Introduction
For many international and cross-border IP disputes, international arbitration provides an appealing alternative to adjudication in national courts. Fundamentally grounded in party autonomy, arbitration enables parties from diverse jurisdictions and legal traditions to agree on, and resort to, efficient and specialised dispute resolution mechanisms tailored to their specific needs. Such customisation particularly complements common features of international IP disputes.
The advantages arbitration offers include:
- adjudication by neutral decision makers who may be selected for their expertise in cross-border IP issues;
- the relative ease of enforcement of arbitral awards under the New York Convention in most parts of the world;
- procedural flexibility tailored to the individual dispute; and
- cost-effective and consolidated resolution of complex cross-border IP disputes, which may otherwise entail multiple parallel national court proceedings.
Arbitration may not be the preferred choice in every instance: where a party requires speedy provisional injunctive remedies to protect its IP rights, the efficacy of arbitration may be constrained by the arbitral tribunal’s lack of coercive power to order such remedies or directly enforce its decisions; however, nearly all arbitral bodies now offer emergency arbitrator mechanisms to address urgent requests for provisional relief, appointing arbitrators within 24 to 48 hours who are expected to issue a ruling within days. Even when parties agree to arbitration, they are usually permitted (and can expressly agree that it is permissible) to seek temporary injunctive relief from a court pending the commencement of arbitral proceedings.
Whether a given feature of arbitration is perceived as advantageous or disadvantageous may also depend on a party’s legal traditions and expectations. In this respect, criticisms of arbitration often mirror the background of the critic. Arbitration users from common law jurisdictions may, for instance, dislike what they view as excessively limited disclosure; conversely, those from civil law jurisdictions may perceive any disclosure phase as an undue common law influence.
Ultimately, whether international arbitration is preferable to national court litigation in any given instance is a contextual determination. This chapter sets out the key advantages and limitations of arbitrating international IP disputes, and highlights, where relevant, divergence between common law and civil law perspectives and approaches.
Perceived advantages of arbitration in international IP disputes
Overview
Most intellectual property is defined by national statutory regimes. While a national court is expected to adjudicate IP infringement claims under its own laws, it may not be comfortable with or have the power to adjudicate similar claims under a foreign law. In this respect, arbitration may better accommodate international and cross-border contractual disputes in the IP context, including disputes concerning:
- global licensing agreements with cross-border aspects between two or more parties from different countries;
- fair, reasonable and non-discriminatory (FRAND) rates for standard-essential patents (SEPs) (if the parties have entered into an agreement concerning this subject);
- cross-border joint ventures; and
- cross-border M&A transactions involving IP issues, such as the transfer of IP ownership or rights or indemnity obligations regarding IP infringement claims.
Even in these contexts, the choice between arbitration and national court litigation is highly fact-specific and, to some extent, dependent on a party’s perspective and goals.
Speed and efficiency of arbitral proceedings
Arbitration is commonly viewed as faster, leaner and less costly than litigation. Litigating IP disputes in national courts, by contrast, may entail a lengthy and more expensive process, given the relative complexity of IP disputes and the availability of multiple levels of appeals. By comparison, while statistics are not available for every arbitral institution, data released by leading institutions indicate a relatively short period for reaching a result in arbitration.
Between 2013 and 2016, the average arbitration administered by the London Court of International Arbitration (LCIA) lasted 16 months, although the average length for cases with an amount in dispute greater than US$100 million was 29 months. The International Court of Arbitration of the International Chamber of Commerce (ICC) reported an average duration of 26 months for all administered arbitration proceedings that reached a final award in 2020 and a median duration of 22 months.Between 2013 and 2023, the average duration of Hong Kong International Arbitration Centre (HKIAC) administered arbitration was 17.7 months.
Other data points show similar results: between 2007 and 2014, the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) reported that the median duration of an SCC-administered arbitration was 13.5 months, and the SCC reported that the majority of awards under its Arbitration Rules in 2021 were rendered within six to 12 months after the case was referred to an arbitral tribunal. The Singapore International Arbitration Centre (SIAC) has reported that the average duration of arbitrations it administered between 2013 and 2016 was 13.8 months.
As a general matter, arbitration can offer relative expediency. But whether it affords an advantage in cost and duration depends greatly on the background and circumstances of the parties and other participants, including the parties’ counsel, the experts, the members of the arbitral tribunal, the nature of the dispute and which national court system is being held up for comparison.
From a common law perspective, arbitration may offer a comparatively truncated written phase in arbitration relative to potentially lengthy and costly motion practice before a common law court, limited disclosure phases, shorter evidential hearings with comparatively limited examination of witnesses and the absence of appeals. Litigants from the United States or the United Kingdom, for example, may find the prospect of completing an arbitration in one to one-and-a-half years very attractive.
On the other hand, in civil law jurisdictions with comparatively efficient courts (e.g., Germany) – where the examination of evidence is conducted directly by the judge in the inquisitorial tradition and there is largely no disclosure phase – the average duration of national court proceedings may be on par with, or faster than, the average arbitration.
One overarching consideration is the availability of appellate review. In most jurisdictions, arbitral awards – unlike judgments of national courts – are not subject to substantive appellate review. Parties to an arbitration, therefore, can receive a final and binding decision earlier and with greater certainty. This principle of finality is a hallmark of both domestic and international arbitration.
On the other hand, national appellate courts may bring to disputes a highly developed body of jurisprudence that promotes high-quality decision-making. In the United States, for example, the US Court of Appeals for the Federal Circuit hears all appeals of patent suits, and its judges are considered to have deep experience and expertise in the field. In civil law jurisdictions, similarly, national court litigants in complex IP disputes may place a high premium on recourse to an appeals court, given that judges in most first-instance courts tend to be relatively young and inexperienced, perhaps in their first post-qualification job. When companies regard their IP assets as ‘crown jewels’, the availability of high-quality appellate review of any decision concerning the validity and scope of their IP rights may be especially important.
In arbitration, the parties have autonomy to designate trusted, specialised and experienced arbitrators to adjudicate their dispute from the outset. This includes the opportunity not only to choose a qualified arbitrator but to interview the arbitrator candidates in advance.
Further, the role of appellate courts in national court systems of developing jurisprudence, and articulating general principles, arguably has less value and relevance in a contractual relationship in which parties principally seek a practical and efficient resolution of their own particular disputes. This is especially true when, as is ordinarily the case, decisions about the validity and scope of IP rights will be made on an inter partes (affecting only the parties to the dispute) and not an erga omnes (applicable to all parties) basis. On the whole, parties to a contractual relationship with an IP element who value certainty and a speedy and final conclusion, would likely prefer to forgo lengthy appeals – especially given the possibility that a case may endure multiple rounds of appeals and remands before final resolution.
Another important consideration is that litigation in national courts may provide for early case-dispositive motions, such as motions to dismiss and motions for summary judgment, which may resolve a dispute based on a specific issue or defence. Such motions are common in US court proceedings, for example, but are not common in the same form in most civil law jurisdictions. And in many IP matters, rulings on requests for provisional relief such as a preliminary injunction may prove decisive, even if not a final disposition as a formal matter, and may prompt the parties to agree to a resolution.
The availability of these procedures in national courts may, in some instances, permit a quicker and less expensive resolution than a full arbitration procedure involving extensive memorials and an evidential hearing. On the other hand, if such dispositive motions do not succeed in resolving a case, they will have added to the time and expense of litigation without expediting the final outcome.
Accordingly, the general perception that arbitration is faster and cheaper than national court litigation is subject to some important variables. No two arbitrations are alike, and the flexible procedural features of arbitration (subject to negotiation and agreement between the parties and the arbitral tribunal) can result in either shortened or prolonged proceedings and more or less costs to the parties. Recalcitrant parties may seek to exploit this procedural flexibility to delay proceedings and impose additional costs on the opposing party, although the prevailing party may ultimately recover its costs. The relative lack of certainty concerning the procedural conduct of a given arbitration can make it somewhat difficult for parties to accurately predict costs and duration; however, many arbitral institutions also offer parties the choice of expedited and emergency arbitration rules and procedures.
Consolidation of parallel cross-border proceedings
For complex cross-border disputes, a significant advantage that arbitration offers over national court litigation is the ability to achieve a resolution in a single forum. If the parties’ business relationship involves IP-related rights in two or more countries that cannot be resolved in a single national court, the ability to address disputes in a single arbitral proceeding is highly attractive.
The time and cost advantages of such consolidation are obvious: fewer proceedings, lawyers and adjudicators, and witnesses need testify only once. Further, as to expert witnesses, a proactive arbitral tribunal from the civil law tradition may determine that certain party-appointed experts need not be examined at all because the tribunal is already familiar with the subject of their expertise. This is a critical point that should be closely considered when deciding between arbitration and litigation.
Consolidated resolution through a single arbitration has increasingly become a best practice in the IP context. This is especially true with global IP licensing programmes and with SEP and FRAND disputes, where pursuing piecemeal litigation in diverse national courts would be complex, cumbersome and expensive. Parallel national court proceedings also entail the risk of contradictory decisions. In addition, the relative difficulty of enforcing a foreign court judgment further adds to the attractiveness of arbitrating multi-jurisdictional IP disputes.
Recognising the advantages that arbitration may offer in this context, several leading arbitral institutions have adapted their rules and procedures to better serve the needs of IP disputes:
- Of particular note is the Arbitration and Mediation Center of the World Intellectual Property Organization (WIPO), which focuses on technology and IP disputes. WIPO offers specialised procedural rules tailored to intellectual property, including the WIPO Arbitration Rules and the WIPO Expedited Arbitration Rules and other model arbitration clauses and submission agreements developed for FRAND disputes. WIPO-administered arbitration also provides specific rules governing preliminary relief, a critical consideration for many IP disputes.
- Similarly, the American Arbitration Association (AAA), in collaboration with the US National Patent Advisory Council, which comprises patent litigators, in-house patent counsel and patent practitioners, has created a set of patent-specific arbitration rules, the Resolution of Patent Disputes Supplementary Rules, supplementing the AAA’s Commercial Arbitration Rules.
- The International Institute for Conflict Prevention and Resolution (CPR) offers a number of instruments tailored for IP disputes. The CPR has promulgated Rules for Non-Administered Arbitration of Patent and Trade Secrets Disputes, which include model arbitration clauses for such specialised IP disputes. More generally, its 2007 Rules for Non-Administered Arbitration of International Disputes and 2019 Rules for Administered Arbitration of International Disputes expressly provide that these rules ‘may be adopted by parties that do not have a contractual or other business relationship, e.g., for a patent infringement dispute’.
Some of those arbitral institutions, such as the CPR and WIPO, offer specific expertise in cross-border and international IP disputes.
Consolidation considerations may involve added complications where parallel or related national court proceedings are already pending. How much or how little deference an arbitrator will show to prior pending arbitrations or court proceedings related to the same or similar IP rights depends on several factors, including the extent to which the other proceedings involve the same parties, the causes of action and the relief sought (the triple identity test). Arbitral tribunals steeped in the civil law tradition may be more willing to defer to the pre-existing proceedings, in line with the doctrine of lis pendens, whereas common law jurisdictions tend to adopt a more discretionary approach.
It is also important for parties to make clear in their drafting which claims are subject to arbitration and which are subject to litigation, as a dispute over the applicability of an arbitration clause may lead to potentially lengthy delays pending court resolution of whether a particular claim falls within the scope of the arbitration provision. For example, in the United States, the US Supreme Court held in Coinbase, Inc. v. Bielski that a federal court must stay court proceedings when a party appeals the denial of a motion to compel arbitration under the Federal Arbitration Act (FAA).
Forum neutrality and choice of arbitrators
Another advantage of arbitration over national courts is the ability to select arbitrators who possess some level of relevant expertise. IP disputes frequently require delving into specific fields of science or technology. While some national court judges may possess relevant expertise, this generally cannot be guaranteed.
Arbitration, on the other hand, provides some degree of quality control by affording the parties broad autonomy to select arbitrators with specific expertise. In addition, the parties may agree on certain desired characteristics of the presiding arbitrator (including that the arbitrator have experience in a particular area or not share a common nationality with either of the parties or with either of the co-arbitrators) or, in the absence of an agreement, on a trusted and neutral appointing authority. To assist parties, many leading arbitral institutions maintain panels or listings of arbitrators specialising in IP disputes, including WIPO, HKIAC, CPR, SIAC and the Silicon Valley Arbitration and Mediation Center.
As in any arbitration, the selection of arbitrators should take account of the perspective and approach that a given arbitrator may bring, including regarding whether arbitrators may pursue an inquisitorial approach to experts and witnesses. A civil law specialist who proactively leads the taking of witness and expert evidence in the proceedings, including through direct colloquy with the counsel themselves on central issues of IP law and practice, may reach a different outcome than one who takes a common law-inspired passive approach that permits the parties’ respective counsel to guide the presentation of evidence and arguments.
International enforcement of arbitral awards
A further substantial benefit of arbitration is the potential to simplify the enforcement of a final decision – an advantage inextricably linked to the New York Convention. As set forth in Articles V(1) and V(2) of the New York Convention, the grounds on which an arbitral award may be denied recognition and enforcement are extremely limited. They largely mirror the grounds to set aside an award under the UNCITRAL Model Law on International Commercial Arbitration.
The Model Law has been adopted in numerous common law- and civil law-inspired jurisdictions, making it the law at the seat of arbitration (lex arbitri) in numerous arbitrations. The Model Law’s widespread acceptance has contributed to a convergence of arbitration law and doctrine across the spectrum of common and civil law cultures, even while those cultures continue to remain distinct and, in some respects, divergent.
The relative ease of recognition and enforcement of arbitral awards is juxtaposed against the comparative difficulties in seeking to enforce judgments on one country’s national courts in another country. Recognition and enforcement of foreign court judgments varies considerably depending on the jurisdiction and discretionary powers of the national court. Efforts to adopt a truly international treaty regime similar to the New York Convention have largely failed. Within the regional framework of the European Union, Council Regulation (EC) No. 44/2001 (the Brussels I Regulation) and the related Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the Lugano Convention) represent limited exceptions.
In this context, prevailing parties in complex cross-border IP litigation often face lengthy and costly battles to enforce national court judgments in foreign jurisdictions. This renders arbitration and enforcement of arbitral awards within the jurisdiction of the New York Convention a highly attractive alternative.
As many commentators have highlighted, the vast majority of arbitral awards are complied with voluntarily and without recourse to enforcement proceedings. If confirmation and enforcement of arbitral awards through court proceedings is required following the arbitration process, this step is usually straightforward.
Confidentiality
In international IP disputes, confidentiality concerns arise in (1) keeping secret the existence or outcome of the proceedings, or both, and (2) guarding the confidentiality of commercially sensitive information (e.g., trade secrets and business know-how) that may need to be submitted in the course of the proceedings.
Regarding the first concern, the secrecy of the outcome of a given dispute is often considered a primary advantage of arbitration as compared to litigation. Parties selecting arbitration may, depending on the applicable law and rules, tailor their arbitration agreements to expressly provide for their desired level of confidentiality. Those who prioritise confidentiality may gravitate towards arbitral institutions with express confidentiality protections in their rules. While this advantage is not necessarily specific to international IP disputes, it is an important consideration in choosing the forum for potentially sensitive commercial disagreements.
By comparison, in at least some countries – including the United States – the existence and outcome of litigation in court is usually open to the public. That said, filings and decisions in many national court systems, particularly in civil law-inspired jurisdictions, do not enjoy nearly the same transparency and accessibility. By extension, the desire or need for far-reaching confidentiality or at least comparative privacy afforded by certain arbitrations is likely to be less urgent for parties in civil law jurisdictions than it might be for parties who, unless they choose arbitration, would litigate their dispute in the US courts.
Regarding the second concern, the highly sensitive nature of many IP disputes and the high-tech know-how and trade secrets they may involve makes the degree to which confidentiality can be guaranteed, and for how long, a central concern for choosing between arbitration and litigation in courts. The rules of many arbitral bodies contain provisions that explicitly address the treatment of trade secrets and other confidential information or documents. For instance, the WIPO Arbitration Rules contain a comprehensive confidentiality regime, including appointment of a confidentiality adviser and for confidentiality of the existence of the arbitration, of disclosures made during the arbitration, of the award and of undertakings by the WIPO Center and arbitrators.
Many national courts are also well-equipped and experienced in protecting confidential information (e.g., trade secrets cases in US courts) and are ordinarily willing to keep truly confidential and sensitive information under seal; however, judges in the United States typically require a strong showing of the need for confidentiality when it comes to trial, given the tradition of making trial proceedings open to the public to the extent possible. The comparative advantage of arbitration in this regard largely depends, therefore, on the practices and tools available in the relevant national court.
In addition, even with compliant parties, complete confidentiality in arbitration has its limits. Certain sensitive or confidential information, including the existence and outcome of the dispute, which is otherwise protected in an arbitration may still become public when a party seeks relief from a national court to enforce preliminary measures or injunctive relief, or to recognise and enforce (or vacate) an arbitral award.
As with the other considerations identified in this section, the perceived advantage of arbitration concerning confidentiality should be contextualised in relation to the circumstances of the particular dispute. Nevertheless, these general principles offer a road map for the types of disputes that may be better suited for international arbitration.
Below, we discuss perceived disadvantages of arbitrating international IP disputes, which may likewise factor into parties’ choice of forum.
Cost allocation
With respect to allocation of costs between parties in arbitration, there are generally two principal approaches: the rule that ‘costs follow the event’ such that the prevailing party is awarded its costs; and the ‘American Rule’ whereby each party bears its own costs regardless of the outcome.
While litigation in national courts usually means the parties are subject to that jurisdiction’s rules regarding cost allocation, an arbitration clause permits parties to decide on their preferred approach; however, parties should be mindful of protecting this optionality in their arbitration agreement and choice of institutional rules. For instance, if parties coming from civil law traditions enter into an ad hoc arbitration agreement as part of a cross-border licensing agreement that designates a ‘neutral’ New York seat of arbitration and New York law governing the contractual instrument, they may fully expect and intend that the ‘costs follow the event’ rule should apply to any dispute arising between them; however, by failing to memorialise their intent in the agreement, the parties may have unknowingly elected to apply the default rule at the New York seat, namely the American Rule for cost allocation.
This illustration underscores how important it is not only for parties to carefully identify and weigh priorities in deciding between national court litigation and international arbitration, but also, once they have chosen arbitration, to ensure that any assumptions or expectations underlying that decision are actually reflected in the arbitration agreement or in the institutional or ad hoc rules or the lex arbitri that the parties choose.
Potential limitations of arbitration in international IP disputes
Overview
Unlike national courts, arbitral tribunals have limited coercive power. The arbitral tribunal’s authority is circumscribed by the scope and content of the parties’ contractual agreement, as well as limitations on arbitrability under applicable law. These considerations may be particularly relevant in international IP disputes, where parties may need to seek and enforce interim measures, obtain document production to prove infringement, or obtain equitable or injunctive relief. International IP disputes may also implicate special challenges related to expert evidence and the calculation of complex damages.
Notwithstanding these potential limitations, parties enjoy a great deal of flexibility to anticipate and contract around a number of the perceived limitations of arbitrating international IP disputes. In weighing up the appropriate forum and relief, parties should give careful consideration at the outset to the laws and practices at the possible seats of arbitration and the jurisdiction where the arbitral award may be enforced.
Comparative availability of preliminary remedies and injunctive relief
The ability to obtain preliminary relief is often of particular importance in IP disputes, especially in the early stages. For example, in trademark law, claims for damages may be of little assistance or comfort to the injured party. Similarly, where an infringement is ongoing or a trade secret is at risk of being disclosed, the IP owner will want to stop the infringing conduct immediately.
In those circumstances, preliminary measures or injunctive relief orders that can halt the violation of rights and limit the resulting economic damage are especially attractive. Whether it is more advantageous to request interim relief before an arbitral tribunal or before a national court must be assessed on a case
-by-case basis, considering principally the likelihood of the specific tribunal to render interim relief and the practical effectiveness of such relief in a jurisdiction outside the seat of arbitration.
Given an arbitral tribunal’s limited coercive power, international IP disputes implicating urgent interim measures may be better suited to adjudication in national courts. Arbitration practice has, however, developed mechanisms to address this concern. The leading institutional rules all generally provide for emergency procedures or interim relief. Some institutions have promulgated rules specifically tailored to IP disputes, including those requiring preliminary relief. The AAA Patent Rules, for example, call for an immediate hearing following the selection of arbitrators during which various preliminary matters can be decided, including injunctive relief.
Where suitable preliminary or expedited relief is available from an arbitral tribunal, enforcement of that relief – if needed – will require (with rare exceptions) assistance from national courts, particularly outside the seat of arbitration, to enforce interim awards or orders. This can present challenges in some jurisdictions, particularly when enforcing interim awards rendered abroad.
However, arbitral tribunals are not entirely powerless to compel parties to comply with their orders. Depending on the applicable rules, legal regime and breadth of the arbitration agreement, arbitral tribunals may be empowered to allocate costs or draw adverse inferences against non-complying parties. When drafting their arbitration agreements as they relate to these issues, parties should give careful consideration to the designation of institutional rules and the laws and practices at potential seats of arbitration.
Ordinarily, national courts can order interim measures in IP disputes, even where an arbitration agreement has been concluded between the parties. An express enabling of the national court in the arbitration agreement or in the agreed institutional rules is therefore generally not required, though often advisable. Whether arbitration proceedings are already pending is usually irrelevant.
In the US context, plaintiffs may generally prefer to seek interim relief before a national court rather than before an arbitral tribunal, although, in doing so, they should be prepared to explain to the court why it needs to intervene. In matters involving patent infringement claims, the power (and willingness) of arbitral tribunals to provide interim and permanent injunctive relief may go beyond those of the national courts (especially courts in the United States). Under the AAA Rules, for instance, the arbitral tribunal is expressly authorised to grant injunctive relief to terminate infringement.
An additional consideration when weighing the need for provisional relief is whether testimony or disclosure from third parties may be needed. This may present particular challenges to arbitral tribunals that may lack jurisdiction over third parties or the legal means to compel their cooperation.
Considerations regarding the limitations of the arbitral tribunal’s authority can similarly arise with regard to final equitable relief. The arbitral tribunal’s ability to police compliance with permanent equitable remedies is limited by the temporal limitations on the office of arbitrator. Once an arbitral award is rendered, the arbitral tribunal typically ceases to exist, and parties must seek enforcement of the award from courts. Under these circumstances, careful consideration should be given to whether the declaratory or injunctive relief awarded by the arbitral tribunal is actually cognisable under the law and in the courts at the place of contemplated enforcement.
Inter partes versus erga omnes relief
Owing to the contractual nature of arbitration, arbitral awards are generally inter partes: they bind only the parties to the proceedings. This is ordinarily the rule with awards related to registered intellectual property, such as patents. Whether this is considered an advantage or disadvantage depends on the perspective of the parties and the particular circumstances.
As a general matter, neither party may have a strong interest in having the resolution of a dispute apply to other parties, and many may actually prefer that it not. A party challenging the validity of a patent, for example, may not care whether its successful challenge will benefit others. A patent owner would prefer that a finding of invalidity not apply erga omnes, as a court judgment ordinarily would. An even worse feature of court litigation for patent owners is that, under the issue preclusion rules in the United States, for example, the effect of rulings on patent validity is a one-way street: a final ruling that a patent is invalid will terminate the patent for all purposes against all parties, but an unsuccessful challenge to a patent’s validity will not bar another party from challenging the patent’s validity in another proceeding. For this reason, the inter partes feature of arbitral rulings is certainly more attractive to patent owners.
On the other side of the ledger, arbitral awards generally do not bind non-signatories to the arbitration agreement, such as sub-licensees, except in limited circumstances; therefore, an arbitral award’s limited effect may not resolve a dispute in relation to all interested parties. Moreover, if setting a public precedent to deter future infringements is desired, proceedings before national courts may be the preferred option for IP owners.
Accordingly, the fact that arbitral awards ordinarily have only an inter partes effect may have perceived advantages or disadvantages depending on a party’s priorities.
Evidential issues in IP arbitration
The general approach to the taking of evidence is another important variable for assessing the efficacy of arbitration in IP disputes. A party’s expectations concerning available evidential features may be a decisive factor in deciding between national courts and arbitration.
The promulgation of the IBA Rules on the Taking of Evidence in International Arbitration (the IBA Rules) in 1999 has been one of the most significant developments in international arbitration practice in the past two decades. That the IBA Rules have now achieved soft law status is best explained by their melding of the best of both civil law and common law approaches to the taking of evidence. This hybrid evidential approach may be perceived as particularly useful in international IP disputes between parties from different jurisdictions and legal traditions.
However, the IBA Rules’ hybrid approach is not universally praised. In 2018, a group of arbitration practitioners (predominantly from civil law traditions) promulgated the Rules on the Efficient Conduct of Proceedings in International Arbitration (the Prague Rules), which purport to promote greater efficiency in arbitration by adopting an inquisitorial approach to evidence that is well known in most civil law jurisdictions. The Prague Rules eschew the hybrid approach of the IBA Rules, eliminating the default application of various evidential features of common law, such as document disclosure, party autonomy over the examination of witnesses, the use of party-appointed experts and evidential hearings. The tension between the IBA Rules and the Prague Rules is emblematic of the divides between common law and civil law approaches and perspectives.
This divide between civil and common law with regard to evidential features may be particularly relevant in many international IP arbitrations, where the ability to establish a claim may depend on access to an adversary’s documents, such as development records, testing results, meeting notes and internal communications.
In the United States, the mechanism of seeking discovery under 28 USC Section 1782 is no longer available for private international arbitrations. On 13 June 2022, in ZF Automotive US v. Luxshare, the Supreme Court held that commercial arbitration tribunals are not ‘foreign international tribunals’ for Section 1782 purposes, while leaving the door open for investment treaty arbitration if a party demonstrates the tribunal was ‘imbue[d] with governmental authority’.
Damages
The assessment and determination of damages often presents challenges to even the most capable arbitral tribunals. Damages in complex IP disputes are no exception. There is a perception among some that arbitrators struggle with these assessments. That is not to say that some very experienced and specialised arbitrators are not skilled with damages assessment, but rather that many (even otherwise well-respected arbitrators) are perceived not to be so skilled. Ill-equipped arbitral tribunals may produce unpredictable outcomes or, worse, may succumb to the notion of iudex non calculat (‘the judge does not calculate’) and uncritically adopt the damages analysis of the party that prevails on liability.
Whether sounder or more predictable damages assessments will be available in national courts may not always be clear. In the United States, for example, damages (like other issues) for most claims are typically decided by a jury, although parties are free to include in their contracts a waiver of jury trials. While judges provide the legal framework that will guide a jury’s assessment and will exercise a gate-keeping function as to damages theories that may be presented to the jury, outcomes can be unpredictable. To the extent a national court system involves assessments of damages by experienced judges, the quality and predictability of outcomes may be perceived as superior to arbitral tribunals.
Damages can be a particularly important component of international IP disputes concerning, for example, FRAND royalty rates for SEPs. In this context, unlike the general concerns outlined above, the ability to select arbitrators is likely to be perceived as an advantage owing to the availability of specialist arbitrators and procedures. For instance, WIPO offers arbitration procedures specifically designed for FRAND royalty calculations. In addition, for the reasons of consolidation discussed above, arbitral tribunals may be better positioned to assess global royalty rates spanning several jurisdictions.
Experts
Because many types of IP disputes involve highly technical matters – including patents, trade secrets and copyright as applied to computer software – expert evidence may play a key role in guiding a court or arbitral tribunal. In national court litigation, the role and impact of expert witnesses can vary by country.
In the United States, most disputes are subject to jury trials (unless the parties have waived a jury trial). Jurors typically will not possess technical expertise and are not permitted to ask the witnesses questions, with the result that even the most earnest of jurors may have difficulty absorbing complex expert testimony and, therefore, may be influenced more by an expert’s performance skills than the substance of the analysis. Typically, civil law trials do not have juries and instead are decided by judges. Judges may also lack expertise in the technical areas at issue and, therefore, may also find it challenging to decide between competing party experts. That said, in civil law jurisdictions, party-appointed experts are usually expected to be attuned to their duty to provide relevant evidence to the court and less guided by serving the advocacy goals of the party that hired them.
The same issues may appear in arbitral proceedings, especially if the members of a tribunal lack expertise in the relevant technology. And, as in court litigation, parties’ choice of experts may be strategic rather than dictated by presenting the most useful or relevant evidence.
Some of the concerns outlined above could be addressed through the appointment by the court or tribunal of a neutral expert. As to court proceedings, the use of neutral experts is uncommon in the United States but is a feature in many civil law countries.
In arbitration, the option of having the tribunal appoint an expert is ordinarily available, although it is generally recognised that expert analysis is already one of the biggest contributors to the cost of arbitral proceedings. The added cost of a tribunal-appointed expert may be viewed as a drawback. That said, to the extent both parties support the proposal (and are willing to pay for it), the availability of a neutral expert is a benefit that arbitration can offer. If the parties agree to forgo party-appointed experts, the use of a tribunal-appointed expert could result in reduced costs.
Arbitrability
Issues of arbitrability may arise where the subject matter in dispute is not capable of resolution by arbitration, most commonly on public policy grounds, under the laws of the seat of the arbitration or of those jurisdictions where an award would be enforced. Arbitrability is discussed in more detail in the chapter entitled ‘Arbitrability of IP Disputes’ in this publication but warrants brief consideration here.
Historically, some jurisdictions regarded IP disputes as non-arbitrable because they were perceived to be inherently intertwined with public policy and within the exclusive province of the sovereign. While many jurisdictions now provide that IP disputes are generally arbitrable, non-arbitrability may remain a concern in some forums and under some laws and the nature of the IP rights involved. In mainland China, for example, patent and trademark disputes are in the exclusive purview of administrative agencies and courts.
The classification of a category of disputes as non-arbitrable may result in the invalidation of the arbitration agreement, an anti-arbitration injunction from national courts, or a refusal to enforce an award. Parties concerned about arbitrability may take precautions in drafting the arbitration agreement and formulating their prayers for relief before an arbitral tribunal. For instance, an agreement could provide that the effect of a finding of invalidity will simply be to grant the prevailing party a free licence for the duration of a given patent.
Arbitrability issues may be more salient where they arise as a result of competition law claims and defences, which are frequently implicated in IP disputes.
Competition law claims
IP disputes often give rise to competition law issues, such as when a party accused of IP infringement accuses an IP rights owner of seeking exclusivity to the detriment of the public. The inclusion of such competition law claims in international IP disputes may present certain challenges.
Such competition claims may not be within the scope of the parties’ agreement to arbitrate, if the law at the seat of the arbitration (the lex arbitri) mandates that competition law claims cannot be subjected to arbitration.
The arbitral tribunal must separately determine whether the competition law claims are, in fact, arbitrable. While the arbitrability of competition law disputes is a well-established principle in many jurisdictions, including in the United States and the European Union, this is not the case in certain other jurisdictions. Further, arbitration of competition law claims can implicate complex choice-of
-law issues regarding which substantive law should govern. Many jurisdictions, including the United States and the European Union, deem antitrust and competition laws to be non-derogable and mandate application of these laws even if the parties have chosen another country’s law to govern their agreement. Relative to national courts, international arbitral tribunals – which frequently address issues concerning transnational public policy and enforceability away from the seat – may be more open to recognising and following the mandatory application of a separate, superseding body of competition law.
Conclusion
Where the vindication of IP rights involves multiple jurisdictions, complex cross-border legal arrangements or the need to apply foreign law, international arbitration can offer key potential advantages: a single forum, customised procedures and arbitrators with relevant expertise.
Many of the perceived pitfalls or limitations of arbitration in the context of IP disputes can be mitigated by forethought and proper drafting. For instance, the scope of confidentiality and jurisdiction of the tribunal is subject to customisation in the terms of the arbitration agreement itself. Selection criteria for members of the arbitral tribunal (neutral nationality, party input on presiding arbitrator, background, etc.) or designation of a specialised appointing authority, or both, may address any residual concerns regarding the independence and expertise of the adjudicator.
By anticipating and addressing in their arbitration provision special needs and potential challenges or shortcomings, parties can enhance the likelihood that arbitration of their IP-related disputes will proceed in a time- and cost-efficient manner with due regard to the commercial sensitivities and priorities of the parties.
