A recent report identifies budgeting and time as major concerns for tech companies during litigation. Arbitration is an answer, says the report, but pros and cons exist for both dispute resolution mechanisms.

A new report from the Silicon Valley Arbitration and Mediation Center (SVAMC) and the Global Technology Dispute Resolution Council documented some of the technology sector's biggest concerns about litigation and how they may be potentially addressed through arbitration.

Sixty-four percent of survey respondents said that cost was their top concern about litigation. The report also found that 54 percent of respondents were concerned about the time it could take to get a resolution through litigation, while an additional 46 percent reported concerns about unqualified or inexperienced judges overseeing their cases and 36 percent reported concerns about overly invasive discovery.

The survey did not ask for information about similar concerns related to arbitration, but it did ask survey respondents to identify some of the perceived benefits of arbitration in commercial disputes involving technology companies. Seventy-six percent of survey respondents identified the potential use of a specialized expert as a benefit to arbitration in such disputes, while 54 percent reported a speedier time to resolution, and 41 percent reported increased privacy as similarly important factors lending themselves to arbitration.

The survey polled corporate counsel, law firm counsel, neutrals and users in the technology sector. It was conducted over the spring and summer of 2017. 

Gary Benson, founder and chairman of the SVAMC, said that the major concerns highlighted by the survey were fairly common knowledge across the technology sector, as in other sectors. Benson clarified however that companies seemed to be less troubled by the final price tag of potential litigation than they are the ability to budget for potential litigation costs.

“Obviously nobody wants to pay more than they have to. At the same time, what every general counsel at a technology company tells me is, 'Of course we're willing to pay the cost if it resolves the dispute the right way. What we're most concerned about is predictability about what the cost is,'” Benson said.

“General counsel want to be able to budget and expense and not be surprised,” he added.

The high profile patent dispute litigation between Apple Inc. and Samsung Electronics Co., which is now in its fifth year with no end in sight, is something of a nightmare scenario for many technology companies, especially given the speed of innovation. “To me, it's no longer a case about a $1 billion verdict, it's a case about how long it takes to get any conclusion in the courts. Sadly, these companies are still litigating now over technology that's now relatively obsolete,” Benson noted.

Given these concerns, Benson believes technology companies are starting to look toward arbitration as a means to offset some of these concerns. “Arbitration has always been out there as an alternative that offers the promise of more efficient dispute resolution. I think it's become increasingly attractive in the technology sector, and people are starting to see it much more in the last five years,” he said.

Cedric Chao, trial partner and co-head of the global international arbitration practice at DLA Piper, said that although these litigation concerns hold significant water for technology companies and arbitration may seem like an exciting alternative, it also poses its own host of issues.

“The choice between litigation and arbitration is harder than one might expect. There is no perfect system, and there is no 'correct' answer that applies universally. What works for one party or one type of dispute does not necessarily work well for a different party or dispute,” Chao noted.

Chao explained the technology sector's reticence toward arbitration is more about the gravity of what they're working with. “Their crown jewel is their intellectual property,” Chao said. “An adverse ruling can impact the fundamental value of the company with implications extending beyond the value of the dispute itself.”

Given the importance of intellectual property to technology companies' core business, retaining access to the right of appeal inherent in litigation can be an important factor to consider. “There's no automatic right of appeal. If you make an error of law, there's no right of appeal,” Chao explained of arbitration. “There are some ways to vacate the bad decision, but it's narrower. If you read the contract wrong, I cannot get that decision overturned. In court, I could.”

“I tell clients it's a little bit like going to Las Vegas. If you win you love it, because the other side has a very difficult time overturning your award. But if you lose, you hate it,” Chao added.

The question of judge expertise varies more by jurisdiction than matter type. Benson noted that while there are many excellent judges across the country, and many judges in California and Virginia especially have developed strong backgrounds in complex technology and intellectual property matters, “most of the country doesn't have those resources, and the judges are focused on their criminal case dockets and their other issues. They just don't have the specialization to the dealing of a lot of complex [intellectual property] cases,” he said.

Arbitration offers parties the ability to agree upon particular skill sets or expertise of their arbitrators. Chao qualified, however, that judges in some of the more tech-savvy jurisdictions may at times be a better bet than even a qualified arbitrator. “If you're sitting in California, the judges come from big law firms, they tend to have a lot of exposure in their younger years to complex transactions and intellectual property. I've got clients who've much rather have their despites heard by judges than they would be an arbitrator,” he said.

As technology commercial disputes move more square into the international applicability, Benson also noted arbitration's ability to apply across multiple international contexts.

“It also ensures that awards can be enforceable because, of course, U.S. court judgments are only enforceable in the U.S. They're not automatically recognized by any foreign country, whereas international arbitrations are enforceable,” Benson said.

Chao said that international considerations should weigh into both potential pros and cons of arbitration. “That one works for you in this one market or this one geography may not be the answer in a different commercial relationship in a different geography,” he noted.

Gabrielle Orum Hernández is a reporter with Legaltech News and the Daily Report covering legal technology startups and vendors. She can be reached by email at [email protected], or on Twitter at @GMOrumHernandez.