Trends in ADR and the Role of Financial Experts
The U.S. District Court for the Western District of Pennsylvania implemented Local Rule 16.2 in 2007, which requires parties involved in nearly all civil actions to agree upon some form of Alternative Dispute Resolution (ADR) during the litigation process. During the 18-month pilot period that tested Local Rule 16.2, the court found that 51% of the cases that entered into ADR were resolved before the end of the pilot period.
Under Local Rule 16.2, the ADR processes available through the court include: mediation, early neutral evaluation,and arbitration. Outside of Local Rule 16.2, ADR includes expert determinations, negotiations, settlement conferences,conciliation, facilitation, fact-finding, collaborative law, mini-trials, and ombudsmen.
In part due to court-driven initiatives such as Local Rule 16.2, there is an increasing awareness and utilization of the multitude of advantages that ADR offers parties—particularly businesses engaged in commercial disputes—as an alternative to court litigation. The primary advantages that lead businesses to ADR are the reduced cost and time to resolve confidentiality, and forum neutrality (particularly in international agreements).
But perhaps the most unique feature of ADR relative to court litigation is the control of the process that it affords the parties. In short, the parties to the dispute control everything, including the questions that will be decided, the length and subjects of discovery, the rules of procedure, and the selection of the third-party neutrals, experts, and/or case evaluators. Rather than the case being led by a judge appointed by the forum (oftentimes based solely on availability and current case volumes) or decided by a jury selected from the general public, the parties to an ADR can choose neutral evaluator(s) with the requisite expertise in the subject matter at the core of the dispute.
The financial expert can play a key role in ADR. Experts are most frequently engaged to assist the arbitrator(s) in evaluating the technical financial, accounting, and valuation aspects of large commercial litigations. Additionally, a disputing party may find it beneficial to separately retain financial experts as part of the ADR process to better understand the strengths and weaknesses of its case or to obtain assistance in communicating complex financial, accounting, and valuation issues to an arbitrator.
Frequently dispute resolution clauses within commercial contracts require the neutral to be a Certified Public Accountant(CPA) or similar subject-matter expert. Post-merger and acquisition (M&A) price adjustment provisions are the most common dispute resolution clauses that require expert neutrals. The reason for this is that post-M&A price adjustments are often determined based on technical assessments of various components of the subject company’s financial statements, which are required to be in accordance with Generally Accepted Accounting Principles, a matter in which a CPA is the preferred candidate for resolving the dispute.
Early neutral evaluation and fact-finding are also types of ADR that are frequently handled by a neutral expert. In these cases, neutral evaluators and fact-finders do not decide the issues of the case. Instead, they are engaged to determine the facts, and to separate the disputed facts from those that are undisputed. These expert neutral evaluators and fact-finders frequently offer recommendations or opinions on certain issues. While such opinions are not binding, they do carry weight with the parties.
In mediation and arbitration, it can be sensible and also more cost-effective to engage neutrals with a substantial background and expertise in the subject matter of the dispute, particularly when parties appoint arbitrators to an arbitral tribunal. When the heart of the commercial dispute is financial in nature, one party may feel they can obtain an advantage by appointing a financial expert as the party-appointed arbitrator, because the financial expert will more fully grasp and better appreciate the party’s position. Likewise, these experts are often better able to articulate the party’s case to the rest of the tribunal during in camera deliberations.
With more ADR usage in complex commercial disputes, it is likely that financial expert involvement will increase, both in the traditional role as experts as well as non-traditional roles including mediator, arbitrator, and fact-finder. Over the past 30 years, Gleason & Associates representatives have served in all of these roles, which is a testament to our experience, expertise, and reputation as litigation financial experts in the litigation setting.
Sources:
United States District Court for the Western District of Pennsylvania, LCvR 16.2
U.S. District Court for the Western District of Pennsylvania brochure, “From Case Filed to Case Closed”
zap January 1st, 2017
Posted In: Gleason Experts
Early Damages Assessment in Data-Intensive Commercial Disputes
In the initial phases of litigation, the focus is placed on legal strategy: the analysis of the facts, the development of legal theories, and the research of case law. More practically, the legal team must also weigh the potential damages to be defended/recovered against the legal fees and related costs that will be expended. However, too often this assessment is simply a “back of the envelope” calculation. While this approach may be the result of fact assumptions and a wide range of alternative damage theories, it is often driven by the perceived hurdles of accurately quantifying damages.
Assessing the value of potential damages in cases involving a large number of transactions, a significant period of time, a complex organizational structure, multiple parties, and/or many unknown variables can be a daunting task. However, this seemingly cumbersome and time-consuming process can be tackled quickly with keen insight and the proper data management tools.
Recently, Gleason & Associates assisted a company in analyzing employment records for thousands of employees over a multi-year period in its defense of an employee class action lawsuit. Data points considered in the early damages assessment included hourly rates—which varied throughout the damage period due to rate increases and/or position changes—and various work-time data points, including shift time, meal time, and rest break time. The time-related factors required careful analysis to properly determine the shift lengths—both as individual shift periods and the total time worked per day—so that the employees’ work history could be compared to the applicable employment labor laws. With the use of relational databases and thoughtful planning, Gleason & Associates was able to provide the much-needed information to our client in a flexible format that considered varying circumstances based on alternative legal assumptions. Our approach also addressed management’s concerns by quantifying the company’s potential damages exposure and facilitating well-informed settlement negotiations.
In another case, our client had performed its own financial damages assessment in a pre-litigation phase of an alleged employee discrimination case. In this situation, Gleason & Associates was tasked with evaluating the company’s damages model by coupling business and economic knowledge with financial analyses skills to assist the client in further refining its analysis. While the damage model included compensation history and trend analysis for various employee class groups, we applied regression analysis and other statistical tools to determine the statistical significance (or lack thereof) of the case allegations. We also provided the company with alternative views of compensation and performance relationships that enabled them to further refine their litigation cost-benefit analysis. This quantitative evaluation of risk by an independent third party was an important and cost-effective investment in the early stages of the case that allowed our client to thoughtfully evaluate the strength of the case and their exposure to damages.
With an ever-vigilant audience of investors, shareholders, audit committee members, competitors, and regulatory agencies evaluating their every move, management and counsel must be prepared to quickly assess and communicate a company’s litigation opportunities/risks and potential damages recoveries/ exposures. Management must not only be able to qualitatively articulate its current litigation strategies and theories but must also be armed with reliable quantitative data supporting the financial risks and rewards of litigation. With a firm grasp of both legal and financial issues, companies can more effectively manage the process and quickly react to the changing landscape of complex commercial litigation.
zap January 1st, 2017
Posted In: Gleason Experts
Alternative Dispute Resolution and the Role of the Financial Expert
Alternative Dispute Resolution, or ADR, has the potential to provide parties with an effective means of settling disputes without litigation. As the structure of ADR continues to evolve, so does the role of the financial expert within ADR processes. By involving a financial expert at the early stages of a dispute, it may be possible to both shorten the time to resolve the matter and reduce the costs of litigation. Financial experts can serve in various roles within the ADR process, from assisting either party with preparation and presentation of a claim to serving as a neutral evaluator.
Background
A steel manufacturing company and its insurer were in a dispute concerning the amount of business interruption lost income sustained by the steel manufacturing company resulting from an equipment breakdown.
Gleason’s Role
Gleason was hired by the steel manufacturing company to be part of an appraisal panel consisting of three financial experts. One expert was chosen by each party along with a consensus “umpire” member. The appraisal panel obtained information through a collaborative effort that involved a site tour of the facilities where the loss occurred and the production of documents from both parties. During the ADR process, the parties were given the opportunity to present a summary of their alternative positions, followed by questions from the panel members.
Results
Gleason worked with the parties and the other panelists to analyze and develop a fact-based calculation of the business interruption losses resulting from the equipment breakdown. The process was efficient for all parties, resulting in a quick resolution of the dispute and a significant reduction in the costs incurred to resolve payment of the claim.
At Gleason & Associates, our experts have recognized credentials in a variety of specialized fields, including accounting and financial analysis, damages assessment, and business valuation. We have experience working as both plaintiff and defendant expert, as well as experience as court-appointed neutral experts in various commercial disputes
zap January 1st, 2017
Posted In: Gleason Experts
Navigating Patent Litigation Changes: Update on the America Invents Act
In Issue 3 of IP Insights, we discussed the Inter Partes Review (IPR) process at the United States Patent and Trademark Office (USPTO) since the Leahy-Smith America Invents Act (AIA) was signed into law. The AIA was approved as part of an effort to improve the quality of the patents issued by the USPTO, to allow for patent validity challenges to be heard in front of a panel of judges from the USPTO at the Patent Trial and Appeal Board (PTAB), and to help alleviate the backlog of patent validity cases in the district courts.
Three years later, how has the PTAB affected district court litigation?
Initially, the USPTO projected that approximately 420 patent challenges would be filed annually through the IPR process at the PTAB. However, since the effective date of September 2012 through September 2015, almost 3,600 IPR petitions have been filed. In 2015 alone, filings averaged more than 140 per month. The number of IPR petitions has nearly doubled annually since inception, from 17 petitions in 2012 (which represents only one-quarter of the year, since the effective date was September 2012) to over 1,700 petitions for the fiscal year ended September 2015:
The primary reason for this significant increase in PTAB IPR petitions appears to be the expedited process to resolution. The average length of time to a district court trial is approximately 30 months, but can vary widely. In contrast, once the PTAB institutes trial on an IPR petition, resolution is generally expected to be completed within one year.
Another important factor when considering the filing of an IPR is the historical trial results. Of the almost 3,600 IPR petitions filed, how have these petitions been resolved by the PTAB?
In the first two years of the PTAB’s existence, about 70 to 80 percent of challenged patent claims were canceled. According to USPTO statistics (as of September 2015), there have been approximately 1,000 trials instituted by the PTAB out of approximately 2,100 IPR petitions completed to date (the remaining IPR petitions are still waiting for a decision on whether trial will be instituted). Of the trials instituted, 575 trials were completed and a final written decision was reached (the remaining trials were terminated due to settlement, dismissal, or request for adverse judgement). Of those 575 written decisions, approximately 72 percent (414 decisions) concluded that all instituted claims were unpatentable, invalidating the challenged patent. An additional 85 decisions (of the 575 trials) returned a decision that some claims were unpatentable. As a result, only 13 percent of final written decisions affirmed the validity of all asserted claims of the challenged patent.
Gleason IP’s Role in AIA Cases
With the increasing use of IPR under the AIA in patent litigation, Gleason IP can help clients navigate the PTAB review process and assist clients with economic issues such as objective indicia of nonobviousness, including analyses of commercial success and nexus. Our experience providing analysis and expert testimony related to secondary considerations of nonobviousness in connection with IPR proceedings at the PTAB, as well as within numerous district court matters, including working several times directly on behalf of the USPTO, positions us well to provide expert analysis and testimony within IPR proceedings.
Sources:
Patent Trial and Appeal Board Statistics, 9/30/2015
Shuchman, Lisa. “Patent Litigation Will Never Be the Same Again.” Corporate Counsel, October 26, 2015.
zap January 1st, 2017
Posted In: Gleason IP
Increased Attention on Pharmaceutical Prices
As healthcare costs continue to rise, more and more people have entered the debate over escalating drug prices. One situation that has captured the attention of many involves the drug Daraprim®. Daraprim® (pyrimethamine) is used to treat toxoplasmosis in patients with weak immune systems, such as HIV patients.1 Although Daraprim® has been around for over 60 years, the marketing and selling of this life-saving drug has only been performed by one company at a time. Turing Pharmaceuticals (Turing) acquired Daraprim® in August 2015 and increased its price from $13.50 per pill to $750 per pill, an increase of more than 5,000 percent. When news of the overnight price increase happened, it caught the attention of high-ranking politicians, including Hillary Clinton, who tweeted, “[p]rice gouging like this in the specialty drug market is outrageous.”
After negative reactions by doctors, patients, politicians, and other third parties, Turing’s then CEO defended the price increase, citing the high costs of research and development, but later stated that the company would reduce the price. However, in November 2015, Turing issued a statement that the company would not lower the price per pill, but rather would offer discounts of up to 50 percent to hospitals.2 Even with a 50 percent discount, the cost to third parties for Daraprim® is still more than 2,500 percent higher than previous prices. Express Scripts, one of the largest pharmacy benefit management (PBM) organizations in the United States, recently stated that it is partnering with Imprimis Pharmaceuticals to make an alternative treatment to Daraprim®, which would be available for only $1 per capsule.3
Daraprim® is not the only drug with a significant price tag. For example, prices of other drugs to treat hepatitis C, HIV, and cancers are also extremely costly on a per pill/treatment basis. With U.S. healthcare costs of approximately $3 trillion in 20144, continued scrutiny of rising drug prices is here to stay.
Gleason IP works regularly on issues regarding pharmaceutical economics. Our team understands the complex characteristics of pricing and demand in the pharmaceutical industry and is often called upon to provide economic consulting on complex issues involving the life sciences industry.
Sources:
1. FDA label for Daraprim® and http://www.daraprimdirect.com.
3. http://phx.corporate-ir.net/phoenix.zhtml?c=69641&p=irol-newsArticle&ID=2118989.
zap January 1st, 2017
Posted In: Gleason IP
Gleason IP Helps Clients Win Patent Infringement Case
Engagement
In a pharmaceutical patent infringement matter, Ivan Hofmann and the team at Gleason IP analyzed various issues and provided expert opinions and testimony concerning objective indicia of nonobviousness related to a patent that allegedly covered a lyophilized formulation of the injectable cancer drug bortezomib (marketed as Velcade®). Specifically, Gleason IP analyzed commercial success as a secondary consideration of nonobviousness on behalf of a joint defense group of numerous defendants to assist the trier of fact in assessing the validity of the formulation patent at issue that allegedly covered Velcade®.
Gleason IP analyzed and responded to the plaintiff’s claims that Velcade® was a commercial success and that there was nexus between such alleged success and the patent claims by focusing on a blocking patent and non-patented features that drove the performance of Velcade®.
Plaintiff’s Arguments
The plaintiff claimed that Velcade® was a commercial success due to the product’s sales levels and sales growth, formulary acceptance, pricing, and prescribing behavior. The plaintiff further argued that a nexus exists between the performance of Velcade® and the asserted claims of the patent at issue.
Gleason IP’s Role and Result
Gleason IP performed an analysis of Velcade® and determined that the performance of Velcade® failed to provide objective indicia of nonobviousness because no other company had the economic incentive or ability to commercialize a bortezomib product as a result of a compound patent (not at issue in this litigation) that covered the active ingredient bortezomib. This blocking patent provided an economic disincentive for others to research and develop a bortezomib formulation, since those companies would not be able to launch a product until the blocking patent expires in 2017. In addition, Gleason IP found that the underlying bortezomib compound drove the performance of Velcade®, rather than any purported attributes of the patent at issue. Gleason IP also worked in conjunction with technical experts to analyze evidence regarding potential alternative bortezomib formulations that would provide characteristics similar to the current formulation. Ivan Hofmann testified in the District of Delaware before Judge Sleet at trial in November 2014 regarding the analysis and opinions.
In August 2015, the District Court found in favor of the defendants and invalidated the asserted claims of the patent at issue due to obviousness. The District Court opinion specifically discusses our argument that the blocking patent “precluded alternative inventions from competing in the market…[and that] No persuasive evidence was provided to show any advantage attributable to the claimed formulation over the other potential formulations available to [the plaintiffs].” This was an exciting win for our clients, and Gleason IP was able to provide meaningful independent expert analyses and opinions that contributed to our clients’ success.
The case is Millenium Pharmaceuticals, Inc. v. Sandoz, Inc. et. al. (12cv1011-GMS)
zap January 1st, 2017
Posted In: Gleason IP