How Mediation Can Help Both Sides Win a Trade Secret Case

March 29, 2021

IP Watchdog

In over 40 years of handling trade secret disputes, I have seen plenty of “successful” results, but never a time when my client said, “Gee that was fun; let’s do it again!” They may tell me they’re happy with the outcome, but hey, I know that it also feels good to stop hitting yourself with a hammer.

It’s a fact that more than 90% of trade secret cases settle without a trial. But too often those settlements only happen after years of litigation. There are ways to make that process less painful, and in an earlier article we looked at the advantages and limitations of arbitration and private judging as means to recapture some amount of control over the dispute. But unless the parties already had an arbitration agreement before the problem arose, one of them will probably see an advantage to playing it out in court.

There are plenty of ways to spend time and money in these cases. They begin with a struggle over what the trade secrets actually are. That can take months, even years, while the lawyers also fight about each side making available its documents and witnesses. Sometimes millions of documents and dozens of witnesses. All this is to prepare for a possible trial where, as experienced lawyers will tell you, the outcome usually hangs on just a handful of records and a few critical bits of testimony.

Approaching closer to the actual trial, reality and exhaustion tend to combine, leading the combatants to settle, primarily as a way to avoid looming risk. But this comes at an enormous sunk cost of money, energy and distraction from the actual business. At the end, the silent regret in the room is about not having arrived at this same place a lot sooner. So why do otherwise smart, calculating managers wait so long, and suffer so much, to get to a settlement?

Some apologists for the status quo will tell you that it’s necessary to press every procedural point in order to test the adversary, and that only when you have collected all of the records and examined every possible witness can you engage in “informed” negotiations. Plaintiffs’ lawyers will add that trade secret cases are all about stealth, so there must always be more that the defendant is hiding. Defendants will point out that the lawsuit represents an existential threat to their business. Or, perhaps more likely, to their personal honor.

Why Emotions Drive Trade Secret Litigation

Anecdotal evidence from colleagues, and my own experience, suggests that trade secret warfare has such staying power because it is so often driven by the personal emotions of the participants. Here is the key distinction: unlike any other kind of intellectual property dispute, the trade secret case is all about fault in a relationship.

As I’ve said before, it was my very early experience handling divorces that prepared me for trade secret litigation. Whether it was about employees leaving to start a competing company or join a competitor, or between two companies that had been in some collaboration, there was a rupture in a relationship, and trust was shattered. Sometimes that trust had been built over years, as with the young engineer who was mentored by the company founder only to strike out on his own, or the start-up band of disrupters grown close by fighting the entrenched incumbents, only to see one of their siblings leave for greener pastures (or more stock options). Even in big companies, internal teams develop loyalties as they rely on each other through the tough times.

So when this happens, who feels hurt? Pretty much everybody. The colleagues left behind may include managers and co-workers who feel deceived and abandoned (probably not admitting a touch of envy). The accused misappropriator is startled and in deep denial that anything could be wrong. They may feel scapegoated by their former boss (that venal bastard who never liked my ideas anyway). And hanging over it all is that primal emotion called fear: how long can this go on, and what will happen to me? Again, even in the business-to-business environment, it’s tactically about blaming and avoiding blame, but emotionally about betrayal and treachery.

Not Just Stolen Code, But Bruised Feelings Too

Here lies the root of the problem: the dispute is not just about some software code or customer list, but (to varying degrees of course) about the need to resolve bruised feelings. And without thoughtful intervention, that resolution can take a lot of time.

This may be the point where you expect me to describe the wise and trusted lawyer riding in to solve the case. Sorry. Naturally, there are – ahem – wise and trusted lawyers out there, but often the most they can do is bring down the heat a bit and work to make the litigation process as efficient as possible. Again, emotions run high among the participants in the drama, and clients – at least at the outset of a trade secret fight – may expect their counsel to be warriors first, advisors second. And an outsider might say that the lawyers have a certain conflict of interest that may lead some of them (subconsciously) to want to prolong the struggle.

Indeed, there are lawyers who make themselves part of the problem by acting out, effectively channeling the emotions of their clients. My wife, Laura-Jean, who is a psychotherapist, tells me this is called “merger,” but a different kind than we think of in the corporate world. The lawyer, rather than acting the independent professional, “merges” with the client’s perceived emotional state and then acts on it. Thus, we have the lawyer who, a couple of years ago, threw a cup of coffee at her opponent in a deposition, deservedly leading to dismissal of the case.

Mediation is the Perfect Path to Settlement

In trade secret disputes it’s the responsibility of the lawyers not just to avoid tantrums, but to act in their clients’ interest by guiding them toward settlement early and often. Lawyers are in a position to appreciate when their clients have tunnel vision due to emotional overload, unable to see the actual costs and risks that lie ahead. It’s up to the professional to be practical and help the client look at the situation through a business lens. Naturally, it’s hard to make that shift in the midst of battle.

This is precisely why that other form of alternative dispute resolution, mediation, is the perfect method for resolving trade secret disputes. A neutral facilitator leads the process, allowing counsel to retain some attitude as an advocate. The mediator, as we all know from centuries of experience in relying on intervention from respected elders, is able to see alternatives that the parties can’t. While lawyers have their eye on a future trial, the mediator begins with the solid truth that there was a relationship here once, and so there are always opportunities to tap that reality and, in the process, satisfy some of the unspoken emotional needs that lurk behind the legal advocacy. And the mediator has a broader appreciation for the collateral damage that happens in litigation and can find ways to preserve third-party relationships that might otherwise be battered and lost.

Mediation is the natural, organic solution to the typical trade secret case that takes on a life of its own, becoming a soap opera for the participants. Properly engaged, even at the outset of a case, it supports the parties in identifying the real problems and preparing for solutions to emerge. And it doesn’t have to be a single event. Indeed, at its most effective, mediation is a process that begins as soon as the parties reach some inflection point in the case where it seems acceptable to involve a neutral.

Pick a Mediator Who Will Pick at Your Case

Unlike other, more procedurally predictable IP litigation, such as patent infringement, these inflection points can happen often in trade secret disputes, because judges make decisions that leave both sides dissatisfied, or some new piece of evidence looks like it might shift momentum. That doesn’t mean the litigation has to stop while talks go on. The first session with a mediator may lead to little more than an agreement to share certain information and prepare for a later conversation, while in the meantime the lawyers can consult with the mediator privately, building the kind of trust that will allow a deeper exploration of possibilities at the next stage.

Here’s an important tip: for trade secret cases you need a mediator that is “evaluative” rather than just “facilitative.” That means that the neutral will at some appropriate point share with each party in confidence their view of the merits of the case. Instead of just helping the participants listen to each other, the mediator proactively judges the direction that each side needs to take to find a solution, helping them to come closer – not necessarily to the middle, but to a place that will resolve all of the issues that led to the dispute. Often, the main issues are not about money, but about reputation, respect and cooperation.

Ultimately, the best mediators will help the parties restore some dimension of the trust that they had lost, perhaps discovering some opportunities that they never could have imagined if they had tried to resolve this on their own. And although my guess is that no one, regardless of the outcome, would ever want to re-enroll in Trade Secret University, we lawyers can improve the value of our services, and the happiness of our clients, by helping them to graduate early.

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