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Client Alerts

Delaware Court of Chancery Implements New Arbitration Procedures for Rapid Resolution of Business Disputes, Including Patent Disputes

February 18, 2010

Client Alerts

Delaware Court of Chancery Implements New Arbitration Procedures for Rapid Resolution of Business Disputes, Including Patent Disputes

February 18, 2010

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On January 5, 2010, the Delaware Court of Chancery implemented new arbitration procedures allowing for rapid resolution of eligible business disputes, including patent disputes. These new procedures follow an extremely expedited schedule—resulting in arbitration no more than 90 days from submission of a petition. Other advantages of the procedure include a permanent member of the Court—experienced in resolving technology disputes—as Arbitrator; appeals directly to the Supreme Court of Delaware, the state’s highest court; the potential for very limited discovery; and complete confidentiality of the arbitration process.

Under rules newly issued by the Delaware Court of Chancery (available at http://courts.delaware.gov/rules/?Chancery96-97-98.pdf), parties may now submit eligible business disputes for arbitration before a permanent member of the Court. Eligibility for the new process is covered by 10 Del. C. § 349 and is identical to eligibility for the Court’s existing mediation process. Thus, to be eligible for arbitration, both parties must consent, at least one party must be a Delaware business entity, and neither party may be a consumer. For cases seeking only monetary damages, the rules also require that the amount in controversy exceed $1,000,000.

As with mediation, the new arbitration procedures will allow patent and technology disputes to be brought before a member of the Court. Due to the Court’s jurisdiction over technology disputes in Delaware, all potential Arbitrators are adept at handling complex technology and patent licensing disputes. Their numbers include a chemical engineer, an electrical engineer, and a former patent litigator, all of whom have long been mediating patent litigations and disputes under the Chancery mediation statute, including patent appeals referred by the Federal Circuit.

The procedure is commenced by the submission of a petition and $12,000 filing fee to the Register in Chancery. Upon receipt of the petition, the Chancellor will assign an Arbitrator, and within 10 days, the Arbitrator will hold a telephonic preliminary conference in order to obtain information about the nature of the dispute and to determine the anticipated length of the hearing and scheduling. As soon as possible thereafter, a preliminary hearing will be held, in which the substantive issues will be outlined and the procedures to be followed before and during the arbitration will be decided. Among other things, the parties and the Arbitrator will agree as to any pre-arbitration discovery, which may or may not include depositions and which may be foregone completely. At this hearing, the Arbitrator will set a date and time for the arbitration hearing, which can be no more than 90 days from receipt of the initial petition.

Upon commencement of the arbitration hearing, the parties will be equally responsible for a $6,000 per-day fee, excluding the first day. At least one representative from each party and their Delaware counsel must be in attendance. Because the arbitration is confidential, no one other than the parties or their representatives may attend, unless otherwise agreed to. Likewise all work product and communications made in connection with the arbitration are confidential. These confidential materials are not subject to disclosure in any judicial or administrative proceeding, unless either (1) the parties agree otherwise or (2) the confidential materials consist of tangible evidence not specifically prepared for the arbitration but otherwise subject to discovery.

At any stage in the arbitration, the parties may submit the process to the Court for mediation or may seek the Arbitrator’s assistance in settling the case prior to a final decision. If the case is submitted to mediation, the Arbitrator cannot also serve as mediator, unless the parties otherwise agree. Likewise, the Arbitrator is not eligible to adjudicate any litigation arising from the issues covered by the arbitration.

At the conclusion of arbitration, the Arbitrator may grant any remedy or relief that the Arbitrator deems just and equitable, and the award shall be enforced as any other judgment or decree. Any appeals from the Arbitrator’s decision go directly to the Supreme Court of Delaware.

Because these expedited procedures may be particularly advantageous for many technology disputes, eligible Delaware business entities should consider steps that will ensure the availability of arbitration. This can be accomplished by including arbitration provisions in patent licensing, technology transfer, noncompetition, and confidentiality agreements.

For more information, please contact Joseph B. Warden.

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