The U.S Government has today again raised the estimate of the amount of oil spilling into the Gulf of Mexico.  The estimated rate now stands at 60,000 barrels per day.  As of yet, there are no estimates of the cost of the flood of litigation to follow.

Perhaps in an effort to stave off some claims, BP has declared on its website that:

Appointing an Independent Mediator is a recognized practice to strengthen claims processes and resolve disputes. BP is working to appoint the best possible person to fill this important role.

In those cases in which a claimant and BP cannot agree on resolution of a claim, the claimant can seek review from the Independent Mediator.  The Independent Mediator then will make an advisory decision on the claim.

I have an article in this month's Directors & Boards, E-Briefing. The article discusses the benefits of ADR for business and how Directors can facilitate adoption of efficient dispute management programs.

GM has announced that it will reinstate 660 of 1100 dealerships that were slated to close.  Last month, Congress passed legislation giving terminated dealers the "right" to appeal their termination through binding arbitration to be overseen by the American Arbitration Association.  Although, as discussed in my book, I'm all in favor of arbitration and I am an arbitrator for the AAA, the special treatment afforded by this law strikes me as both undermining the credibility of arbitration as a contract-based means of resolving disputes agreed upon in advance by the parties and confirming Tip O'Neill's famous admonition that "all politics is local."  The diffuse national interest in restoring the competitiveness of the auto industry is simply no match for the influence that can be asserted by local car dealerships over their congressional representatives.

Although, on the surface, there seems nothing wrong with a business a chance to go on, consider the implications of granting a similar right to all business or to all terminated workers.  The law does not ask the arbitrators to review the propriety of the termination under the contracts entered by the dealers with the automakers, or to decide based upon any discernible principle of law, but instead to decide as follows:

The arbitrator shall balance the economic interest of the covered dealership, the economic interest of the covered manufacturer, and the economic interest of the public at large and shall decide, based on that balancing, whether or not the covered dealership should be added to the dealer network of the covered manufacturer.

The factors considered by the arbitrator shall include (1) the covered dealership’s profitability in 2006, 2007, 2008, and 2009, (2) the covered manufacturer’s overall business plan, (3) the covered dealership’s current economic viability, (4) the covered dealership’s satisfaction of the performance objectives established pursuant to the applicable franchise agreement, (5) the demographic and geographic characteristics of the covered dealership’s market territory, (6) the covered dealership’s performance in relation to the criteria used by the covered manufacturer to terminate, not renew, not assume or not assign the covered dealership’s franchise agreement, and (7) the length of experience of the covered dealership. The arbitrator shall issue a written determination no later than 7 business days after the arbitrator determines that case has been fully submitted. At a minimum, the written determination shall include (1) a description of the covered dealership, (2) a clear statement indicating whether the franchise agreement at issue is to be renewed, continued, assigned or assumed by the covered manufacturer, (3) the key facts relied upon by the arbitrator in making the determination, and (4) an explanation of how the balance of economic interests supports the arbitrator’s determination.

This supposed "balancing" test is pure fantasy:  is the arbitrator supposed to decide whether the close is more important to the dealer, the maker, or the public?  This is like asking whether $1000 is more important to a laid-off worker, a multi-national company, or the public at large.

Perhaps not surprisingly, GM has decided against playing this game.  According to the Washington Times

" GM said it would not have enough time to negotiate with all 1,100 dealerships that appealed the automaker's decision to close them within a four-month window imposed by the federal government.  "By doing this we save a lot of time, energy and dollars," said Jim Bunnell, GM general manager of network support, saying the company wished to avoid a "very large arbitration process."

Don't get me wrong.  Many local dealers have made significant contributions to their local communities and deserve a fair opportunity to continuing doing so.  Special treatment with a law of dubious constitutionality, though, says far more about political influence than justice,  sets a bad precedent, and does nothing to advance arbitration as a fair and cost effective alternative to wasteful litigation.  I suspect that GM has, thus far, opted against challenging the constitutionality of the law in favor of giving in, because it owns political bailout might make is less than ideal challenger.

In his blog, The Frontal Cortex, Jonal Lehrer (author of How We Decide and Proust Was a Neuroscientist) describes the "ultimatum game," which is often used in teaching Negotiations to demonstrate how important a sense of "fairness" may be to reaching an agreement.  The game has two players.  The first player is given $10 and told that he or she must offer part of it to the second player.  The first player can offer any amount, if the second player accepts the offer, both players keep their share, but if the second player rejects the offer, then both players get nothing.  Almost invariably, if the first player offers much less than $5, the second player will reject the offer--even though rejecting the offer makes the second player worse off.  (A purely rational player would accept any offer above zero, because regardless of how much player one keeps, a non-zero propeal would be a gain).    This phenomenon has been shown in a variety of contexts.  For example, given a choice of a job that will pay $80,000 in a company in which everyone else makes $80,000 or less, and a job paying $90,000 in a company in which everyone else is paid $120,000 or more, most people would prefer the first job.

Lehrer describes additional research (using brain scanners) that shows concerns over fairness or equality may not be purely selfish--that people sometimes prefer someone else be given a gift to receiving a gift themself, if it will balance out a unfair starting point.

In a nutshell, when someone says "its the principle, not the money," they may actually mean it, and it would be a mistake for a mediator or negotiator to dismiss the such non-monetary motives.  In litigation, though, the issue is complicated by other psychological tendencies, such as the tendency to underestimate the time and cost of the lawsuit and overestimate the likelihood of success.  Further, even successful litigants often come away from a lawsuit feeling beaten down by the process and without the expected satisfaction derived from vindication.  Consequently, and perhaps counter-intuitively, negotiation or mediation of a settlement may require putting "fairness" aside, because the price of fairness is simply too high.  While I don't think a negotiator or mediator can, or should, discredit or diminish the importance of fairness to the parties, I do think he or she can make a significant contribution by helping them  more accurately assess both the cost of pursuing "fairness" and the potential for disappointment.

I always find astonishing our ability to see only what we want to see.  In a 1954 study by Albert Hastorf & Hadley Cantril, students from Princeton and Dartmouth were asked to review a film of a football game between the two schools and to count the number of penalties by each side. The Princeton students found that the Dartmouth team committed twice as many flagrant penalties and three times as many mild penalties as the Princeton team. On the other hand, the Dartmouth students found that the two teams committed an approximately equal number of penalties. The study concluded that it was as though the two sets of students "saw a different game."

Commentary on yesterday's healthcare summit follows this predictable, but still remarkable pattern.  Take a look at any blog discussion of the summit, and you will see commentary that appears to review entirely different events.  Online comments on the WSJ's unsurprisingly negative op-ed is one example.   The LA Times comments start from the opposite side I don't doubt the sincerity with which democrats and republicans view their side as the "winner."

Regardless of positions on healthcare refore, I have to admit that I find it hard to see how President Obama's performance and command of the event could be considered anything other than extraordinary; he would certainly make an exceptional mediator.   In the face of aggressive and emotional criticism, he responds calmly and (for the most part) in a manner that invites deescalation.  He acknowledges the validity of diverse perspectives and doesn't reject the view of opponents simply because of their source.   (e.g., He left John McCain speechless when he agreed that the healthcare reform should not include special deals for different states).  He also recognizes that sometimes there is simply too wide a gap between the parties.

As reported in Business Week, and elsewhere, Apple (iPhone) and Nokia (world's largest cell phone maker) have begun suing each other both in federal court in Delaware and at the US International Trade Commission (USITC).  Nokia claims that the iPhone infringes Nokia patents.  Apple claims Nokia is now copying the iPhone and infringing iPhone patents.  For good measure, Apple clams, in effect, even if the iPhone infringes Nokia's patents, Apple  is entitled use the technology in Nokia's patents for a low cost, because Nokia persuaded an international group that set standards for wireless communications to use Nokia's technology (and agreed that the technology would be made available for a low cost).

Apple's "Sixth Defense" to Nokia's claims asserts:

Nokia's false representations to SSOs [Standard Setting Organizations] that it would license the patents it declared essential on FIRAND [one such organization's] terms, and Nokia's assertion of its wrongly obtained monopoly power against Apple in demanding non-FIRAND license terms, constitute patent misuse and render them unenforceable. In addition, Nokia's demand for a reciprocal "grantback" license to Apple's non-standard essential patents as a condition for licensing Nokia's purported essential patents at a FIRAND royalty rate constitutes misuse of Nokia's purported essential patents.

In arguing that Nokia has a monopoly of some kind, Apple asserts:

As reported in Business Week, Apple (iPhone) and Nokia (world's largest cell phone maker) have begun suing each other both in federal court in Delaware and at the US International Trade Commission (USITC).  Nokia claims that the iPhone infringes Nokia patents.  Apple claims Nokia is now copying the iPhone and infringing iPhone patents.  For good measure, Apple clams, in effect, even if the iPhone infringes Nokia's patents, Apple  is entitled use the technology in Nokia's patents for a low cost, because Nokia persuaded an international group that set standards for wireless communications to use Nokia's technology (and agreed that the technology would be made available for a low cost).

Apple's "Sixth Defense" to Nokia's claims asserts:

Nokia's false representations to SSOs [Standard Setting Organizations] that it would license the patents it declared essential on FIRAND [one such organization's] terms, and Nokia's assertion of its wrongly obtained monopoly power against Apple in demanding non-FIRAND license terms, constitute patent misuse and render them unenforceable. In addition, Nokia's demand for a reciprocal "grantback" license to Apple's non-standard essential patents as a condition for licensing Nokia's purported essential patents at a FIRAND royalty rate constitutes misuse of Nokia's purported essential patents.

In arguing that Nokia has a monopoly of some kind, Apple asserts:

The relevant markets in which to assess Nokia's conduct, therefore, are markets for technologies that - before the standards were implemented - were competing to perform the functions covered by Nokia's purported essential patents for the GSM standard (the "GSM technology markets"), the GPRS standard (the "GPRS technology markets"), the EDGE standard (the "EDGE technology markets"), the UMTS standard (the "UMTS technology markets"), and the WLAN standard (the "WLAN technology markets") (collectively, the relevant "Mobile Wireless Technology Markets").

In economic terms, this is pretty unintelligible.  Each of these technologies competes with each other as well as other communications technologies.  Not surprisingly, Apple's complaint makes no allegation as to Nokia's market share in these multiple alleged "Mobile Wireless Technology Markets."

Further and interesting (to me at least), despite making factual allegations of "wrongly obtain[ing] monopoly power against Apple," Apple's countersuit does not assert an antitrust claim in any of its 39 counts.  Apple doubtless recognizes that the phrase "obtaining monopoly power against Apple" is meaningless.  In the absence of a contractual obligation, which Apple alleges elsewhere, a firm has no obligation to license technology to competitors.  Apple, of course, is well aware of this principle, having defended against antitrust claims asserted by Paystar (based on Apple's refusal to permit Paystar to make clone Macs).

So... the antitrust/monopoly allegations seem simply about PR and adding  complexity to cases that have more than enough complexity related to technical patent issues.  The patent/technology issues may be too difficult for the court or ITC to resolve on the merits, so the false antitrust issue will allow for some good name calling.

On a somewhat amusing note that demonstrates how technology litigation devolves to the lowest common denominator rather than seeking or expecting any kind of resolution on the merits, both Nokia and Apple have included "admissions" of each other's willingness to copy good ideas:

Nokia's complaint to the USITC states:

Apple's unauthorized use of Nokia's inventions is consistent with a long-standing Apple corporate tradition. In 1996, Apple founder and CEO Steve Jobs appeared in the PBS documentary, "Triumph of the Nerds," and freely acknowledged Apple's use of other's ideas."Picasso had a saying," Jobs stated in the interview, "'good artists copy, great artists steal.'" Jobs then added, "and we have always been shameless about stealing great ideas."

Not to be outdone, Apple's counterclaim in Delaware states:

Nokia chose to copy the iPhone, especially its enormously popular and patented design and user interface. As Anssi Vanjoki, Nokia's Executive Vice President and General Manager of Multimedia, stated at Nokia's GoPlay event in 2007 when asked about the similarities of Nokia's new offerings to the already released iPhone: "If there is something good in the world, we copy with pride."

Of course, these statement have nothing to do with the merits of the respective counterallegations, but they make good soundbites.  If these cases were ever to go to trial, which is unlikely, each side would offer a host of such provocative but meaningless statements.  Because like incomprehensible but nasty sounding antitrust allegations, this is what litigation is all about.

In his NYT blog, economist Uwe Rheinhart expresses serious doubts as to the effectiveness of Republican costs control measures.  He writes:

,,, replace the term "cost control" ... with "constraining and possibly reducing the future incomes of doctors, hospitals, pharmaceutical companies, medical device companies and so on."

Given our system of governance, in which political favors can be purchased retail, the task of constraining or reducing the incomes of American health care providers will be a long and arduous battle with powerful, moneyed interest groups. American voters will have to become yet more desperate over the cost of health care before any politician will vigorously confront this powerful armada.

He further explains that tort reform, small business alliances, interstate insurance competition, and pricing transparency would have little effect on overall costs.

The Pittsburgh Post Gazette Reports that  group of Braddock residents and activists from neighboring areas, and the group Save Our Community Hospitals, has filed a new action challenging the hospital system's tax-exempt status and demanding that it re-open the Braddock hospital it closed last month.  The action is notable in that it asks the Pennsylvania Supreme Court to  use its King's Bench power to take immediate jurisdiction over the case.  Braddock earlier rejected a proposal to demolish the building and create a mixed use facility with financial support from UPMC, as described in a PG Editorial. The case raises interesting and difficult policy issues that I hope to comment on after having a chance to review the 80 page complaint.

Recently, I was interviewed for a Podcast by Startup Nation (a website for entrepeneurs) discussing how small and startup businesses can avoid or reduce litigation costs.  StartUp Nation,   The podcast is now available on iTunes and here.  Check it out!

The Boston Globe had a wonderful article today by economist Peter Leeson explaining why trial by order (e.g. fire or water) may have worked better than the jury system in eras of superstition and fervent religious belief.  The article summarizes Leeson's more academic detailed  paper on the topic.