By Dennis Crouch
Kimberly-Clark Worldwide v. First-Quality Baby Products (Fed. Cir. 2011)
Diapers have been the subject of numerous patents and patent infringement lawsuits. In this case, K-C is suing its competitor, First Quality, for infringing more than a dozen diaper related patents.
The issue on appeal, however, focuses on a procedural matter: Whether K-C can be compelled to disclose information relating to prior alternative dispute resolution (ADR) proceedings between K-C and a different competitor, Proctor & Gamble. K-C argues that those ADR proceedings are privileged and therefore not discoverable.
The prior-ADR agreement between K-C and P&G were termed the ADR process a “non-binding arbitration.” In that process, both parties presented evidence to an agreed-upon neutral arbitrator who made a determination on the case. The loser of the arbitration was required to pay for cost of the arbitration. However, either party could reject the arbitrator’s decision and, if desired, file a district court lawsuit to resolve the dispute de novo. The agreement also included a provision that, if infringement was found, the losing party could avoid any damages at all by stopping the problematic activity within six months.
The Federal Rules of Evidence do not explicitly protect ADR proceedings except that Rule 408 prohibits a party from using certain compromises or “statements made in compromise negotiations” for the purposes of proving liability, invalidity of a claim, damages, or for impeachment of a witness. FRE 408. In addition, Rule 501 permits courts to apply “principles of the common law . . . in the light of reason and experience” in determining what additional information may be considered privileged.
Federal Mediation Privilege: Under the permission of Rule 501, the Pennsylvania District Court in this case followed other federal courts in adopting a “federal mediation privilege” that would privilege information and conduct associated with a mediated settlement process. Up to now, no federal court of appeals have recognized the privilege and, on appeal, the Federal Circuit refused to decide this issue. The appellate court wrote “we decline to determine if, in light of reason and experience, we should recognize a mediation privilege.”
What is a Mediation?: After agreeing that there is indeed a federal mediation privilege, the district court determined that the out-of-court resolution proceeding here did not count as a mediation but was rather an arbitration. As an arbitration, the prior proceedings did not qualify for the privilege. On appeal, the Federal Circuit affirmed – finding that the district court did not abuse its discretion in determining that the non-binding arbitration is not a mediation.
Privileging settlement discussions and mediations has two primary goals: (1) to encourage parties to settle disputes outside of court; and (2) to encourage a frank and candid discussion of the case in the settlement process. If statements from the mediation could later be used in court, parties would be likely to either refuse to participate or merely use the process to puff-up their position. In this case the neutral was charged with making a decision on the merits – i.e., the arbitration setup did not encourage a frank and candid discussion of the case. It is this difference that leads courts away from extending the mediation privilege to the arbitration context.
Affirmed
Notes:
- I thought that the oral arguments by Connie Trela (Sidley) and Michael Underhill (Boies Schiller) were particularly good. It may have been because oral arguments were held while the court was in Oregon sitting before a packed-house of IP attorneys.
- Although information regarding the prior arbitration is now discoverable, it will likely be disclosed only under seal – keeping it from the public purview.
- In a separate case between these same parties, Kimberly-Clark has filed a petition for a writ of certiorari to the Supreme Court asking the court to review the Federal Circuit’s “patent specific standard” for determining whether to grant preliminary injunction. The Federal Circuit recently denied en banc rehearing of the issue over dissents from judges Newman, O’Malley and Reyna. [En Banc Denial][Supreme Court Petition]
Just to make things clear, Anonymous who was participating is not the same Anonymous who feels like a bit of civility is warranted. Sorry for the confusion.
Mediation is by far the cheapest way to resolve these situations. But as I am told both sides have to agree too mediation or it just doesn’t happen.
That’s because I used to post more. I’ll try to keep up, but I have a lot on my plate these days 🙁
Anonymous–
Apologies if my tone was demeaning.
I have no idea who you are or what your background is, so I shouldn’t assume that you have any particular knowledge or experience in this area.
I assumed you were an attorney with experience in the different modes of dispute resolution–since it appears that you are not, I would direct you to read some web overview of ADR, and then to read the decision to maybe get some of the finer points–although understand that the “finer points” in this case are things that are desperately obvious to anybody in the know.
If I unjustifiably transferred my ire with KC and its counsel (sophisticated parties who were wasting the court’s time and the public’s money with bu11cr@p arguments) to you, sorry for that.
It was not specifically you who I intended to demean–it was KC and its litigation counsel.
I used to find the comments on patently-o useful, now they are more akin to the country bumpkins arguing and demeaning each other on the Billings Gazette website. Time for a re-set IMHO.
A NON-binding arbitration is not necessarily inherently any more “adversarial” than some other pre-licensing arguments between the parties.
“Not necessarily inherently more adversarial”?
I think you moved the goalpost just a little bit, Paul. Litigation also is “not necessarily inherently more adversarial” than pre-licensing arguments between the parties. It depends on how the parties behave.
The key distinction between arbitration and mediation is (wait for it) the role of the third parties. Arbitrators are neutral and are not trying to achieve anything other than a correct determination of liability (based on the rules/laws governing the arbitration). Arbitrators are typically not (never?) involved in settlement discussions between the parties.
Mediators, on the other hand, are there to assist the parties find a compromise and there is much greater (nearly infinite) leeway as to the sort of considerations that may be brought to the table for that purpose.
Paul–
!
Think about the basis for privilege, and then think about the nature of statements made in support of the proceedings.
Yes, that’s a long shot but obviousy I was NOT referring to what the arbitrators said or decided, only about the party’s own arguments, since the subject was broadly “..orders compelling discovery relating to three alternative dispute resolution agreements AND the proceedings that occurred pursuant to those agreements.” A NON-binding arbitration is not necessarily inherently any more “adversarial” than some other pre-licensing arguments between the parties.
why isn’t non-binding arbitration just another form of settlement discussion or negotiation?
Why isn’t a buying a hamburger just another form of armed robbery? Why isn’t boarding a train just another form of planting seeds in a garden?
Tune in next week when Zen Master Hoo Flung Poo provides the answers to these and other questions for the ages.
why isn’t non-binding arbitration just another form of settlement discussion or negotiation?
Why isn’t a buying a hamburger just another form of armed robbery? Why isn’t boarding a train just another form of planting seeds in a garden?
Tune in next week when Zen Master Hoo Flung Poo provides the answers to these and other questions for the ages.
Anonymous–
How unfortunate for you.
You cannot be serious.
To get a basic clue, read the decision.
But you cannot be serious.
Do you even know what arbitration is?
Re FRCP 408, why isn’t non-binding arbitration just another form of settlement discussion or negotiation?
Is non-binding arbitration really arbitration? If it can be rejected, sounds kind of like a form of mediation to me.
Have you ever participated in either form of dispute resolution?
I missed this in my comment above. I don’t know, this seems like a reasonable argument to me.
Is non-binding arbitration really arbitration? If it can be rejected, sounds kind of like a form of mediation to me. Not sure that there’s a solid line distinguishing the two in all cases.
KC’s argument was based on the fact that the arbitration was non-binding and therefore, in their opinion, “facilitated” settlement.
This argument is, IMHO, only barely sufficiently colorable to avoid possible sanction.
Only barely.
As a litigation tactic, I wonder how much of First-Quality’s time and money it consumed.
Nice that First Quality didn’t just fold like a cheap lawn chair, and too bad that this didn’t quite rise to the level where costs could have been awarded under 35 USC 285.
Maybe I’m over-reacting, but I can’t believe the court’s time was occupied by such a matter.
Arbitration does not equal mediation for the purpose of determining what is a settlement discussion.
Sheer genius.
“It may have been because oral arguments were held while the court was in Oregon sitting before a packed-house of IP attorneys.”
Well unless they rioted or something interesting I’m not that impressed, I see that at the USSC and the Fed Circ every time I go.
“”patent specific standard”
I thought Ebay nixed that in the bud.
Course, after just now rereading Newman’s words on the issue I have to reconsider. I guess a preliminary injunction may well be an abuse of discretion to grant unless the defense lacks substantial merit. I mean, a preliminary injunction is not really the same thing as a normal injunction after the merits have played out.
Besides equity abhors a forfeiture. Which is exactly what a preliminary injunction would be in many cases where there is a substantial defense.
And that’s not even to mention that where equities are equal, the law will prevail. Equity will provide no specific remedies where the parties are equal, or where neither has been wronged. And where there is a decent defense to patent infringement claims then the parties be equal. Equity will let the law play out, not go around providing specific remedies to parties that are equal.
Comments are closed.