© 2007 morrison & foerster llp all rights reserved attorney advertising the global law firm for...

© 2007 Morrison & Foerster LLP All Rights Reserved Attorney Advertising

The Global Law Firm for Israeli CompaniesThe Global Law Firm for Israeli Companies

The Arbitration Alternative

Michael A. Jacobs

Morrison & Foerster LLPOctober 29, 2007



Get me out of U.S. courts!

I can’t afford U.S.-style discovery

I don’t want my case decided by a jury

I want a decision-maker who understands business

I want more privacy



Arbitration’s long history in international commercial disputes

Arbitration clause is common feature in traditional international commercial contracts – but less common in “high-tech” license and distribution agreements

Advantages and disadvantages compared with litigation:

Specified forum and location

No public access

More choice over decision-maker

Much less complicated procedurally

BUT – typically no right to appeal

AND – tendency to “baby-split”



Many companies frustrated by actual experience with arbitration

Lots of discovery

Expensive and time-consuming

Decisions not well reasoned

Why didn’t we just litigate?

Judges paid by the government and overloaded with work

Arbitrators paid by us – and the more work they do, the more they get paid

What to do?


Alternatives in arbitration

Choice of arbitral body

ICC – “traditional” choice in international commercial contracts

Historically slower and more expensive

Arbitrators typically from international arbitration network

American Arbitration Association

U.S. companies more accustomed

Arbitrators often practicing attorneys

JAMS (Judicial Arbitration and Mediation Service)

Former judges



Number of arbitrators – 1 or 3? Single most important choice in driving cost and time

consumption Very practical problems with 3-person panel Scheduling Expense Time to render decisions

Little empirical evidence on quality of decision-making My anecdotal experience:

As plaintiff – insist on a single arbitrator As defendant – perhaps three is better



Complexity of arbitration clause

All arbitral fora offer standard clauses• Any controversy or claim arising out of or relating to this contract, or the

breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its Commercial [or other] Arbitration Rules [including the Optional Rules for Emergency Measures of Protection], and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction ….

But contracting parties often “design” the arbitration procedure

Qualifications of arbitrator

What issues are arbitrable

Pre-arbitration “alternative dispute resolution”

Detailed rules on discovery

Timetable for decision



Problems with complex arbitration clause

Who will enforce the clause?

Compliance creates issues to raise in court

E.g., disputes about whether issues pled in arbitration fall within scope of complex arbitration clause

Hard to know who will benefit from specific provisions

Recommendation

Likely plaintiffs: keep it simple

Likely defendants: complexity is your ally



Choice of arbitrator(s)

Most critical decision

Where litigation counsel proves its worth

Experienced litigators should have first- or second-hand experience with proposed arbitrator(s)

Choose an arbitrator with predelictions that give you a fighting chance with your case



Attorneys fees clause

“American rule” – each side bears its own legal fees

“English rule” – prevailing party also recovers at least some attorneys fees

Contractual fee shifting enforced even under “American rule”

Fee shifting drives costs down and promotes cooperation among counsel


The Notal Case

Distributorship dispute

Notal is Israeli company that develops computer device for detecting age-related macular degeneration

Signs worldwide exclusive distributorship agreement with Carl Zeiss Meditec, worlds largest supplier of optical medical equipment

Agreement has “commercially reasonable” marketing obligations and minimum purchase requirements

Zeiss fails to make minimum purchases and breaches marketing obligation


The Notal Case

Arbitration clause

American Arbitration Association

Single arbitrator

San Francisco

Simple, broad arbitration clause

Arbitrator “may” award attorneys fees to the prevailing party

Chose experienced attorney/arbitrator as arbitrator in this case


The Notal Case

Result

Substantial “e-discovery”

Only half-day depositions of each side’s CEO

4 day hearing, starting Friday and ending Tuesday

$10M award to Notal

Partial “baby split”

Includes $700K in attorneys fees

From initiation to payment, 9 months


The bottom line

Arbitration will probably be faster and cheaper than litigation if:

1. Simple arbitration clause

2. AAA or JAMS is arbitration administrator

3. Single arbitrator

4. Specified venue

5. Fee shifting clause

6. Arbitrator carefully chosen

© 2007 Morrison & Foerster LLP All Rights Reserved Attorney Advertising


Presentations and related articlesavailable on our Hebrew website

www.mofo.co.il

Email: [email protected]

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