Arbitrating the Patent Case Part XXIV: Modifying the Award






We have been discussing arbitration of patent disputes from beginning to end in these articles. It’s been kind of a long slog, but we soldier on.

In the last couple of articles we were looking at vacating the award altogether, a difficult proposition in most cases.  But what if a party simply wants to “fix” part of the award?  There would still be an award, but it would be more correct, at least in the eyes of one party.

We have already dealt with a related issue: asking the arbitrator to correct an award.  (No. XX: Post Hearing Motions).  As noted, there isn’t too much room for correction by the arbitrator under AAA and similar rules. Only correction of clerical, typographical or computational errors are allowed. The arbitrator cannot re-determine the merits. This is also generally true under the functus officio doctrine whether or not AAA or other rules apply.  See Local P-9 v. Hormel,  776 F.2d 1393 (8th Cir. 1985).

Would an attempt to modify the award fare any better in a proceeding in court under the FAA?  Probably not, but it depends.

FAA section 11 deals with this aspect of the question.  It says:

In either of the following cases the United States court in and for the district wherein the award was made may make an order modifying or correcting the award upon the application of any party to the arbitration—

(a)   Where there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award.

(b)   Where the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted.

(c)   Where the award is imperfect in matter of form not affecting the merits of the controversy. The order may modify and correct the award, so as to effect the intent thereof and promote justice between the parties.

Evident material miscalculation

The “evident material miscalculation” ground sounds familiar.  It is much like the AAA rule allowing the arbitrator to correct a computational error.  It isn’t a basis for allowing a general review of and the arbitrator’s decision.

At least one court focused on the use of the term “evident” to reject an argument that the arbitrator miscalculated an inventory figure.  The court found the mistake was not “evident” because it did not appear on the face of the award.  Apex Plumbing Supply, Inc. v. U.S. Supply Co., Inc.,  142 F.3d 188 (4th Cir. 1998).  There has to be a computational error, not merely a claim the award is too high.

Another case rejected a request to change an award on this ground where there were no calculations in the award at all, but only an amount awarded.  Hough v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 757 F.Supp. 283 (S.D.N.Y. 1991).   If there was no computation shown at all, it couldn’t be evident it was wrong.

A court did rely on this ground to remand a matter to an arbitration panel in a case involving an alleged breach of a vessel charter agreement.  The court thought a material miscalculation of a vessel’s rate of fuel consumption was evident on the face of the award, leading to an excessive damages calculation.  Laurin Tanker America, Inc. v. Stolt Tankers, Inc., 36 F.Supp.2d 645 (S.D.N.Y. 1999).  Interestingly, the court had to dig into the facts a little to find an “evident” mistake.  It noted that the arbitrators based their damage calculations on a daily consumption of fuel oil, which the losing party claimed “without contradiction” would be excessive for the type of vessel at issue.  Importantly, in response to an earlier request to amend the award, the arbitration panel said the rate it used to compute fuel consumption appeared to be in error, but noted that what the figure should be “was not obvious or apparent based on the evidence submitted at the hearing.”  The court remanded the case to the panel for a further look.

I wouldn’t expect every court to get this deep into the arbitrators’ decision-making, particularly after the panel noted that there was a lack of evidence provided as to the correct rate.

Mistake in description

There is a dearth of cases involving a mistake in description of a person, thing or property referred to in an award.  Presumably, that sort of mistake would normally be a clerical error, which one would expect the arbitrator to handle in a post-award request for correction.

Award on matter not submitted

This ground is related to a ground for vacation: exceeding authority.  Because arbitrators only have the authority provided by the agreement of the parties, if the arbitrator goes out of bounds, an award may be vacated.  If the arbitrator decides something the parties agree he or she should, but goes beyond that agreement and decides other issues, this ground may be used to confine the award to the matters within his or her authority without undoing the entire award.

The parties will want to be clear in their arbitration clause as to what will and will not be submitted in arbitration to avoid any ambiguity that could lead to post-award wrangling under this ground.

Imperfect in matter or form

This ground allows correction of an award, but only where the imperfection does not affect the merits.  There aren’t a huge number of cases addressing this ground, but one example is provided by Fischer v. CGA Computer Associates, Inc., 612 F. Supp. 1038 (S.D.N.Y. 1985).  There the court modified the award pursuant to petitioner’s request by, essentially, substituting “DECLARES” for “FINDS” in the first sentence of the arbitration award.  The court found it unmistakable that the arbitrators meant to declare rights under the parties’ agreement, but labeled that as a mere finding.

Of course, a disappointed party may be tempted to shoehorn perceived problems with the award into this category of attack, focusing on the “imperfection of the award.”  That is unlikely to succeed.

In Diapulse Cor. Of America v. Carba, Ltd., 626 F.2d 1108 (2d Cir. 1980), for example, the court rejected an attempt to modify an arbitration award on this ground.  One party thought that an injunction based on a non-competition agreement was too long and included too large an area, and the district court agreed.  It modified the award as against public policy and narrowed the scope of the injunction.

The Second Circuit reversed, noting that this ground “which is limited to matters of form not affecting the merits of the controversy, does not license the district court to substitute its judgment for that of the arbitrators.”   As a matter of interest, however, the Second Circuit was troubled that the language of the injunction was ambiguous as to how long it lasted and whether it was world wide or not.  It remanded the case for return to the arbitrators for clarification, principally concerned that the court would eventually have a role in enforcing any injunction. But that was done on a different ground: vacation of an award under section 10 of the FAA for being “indefinite.”

Perhaps the reason there are few cases seeking modification under this ground is that a change can only be made if it doesn’t really change the outcome of the arbitration.  In most cases, why bother if it doesn’t change the result?

Modification in general

The lesson here is that and arbitrator will probably correct obvious clerical and calculation errors if you ask in time, so start there.  A court is unlikely to dig too deep into the award to find and correct mistakes, but some courts are probably willing to go a little further than others.

If the arbitrator clearly goes beyond the things the parties have given him or her power to decide, the court is likely to step in.  And if the award is ambiguous, the courts may be concerned that they may well one day be called to enforce an ambiguous award and instead get it corrected.

None of this is peculiar to patent disputes, of course.  But the courts are not likely to be any more or less willing to modify a patent award than any other type.

Next up

I had earlier mentioned the availability of appeals within the arbitration process if the parties agree.  We’ll take that up next time.