Monday, October 15, 2012

Arbitration Friend or Foe?

By Samuel Lewis Published in The Business of Photography
Arbitration Friend or Foe?
Mediation has proven so effective at resolving disputes that many courts in the U.S. mandate some form of mediation as a routine part of the life of a court case. In federal court, where most copyright infringement cases are filed, mediation is typically required (even where the parties haven't agreed to mediate), and it's not unheard of for judges to send the parties to mediation at various stages in the case. The reality is that most copyright infringement claims settle prior to trial, and mediation often assists the parties in settling the case.

Arbitration, on the other hand, is more like a court process where a neutral third party, the arbitrator, acts as both judge and jury in the case. Instead of filing a complaint in court, parties that have agreed to arbitrate their disputes generally submit a claim to one of the various organizations that administer disputes in arbitration. Once submitted, the administering organization will help the parties select an arbitrator (and, in some cases, a panel of arbitrators), who will act like the judge in the dispute and make decisions that will be binding on the parties. The arbitration process is generally less formal than court proceedings, although like courts, most of the administering organizations follow established rules that dictate how the arbitration will be conducted. Unlike court proceedings, which are typically open to the public, arbitration is a fundamentally private process.

There are some significant differences between arbitration and proceedings in court, and these differences must be taken into consideration when assessing whether it makes sense to agree to arbitration (or to accept such a provision when an agreement is presented to you). One of the biggest differences involves who will decide the facts of the case. As one of the administering organizations, the American Arbitration Association explains, "[b]y agreeing to arbitration, the parties...are waiving their fundamental, constitutional right to a trial by jury of their peers." Another significant distinction is that parties generally have a right of appeal in court proceedings. In arbitration, "the decision is legally binding and non-appealable, except in extremely limited circumstances, such as in the case of fraud or collusion on the part of the arbitrator."

The differences don't stop there. Another fundamental difference between court proceedings and arbitration is in the cost of the proceedings. With court proceedings, a filing fee is paid when the complaint is filed, and the parties don't pay for the judge's time to preside over the case. In arbitration, the parties share the cost of the arbitrator's fees, and the arbitrator—often, a retired judge or attorney—is paid on an hourly basis; the more time the arbitrator spends on the case, the higher the arbitrator's fee will be (and, in turn, the more that the parties will pay). According to a recent post on, a blog published by copyright attorney Ed Greenberg and New York-based photographer Jack Reznicki, "It's not at all unusual for a party to incur $20,000-$40,000 in arbitration costs before any hearing on the merits ever commences." How high the arbitrator fees go depends upon how complex the case is, how long it takes the parties to present their case, how many motions the parties submit, and how many disputes arise between the time the case begins and when it finally ends. Proponents of arbitration are quick to point out the cost of an arbitrator may be well worth the money, considering that the parties are able to select an arbitrator with a specific background or expertise.

One thing to note is that once you agree to an arbitration provision, odds are good that a court will enforce it.

In the U.S., the Federal Arbitration Act (FAA) governs arbitration provisions. Under the FAA, written agreements to arbitrate are deemed to "be valid, irrevocable and enforceable," absent certain extreme circumstances that would justify revoking the agreement. As the Supreme Court has noted, the FAA "leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Following the Supreme Court's lead, many courts have limited their role to determining "(1) whether a valid agreement to arbitration exists and, if it does (2) whether the agreement encompasses the dispute at issue." Any doubts are resolved in favor of arbitration.
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