Agreements requiring the arbitration of disputes are generally perceived as being “pro-business,” but do they really help companies in trade secret disputes? The United States Supreme Court’s recent holding in Rent-A-Center West, Inc. v. Jackson, a decision enforcing an arbitration provision in a consumer contract, has rekindled the debate about the pros and cons of arbitration, as well as its compatibility with trade secret disputes.
While arbitration may make sense for some disputes, it is a forum that is ill-suited for a business seeking to immediately protect its trade secrets. The main reason is speed. Trade secret cases, by their nature, require rapid action, generally in the form of a motion for a temporary restraining order to prevent any improper use or disclosure of the trade secrets in question. If you or your client have trade secrets at risk, this means you need to be able to move quickly or they will be gone, used, disclosed or posted on the Internet. This means that once you have put together your pleadings and supporting documents, you need to be able find a decision-maker who can promptly here your request and enter an appropriate order to stop the bleeding. State and federal courts are ideal for this kind of relief, and it is the rare case where you do not have a conference or hearing scheduled for your TRO within 24 to 48 hours of filing your request.
Arbitration, on the other hand, by its nature does not lend itself to these types of nimble emergency proceedings. Arbitration moves slowly, very slowly. Arbitration is rooted in agreement and consent, and that agreement and consent is required at various critical junctures in the arbitration process. If one of the parties to an arbitration wants to slow things down (because he doesn’t want to be stopped or wants to cover his tracks), it is significantly easier to frustrate the arbitration process by delay in making decisions or not agreeing at all. While some arbitration associations may provide for the appointment of an interim or emergency arbitrator, that process can still take many days if not weeks. Likewise, as there are no formal rules regarding expedited discovery, the ability to conduct discovery can be slowed — if not completely frustrated — by an obstinate defendant who renegs or refuses to agree to any expedited discovery. If you have secured your TRO in a court and then moved to an arbitration proceeding, there may be a period where you are effectively in limbo, as the court is now reluctant to do anything affirmative because an arbitrator is in the process of being selected; this uncertainty can again present opportunity for mischief, as well as resistance to discovery. Finally, an arbitrator cannot enforce his or her order, which means disputes over compliance and enforcement may end up back in the nearest court and lead to a potential “back and forth” between the arbitrator and court as to what was ordered and what can be enforced. All of these lead to greater expense, especially when you throw in the hourly fees of the arbitrator.
Given the potential for delay, mischief and added expense, companies — especially small companies — should avoid clauses that seek to use arbitration for the resolution of intellectual property, trade secret or injunctive relief disputes. If your client feels strongly about keeping an arbitration provision for the resolution of other issues or potential damages claims, you should insist, at minimum, that injunctive relief proceedings regarding IP rights or trade secrets be specifically carved out from the arbitration process. If you don’t take these steps, you are exposing your client to a potentially frustrating, expensive and ultimately unsuccessful experience.