ADR tech disputes

15 January 2004

Grace Suen

This note summarises some highlights of a recent Bird & Bird article on ADR for Technology Disputes presented at the 5th KOPILA (Korea Private International Law Association) International Symposium. The full report can be found here.

What is Alternative Dispute Resolution?

The term “Alternative Dispute Resolution” (ADR) refers to the various processes by which disputes may be resolved outside the classic court and arbitration processes in a quicker and less expensive way. ADR is rapidly becoming a popular form of dispute resolution in technology cases.

The ADR mechanisms principally used include assisted negotiation, mediation/conciliation and expert determination. By far the most common form of ADR is mediation.

A Duty to Mediate?

Today most mediations take place when the parties to an existing dispute agree on an “ad hoc” basis to try to resolve the dispute by ADR. However, it is becoming more common for parties to include ADR clauses in their technology (or other) agreements so that if a dispute arises an initial attempt to resolve it by means of ADR must be made before proceeding to the courts.

Are ADR clauses enforceable in the sense that if one of the parties ignores the clause and goes to court, will they be told by the court to go back to the dispute resolution system that they agreed upon?

Cable & Wireless Plc v IBM United Kingdom Ltd [2002] EWHC 2059 is the first well-publicised case in which a court in England has recognised mediation as a legally enforceable alternative to litigation under an ADR clause. Cable & Wireless sued IBM over a multi-million pound outsourcing agreement. On IBM’s application Cable & Wireless was ordered to refer the dispute to mediation and the proceedings were stayed.

With the increase in the importance of ADR, it has now become a duty of the parties and their lawyers to seriously consider the possibility of resolving the dispute through ADR. If a party unreasonably refuses to do so, it places itself at a risk of adverse costs orders being made against it even if it succeeds in the case - Dunnett v Railtrack [2002] 1 WLR 2434

The Cable & Wireless case is likely to be followed in other common law jurisdictions like Hong Kong.

Why Mediate?

  • Less expensive
  • Quicker
  • Private and confidential
  • Capable of preserving the business relationship between the parties
  • Parties have complete control of the process and outcome of the resolution
  • Parties are more likely to be satisfied with the solution that has been mutually agreed upon

Having said the above, not every ADR mechanism is suited to resolving every dispute as an alternative to litigation. There are some situations where mediation is not suitable and the disputes should be left to the court to decide. Test cases on new legislation are a good example.

A Recent Case Study: CISCO Systems v Huawei Technologies

Cisco Systems filed a lawsuit against China’s biggest telecommunications equipment maker, Huawei Technologies, in January 2003 in the United States claiming that Huawei had infringed certain Cisco patents and illegally copied Cisco source code and other technical documentation by using it in the operating system for its routers and switches.

After the litigation began, Huawei agreed to remove certain elements from their products and to change parts of their technology. Although this left the past conduct in dispute, it resolved the matter going forward.

In order to make sure that the amended products no longer infringed Cisco’s patents, the parties agreed to a stay of the litigation and to conduct an independent expert review process of the Huawei amended technologies.

This was an interesting example of using an alternative resolution technique by agreement as part of ongoing litigation to reduce the scope of the litigation rather than settle it completely. However, the agreement had an additional benefit in the whole case eventually settled after the expert determination report was prepared.

Important - The information in this article is provided subject to the disclaimer. The law may have changed since first publication and the reader is cautioned accordingly.