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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
Special Chemistry
Manon Schonewille
General Information
A dispute has arisen between two producers in the speciality chemical industry — one German, the other Canadian. The Canadian company, Mico Inc., operates mainly in North America including Canada, but has aspirations to develop in new markets. The German multinational company, Gigem AG, operates almost everywhere around the globe.
The Requesting Party in the present case is Gigem, the global market leader in the speciality chemical industry and one of the world’s leading industrial companies (Global Fortune 500). Gigem’s head office is in Berlin, Germany. They have subsidiaries and distribution channels in 50 countries around the world and employ around 35,000 people. According to its annual report, Gigem’s revenue last year totalled US$8.3 billion: 62% in European, Middle Eastern and African countries (of which 19% comes from emerging markets), 23% in Asia Pacific, 11% in Latin America and 4% in the United States. Next to speciality chemical products, Gigem is worldwide market leader in industrial chemicals and holds a strong position in coatings and plastics.
The Responding Party is Mico, a Canada-based producer and distributor of speciality chemical products, headquartered in Ontario and market leader in Canada and the US. They operate several subsidiaries throughout North America. Mico recently acquired Chem & Co., a privately held independent chemical distributor and research and development agency based in Ohio. Mico expects their R&D and distribution capacity to increase significantly due to the acquisition. Next to their interests in speciality chemical products, Mico is also strong in the car refinishing business.
During a large chemical industry trade exhibition in Dubai, Mico exhibited several products claiming these contained their latest technology and developments in functional chemicals. There was a lot of interest around their stand as they had prepared a high impact movie showing several innovative products of international clients. The movie explained that Mico’s speciality chemicals are used in about every single product we use, from cosmetics and food, to electronics, agricultural and paper industries, or even mining. It also explained that Mico developed some ground-breaking new substances. Their latest innovation was a new substance called “neni-particles” that had special abilities to combine together several substances, including seemingly incompatible ones like water and oil. Neni-particles made it possible to combine any substance without necessarily producing a single new compound so the properties of both original substances were kept. Also, neni-particles could prevent a decomposition reaction, e.g. when heated.
Gigem was surprised to learn about the neni-particles as they had recently developed and patented a landmark substance called Bi4a (“Bind it for all”) that has the same abilities as the neni-particles. After careful examination, Gigem’s R&D department concluded that there is a very high probability that neni-particles must contain Gigem’s patented Bi4a innovative substances, produced through Gigem’s patented technology.
Meanwhile, Gigem engaged Dr Sara Eberhard, a respected and independent scientist, to make an assessment of Gigem’s patented substance and the neni-particles. Her conclusion confirmed the findings of Gigem’s R&D department.
Gigem started to investigate Mico further. In the process, Gigem discovered a press release published by Mico about their recent acquisition of Chem & Co. As it turns out, a former R&D employee of Gigem, Luke Brand, is employed by Chem & Co. Due to an internal security system leak, which had since been fixed, this employee probably had access to classified Gigem information after resigning. But in any event, he knew about the ideas and basic formulæ leading to the development of Bi4a. The press release said:
Through the acquisition of Chem & Co., Mico has taken a significant step forward in creating a leading speciality chemicals company with strong market positions in North America in addition to improving our global research. We are proud to now be certified NUCD (Nationwide Union of Chemical Distributors). We swiftly and successfully integrated this business, while also generating strong research and development capabilities. Thus we have kept the focus on our customers, recognizing that our ability to adapt our offerings to meet changing customer needs[Page88:]will help us to maintain the long-term relationships we value. Today more than ever, we believe the depth of our technical, application, marketing and sales expertise is paramount in differentiating Mico’s products from its competitors.
Gigem holds a patent over Bi4a in 30 countries, including Canada, which in all jurisdictions will still be valid for more than 10 years. Mico is in the process of filing a patent application for the neni-particle with the Canadian Patent and Trademark Office.
After learning about the conclusions of its R&D’s department examination and seeing the expert’s report by Dr Bernhard, Gigem’s legal department immediately wrote a letter to Mico, asserting patent infringement of Gigem’s intellectual property. Gigem claimed that Mico must immediately discontinue the production and sales of the neni-particles to prevent further damages. Gigem also wanted a written admission and confirmation from Mico that they would refrain from further patent infringement. In addition, they demanded a certified overview of the sales and profits made by Mico to date. They threatened large-scale legal actions if Mico should not reply and comply within 10 days. Mico reacted with a short note stating that the allegations lacked any grounds. In response, Mico asserted they would look closely into Bi4a as they presumed Gigem must have used Mico’s R&D efforts. In addition, Mico challenged the validity of the Bi4a patent.
Gigem’s lawyer advised Petra/Peter DeWitt to try to negotiate with Mico first before starting legal proceedings as these IP disputes are often very destructive for all parties involved, the lawsuits are expensive and the parties are often forced to publish technological and trade secrets. S/he contacted Jon/Joan Flaunders to propose to negotiate and set a date for a meeting where they could negotiate the conditions and the amount of damages that Mico needed to pay to Gigem. Mico refused repeatedly to speak with Gigem.
Gigem started an action for patent infringement in the competent Canadian Federal Court, to seek CAD$9 million in monetary compensation for past infringement by “unauthorized making, using, offering for sale and selling the patented invention within North America, including Canada, the United States and United States Territories, during the term of the patent”.
Gigem also sought an injunction prohibiting Mico from engaging in future acts of infringement. Gigem is seeking CAD$500,000 for each time Mico infringes the patent in the future.
Mico’s defence stated:
After months of litigation, a long period of discovery and many expert reports, the Canadian Federal Court ruled that Mico had indeed infringed Gigem’s patent and ordered the parties to engage in mediation in order to try to find a solution on how to deal with the consequences of this decision.
The lawyers agreed that this dispute should be referred to the ICC under the ICC Mediation Rules. Gigem is represented by Petra/Peter DeWitt, CEO of the German head office and their lawyer. Mico is represented by its CEO, Jon/Joan Flaunders, and their lawyer. Both parties have full settlement authority.
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Confidential Information for Gigem AG
Requesting Party
Petra/Peter DeWitt is very concerned by this case. First, Gigem learned about the intentional use of their patented innovation by a small Canadian competitor and then they discovered that it was a former employee, Luke Brand, who had given Mico the capacity to do this by his taking advantage of an internal security breach. Petra/Peter has received a great deal of criticism because s/he led the negotiations with the IT supplier to fix the security breach and this repair took a very long time. Also, the absence of a non-competition clause in Luke’s termination contract, which would have allowed Gigem to sue him for breach of contract for passing this information on, was blamed on Petra/Peter as well.
Petra/Peter is certain that Mico acted in bad faith and s/he feels that they are a “bunch of pirates in nice suits”. The Luke connection cannot be a coincidence. Moreover, the fact that they came up with these false counterclaims and repeatedly refused to talk and negotiate with Gigem proved their bad intentions. It was due to this behaviour that Petra/Peter had to go through all this painful litigation in Canada, obliging him/her to be away from home repeatedly for several weeks at a time, which obviously had a big impact on his/her personal life.
Luckily, Gigem has sufficient resources to engage the best lawyers around and it paid off: the judge ruled in Gigem’s favour. Petra/Peter believes this was the just outcome and that Mico is entitled to a large damages payment. If Mico does not agree to pay Gigem reasonable damages, they will refer the matter to back to the judge and ask her to decide on the amount of damages that Gigem is entitled to.
Gigem wants Mico to discontinue sales and distribution of the product in the future. They also want a public apology from Mico for their bad faith conduct and refusal to negotiate. Petra/ Peter believes their bad faith was shown by their employment of Luke, and the falsified counterclaims they made in the litigation. As the speciality chemistry market is very small, Gigem also needs Mico to publicly declare that they wrongfully claimed to have developed such innovative technology that was, in fact, developed by Gigem. Gigem needs to keep their image as the technology leader.
Gigem wants Mico to compensate them for all legal and non-legal expenses to date, including the entire costs of the mediation. This is estimated to be US$45,000. This is partly because Mico’s refusal to communicate and negotiate escalated and prolonged the conflict.
In due course, Gigem wants to introduce the Bi4a technology into the US and the Canadian market themselves, but currently lack management capacity and financial resources in that specific department because R&D is working overtime on some problems that have arisen with Bi4a. It seems to be not entirely stable under all circumstances. In particular, Bi4a does not work with substances that allow oxygen to pass through.
Time is of the essence in settling this dispute for Gigem. They need the reassurance that the technology is theirs alone before they further develop and invest in it. Petra/Peter also wants this dispute to be over for personal reasons. The importance of a speedy result is a strong disincentive to refer the matter back to the Canadian Federal Court judge to decide on damages. Petra/Peter would prefer to finalize the matter at the mediation.
Gigem has some concerns regarding the ability of this small competitor to be able to pay them. Gigem themselves have a solid financial position.
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Confidential Information for Mico Inc.
Responding Party
Jon/Joan Flaunders is very worried about this case. The launch of Mico’s innovative new product, the neni-particle, has been a complete disaster. The basic technology came initially from Chem & Co. and it was one of the most important reasons why Mico paid a high price for the acquisition for which they had to take on a large loan. The technology was then further developed by Mico’s own team of newly acquired researchers. These development expenses and the cost of the litigation have dealt Mico a heavy financial blow. They are under financial strains and banks are reluctant to grant additional loans.
Mico is convinced that the giant corporation Gigem intentionally tried to crush them and squeeze them out of the market. Actually they suspect that Gigem somehow set this all up. They believe this is proved by Gigem engaging expensive scientists (and others) to back up their story. Jon/Joan Flaunders believes this whole situation is very unfair.
While they admit Luke did contribute to the development of the substance, the majority of the work was done by other members of the Mico R&D team. Moreover, Mico’s product is perfect. Bi4a is not entirely stable whereas the neni-particle is foolproof. Also, they have heard that Bi4a does not work with substances that allow oxygen to pass through, whereas the neni-particle does. This is a breakthrough for cosmetic products like long-lasting non-smudge cosmetics. Imagine: a 12-hour lasting lipstick of brilliant colour with built-in moisturizer, lip-gloss and sealer in one and on top of that it allows the skin to breathe! It would even be possible to add extra oxygen. Mico saw a huge market potential both in Canada, the US and further afield (for which they obviously do not have distribution channels yet). That is also one of the reasons why they invested so much in the chemical and its marketing campaign. But it has all gone sour. Jon/Joan Flaunders is under a lot of pressure from shareholders.
Jon/Joan Flaunders feels that the judge was misled when she ruled in Gigem’s favour. Mico will definitely explain this point of view to Gigem. If a satisfactory solution is not reached in the mediation then Mico will appeal the initial decision. They believe the appeal will have a more just and accurate result. They believe they are fully entitled to use the technology as they developed it.
As the speciality chemistry market is very small Mico wants Gigem to publicly declare that they wrongfully claimed Mico to have infringed their patent so as to ensure this dispute does not damage their reputation.
Mico want Gigem to pay all of their legal and non-legal expenses to date, amounting to CAD$65,000. They believe Gigem’s introduction of more witnesses and expert’s reports than necessary increased considerably Mico’s costs.
Mico, and especially Jon/Joan Flaunders, want to save face with shareholders.
The problem must be solved as soon as possible. Mico needs to have certainty as to their rights to market and produce their product and needs to achieve this without additional costs. Jon/ Joan is concerned that appealing the initial decision of the Canadian Federal Court would require more time and financial resources than Mico has available.
Mico needs additional resources in order to be able to spread the improved technology in other countries outside of Canada and the US.
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Colin J Wall
Case Analysis
There is a massive power imbalance in this role-play, which will present a series of challenges for the mediator. It will be necessary for the mediator to allow both parties more or less equal discussion time and to perhaps remind the buoyant Gigem that it has engaged in mediation for reasons which go beyond the obvious directions of the judge to resolve the consequences of the first-instance decision.
Gigem has considerable financial resources, so an appeal on the judgement given in its favour at first instance would present it with no problems and again it could afford to employ the best lawyers and experts that money can buy. However, there are also time pressures on Gigem, so an appeal must be avoided. As Gigem has won the dispute at first instance it is, at first glance, only seeking monetary compensation and a public apology from the impoverished Mico to complete its victory. There are, however, other interests at play and a good mediator should be able to find out exactly what these are.
The fact pattern in this role-play indicates that although Jon/Joan Flaunders and Peter/Petra DeWitt are in serious dispute they actually have quite a lot in common. Both have personal concerns and are worried at the effect that the litigation has had on their lives and neither want to repeat this ordeal. Both are facing pressure from the companies they work for to obtain a satisfactory resolution of the dispute. Both wish to resolve this dispute quickly and both want a public apology. This is a case that cries out for the mediator to keep the parties in plenary session for as long as possible to try and uncover the true interests and the parties’ feelings, and to generate mutual understanding. When sufficient trust has been established, it will be necessary for Mico to reveal that it knows that Gigem’s Bi4a is not working properly but that its own neni-particle has no such problems. This revelation should hold the key to settlement, as not only will it satisfy Gigem’s needs for a chemical composition that works under all conditions but it will also demonstrate that if the neni-particle does not suffer from this defect it must be a different product and thus there has been no patent infringement.
It will be important for Mico to explain to Gigem that although a judge has found against them, they did not steal Gigem’s technical secrets to develop the neni-particle, notwithstanding the involvement of Luke Brand, and that they are a trustworthy company. This building of trust will be necessary to enable the parties to work together. This could be by way of a cash injection by Gigem into Mico, in return for a shareholding, or perhaps the setting up of a joint venture company. In either case, the objective would be to exploit the full potential of the neni-particle technology. Mico cannot do this alone as it does not have the resources so it needs an investor. Mico has the added advantage that it is a market leader in the United States of America and Canada, whereas Gigem only has a 4% share in the US market.
This really is a case where a mediated settlement offers an increase in the size of the pie and enables both parties to create a win-win situation.
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Greg Bond
Commentary for Training
The Role of the Lawyers
This role-play is different from all the others in this book in that the Requesting Party has already won the case in court, and the mediation follows this ruling. For training, this gives the students playing the lawyers challenging opportunities for mediation advocacy. In strong opening statements and ensuing discussion, Gigem’s counsel can boldly stake out and justify its client’s claims as based on an existing ruling, while Mico’s can present the case for an appeal of the court’s decision. The claims are not just focused on the rights and wrongs of the initial court ruling, but also on what that means for the coming mediation, as both sides have further interests that are expressed in a concrete demand on each side for a public statement exonerating the other from any intellectual property rights infringement. Specific feedback and debriefing for the lawyers, from the trainer and the other role-players or other observers, can enhance the training experience.
If the lawyers play their roles well, students playing the mediator can use this role-play to practice dealing with lawyers and legal claims in mediation, with a view to moving into mediation beyond the legal stakes. If a trainer briefs the counsels and the mediator separately, then the student-mediator will not necessarily know what to expect. How can the mediator acknowledge the role of the lawyers and the parties’ legal positions and yet still move on to discussion of options that will avoid an appeal of the case? One thing the mediator might try here is several variations on caucus. This could be with the two lawyers, who in caucus should be able to agree to step back and allow the two business people to get talking when joint session resumes. Caucus might also be with the two business people without their lawyers, or with each party separately. However this is done, the aim would be to find out whether the parties are ready to discuss settlement options.
The role-play notes state for both parties that settlement is more attractive than an appeal and both wish to get the matter resolved quickly. It is hard to envisage appeal as a real noagreement option for Mico, and if Gigem also wishes to avoid a new trial, then settlement must be possible. Given the mistrust and allegations of intellectual property theft, the value of that intellectual property in terms of market potential, and the high financial stakes (including a large damages claim of CAD$9 million), it is not easy to envisage the two companies walking out of this mediation with a deal to work together. Nonetheless, this would be in both their interests, as each has something the other needs: know-how on the one hand, and money on the other. If they do come to agreement, then the lawyers have a new role, which mediation training can practice here too. They will be responsible for making sure that a settlement agreement is sustainable and watertight and that the parties can be confident of not meeting up again as adversaries in court.
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