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IBM and Groupon Settle Their Patent Litigation by “Expanding the Pie” Mediation Style

“Expanding the pie” is a mediation technique that expands resolution of a dispute beyond purely distributive issues (i.e., how much money A pays to B) to other exchanges of value that create “win-win” solutions for the parties. “Pie expansion” works because, in most conflicts, it’s usually never “just about the money.”

To use a simple example, salary negotiations are frequently viewed as a purely distributive exercise; if the employee makes more, the employer “makes less.” Expanding the pie, however, to include other issues valued differently by the parties, such as vacation days, working from home, and performance bonuses, creates new bargaining zones that provide an opportunity for more creative solutions. A late 2018 settlement of patent litigation between IBM and Groupon provides a real-life example of “pie expansion.”

In 2016, IBM sued Groupon for allegedly infringing four of IBM’s e-commerce patents. The patents covered a host of programming methods for facilitating online transactions, including keeping track of a customer’s product selections while the customer continues shopping, and then recalling those selections when the customer is ready to check out and complete their purchase; authenticating users when they seek to log in to a particular application; and facilitating access to interactive applications (such as electronic banking, travel reservations, home shopping, and current news) to millions of simultaneous users with minimal response times.

Other e-commerce companies such as Amazon, Google, Twitter and LinkedIn had paid between $20 million to $50 million to IBM to license its e-commerce patents, but Groupon choose to challenge their validity.

On July 27, 2018, IBM notched a big win against Groupon when a jury awarded $82.5 million to IBM after finding that Groupon had intentionally infringed the four patents.

But on October 1, 2018, IBM and Groupon announced a settlement of the litigation pursuant to which Groupon paid IBM $57 million and agreed to license e-commerce patents from IBM in the future. In exchange, IBM agreed to “consider” offering Groupon products to employees as part of the company’s corporate benefits package.

I’d like to draw readers’ attention to that last settlement term, i.e., offering Groupon products to IBM employees, as an example of “pie expansion.” Superficially, the patent litigation between Group and IBM was about money – how much, if anything, Groupon should pay IBM to use IBM’s e-commerce patents. As noted above, however, it’s usually never just about the money, and the likelihood of resolution is increased if the parties can “expand the pie” to other meaningful exchanges of value beyond purely distributive issues.

I don’t know if the settlement between Groupon and IBM was facilitated by a mediator. But offering Groupon products to IBM employees plainly “expanded the pie.” Groupon is obviously always looking to grow the membership of its popular online shopping destination, and any large corporation like IBM is always interested in offering additional perks and benefits to its employees to keep them happy. So there was clearly somebody clever involved in the negotiations who proposed bridging the gap (at least in part) between what IBM was demanding, and what Groupon was willing to pay, by having IBM offer Groupon’s services to IBM employees. Very creative.

Mediators are uniquely positioned to “expand the pie” because, as mutually trusted intermediaries, they are privy to confidential information that parties would never directly share with their opponents out of concern that such disclosure would be used against them. Mediators can use that information to identify bargaining zones and propose reciprocal exchanges of value the parties may have otherwise overlooked.

We invite readers to share examples of mediations in which disputes have been successfully resolved by expanding the pie.

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