The Communications and IT industries have seen tremendous growth over the past 20 years and consequently so have the number of disputes. The industry is worth over 1.2 trillion US dollars in the countries of the OECD alone and the market has grown at a fairly constant annual growth rate of 6% since 1990, even during economic downturns.
Hard statistics on the number of disputes are difficult to obtain but anecdotal evidence from PA Consulting Group’s global clients suggests they are increasingly considering ADR mechanisms, especially for large IT and communications disputes.
The type of disputes in which PA has been an expert witness fall into four main categories:
Contract drafting and interpretation:disputes can often arise where contracts are not clearly drafted or clauses in the contract are ambiguous and have not been drafted to cover changes in technology. This is especially true for IT outsourcing. Good governance and dispute resolution within the contract itself can avoid many issues.
Financial analysis: this includes the market value of IT and communications firms themselves. PA is often called upon to verify price, margin and revenue forecasts for different IT and communications products. The huge growth and changes in technology markets over the past decade have led many parties into dispute about the value of their technology investments, especially in the mobile sector.
Damages assessment: for instance, failure to deliver an IT system in time or build to the required standard. IT is such an important competitive advantage for many businesses that failures of this sort can result in a loss of profit and substantial damage to a business.
Intellectual property protection: the growth in technology has led to different patented technologies being used by different manufacturers, often under cross-licensing arrangements. For some technology companies this is the main source of their competitive advantage. New companies entering existing markets can lead to disputes over IPR.
The need for international arbitration
Communications is an international business with assets and revenues often owned and shared between multinational companies. This creates a web of complicated agreements that companies cannot settle themselves, requiring international arbitration to settle them. PA has recently worked on two €1 billion plus disputes for both fixed and mobile international telecoms companies. Both of these cases have taken place under UNCITRAL rules.
Tim Devine, a communications expert at PA Consulting Group, who has been an expert witness, believes that the same rules apply whether you are an expert witness in a domestic or an international arbitration: “Communication is key to being a good expert witness; especially being able to communicate complicated technical and financial concepts not only to the tribunal but sometimes to your own legal team. You have to remember that specialised technical concepts and language you use every day of the week in IT and communications may not initially be that familiar to your audience.”
As communications companies continue to consolidate globally, PA expects international arbitration to continue to be a favoured, if not the preferred, ADR method for international telecoms disputes.
Use of mediation
IT contracts, especially outsourcing, lend themselves well to mediation but it does not always work.
There has also been a surge in major outsourcing contracts. PA works with a great deal of clients in the IT arena, many of whom outsource some or all of their IT functions to another company. For instance, a company may decide it no longer wants to generate and issue payslips internally and will outsource this to a specialist payroll company.
The surge in major outsourcing contracts has resulted in the potential for disputes in relationships that would have previously been in-house and resolved informally in the corporate structure. A PAsourcing and shared services expert states that as a general rule:“Most companies would prefer to avoid the uncertainty and cost of full blown litigation or arbitration, using negotiation and mediation to settle IT outsourcing disputes where possible. Mediation clauses are now commonplace in IT outsourcing contracts and we have often mediated informally between buyers and suppliers to help them turn services around, improve the governance of the contract and to avoid litigation.”
However, with the increasing demands on technology in terms of size, complexity and innovation when large projects go wrong, not all disputes are so easily settled.
This increased complexity has led to more examples of very costly, and sometimes very visible, project failures with some cases going to arbitration or to court.
Often these large IT contracts would have had armies of specialists and programmers working on them, so when a dispute arises it is no surprise that legal teams will often work with specialist, independent firms who have a wide range of skills and experts under one roof. One example of this is the disputed IT contract in the recent BSkyB v EDS  (2010) where the judge found against EDS.
As the IT and communications sector continues to grow in global importance and technical complexity, the use of expert witnesses as part of the ADR methodology is proving to be an important element of dispute resolution in even the largest cases.
Matthew O’Neill is an IT and telecommunications expert at PA Consulting Group.