Medical Device Link.

Originally Published MX September/October 2003

GOVERNMENT & LEGAL AFFAIRS

Medtech executives can save time and money—and gain better control of the outcome—by using mediation to resolve business conflicts.

James W. Heller

Medical technology companies in the United States collectively spend hundreds of millions of dollars each year resolving conflicts through the legal system. They lose many good customers and suppliers in the wake of litigated disputes. And too often—needlessly often—they relinquish control of their fate to a judge, jury, or arbitrator. Mishandled conflicts result in high legal costs, significant lost work time, damaged relationships, and, for all the time, trouble, and expense, poor outcomes.

Litigation, arbitration, and mediation are the most common means of conflict resolution (see Table I).

Litigation and arbitration are formal, adversarial procedures that cost the opposing parties considerable time and money and leave final judgment entirely in the hands of someone else. The outcome is a win for one party and a loss for the other.

Mediation is an alternative method for resolving disputes. It involves a neutral third party whose role is to assist the disputants in reaching an agreement. The bargaining is based on interests rather than positions as in arbitration and litigation. And there is no losing side. Costing significantly less, requiring less time to reach resolution, and giving the participants greater control of the outcome, mediation is an option that company executives ought to consider.

Medical technology is a field especially well suited for the use of mediation to settle disputes. Matters at issue can be complex, and potential long-term business relationships cannot be lightly sacrificed. Other arenas of conflict sharing these characteristics, such as construction, labor relations, leasing, community and political disputes, and divorce, have successfully adopted mediation as a resolution technique.

This article outlines the mediation process and discusses its advantages and limitations so that executives who might wish to retain the services of a professional mediator can enter into mediation as informed consumers.

The Mediation Process

Mediation is an intervention by a neutral third party between two parties in conflict intended to promote a reconciliation, a financial settlement, or a course of compromise. In mediation, the disputing parties decide the outcome, and both have the opportunity to win the things that are important to them.

The process starts when a disputant contacts a mediator. Next, each party discusses the nature of the dispute with the mediator and executes an agreement to mediate. This agreement sets out the ground rules of the mediation and explains each party's rights and responsibilities within the process. A date for the mediation meeting is set. Prior to this meeting, the mediator gathers background facts.

Figure 1. The mediation process carries participants toward a written agreement acceptable to both. (click to enlarge)

At the mediation meeting, one person with decision-making authority represents each party to the conflict. These two representatives and the mediator meet either at a neutral location or by videoconference. The session usually requires one day or a half day, depending on the number and complexity of the issues. The mediator guides the parties through an eight-stage process that runs from a history-based establishment of points needing resolution to a future-based focus on effective means of resolution (see Figure 1).

Introduction. The mediator begins by presenting the agenda and establishing the rules for the meeting. The disputants are not to interrupt each other, must be respectful of the other party, and should keep an open mind. The mediator instructs them to discuss issues rather than establish positions, to speak for themselves only, and to focus on the future. The participants review elements of the agreement to mediate:

• The proceedings are strictly confidential.
• The mediator is neutral and does not make decisions.
• The mediator does not provide legal advice and cannot be called upon in legal proceedings.
• The mediator is required to report any statements regarding intent to commit physical harm to a person or intent to commit a felony.
• Any agreement reached in mediation and executed by both parties is legally binding and enforceable by a court of law.

Recounting. Each party's representative presents the situation as he or she understands it, emphasizing the important issues and the outcome desired. This phase allows the parties to describe the events that have led to the dispute. No witnesses are allowed. Documents may be used, however. The mediator takes notes and asks questions seeking clarification, but the parties are not allowed to interrupt each other.

Issues. Using input from the two parties, the mediator lists the points at issue on a flip chart or white board. Disputed schedules, budgets, commissions, royalties, intellectual property, communications, materials, payments, and deposits are all common issues for resolution through mediation. The issues are characterized in neutral terms. If something is an issue for one party, it becomes an issue for both.

Moral values cannot be mediated. Therefore, issues like honesty are often translated into more-pragmatic language. If honesty is in question, for instance, it might suggest the need for an independent audit.

Caucus. The mediator next meets with each party individually, to assess initial reaction to the proceedings. This caucus stage of the meeting allows the parties to raise any questions or concerns in confidence. It also enables the mediator to determine what types of solutions will be acceptable. The mediator does not disclose the substance of a caucus discussion to the uninvolved party.

Brainstorming. The meeting assumes a forward-looking aspect at this point. Both parties generate ideas for resolving the dispute through a brainstorming session moderated by the mediator. They are encouraged to generate a large and diverse list of possibilities. Ideas are not critiqued at this time. It is important that both parties contribute ideas, in the interest of obtaining a balanced final agreement.

Solutions. Then, taking one issue at a time, the parties review the ideas, modifying and combining them to achieve a practical solution acceptable to both. Concessions and agreements start to emerge during this time. The mediator records the agreements as they occur. If progress is not being made, the mediator may perform a reality check, asking the parties what they will do if an agreement cannot be reached.

Contingencies. Before concluding, the parties determine what the consequences will be if one party to the agreement does not comply with the terms. This is critical for ensuring compliance with the agreement. An option to return to mediation if new issues arise often is incorporated into the agreement.

Written Agreement. The mediator finally prepares a written agreement with input and review by both parties. The agreement contains all the elements required of a legal contract: the names of the parties, the date and location of the agreement, recitals (a record of the relation of the parties and function of the agreement), promise clauses, a closing, and signatures. Legal counsel for both parties may also review the agreement. Such review focuses on wording clarity only, not intent. The resulting document is legally binding and can be enforced by a court of law.

In order for the mediation process to be successful, both parties must participate actively, the agreements must be clear and detailed, and concessions must be perceived to be in balance.

Mediation versus Litigation

Litigation determines one victor and ends a battle. The appeal of mediation, when the situation accommodates it, is that there are two victors, no losers, and an end to a problem.

Advantages of Mediation. One of the primary advantages of mediation over litigation (and arbitration) is that it saves time and money. Because the effort of mediation is borne primarily by the involved parties in a focused meeting, the resources and time absorbed by the process are significantly less than what is lost in litigation.

External mediation cost is limited to the charge for the mediator's time. The hourly rate for a mediator is comparable to that of an attorney, but this cost is divided between the parties to the dispute. In addition, the mediator will spend less time on the job than an attorney because filings, depositions, subpoenas, motions, hearings, and other legal apparatus are not required. By avoiding these legal processes the parties also have more direct control over the time taken for dispute resolution.

Besides controlling the schedule, the parties also control the outcome. A solution cannot be forced upon them. No judge or arbitrator hands down a decision. The process intrinsically empowers the parties to protect their own interests.

Another advantage of mediation is that it facilitates constructive interaction between the momentary disputants and helps to preserve or restore a working relationship for future business involvement.

When Mediation Is Not the Answer. In some situations mediation may not be advantageous. For example, if there is no reason for the parties to expect to have any future business interaction, then mediation's value as a relationship preserver is not important. The clear and intentional commission of a crime by one party obviously heightens the difficulty of entering into mediation in good faith. When there is a history of legal action between the parties, then litigation or arbitration may be mandatory in the event of a new dispute. The cost advantage of mediation is less apparent when one or both party's legal costs are fixed owing to the availability of adequate in-house counsel. And finally, some circumstances may necessitate resolution of issues through the court system in order that a legal precedent may be established for application to similar future disputes.

Figure 2. A medtech company can use mediation to resolve numerous potential conflicts without damaging long-term relationships irreparably. (click to enlarge)

Mediation in Medtech Contexts. Mediation can be used by medtech companies to settle conflicts with suppliers, outsource providers, contractors, consultants, distributors, hospitals, competitors, clinicians, and patients (see Figure 2). The sample situations that follow describe real problems, but the outcomes are speculative. They have been devised to compare litigation and mediation. Mediation would not always produce a better result. However, the use of mediation often opens new opportunities that allow both parties to win something. The course of mediation also ends in days or weeks as opposed to the months or years spent waiting for litigated solutions.

The contract budget overrun. A medical device manufacturer has contracted with an engineering organization to develop a new product. A dispute arises when the engineering organization requests a budget increase. In a litigated scenario favorable to the manufacturer, the project might stop and the development be delayed until the case was decided. The engineering organization would be forced to return funds, but the medtech firm would have lost significant potential revenue because of the litigation.

Taking a mediated approach to settling their conflict, on the other hand, the parties might continue to work on the project, agreeing upon a discounted price for the engineering firm's additional necessary effort.

The change in distributor territory. When a medical device manufacturer redefines a distributor's territory, a dispute arises with the distributor who is unhappy with the smaller territory and lost revenue. For the manufacturer, ensuing litigation might result in complete loss of distribution in one area for an extended period of time, and lost revenue. Both device manufacturer and distributor would incur large legal fees.

A mediated solution might allow the distributor to continue operating with adjusted pricing for a while to compensate for the loss of territory. Both the distributor and the manufacturer would see greater sales revenue than if they were embroiled in litigation.

The patent infringement. Two medical device companies become involved in a dispute regarding patent infringement. Using legal proceedings to settle the matter, the companies would probably incur huge legal bills and might be restricted from shipping their implicated products for several years. One company might be forced to discontinue production while the other might lose so much market share that it decides not to start production up again.

With a mediated solution, the companies might agree to exchange intellectual property rights so that both parties would end up with an improved product. Both would prosper from the market expansion generated by improved product performance.

Service Providers

No nationally recognized organizations certify mediators, although some certify compliance with mediation guidelines. Medtech company executives undertaking to select a mediator should look for someone with experience in the medical technology industry and training in mediation. Mediators come with various backgrounds, including the law, business, counseling practice, and other areas.

The person functioning as mediator must understand the mediation process and have experience in handling interpersonal dynamics. Another important criterion for the role is that both parties must view the prospective mediator as neutral. Any relationship with either of the disputants must be disclosed by the candidate.

Mediate.com, The Professional Mediation Association, and the Association for Conflict Resolution all offer national on-line directories of mediators (see sidebar, Connections, below). Corporate attorneys may also be able to provide referrals. Geographic proximity need not be an overriding consideration; mediation is usually very cost-effective even after the mediator's travel expenses are taken into account. Besides, mediation can be conducted remotely by means of videoconferencing.

A third party may not be necessary at all. Disputants knowledgeable in mediation principles are better equipped to resolve their own disagreements (see sidebar at left).

Conclusion

Litigation is expensive for a medtech company, involving costs measured in terms of money, time, lost business, and such intangibles as goodwill and reputation. Having a neutral third party facilitate a prescribed process of situation review, issue identification, brainstorming, problem solving, contingency planning, and written agreement results in savings that alone can justify choosing the mediation alternative. Add to that the significant benefits of greater control over the outcome of the dispute and the greater possibility of salvaging a valuable business relationship, and it becomes evident that mediation is worth considering the next time a dispute with a supplier, customer, or competitor arises.

James W. Heller is president of Ideatrics Inc. (Boulder, CO), a provider of mediation services for medical technology companies.

Illustrations by KEN CORRÁL

Copyright ©2003 MX