When parties enter into mediation or arbitration proceedings, a frequent concern is the confidentiality of those proceedings. A principal purpose of such alternate dispute resolution arrangements is to permit the parties to resolve their disagreements with compromising concessions outside of the public eye which typically prevails in formal courtroom proceedings. Recently, in its first decision on the point, the Federal Circuit Court of Appeals has upheld that confidentiality against a vigorous attempt by a third party to invade it, Haworth Inc. v. Steelcase Inc. (Herman Miller, Intervenor), 29 USPQ2d 1368 (Fed. Cir. 1993).
Dueling Lawsuits
Since 1985, Haworth and Steelcase have been battling over Haworth's claims of infringement of two of its patents. In a 1989 Federal Circuit court decision, Haworth's claims were upheld on appeal and the case was remanded for determination of damages. Shortly thereafter Steelcase filed suit against Haworth, asserting that Haworth infringed certain Steelcase patents. After consolidation of the two lawsuits the parties agreed to an Order of Reference whereunder further proceedings of all remaining issues would be resolved by a Special Master, appointed in effect as an arbitrator. Under the terms of this ADR agreement, discovery proceeded and the case is currently in an extended evidentiary trial proceeding before the Special Master.
Meantime, in early 1992, Haworth brought suit against Herman Miller, Inc., ("HMI") alleging infringement of the same patents, and some of the same patent claims, that it had asserted against Steelcase, seeking damages in excess of $300,000,000. HMI then sought discovery by subpoena to Steelcase of all documents and testimony relating to the Steelcase litigation and the ongoing ADR proceedings. Steelcase and Haworth objected on the basis of the earlier protective order and confidentiality restrictions under the Order of Reference and opposed production of any documents subject to that order. Steelcase particularly argued against production of any "category of documents which, if produced, Haworth represents will chill its participation in these ADR proceedings." HMI then filed a motion to intervene in the ADR so that it would have access to all documents, depositions and testimony produced therein.
HMI's motion to intervene for the above purposes was denied in the lower court on the basis of the terms of the Haworth/Steelcase ADR agreement, specifically:
- the waiver of the right to appeal and
- the agreement to keep the ADR proceedings secret.
It was held that these considerations outweighed HMI's interest and needs to obtain the discovery. The magistrate's ruling stated in part,
What is at stake in this case is not a protective order, but a comprehensive and unique alternative dispute resolution procedure, hammered out by plaintiff and defendant after a significant investment of time and money in negotiations, in order to settle two patent lawsuits ... as well as resolving any other subsequent disputes which might arise ... ... Furthermore, it is unlikely future elaborate alternative dispute resolution methods, such as the one fashioned in this case, would be utilized if confidentiality could not be maintained. That court also observed that the "rules of the game differ with the trier of fact" and observed that there was a "special ethic" in emphasizing the compromise which applies in ADR proceedings.
On appeal to the Federal Circuit, HMI's counsel (Roy Hofer, Esq.) vigorously argued that it had every right of access to the confidential ADR proceedings since it was willing to abide by all protective orders therein and did not seek to make them available to the general public. HMI contended that its interests in obtaining the discovery to defend itself in the lawsuit brought by Haworth outweighed the interests of Haworth and Steelcase in maintaining the confidentiality of the ADR proceedings. Further contentions were that "judicial economy" favored avoiding the duplication of effort in obtaining the same discovery in the HMI litigation, that the Special Master's findings as to the measure of Haworth's damages would be directly relevant to HMI's defenses, that the principle of "issue preclusion" from such determinations should apply against Haworth, and that since the ADR resolution of the contested issues would ultimately be entered in a public court order, intervention in the ADR proceedings should be treated no differently than intervention in any other federal court litigation. HMI pressed for discovery of evidence from the ADR as to, inter alia, Haworth's production costs, profits, ability to make additional sales, reasonable royalty evaluations, and customary and acceptable profits in the industry.
Non-Intervention
On HMI's appeal all such contentions were rejected and the district court's refusal to permit the attempted intervention was affirmed. This is the first such ruling by the Federal Circuit on this important issue. The court expressed concern that the requested intervention would "disrupt the parties' efforts to settle their differences" and then significantly states,
"judicial economy is best served by promoting ADR and shielding it from unwarranted intrusions ... [but] Even if it were shown that intervention would save resources, because of the interests of the ADR parties, HMI's motion could still be properly denied."
The court specifically also approved the following statement by the district court,
[T]he ethic of ADR is often different than that of litigation. There is an emphasis on compromise, of each side softening their positions in order to meet in the middle. Each concession must be understood in the context of those of the other party. The series of positions each party takes and the decisions of the special master must be looked at as an integrated whole.
The Federal Circuit Court of Appeals has exclusive appellate jurisdiction over all patent infringement cases; therefore, it appears that this decision will definitively control the future confidentiality of ADR proceedings on patent disputes. The court did suggest that HMI might be able to access the Special Master's findings after the ADR had concluded, but that HMI would have "to await the event." The key persuasive aspects of this case were the confidential informal ADR adjudication, the agreement that neither party would appeal the ADR result, and the stipulation of confidentiality of the Special Master's findings themselves. The court did suggest that HMI might be able to access the Special Master's findings after the ADR had concluded, but that HMI would have "to await the event."