Commercial Cases Increase 84% Since ’83 : Arbitration Up as Doubts on Litigation Grow

Litigation will always be the bedrock of the American judicial system, but many businesses are deciding it’s not for them.

More and more, companies that can’t resolve their differences by negotiation are submitting them to impartial arbitrators who weigh both sides and hand down binding decisions.

Commercial arbitration cases rose 84% from 1983 to last year and are still increasing, the American Arbitration Assn. says.

Arbitration makes sense in many situations. It saves time and money and puts complex matters in the hands of trained experts instead of untrained, unpredictable judges or juries.

IBM-Fujitsu Case

“The idea of asking 12 uneducated, uninformed jurors to try to decide an issue that is complex and requires technical training and experience in an industry--it just doesn’t make sense,” said Robert Coulson, president of the arbitration association.

In arbitration, Coulson said, “You can pick an arbitrator who’s expert on the industry, or patent law, or whatever aspect of technical information that is relevant to the case.”

Arbitration gained credibility when computer rivals International Business Machines Corp. and Fujitsu Ltd. used it to end a bitter dispute about IBM’s copyrights on mainframe computer software.

IBM has a glorious history of victories in the legal system, so some analysts said it was foolish of the company to surrender so much control over its future to a law professor and a retired railroad executive whose judgments are impossible to appeal.

But choosing arbitration probably shaved tens or hundreds of millions of dollars from IBM’s--and Fujitsu’s--legal fees while removing crippling uncertainty about the terms of their competition.

Even patent lawyers like the trend, mainly because they are so overworked they don’t mind the competition from arbitrators. Juries simply can’t grasp many patent issues, said Michael Blommer, executive director of the American Intellectual Property Law Assn.

“When the Constitution was written, there weren’t cases like this where the average man couldn’t understand the facts,” Blommer said.

That was before the days of biotechnology and microelectronics.

In a complex patent case today, Blommer said, “If under cross-examination somebody is forced to recant or change his position, the jury might not understand that he even is changing his position.”

Federal judges do a little better, but not many of them studied science or engineering, either. The judiciary took a step in the right direction in 1982 by sending all patent appeals to the Federal Circuit in Washington, where many judges are highly trained and have expert clerks.

Actually, most arbitration is on matters other than intellectual property disputes. Labor grievances account for about a third of the American Arbitration Assn.’s business. Other big areas are construction contracts, disputes between stockbrokers and clients, insurance claims and supervision of elections of private organizations.

Many contracts are being written to include provisions that any disputes about them will be submitted to arbitration.

Non-binding arbitration, where decisions can be appealed to the courts, is also growing in popularity. The Better Business Bureau does it. So does the insurance industry.

Test by Massachusetts

Trials, particularly trials by juries, clearly have a place. Criminal cases are obviously not suited to arbitration. Arbitrators are also unsuited to try cases where major societal questions are at stake, such as the round of lawsuits against cigarette companies about health damage from smoking.