it is not a significant deal #2 – Use this provision to try to avoid adversarial proceeding with a key supplier #3 – Use this provision to try to avoid adversarial proceeding with a key customer Objective: resolve dispute while increasing the chances of maintaining the relationship.

© 2006 Woodcock Washburn LLP Sample ADR Clauses Issues Subject to Arbitration Any controversy or claim arising out of or relating to this contract, or the breach thereof, will be settled by arbitration. Issues not Subject to Arbitration The following issues will not be subject to arbitration _______ #1 – All issues including the existence of the trade secret are OK #2 – Consider whether you want Inventorship, Coverage and Patentability in arbitration #3 – I would exclude the validity and ownership of the trademark

© 2006 Woodcock Washburn LLP Sample ADR Clauses Arbitral Body The arbitration will be administered by [the American Arbitration Association.] Applicable Rules The rules applicable to the arbitration proceedings will be the ________ rules. A number of arbitral bodies are available (AAA, CPR, ICC, WIPO, UNCITRAL, etc.) When you select one be familiar with the rules #1 – Commercial Arbitration Rules and Mediation Procedures #2 - Patent Arbitration Rules #3 - Commercial Arbitration Rules and Mediation Procedures

© 2006 Woodcock Washburn LLP Sample ADR Clauses Binding Decision Decisions of the arbitrator will be binding on the parties and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Form of Decision All awards will be in writing and shall state the reasoning on which the award rests. #1 – Probably not needed #2 – Probably want to insert #3 – Probably want to insert Needed in all

© 2006 Woodcock Washburn LLP Sample ADR Clauses Law to be Applied In rendering the award, the arbitrator shall determine the rights and obligations of the parties according to the substantive and procedural laws of [state]. #1 – the State of Georgia #2 – the State of Georgia. All issues relating to patent law will be resolved in accordance with the substantive patent laws of the United States of America. (Issues with German inventors) #3 – the State of Georgia

© 2006 Woodcock Washburn LLP Sample ADR Clauses Venue The arbitration will be conducted in the city of __________, in [country]. Language The arbitration will be conducted in English. Consider logistics – transportation, accommodations, costs, convenience of witnesses, etc. #1 Atlanta, GA, USA #2 Supplier’s city (unless it’s in W. Va. #3 Neutral venue (e.g. London)

© 2006 Woodcock Washburn LLP Sample ADR Clauses Number of Arbitrators The number of arbitrators will be ['one‘, 'three'] Selection of Arbitrators Default Rules position or Agree to an arbitrator up front or Each party selects one and two arbitrators select third. #1 – One arbitrator works #2 – One arbitrator works #3 – May want 3 arbitrators

© 2006 Woodcock Washburn LLP Sample ADR Clauses Qualifications The arbitrator will be a retired judge of the [specify] Court. or The arbitrator must be [ a member of the _____ state bar ] actively engaged in the practice of law with expertise in the process of deciding disputes and interpreting contracts in [the particular field of law involving the potential controversy]. #1 – …a State Bar in the United States…. … intellectual property #2 – …a State Bar in the United States…. … Patent Law #3 – …a QC …. … Trademark Law

© 2006 Woodcock Washburn LLP Sample ADR Clauses Evidence The arbitrator will be the judge of the relevance and materiality of the evidence offered, and conformity to legal rules of evidence shall not be necessary. or The arbitrator will apply the ____ rules of evidence #1 – AAA default OK #2 – may want to consider stating applicable rules of evidence #3 – …State applicable rules of evidence. Consider Relevancy prior offer of settlement, character evidence Witnesses Opinion and Expert Testimony Hearsay Authentication and Identification Contents of Writings

© 2006 Woodcock Washburn LLP Sample ADR Clauses Discovery (R-21) At request of party or discretion of the arbitrator, …, arbitrator may direct i) production of documents and other information, and ii) identification of any witnesses to be called. #1 – Default rules are OK #2 – Default rules are OK #3 – may want to expand on default rules

© 2006 Woodcock Washburn LLP Sample ADR Clauses Other Discovery that may be specified  Scope of document discovery  All documents relating to subject matter  Documents to be relied by parties in proceedings  Documents exchanged with third parties  Documents in the control of a party  Scope of witness discovery  Provide list of witnesses including experts with summary of anticipated testimony  Make witnesses available for deposition  Deposition by written questions  Interviews of employees  Other  Audits of books and records  Inspection of premises

© 2006 Woodcock Washburn LLP Sample ADR Clauses R-34(a) Commercial Arbitration The arbitrator may take whatever interim measures he or she deems necessary, including injunctive relief and measures for the protection or conservation of property and disposition of perishable goods. … A request for interim measures addressed by a party to a judicial authority shall not be deemed incompatible with the agreement to arbitrate or a waiver of the right to arbitrate. R-33 Patent Arbitration The arbitrator may issue such orders for interim relief as may be deemed necessary to safeguard the property that is the subject matter of the arbitration, to preserve evidence, and/or to protect trade secrets or other proprietary information that might be disclosed during the arbitration. … Interim Measures

© 2006 Woodcock Washburn LLP Sample ADR Clauses Interim Measures A request for interim measures will only be addressed to the arbitrator in accordance with the AAA Optional Rules for Emergency Measures of Protection. #1 – Consider #2 – Consider #3 – May want interim relief to be decided by court

© 2006 Woodcock Washburn LLP Sample ADR Clauses Attorneys Fees The arbitrator may award reasonable attorneys fees to the prevailing party. #1 – Include to discourage arbitration (attorney’s fees are a high % of total exposure) #2 – Default rules are OK #3 –Default rules are OK

© 2006 Woodcock Washburn LLP International Considerations

© 2006 Woodcock Washburn LLP International Considerations  Place of Arbitration  Consider National Arbitration Law  Procedural Rules  Appeals  Enforcement Under Local Law  Language  Substantive Law  IP ownership  Germany - invention made by an employee belongs to employee. Disputes are subject to non-binding arbitration (board set up in patent office)  Employee Remuneration  Japan, Germany, Korea, Mexico

© 2006 Woodcock Washburn LLP Typical Mistakes

© 2006 Woodcock Washburn LLP Typical Mistakes  Not understanding the likely issues to arise in the transaction  Inserting a boilerplate clause without understanding the applicable rules  Trying to “have your cake and eat it too” (e.g. parties agree to submit to arbitration, but in case of litigation jurisdiction vests on [Court]”  Unrealistic requirements and timelines  Using the arbitration clause to skew outcome your way  (Hooter’s of America, Inc. v. Phillips, (4 th Cir. 1999)  Imposing litigation rules (e.g. Federal Rules of Civil Procedure & Federal Rules of Evidence) into an arbitration proceeding

© 2006 Woodcock Washburn LLP Conclusions

© 2006 Woodcock Washburn LLP Conclusions  ADR is a tactical tool available to transactional practitioners  You need to understand the business objectives of the client, and the advantages and disadvantages of available dispute resolution procedures  You need to know rules you reference  You need to know the substantive and procedural law of the jurisdiction  Structure the clauses in view of the rules, substantive and procedural laws to maximize the ability to meet the business objectives