Mediation vs Arbitration – Which is Best?

Arbitration and mediation is an alternative dispute resolution (ADR) where a third (3rd) party is asked to help make a settlement on a disagreement, such as when someone violates an NDA. Under both types, a final settlement is not concluded until both parties agree.

Arbitration – An arbitrator acts as a Judge and testimony is taken from both parties before a decision is made. It is a “lite” version of litigation and usually less costly.

Mediation – A mediator acts as a neutral party and listens to each party’s complaint. The mediator will attempt to come to a resolution in accordance with the laws of the dispute’s jurisdiction.

Table of Contents

• What is Arbitration?
  • Advantages of Arbitration
  • Sample Arbitration Clause (for Agreement)
• What is Mediation?
  • Advantages of Mediation
  • Sample Mediation Clause (for Agreement)

What is Arbitration?

Arbitration is like going to court with less formality and expense. Instead of filing a lawsuit, the parties hire one or more arbitrators to evaluate the dispute and make a determination. The arbitration process can be relatively simple; usually, arbitration involves some document preparation and a hearing. A lawyer is not required to arbitrate, but many parties use attorneys for help in presenting the strongest legal arguments.

The arbitrator’s determination may be advisory (in which case either party can disregard it and file a lawsuit) or it may be binding. A binding decision can be enforced by a court and cannot be overturned unless something especially unfair happened-for example, the arbitrator ruled against you and you later learn that the arbitrator owned stock in your opponent’s company.

In order to arbitrate a dispute, both parties must consent. Unfortunately, when you are in the midst of a dispute, it’s hard to get the parties to agree to anything. So, the best method of guaranteeing arbitration is to include an arbitration provision in your nondisclosure agreement.

Arbitration is not, however, always preferable to litigation. Even though ADR is quicker than going through a trial, it may take several weeks to initiate ADR proceedings. By going to court, however, a business may obtain a temporary court order restraining disclosure (TRO) in less time than it takes to initiate arbitration. This initial period of the dispute can be crucial when you’re concerned about the loss of secrecy. For this reason, you need to weigh the potential cost of litigation versus the speed of obtaining relief. For a small company with limited resources, arbitration is usually the preferable route.

Many businesses are opposed to arbitration for other reasons as well. They may have recently lost an arbitration proceeding and refuse to participate in another one. They may be fearful that the dispute will be placed in the hands of an inappropriate arbitrator or they may prefer the litigation process in order to intimidate the other party. In addition, some arbitrations can be expensive and end up being appealed to the court system.

Advantages of Arbitration

• It’s less expensive than a lawsuit.
• Arbitration can be completed within several months. Litigation can continue for several years.
• You can hire an arbitrator with the technical knowledge. For example, about patents (if necessary).
• There is no right to discovery (the process by which the parties must disclose information about their cases) unless you require it in your arbitration provision.
• It may be possible to obtain immediate relief quicker by going to court.
• There is no appeal of a binding arbitration ruling. It can be set aside only if you can prove that the arbitrator was biased or that the ruling violated public policy.
• You must pay the arbitrators; the fees are often $10,000 or more. Lawyers are usually necessary, though their fees will probably be lower than if you sued in court.

Many associations and companies offer private arbitration: the most well-known organization is the American Arbitration Association (AAA). If your dispute relates to patents as well as trade secrets, the AAA has special Patent Arbitration Rules and a national panel of patent arbitrators. The AAA has offices in every state and can provide mediators and arbitrators in most areas. If you would like to check the availability of AAA arbitrators or mediators in your area before using one of these clauses, visit www.adr.org.

If you would like to use arbitration, we suggest the following provision. The statement at the end of the provision (“An award of arbitration may be confirmed in a court of competent jurisdiction”) means that the winner can convert the arbitration into a court judgment. That way, a court can order the loser to pay damages or abide by the decision.

In the next section, we provide a mediation clause that offers arbitration as a backup option, to be used if mediation fails.

Arbitration Clause – Example

What is Mediation?

In mediation, a neutral evaluator (the mediator) attempts to help the parties reach a resolution of their dispute. Both sides sit down with the mediator and tell their stories. The mediator advises ways to resolve the dispute, and the two parties try to agree. If they do, they sign an enforceable settlement agreement. Because it is not binding and because it is less expensive than litigation or arbitration, some businesses prefer mediation, at least as a first step. You can locate a mediator through the American Arbitration Association (www.aaamediation.org) or local bar associations.

Advantages of Mediation

Mediation is the most inexpensive and peaceable method of solving problems. You can arrive at a settlement rather than being told how to resolve the dispute by an arbitrator or judge. It’s less likely to exacerbate bad feelings between the parties, as lawsuits inevitably do.

By itself, however, mediation is often not enough because it doesn’t force the parties to end the dispute. If you cannot resolve the dispute with mediation, you must find some binding method of ending the battle, either arbitration or litigation. Sometimes one party chooses mediation simply to buy more time. Keep in mind, as we mentioned in the preceding section, that time is generally of the essence in disputes over the disclosure of information.

If you want to use a mediation clause, we suggest a provision like the one below, which progresses from informal meeting to mediation and then to arbitration.

Sample Mediation Clause