Arbitration Friend or Foe?

If there’s one aspect of contracts frequently misunderstood or rarely given due consideration, it’s provisions relating to dispute resolution, and specifically, the increasingly common use of the alternative dispute resolution (ADR) procedures of mediation and arbitration. Those who fail to fully appreciate the relative advantages and disadvantages of including such provisions in agreements may be surprised to discover what rights they have given up by agreeing to such provisions.

Whether you realize it or not, odds are good that you’ve already agreed to arbitration. Arbitration provisions have become increasingly common in a wide variety of consumer services, such as cellular telephone contracts and credit card agreements. Arbitration provisions are also finding their way into photographers’ agreements.

"For as long as I was an active member of the American Society of Magazine Photographers, the ASMP sample contract forms specified arbitration as the means of dispute resolution between photographers and clients for most complaints," writes Christine Valada, a self-described recovering lawyer and professional photographer in Los Angeles, Calif., and author of the blog F/8 and Beware. "I believe the same held true for the Graphic Artists Guild forms as well, and for many of the generic forms available to photographers and artists."

Even today, the ASMP maintains an online tutorial on terms and conditions that photographers may wish to include in their agreements. With regard to disputes, the tutorial presents a provision requiring arbitration for any claim over $5,000, and permits claims below $5,000 to be submitted to any court.

Unfortunately, many people include arbitration provisions in agreements without realizing the consequences of using such provisions. "As soon as I saw the results of [an arbitration provision] in practice as a lawyer," writes Valada, "I changed my forms and advised my clients to do the same thing. Arbitration, especially if you can specify using an organization like the California Lawyers for the Arts, can be a useful means of dispute resolution someTimes. But it has become a huge barrier for most artists…."

Mediation And Arbitration Explained

For those unfamiliar with the concepts, mediation and arbitration are forms of alternative dispute resolution, meaning that they’re alternatives to having disputes resolved by a court or through a trial.

In mediation, the parties meet with a mediator—typically, a retired judge or attorney—who attempts to help the parties find ways to resolve their dispute. In such a proceeding, the mediator has no real power: He or she can’t decide the issues in the case or force the parties to do anything other than try to find a way to settle their case. However, a good mediator will gain a thorough understanding of the case, ascertain what the parties really need or want out of a dispute, and work to bridge the gap between parties. The biggest cost of mediation is the mediator’s fee, with each party typically paying half of the mediator’s hourly rate. The benefit of resolving a case in mediation is that the parties have the ability to control their own futures and to walk away with a certain result; the parties may not gain as much as they would if they won at trial, but at the same time, they walk away with more than they would had they lost at trial. 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 a
t issue." Any doubts are resolved in favor of arbitration. Even where the FAA may not be applicable, a majority of states have adopted the Uniform Arbitration Act, which, like the FAA, requires courts to enforce arbitration provisions. There are also international conventions that provide for the enforcement of arbitration provisions. Coupled with broad arbitration provisions, you may find that even the question of whether it’s appropriate for parties to resolve their differences through arbitration is an issue that must be arbitrated.

The danger, of course, is that you’ll agree to language so broad as to encompass nearly all disputes, someTimes with unintended consequences.

Professional mountaineer and photographer Neal Beidleman learned this lesson the hard way after granting a limited license to a textbook publisher. While the license permitted the publisher to use Beidleman’s Mount Everest photograph in 40,000 textbooks, the publisher allegedly went on to produce in excess of 1 million copies of textbooks with the photograph. Beidleman sued for copyright infringement. However, because Beidleman’s license required arbitration for various disputes, including the interpretation of the agreement, the publisher was able to force the matter out of court and into arbitration. Beidleman’s arguments that the license expired, and that copyright infringement claims were beyond the scope of the arbitration provision, were ultimately determined to be issues that an arbitrator would have to resolve.

The widespread use of arbitration provisions in consumer agreements was sufficiently pervasive that it attracted the attention of the Washington, D.C.-based public interest group Public Citizen, which conducted a study of arbitrations in California and reported their findings. According to Public Citizen’s report, the vast majority of arbitrations between corporations and consumers resulted in decisions in favor of the corporations. These types of findings have spurred on efforts to change the FAA. Among these efforts is the Arbitration Fairness Act of 2011, sponsored by Al Franken, the former Saturday Night Live comedian and writer, and now U.S. Senator from Minnesota. The proposed legislation seeks to limit the FAA by effectively preventing the use of arbitration agreements in, among others, consumer and employment disputes.

Bargaining Away Your Rights

Given the strong presumption in favor of arbitration, it may come as no surprise that even claims of copyright infringement may be subject to arbitration. Los Angeles-based photographer David Strick learned this lesson the hard way when attempting to enforce his copyrights.

In 2007, Strick—who made a name for himself shooting behind-the-scenes photographs of movie, television and music-video production sets for over 30 years—pitched the idea of a photography feature for the Los Angeles Times involving behind-the-scenes images of television and movie sets. The Times liked the pitch and entered into an agreement with Strick to produce "David Strick’s Hollywood Backlot." In January 2010, the Times presented Strick with the third and final agreement relating to the feature.

In each of the agreements, Strick retained the copyrights to the images, regardless of whether the images were published. However, the retention of copyrights was rendered largely irrelevant by the grant of rights to the Times under the agreements. For images taken on assignment, Strick granted the Times "a fully paid up, perpetual and irrevocable license to any and all rights (including, e.g., copyrights) in any of" Strick’s photographs accepted for publication or published by the Times or its licensees. So although Strick retained copyrights, the Times arguably retained the right to use his images if they were taken on assignment. Each of Strick’s agreements with the Times contained a relatively lengthy arbitration provision. Under the arbitration provision, Strick and the Times agreed "that any and all claims, disputes or controversies between them" would be resolved through mediation and binding arbitration, and this would be the "sole and exclusive remedy." Strick and the Times also "voluntarily and intelligently waive[d] and [gave] up any right to a jury trial." The arbitration provision also required the parties to demand arbitration within 90 days of making a formal claim against the other.

The last of Strick’s agreements with the Times was for only six months, and in May 2010—shortly before the agreement was due to expire—the Times advised Strick that it was ending the relationship. In response, Strick notified the Times that it had no right to use any of the images uploaded to the Times‘ content-management system (FTP site). By this time, Strick had uploaded images for 10 stories, candidates for eventual publication in the event the Times renewed Strick’s contract. The Times disagreed with Strick and proceeded to use Strick’s images.

In May 2011, Strick sued the Times and its parent company for copyright infringement, alleging that they ultimately used 174 of Strick’s images without his permission. Roughly five months later, Strick found his case shut out of court by virtue of the arbitration provision in his agreement with the Times. Although Strick’s attorneys argued that the arbitration provision shouldn’t apply to a claim for copyright infringement—indeed, there could be no infringement while the agreement was in place—U.S. District Judge Consuelo B. Marshall found that Strick’s agreement with the Times required them to arbitrate "any and all claims, disputes, and controversies between them."

In early December 2011, Strick initiated arbitration. However, once in arbitration, matters quickly went from bad to worse for Strick. While Strick requested that the arbitrator make an early determination as to whether the arbitration provision applied to his claims for copyright infringement against the Times, the Times requested an early determination as to whether Strick’s claims for copyright infringement were time-barred.

Under the Copyright Act, claims for infringement must be brought within three years after the claim accrues. However, Strick’s agreement with the Times arguably reduced the time for bringing claims to 90 days. In a ruling issued June 18, 2012, the arbitrator found that Strick’s claims were time-barred. According to the ruling, Strick’s attorney triggered the dispute resolution provisions in his agreement with the Times in September 2010, and Strick failed to commence arbitration within 90 days thereafter. As the arbitrator explained, "[b]y not pursuing arbitration, at the first instance and by filing the [copyright infringement claim in court] Strick ran the risk of being wrong with respect to his interpretation of" his agreement with the Times.

In a statement issued following the arbitrator’s ruling, Strick expressed his disappointment. "I am devastated by [the] ruling by Judge Lichtman, our JAMS arbitrator, and feel that I have truly been denied ‘my day in court’ as the merits of this case have yet to be heard." An attorney for the Times, Kelli L. Sager, a partner with the firm of Davis Wright Tremaine LLP, believes the outcome was appropriate. "[T]he parties negotiated an agreement that included provisions for resolution of any dispute, and Mr. Strick and his counsel chose not to abide by the parties’ agreement. Both the district court and the arbitrator agreed with us."

Writing about the decision, Valada pointed out the "biggest flaw in agreeing to arbitration: you will be held to
it, even when, as in copyright infringement, you have denied yourself some really important remedies…." She also pointed out that the 90-day window for commencing arbitration is unusually short. However, "[Strick] did have the power to say ‘no’ to the terms and walk away. I do suspect that his access to the subject matter was a reason he got the gig in the first place, so maybe ‘no’ would have turned in his favor. Most photographers (and frankly, other creators) I’ve known in my life are so insecure that they are afraid to use that word. The people I know who have used it are generally the most successful."

Lessons To Be Learned…

It’s easy to view the Strick case as a cautionary tale about the evils of arbitration. The problem with doing so, however, is that it ignores a multitude of factors that contributed to the unfortunate result. To suggest that arbitration itself is inappropriate in all circumstances is to engage in the sort of naïve thinking that one approach to resolving disputes is appropriate for all situations.

If there’s a lesson to be learned here, it’s that attention must be given to all aspects of a contract, as even relatively insignificant or "standard" provisions may have a tremendous impact on your ability to enforce or defend your rights later. To accept terms without properly analyzing the potential long-term impact such terms may have is to act with reckless abandon. Likewise, when a dispute arises, it’s critically important to follow whatever procedures have been agreed upon for resolving disputes.

As with so many things, there’s another, albeit more subtle, lesson to be learned. Parties have a great deal of freedom when it comes to contracting with one another. Where parties have struck a bargain, even if that bargain involves giving up certain constitutionally protected rights (like a right to a jury trial), courts may honor the parties’ agreement. Thus, when you consider entering into a contract, you should soberly reflect upon whether you can live with the bargain as proposed. If in doubt, seriously consider saying "no."

Samuel Lewis is a Board-Certified Intellectual Property law specialist and partner at Feldman Gale, P.A., in Miami, Fla., and a professional photographer who has covered sporting events for more than 25 years. He can be reached at [email protected] or [email protected]

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