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Through mediation and creative thinking, win-win situations are possible

Published on Saturday, 20 Jun 2015
Through mediation and creative thinking, win-win situations are possible

A growing industry

Intellectual property rights protect original ideas and other products of the human mind. In recent years we have seen the growing importance of intellectual property and its commercialisation. Often disputes arise from the use of intellectual property and the result is usually disruption, souring of business relationships and, in some cases, litigation.

Most small and medium enterprises can ill afford the stress and cost of litigation. Even for big companies, litigation diverts valuable time and human resources that can be more profitably deployed elsewhere. Often a court case takes years to resolve, and the outcome is uncertain.

Mediate first

Mediation is a structured and voluntary process of negotiation. It is flexible, informal, speedy and economical. With the help of an impartial mediator, the parties are able to generate options and forge a practical and mutually beneficial solution.

Mediation is widely applied in many traditional areas, but its potential for resolving intellectual property disputes hasn’t been fully explored.

Case study

ABC Co is a large Hong Kong firm engaged in the development and manufacture of smartphones. It acquired a three-year licence from XYZ plc, a British company which owns several hundred patents worldwide in the field of mobile telecommunications technology. After the end of the three-year period, ABC was suspected of having breached the terms of the patent licence. It continued to manufacture products using the patent rights but failed to renew the licence properly. XYZ believed that ABC had underpaid royalties during the three-year period.

XYZ sued ABC in the Hong Kong courts claiming US$3 million (HK$23.2 million) in unpaid royalties. It further sought to enforce an audit provision which would allow the licensor to send an outside auditor to scrutinise the computers and records at the licensee’s offices. In defence, ABC challenged the validity of the patent rights and the scope of the licence. It further counterclaimed damages for disruption to its business. It put the value of the counterclaim at US$1 million (HK$7.7 million).

Before the case went any further, the parties sensibly agreed to submit their differences to mediation. They agreed to appoint a mediator who was a respectable intellectual property lawyer. During a private session with the mediator, XYZ’s representative expressed two main concerns. She was worried that other licensees might be encouraged to follow ABC’s example and default in paying royalities. Moreover, if the case went to trial, it would highlight significant legal loopholes in the standard licence terms, which might then be exploited by other licensees.

The astute mediator also quickly discovered that ABC was willing to pay a small sum to put an end the legal wrangle. The last thing it wanted to see was a court ordering it to stop using the patents unlawfully. For ABC, such a result would mean a devastating loss of face. In fact, it had already developed a new line of smartphones using a new technological standard. It would, however, take several months before it could make a full transition from the old to the new standard.

After several hours of intense brainstorming and reality-testing, the discussion finally bore fruit. It was agreed that XYZ would grant a short-term licence to enable ABC to fulfill a small number of outstanding orders in return for a lump sum licence fee of US$400,000 (HK$3.1 million).

It was a happy result all round. XYZ got a new licence, without damaging its enforcement track record. It also agreed to forego an audit which would have been intrusive and unwieldy to carry out. At the same time ABC was able to carry on business as usual, with no loss of face or reputation.

Two ideas are better than one

In business, as in the workplace, differences of opinion are inevitable. Intellectual property law reminds us there are no bounds to the power of imagination. When people with different ideas come together, they may generate even more ideas. This is part of the reason why mediation can produce a win-win situation for parties on both sides of a dispute.

This article appeared in the Classified Post print edition as Meeting of minds creates amicable outcome.

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