Tech Arbitration Tips

In 1970 a futurist named Alvin Toffler wrote a book called Future Shock which asserted that technological change was occurring at a faster and faster rate and people were having difficulty adjusting to the new paradigm. Today we see technological advances occurring not linearly but exponentially. Technologists, if there is such a word, are familiar with Moore’s law which postulates that integrated circuit capacity doubles approximately every two years. Just think of the memory and storage capacity and computational power of your computers and devices compared to 10 years ago. Similar rates of development can be found in the progress of human genome DNA sequencing, manufacturing processes, digital devices, and medical discoveries. This is my embarrassingly miniscule contribution to the tech revolution.

Choose Your Arbitrator

Parties choose to arbitrate for many reasons which include saving time, aggravation, and money; confidentiality and privacy; quick resolution of discovery disputes and prompt rulings on motions or other interim relief; and the enforceability of awards across multiple jurisdictions under the New York Convention. Additionally, the limited grounds for challenging arbitration awards make arbitration awards final and effectively irreversible.

Given the emergence of technology disputes and the rapidly evolving field of technology law, it is not likely litigants will be afforded the judicial expertise that an arbitration panel with true tech credentials can offer.

The Resumes You See Are Not Exhaustive

Every American Arbitration Association neutral is required to provide an updated biography and disclose any interest or relationship likely to affect impartiality or which may create an appearance of partiality or bias. What you may not realize is there are strict space and policy limitations on what can and cannot be included in the bios. Thus, a very qualified arbitrator who handles health care, employment, tech, and other commercial arbitrations will devote fewer characters to any one area, but might be more highly qualified than someone with more verbiage in the category of your case.

You Have a Right to Make Further Inquiries

If you have any question about anything in the arbitrator’s biography or disclosures, make further inquiry. You can request copies of a panelist’s articles and even send joint questions or conduct joint telephonic interviews with potential panelists. This is particularly important in tech as the level of experience and expertise varies greatly in the embryonic areas of the law and in technology itself.

Don’t Be Embarrassed—Ask Anything

You can ask if html and CSS are programing languages. You’d be surprised how many arbitrators think html is a programming language. You should ask about the type of issues they have arbitrated and even their experience with the issues of your case. You can ask if they represented one category of clients or have experience on all sides of issues.

You usually need to select an arbitrator who is not just knowledgeable in tech issues but also the business of tech. Too often adjudicators limit their consideration to law school-like analysis but do not see the way the deals or situations unfold in the real world. If a person has only negotiated license agreements, he or she might not be able to judge how things are supposed to work in the business environment in which the agreements are applied. Litigants will often complain that the judge or arbitrator did not grasp how things work in the industry. Your pointed questions to potential arbitrators can prevent your case from being decided by someone with insufficient experience.

First Example of a Potential Question

Here is a type of question (based on a real case) that you could ask a potential arbitrator, the answer to which could be quite revealing.

Under a long-term outsourcing arrangement, company A agreed to provide data processing services for company B’s worldwide operations. What is a permissible level of downtime for the processing system? In other words, recognizing that things often go awry, what percentage of company’s B’s system (or any portion of it) has to be down before a penalty is assessed against company A? Is it okay if the system operates perfectly 50 percent, 70 percent, or 90 percent of the time?

Try to answer that question before continuing. Hold on, you are continuing without trying to answer the question. Bear with me. What do you think of a 95 percent smooth operation? Good? Acceptable? Disastrous?

Imagine an arbitrator finding a party who provided outsourcing services to a large company to be in compliance under the agreement where the system works perfectly 95 percent of the time—in other words the system is down 5 percent of the time. Clearly the arbitrator does not understand that normal standards require at least 99.5 percent operability and probably 99.8 percent depending on the situation and the contract, and the catastrophic cost of being off more than 1 percent downtime. 2/100 of 1 percent tolerance is often the maximum allowable, but an inexperienced person may see 95 percent and think that is a solid A so it must be acceptable.

The tip is, put the potential arbitrator through their paces before selecting him or her. The question could be framed: In an outsourcing arrangement what percentage of downtime is customary before penalties kick in?

Second Example of a Potential Question

I’ll begin by asking if you know what an advancement provision is? You probably have some idea, but haven’t heard of it expressed exactly that way. Backing up, you do know what an indemnify and hold harmless provision is. Years ago, this clause was simply basic protection that parties obtained from each other when some form of claim or potential liability might be asserted against the party to be indemnified. However, like most contractual language, the scope of protection in indemnity provisions continues to proliferate. We now see more clauses hold harmless and indemnification language providing for legal fees and costs to be paid in advance of a final arbitration award or judicial decision. A treatise could be written on every nuance of hold harmless agreements, but for brevity I’ll omit all the possibilities and strategic decisions involved in the drafting and get to the case situation and takeaway.

In a complex and expensive intra-corporate dispute the claimants, the less capitalized group, moved for advancement of its attorneys’ fees from the company. It was a close call with significant conflicting case law in the relevant jurisdiction and nationally. After the briefing and telehearing on this issue, the panel remained online and agreed to grant the motion. While the language might have been drafted more precisely, the panel thought the better interpretation was that payment should be made for the costs of arbitration as things went on, rather than waiting until the end of the case. At the end of the case, there would be a reconciliation of who was ultimately entitled to attorney’s fees and costs, but for now they should be advanced by the company.

The panel chair drafted the order granting both sides advancement—since the language in the agreement read mutually, the chair believed that the company should advance the costs for both sides legal expenses. The other two panelists removed the mutuality concept and determined that only the claimant should receive advancement.

The view of the wings was that the respondent didn’t ask for advance payment of its expenses. In their view, parties have to ask for something before it is given to them. Claimant made the motion and argued for advancement in the brief and telehearing. Respondent just opposed it.

In the eyes of some—if you don’t ask—you don’t get (perhaps even if you’re entitled). What do you think?

Tip: Conventional thinking is prevailing parties are entitled to legal fees only if the agreement or some statute allows. When litigating or arbitrating in situations where there is no statute or contract provision allowing the prevailing party to obtain legal fees, use indemnity and hold harmless language to argue for them.

Scope of Technology Disputes

The technology universe is expanding like the actual universe and today everything (except perhaps paternity) is arbitrable. Tech has crept into every area of the law. One does not often think of Americans with Disability Act and tech in the same breath, but a claim was recently made that a company’s website was not sufficiently accessible to handicapped individuals, and understanding what needed to be done to comply with the claimant’s demands was vital in dealing with this issue.

What About the Future?

At this point I should mention some hot button issues in technology which you may well encounter and that may be resolved by arbitration—all of which have subparts and nuances:

• Data/cyber security and privacy
• Management and monetization of Big Data
• Mobile payments
• Social media liabilities
• Wearable computing
• Venture capital and private equity
• Patents on new tech, validity, and infringement
• IT joint ventures
• System development, implementation, and integration
• Source code escrows
• Blockchain, crypto, and other virtual currency
• Quantum computing
• Artificial Intelligence

While securities fraud remains the most active area for blockchain litigation, there are a number of recent cases involving intellectual property, unfair competition, contracts, class actions, consumer privacy, consumer protection, commodities, tax obligations, public utilities, immigration, and elections law. And all this is just one subspecies of the genus technology.

Tech issues are complex and require a high level of understanding. In my newspaper on election day, the Dilbert comic strip had a character at a meeting saying: “I’m no expert on blockchain but I think we need to get the EVM stack on the bytecode so we don’t run into a consensus fork.” Then he says to the person next to him, “Did that mean anything?” and the person replies, “Don’t ask me, I’m bluffing too.” Needless to say, you should avoid such an arbitrator.