Alternative dispute resolution (ADR) is growing in popularity as a method of resolving intellectual property (IP) disputes across the globe. This is evident from the rising number of cases handled by the WIPO Arbitration and Mediation Centre over the past few years, from 136 cases in 2017, to 155 in 2018, to 178 in 2019.[1] Outside of arbitration and mediation, domain name dispute resolution (DNDR) administrative processes are quickly becoming a preferred method to deal with trademark disputes involving online domain names, with 3,074 cases filed with WIPO in 2017, 3,452 in 2018 and 3,693 in 2019.[2]

It is clear that ADR is on the rise in the global IP sphere. However, the same cannot be said for Malaysia. On the contrary, litigation remains the preferred avenue of IP dispute resolution, despite the fact that ADR has been accessible to IP litigants for decades. Arbitration has been provided for in statute even before Malaysia’s independence.[3] Support for ADR processes has been provided for by institutions such as the Kuala Lumpur Regional Centre for Arbitration (KLRCA), established in 1978 and later rebranded as the Asia International Arbitration Centre (AIAC), as well as the Malaysian Mediation Centre, established by the Bar Council in 1999. The KLRCA began offering DNDR processes in 2009, and on average has heard 10 DNDR cases a year ever since.

It is clear from the WIPO statistics quoted above that ADR mechanisms are well-positioned to resolve IP disputes. The question that then arises is: what prevents parties to IP disputes in Malaysia from attempting ADR?

There are several possible answers to this. It may be that a large number of these IP disputes do not have their roots in traditional contractual relationships, or that there is no prior agreement between the IP owner and infringer to resolve their disputes through arbitration, and hence no arbitration or mediation clauses for parties to turn to. Another possibility is the uncertainty over the arbitrability of IP disputes, especially disputes involving the validity of IP and the resulting uncertainty of how enforceable such arbitral decisions will be across different jurisdictions. Parties may also prefer to avail themselves to our specialised IP courts in Malaysia due to the general familiarity of litigation, availability of interlocutory applications such as injunctions against infringers and the possibility to file proceedings against third parties and appeal against judgments.

Drawing on the experiences and initiatives to encourage ADR and specifically arbitration in Hong Kong and Singapore, this article aims to propose steps that should be explored and can be taken to overcome these barriers and advance the use of ADR in the Malaysian IP field.

Arbitrability and enforceability

Uncertainty over the arbitrability of IP disputes has been one of the main hurdles to IP arbitration. Traditionally, a distinction has been drawn between disputes arising from contracts (eg. licensing or transmission of IP rights) and disputes centered around the IP right itself (eg. validity or infringement of IP rights). Most jurisdictions recognise the former as arbitrable; the arbitrability of the latter has been more controversial, although in recent years more and more jurisdictions have started to recognise these disputes as arbitrable.[4]

The arbitrability issue goes hand-in-hand with the enforceability issue. As IP rights are administered by the state, it has been argued that all disputes regarding the validity of an IP right ought to be heard by national authorities instead of a private arbitrator,[5] and so courts may refuse to enforce an arbitral award surrounding such a dispute under the grounds that doing so would be contrary to public policy.

The Malaysian context

The Malaysian Arbitration Act 2005 (AA 2005) is silent on the arbitrability of IP disputes. The various IP Acts in Malaysia[6] only mention proceedings in court as avenues to enforce the Act, however this does not necessarily prevent IP disputes from being arbitrated. Section 4(2) of the AA 2005 provides that the court’s jurisdiction over a particular dispute does not in itself prevent determination of that dispute by arbitration. Nor is it a must that disputes arise from contract– the case of Renault SA v Inokom Corp Sdn Bhd & Anor and other appeals [2010] 5 MLJ 394 established that tortious disputes can be arbitrated.

Although there is yet to be a definitive court ruling on arbitrability of IP rights, it appears that Malaysian courts are not averse to it. In the case of Colliers International Property Consultants (USA) and Anor v Colliers Jordan Lee and Jaafar (Malaysia) [2010] MLJU 650, the High Court allowed the registration of 2 foreign IP arbitration awards regarding the use of a trade name and mark. Another case worth noting is that of C & B Global Sdn Bhd v Getthiss (M) Sdn Bhd [2019] MLJU 347, wherein the High Court allowed an application for stay of proceedings for a suit in breach of an agreement and passing off on the grounds that the agreement in question contained a valid arbitration clause and ought to be referred to arbitration.

These two cases illustrate that Malaysian courts are willing to not only recognise foreign arbitral awards enforcing IP rights, but also refer disputes regarding IP issues (in this case, passing off) to arbitration so long as there is a valid arbitration clause present. However, as there has been no definitive authority that all IP rights disputes are arbitrable, many remain uncertain if arbitration is a valid method of resolution and may prefer to avoid potential issues by defaulting to litigation instead.

Hong Kong

Prior to the amendment to their Arbitration Ordinance, which took effect from 1 January 2018, Hong Kong was in a similar situation to Malaysia in that their legislation did not expressly address the arbitrability of IP disputes. In order to resolve the resulting uncertainty, Hong Kong amended their Arbitration Ordinance to clarify that all IP rights disputes can be arbitrated, including those regarding the enforceability, infringement, subsistence, validity, ownership, scope or any other aspect of an IP dispute.[7] This is the case regardless of whether the IP dispute is a main or an incidental issue to the dispute.[8]

The Arbitration Ordinance also expressly provides that it is not contrary to public policy to enforce arbitral awards involving IP rights. It does, however, stipulate that arbitral awards will not be binding against a third party, including licensees (unless that licensee is made party to the arbitration). It is pertinent to note that arbitral awards are not binding on courts or registries of the Intellectual Property Department in Hong Kong.

Unique to the Hong Kong context also is the Hong Kong-Mainland China Arangement on Interim Measures, which came into effect on 1 October 2019. In essence, this Arrangement empowers Chinese courts to grant interim measures in favour of institutional Hong Kong-seated arbitrations.[9] This has made arbitrations in Hong Kong a more attractive option in relation to China-related disputes.

Singapore

In a similar move to Hong Kong, Singapore has recently passed the Intellectual Property (Dispute Resolution) Act 2019 (IPDRA 2019) which partially came into force a year ago on the 21 November 2019. The IPDRA 2019 amends Singapore’s Arbitration Act and International Arbitration Act to confirm that IP rights disputes can be arbitrated, including those regarding enforceability, infringement, subsistence, validity, ownership, scope, duration or any other aspect of an IP right.[10]

The IPDRA 2019 also reinforced that an arbitral award is not deemed contrary to public policy solely on the basis that the subject matter relates to an IP rights dispute.[11]

Other initiatives

ADR funding schemes 

In order to encourage the use of ADR, both Hong Kong and Singapore have made provisions regarding funding for ADR proceedings.

Hong Kong has expressly permitted third-party funding of arbitration proceedings since Section 3 of the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 came into force on 1 February 2019.

Singapore first provided funding for parties’ mediation costs by way of the Mediation Promotion Scheme, which ran fron 1 April 2016 to 31 March 2019. The Intellectual Property Office of Singapore (IPOS) has since expanded on this scheme in the currently-in-force Enhanced Mediation Promotion Scheme (EMPS) which will run fron 1 April 2019 to 31 March 2022. Under the EMPS, parties are eligible to receive funding for up to SGD12,000 for mediations involving foreign IP rights and SGD10,000 for mediations involving Singaporean IP rights, regardless of the mediation outcome.[12]

Several conditions must be met in order to qualify for funding under the EMPS. Some of these are procedural – for example, the parties must disclose their lawyer / agent fees incurred from start to the end of the IPOS proceedings. Other conditions are geared towards attempting to cast a light on mediation proceedings as a viable means of alternative dispute resolutions, such as the condition that the parties, by accepting the funding under EMPS, agree to named publicity, including disclosure of details such as the identity of the parties, the nature of their disputes, the parties’ comments on the mediation process, any advice they have for others facing disputes and so on. This condition does not extend to details of any settlement terms, such as the quantum of the settlement.

The purpose of this condition, according to IPOS, is to give “concrete, relatable examples to other businesses and individuals” and thereafter encourage them to consider mediation– in other words, in return for the funding received under EMPS, the parties must be willing to allow their cases to be used as testimonials. This appears to be a part of IPOS’ attempt to publicise and promote mediation.

Mandatory ADR prior to civil proceedings

In Singapore, the State Courts have adopted a “presumption of ADR”, wherein all civil cases are required to be referred to the most appropriate mode of ADR, including mediation, as a first resort.[13] This was introduced in the Practice Directions Amendment No. 2 of 2012. Under this presumption, cases are automatically referred for ADR unless the parties opt out of ADR.[14] As a result, even the most litigious must explore ADR. Although parties may opt out of ADR, doing so without a satisfactory reason may result in cost implications at trial.[15]

Conclusion – the next frontier

ADR is an important tool that should be considered when resolving disputes. This is especially so in the IP field, which commonly features cross-border disputes and often requires the expertise of a specialist to properly decide on the merits of a case. Although steps have been taken in the Malaysian context to promote ADR, at present Malaysia is falling behind its neighbours, Hong Kong and Singapore.

Now is not the time to shy away from taking a leaf out of Hong Kong and Singapore’s books. Proper infrastructure must be implemented in order to support ADR with regards to IP disputes, most importantly by enshrining the arbitrability of IP disputes in legislation. Doing so will eliminate the uncertainty surrounding the arbitrability of IP disputes and its enforceability, and instil confidence in parties to IP disputes that arbitration and ADR in general are effective methods to resolve disputes, and that litigation is far from the only option available to them.