Mediation for the Information Technology Industry by WIPO

Startups and technology are dynamic and fast-paced environments. Disagreements are inevitable. The need for effective dispute resolution mechanisms is paramount when it comes to intellectual property disputes or conflicts among co-founders. One such mechanism that has gained significant importance is mediation. Mediation, as an alternative dispute resolution (ADR) method, offers a unique set of advantages that make it particularly well-suited for the complexities of the startup and tech landscape, notably in unregulated or underregulated industries.

The Nature of Disputes in the Startup and Tech World:

Startups and technology companies often operate in an environment characterized by innovation, uncertainty, and rapid growth. With high stakes and intense competition, disputes can arise from various sources, such as contractual disagreements, intellectual property disputes, founder disputes, and conflicts with investors or partners. Unlike traditional industries, the intricacies of the startup ecosystem require a nimble and efficient approach to dispute resolution.

The Traditional Alternatives and Their Limitations:

Historically, litigation and arbitration have been the go-to methods for resolving disputes. However, these traditional avenues have significant drawbacks in the startup and tech world. Litigation can be time-consuming, expensive, and public, which may not align with the need for swift resolutions and confidentiality in the tech sector. Arbitration, while more private, can still be costly and lacks the collaborative nature that startups often need to maintain relationships.

The Unique Benefits of Mediation:

1. Speed and Efficiency: Mediation is known for its efficiency. In contrast to the lengthy court processes, mediation allows parties to swiftly address their issues and find mutually agreeable solutions. This is crucial in the fast-moving startup environment where delays can be detrimental.
2. Confidentiality: Startups often deal with sensitive information, and publicizing disputes can harm their reputation or reveal trade secrets. Mediation provides a confidential setting, ensuring that the details of the dispute remain private.
3. Preservation of Relationships: Maintaining positive relationships is essential in the interconnected world of startups and tech. Mediation focuses on collaboration and finding common ground, fostering an environment where parties can preserve their relationships even after a dispute.
4. Customization of Solutions: Mediation allows parties to craft creative and customized solutions that may not be possible in a courtroom. This flexibility is particularly beneficial in the tech industry, where innovative problem-solving is a core value.
5. Cost-Effectiveness: Compared to litigation and arbitration, mediation is often more cost-effective. This is crucial for startups with limited resources, allowing them to allocate their funds more efficiently.
6. Expertise and Industry Knowledge: Mediators with expertise in the startup and tech sector bring a nuanced understanding of industry-specific challenges. This ensures that the resolution process is informed and tailored to the unique aspects of the technology ecosystem.

Co-founder and Intellectual Property Issues:

1. Misalignment of Vision: Co-founders often come together with a shared vision for the startup. However, over time, differences in goals or strategic direction may arise, leading to conflicts. Clear communication and establishing a shared mission early on can help mitigate this risk.
2. Equity Distribution: Deciding on the distribution of equity among co-founders is a critical decision that can impact motivation, commitment, and overall team dynamics. Disputes may arise if expectations regarding equity are not clearly communicated and agreed upon from the outset.
3. Roles and Responsibilities: Ambiguity in defining roles and responsibilities can lead to confusion and conflicts. Establishing a clear delineation of each co-founder's responsibilities and expectations helps prevent disputes over workload and decision-making authority.
4. Exit Strategies: Disagreements about the future direction of the startup or the timing and terms of a potential exit can strain relationships. Co-founders should discuss and align on exit strategies, such as mergers, acquisitions, or IPOs, to avoid disputes down the line.

Intellectual Property Issues:

1. Ownership of IP: Clear documentation of the ownership of intellectual property is crucial. Ambiguities in agreements or a lack of clarity regarding who owns what can result in disputes over the use and commercialization of IP assets.
2. Employee Contributions: Startups often rely on the creativity and innovation of their employees. Disputes may arise if the contributions of co-founders or team members to the creation of intellectual property are not properly acknowledged or compensated.
3. Confidentiality and Non-Disclosure: Protecting confidential information is paramount in the tech industry. Disputes may arise if there are breaches of confidentiality or disagreements over the use of proprietary information. Having robust non-disclosure agreements (NDAs) in place can help prevent such issues.
4. Competing Ventures: Co-founders may engage in side projects or other ventures outside the startup. Conflicts can arise if these activities are perceived as competing with the interests of the startup. Clear guidelines on acceptable outside activities can help prevent such disputes.

CASE EXAMPLES:

A WIPO Mediation of a Telecom Dispute

A software developer based in the United States licensed software applications to a European provider of telecommunications services. The agreement included a clause submitting disputes to WIPO Mediation, followed, in the absence of a settlement, by WIPO expedited arbitration.

A controversy arose as to whether the licensee was entitled to let certain affiliated parties have access to the software, and whether additional license fees were due in respect of those third parties. The dispute was submitted to WIPO mediation.

Taking into account the criteria identified by the parties, the WIPO Center proposed as mediator several candidates with experience in the area of software licensing and appointed a mediator in accordance with the parties’ preferences.

Mediation sessions were held at a location that was convenient to both parties. The parties developed a mutually acceptable framework for the mediation process and solved a number of the issues in dispute. Using some of the options developed during the mediation, direct negotiations between the parties continued after the termination of the mediation to solve their remaining issues. The WIPO expedited arbitration was not initiated.

A WIPO Mediation of a Software Dispute

A public research center based in Europe and a technology company also based in Europe signed a research and development agreement aimed at developing technological improvements to a phonetic recognition software. The agreement included a mediation clause under the WIPO Rules.

After several years, the technology company stopped complying with the agreed payment schedule alleging that the research center had not met the targets set and took unilateral decisions, including hiring other research groups outside the relationship while the contract with the research center was still in force.

The research center initiated mediation claiming damages. The WIPO Center proposed as mediator a lawyer with experience in technology contracts. After several months of intense negotiations facilitated by the mediator, the parties concluded a settlement agreement.

A WIPO Mediation of an IT Platform Dispute

A European airline entered into an agreement with a US software company concerning the development of a worldwide platform for the management of ticket sales. This was followed by a professional services agreement, which contained a more detailed description of the project as well as the support services to be delivered by the software company. The latter agreement included a WIPO mediation followed by WIPO expedited arbitration clause.

The airline paid several million USD for the application. Some years later, the airline terminated the agreement. In response, the software company asserted that, with the termination, the airline’s rights in the application had lapsed and requested the software to be returned. The airline was of the position that it was entitled to retain the software application and initiated mediation. The result of the mediation was a new license between the parties.

A WIPO Mediation of a Dispute in the Publishing Industry

A publishing house entered into a contract with a software company for the development of a new web presence. The project had to be completed within one year and included a clause submitting disputes to WIPO mediation and, if settlement could not be reached within 60 days, to WIPO expedited arbitration. After 18 months, the publishing house was not satisfied with the services delivered by the developer, refused to pay, threatened rescission of the contract and asked for damages. The publishing house filed a request for mediation. While the parties failed to reach a settlement, the mediation enabled them to focus the issues that were addressed in the ensuing expedited arbitration proceeding.

A WIPO Online Mediation of a Software Dispute

A European software developer entered into a software licensing agreement with a European customer which included a contract clause providing for WIPO Mediation followed by court litigation.

In a dispute regarding non-execution of the agreement and related damages claims, the parties initiated mediation and the WIPO Center appointed a mediator with experience in technology contracts. The mediation sessions took place entirely online, with live interpretation, and a settlement agreement was concluded within six months after the commencement of the mediation.

For your mediation requirements related to IT disputes, please reach us at [email protected] or [email protected]