Drafting Arbitration Clauses in IP Agreements
09 February 2021
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Introduction
When drafting dispute resolution provisions, parties would do well to keep in mind the maxim ‘an ounce of prevention is worth a pound of cure’. Clear and thoughtful drafting helps to ensure the parties’ chosen method (or methods) for resolving disputes will function as the parties intended, is effective and maximises the likelihood that any disputes will be resolved in a timely and cost-effective manner. Poor or imprecise drafting risks the opposite because it invites arguments over the scope and operation of provisions and diverts resources away from resolving the merits of the disputes these provisions were supposed to settle.
The same drafting principles that underpin well-drafted dispute resolution clauses in other types of agreements are equally applicable in IP agreements.[2]In addition, however, there are a number of unique factors that parties should also consider, including the fundamental question of whether disputes involving IP rights should be excluded from arbitration altogether. This chapter discusses those factors and how they may influence the ways in which parties approach structuring and drafting dispute resolution provisions in IP agreements.
Drafting considerations
Validity
Frequently described as a creature of contract, arbitration requires that parties consent to resolving their disputes through arbitration. The essential elements of a valid agreement to arbitrate are simple. As reflected in Article II(1) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) and most national laws, the parties must agree to arbitrate and the arbitration agreement must be in writing and must concern a subject matter capable of settlement by arbitration.[3]
In IP agreements, the writing requirement should be easily met because we are speaking of written commercial agreements.[4] The arbitrability requirement, however, can become more complex depending on what the parties have agreed to submit to arbitration, as certain types of IP disputes (e.g., patent invalidity and infringement) may be arbitrable in one country but not another. Thus, the validity of the agreement to arbitrate may turn on the seat, or legal place of arbitration, and the place where enforcement of the award will be sought. Both subjects are discussed further below.
Scope
The scope of the arbitration clause or its ‘charging language’ answers the questions of who is bound to arbitrate and what they agreed to arbitrate. Careful drafting is therefore critical to ensure that the clause clearly reflects the parties’ intent.[5]
Where the parties have agreed that all disputes between them should be resolved through arbitration, there is simple and universally (or almost universally) accepted language that accomplishes this objective. This language is reflected in the model clauses recommended by the leading international arbitration institutions and is usually understood to encompass contractual, tort and statutory claims. Such clauses typically involve some variant of the words: (1) ‘all’ or ‘any’; (2) ‘disputes,’ ‘claims,’ ‘differences’ or ‘controversies’; (3) ‘arising out of and relating to’ or ‘arising under and in connection with’; and (4) ‘the agreement’ or ‘the contract’.[6]
Conventional wisdom usually favours broadly drafted arbitration clauses because, among other things, they help to reduce the risk of threshold arguments over where a given dispute should be resolved, as well as the risk of parallel proceedings in more than one forum. It is for these reasons that the IBA Guidelines for Drafting International Arbitration Clauses (2010) cautions against limiting the scope of disputes subject to arbitration ‘[a]bsent special circumstances,’ observing that:[7]
even when drafted carefully, exclusions may not avoid preliminary arguments over whether a given dispute is subject to arbitration. A claim may raise some issues that fall within the scope of the arbitration clause and others that do not. . . . [A] dispute over the ownership or validity of intellectual property rights under a licensing agreement [which had been carved out] may also involve issues of non-payment, breach and so forth, which could give rise to intractable jurisdictional problems in situations where certain disputes have been excluded from arbitration.
This guidance notwithstanding, clauses excluding certain disputes from arbitration are common in IP agreements, particularly for disputes involving validity, patentability, inventorship and ownership of IP rights, and sometimes for scope and infringement. This primarily occurs because of concerns that these kinds of disputes may not be arbitrable or will hinder the enforceability of an eventual award.[8] Moreover, even in jurisdictions where these types of disputes may be arbitrated, most limit the binding effect of the award.[9] Parties may also exclude certain IP disputes because they are concerned about the right to appeal or wish to avail themselves of certain procedures more commonly associated with court proceedings (such as a claim construction hearing, a common proceeding in US courts, in which a judge determines the meaning of terms used in patent claims).
However, before reflexively excluding these types of disputes from arbitration, parties should carefully consider whether doing so is necessary and will promote efficient dispute resolution. For instance, depending on the geographic scope of the parties’ IP agreement, disputes concerning validity and infringement may entail litigating before multiple foreign courts (which cannot be consolidated), involving different procedural and substantive treatment of very similar issues before judges with varying degrees of experience. In this situation, arbitration offers the possibility of resolving the disputes in a single proceeding before experienced decision makers, thereby reducing costs and minimising the risks of inconsistent judgments.
Moreover, even if the award does not bind third parties, an award inter partesmay suffice because many IP disputes brought in arbitration are primarily contractual (e.g., relating to royalties obligations, assignment of rights or infringement). Indeed, one can readily imagine a scenario where a confidential award inter partes is preferable because it resolves the dispute at hand while limiting the downstream impact of an adverse award (e.g., a public finding of invalidity).
The difficulty with carve-outs is that even when they are well drafted, it is not always possible to draw the dividing line between disputes involving IP rights and commercial disputes. Take, for instance, a common situation involving a licensing agreement where the licensor brings a claim for breach and infringement, and in defence, the licensee denies any breach and argues the patents are invalid.
If the parties have excluded infringement and validity from arbitration, they will need to litigate these issues in a parallel court proceeding (and possibly in more than one court proceeding where different jurisdictions are implicated). This, in turn, risks spawning disputes over which claims must be submitted to the courts, which claims must be submitted to the arbitrators, which claims should proceed first, which claims should be stayed and who should decide these questions. Moreover, parallel proceedings are not only inefficient and costly, but they also inject uncertainty and complexity into the dispute resolution process, are more difficult to coordinate and run the risk of inconsistent outcomes.
As illustrated by the US court case Oracle America, Inc v. Myriad Group AG, these risks are not theoretical.[10] In that case, Oracle sued Myriad Group in the federal court in the Northern District of California for trademark infringement, copyright infringement, breach of California’s unfair competition law and breach of various licensing agreements for failing to report and pay royalties. In response, Myriad Group moved to compel arbitration in accordance with the terms of one of the licence agreements, which provided that ‘[a]ny dispute arising out of or relating to this License shall be finally settled by arbitration’.[11]
After finding this charging language reached every dispute that touched upon the licence, the district court turned to the scope of the exclusion for ‘dispute[s] relating to . . . Intellectual Property Rights.’ It then ruled that the carve-out was unambiguous and excluded all of Oracle’s non-contract claims from arbitration, granting the motion to compel solely with respect to the claim for breach of contract.[12]
That decision was later reversed by the Ninth Circuit Court of Appeals on the grounds that the parties had delegated questions of arbitrability to the arbitrators by incorporating the UNCITRAL Arbitration Rules into the arbitration clause. Thus, the question of whether the non-contractual claims were excluded from arbitration should have been decided by the arbitrators in the first instance, not the court, and the case was remanded.
With over two years spent litigating who should decide the scope of the arbitration agreement and the exclusion and how that exclusion should be read, this case serves as a cautionary tale about the downside of carve-out provisions. It also speaks to the need for careful drafting. For instance, parties who decide to include a clause excluding all or some IP disputes from arbitration may also wish to consider expressly stating whether the arbitrators or the courts shall decide the scope and applicability of the agreement to arbitrate, including the exclusions.
In the same vein, while broad charging language such as ‘any dispute or claim which may arise out of or in connection with this Agreement’ should be naturally read to encompass disputes relating to validity and infringement,[13]where the parties have agreed to submit such disputes to arbitration, they should nonetheless consider saying so expressly to reduce the risk of future disputes.[14] A recent US court decision, AbbVie Inc v. Novartis Vaccines and Diagnostics Inc,[15] illustrates why. In that case, AbbVie brought an action to declare certain patents invalid, and Novartis moved to compel arbitration. Before the court was AbbVie’s claim that the licence agreement carved out patent validity disputes from arbitration notwithstanding an arbitration clause that stated ‘any dispute regarding this Agreement’ would be resolved through arbitration. AbbVie’s argument rested on another provision of the agreement, which it contended effectively functioned as a carve-out.[16] While the court ultimately rejected AbbVie’s construction, this dispute might have been avoided entirely with clearer drafting.
The seat of the arbitration
The seat of arbitration is the legal place of arbitration. The seat is important because, among other things it determines the powers of the arbitrators, the supervisory role of the courts during the arbitration and the legal grounds for challenging (or setting aside) the award. From a New York Convention perspective, the seat also determines the nationality of the award,[17] which is especially important if recognition and enforcement will be sought in a signatory state that requires reciprocity.[18]
It should be noted that the term ‘seat’ is not interchangeable with the term ‘venue’ in some jurisdictions, where it merely connotes the geographical location of the hearings. Moreover, regardless of the seat, most arbitral rules permit the tribunal to convene hearings anywhere in the world, as well as virtually.
Best practice is to agree on the seat in advance and specify that location (usually a city) in the arbitration clause. The parties should endeavour to choose a seat in an arbitration-friendly jurisdiction, which means the laws and courts of the seat support arbitration. It should also be located in a signatory state to the New York Convention to facilitate enforcement for the reasons discussed above.
In IP agreements, additional considerations should include (1) the extent to which IP disputes are arbitrable at the seat and (2) the availability of effective interim relief. Turning first to arbitrability, certain IP disputes are not arbitrable in many jurisdictions. Thus, parties should consider the types of disputes they may wish to arbitrate and select a seat where those disputes are arbitrable. For example, if the parties want to submit disputes regarding patent invalidity, enforceability and infringement to arbitration, they should consider seating the arbitration in countries such as Belgium,[19] France,[20] Switzerland,[21] the United Kingdom[22] or the United States,[23] rather than in countries where arbitrability is excluded (South Africa) or limited to certain issues (Germany).[24]
Because access to interim relief can often be critical in IP agreements – for instance, to prevent disclosure of confidential information or use of a misappropriated trade secret – the parties should consider choosing a seat in a jurisdiction where arbitrators have the power to grant interim relief, the courts have a good track record of enforcing interim awards and effective interim relief is otherwise available in the courts.
Finally, if agreement on the seat is not possible (because, for instance, the counterparty is insisting on a seat that is not neutral or is not suitable for other reasons), the parties should, as a last resort, ensure they select an arbitral institution or rules that will designate a seat, taking into account the circumstances of the arbitration.[25]
The law governing the contract and the law governing the arbitration agreement
With most IP agreements, it is possible that multiple laws will apply substantively and to the arbitral proceedings. First, there is the substantive law governing the agreement. This is the law that controls the parties’ rights and obligations under the agreement and, depending on its wording, may extend to non-contractual rights and obligations. Governing law clauses are routinely included in IP agreements to avoid the uncertainty, time and cost of arguing over the applicable law.
Second, there are the laws governing IP rights. These are the laws of the country where the IP is registered or granted, or from which the IP protection emanates (e.g., the validity of a Spanish patent will be governed by Spanish law). Where the IP agreement is governed by the laws of one jurisdiction and the underlying IP is subject to the laws of another, the parties may wish to specify which laws apply to the IP claims (such as validity and infringement) to avoid disputes over the applicable law. In choosing that law, the parties should consider any restrictions imposed by the law at the seat of arbitration or at the expected place of enforcement.
Third, there are the laws governing the agreement to arbitrate. This is the law used to interpret the arbitration clause and determine its scope and validity. Frequently, parties do not specify this law, perhaps because they assume that law governing the agreement to arbitrate will be the same as the substantive law of the agreement. While in many cases that assumption may prove accurate, it is not a given, especially when the substantive governing law differs from the seat of arbitration. Moreover, different jurisdictions take different approaches and many arbitration rules are silent on this topic.[26] Thus, to save the time and expense of arguing over which law governs the agreement to arbitrate, parties may wish to specify it in the agreement itself. In most cases, the parties should choose between the laws at the seat of arbitration or the substantive law of the agreement.
Institutional or ad hoc arbitration
Another element that the parties need to consider is whether the arbitration will be conducted under the auspices of an arbitral institution – and, if so, which institution – or if the arbitration will be ad hoc (i.e., not administered by an institution). Both options present their own advantages and disadvantages for parties to IP disputes.
Parties that prefer ad hoc arbitration put a premium on flexibility and the freedom such an agreement gives the parties to craft bespoke procedures specifically tailored to their IP needs. Often taking the form of dispute resolution schedules or annexes to the IP agreement, these procedures may include, for instance, streamlining pleadings, bringing in discrete elements of civil procedure, fast-tracking to hearings and providing for non-reasoned awards or limiting the arbitrators’ powers to adopting one party’s proposed rulings and relief.[27] Some parties also perceive that ad hoc arbitration may be less expensive than institutional arbitration because it avoids the administrative costs and filing fees associated with the latter.
There are, however, several potential drawbacks to ad hoc arbitration that parties should consider. First and foremost, unless the parties have designated an appointing authority, constituting a tribunal can become time-consuming and expensive if one party is unwilling to cooperate or the parties are unable to agree on the third (presiding) arbitrator. In institutional arbitration, there are rules to address this situation, and the institution is on standby and ready to assist. Equally important, most institutional rules expressly require an arbitrator to be impartial and independent, incorporate an affirmative duty of disclosure and establish a procedure for pre-award challenges. In ad hoc arbitration, if the parties do not expressly include these elements, they must rely on the lex arbitri or the law at the place of enforcement after the award has been rendered. Notably, many jurisdictions do not permit pre-award challenges to arbitrators in court. Instead, the only recourse is to set aside proceedings after the arbitration is over.
Another downside to ad hoc arbitration is the lack of an arbitral institution to help the proceedings run smoothly, born out of decades of experience administering arbitrations. Institutions also play an important role in setting and collecting the arbitrators’ remuneration. In ad hoc arbitration, the parties and the arbitrators must reach an agreement on the arbitrators’ fees and allowable expenses. This can result in potentially uncomfortable discussions over what amounts are reasonable and may leave the parties more vulnerable to abuse.
Institutional rules also fill gaps in arbitral procedure. They have been refined to avoid procedural breakdowns when one party is uncooperative, and they have evolved based on user feedback. For instance, many institutions now have an emergency arbitrator feature, which permits parties to obtain urgent interim relief before constitution of a full tribunal.[28]
If, on balance, the parties opt for ad hoc arbitration, the parties should, at minimum, include procedures (with timing) for appointing the tribunal and designate an appointing authority so they do not waste significant time and expense before the arbitration has really begun. The parties may also wish to choose set rules designed for ad hoc arbitration, such as the UNCITRAL Arbitration Rules.
If the parties opt for institutional arbitration, there are many reputable institutions that the parties should consider based on the needs of the arbitration. Those institutions include, but are not limited to: the International Chamber of Commerce (ICC); the American Arbitration Association (AAA) or the International Centre for Dispute Resolution (ICDR); the London Court of International Arbitration (LCIA); the Swiss Chambers’ Arbitration Institution; the Singapore International Arbitration Centre (SIAC); and the Hong Kong International Arbitration Centre (HKIAC).
In selecting an institution, one factor the parties may wish to consider is whether the institution has developed rules with an IP dispute in mind. The World Intellectual Property Organization (WIPO) and the AAA stand out in this regard. WIPO specialises in IP and technology disputes (although the scope of disputes that are submitted to WIPO is broader). Its arbitration rules include a number of provisions focused on the taking of evidence and proofs in IP disputes (such as requiring parties to conduct tests and experiments, ordering site visits and permitting the tribunal to request technical primers, drawings and models).[29] The WIPO Rules also incorporate comprehensive confidentiality protections that go beyond the existence of the arbitration proceedings to include disclosures made during the arbitration and the award.[30] The WIPO Rules further provide a wide and inclusive definition of ‘confidential information’.[31]
The AAA has promulgated the Supplementary Rules for the Resolution of Patent Disputes (the AAA Patent Arbitration Rules), which adopt specialised procedures, including elements more typically featured in US federal patent proceedings. In particular, the AAA Patent Arbitration Rules recommend a framework of sequential steps, beginning with the disclosure of the patent infringement contentions and extending to the disclosure of the preliminary patent invalidity claims, the production of technical documents and the progressive shaping of each party’s ‘claim construction’, culminating in a claim construction hearing before the arbitrators.[32]
The number and qualifications of arbitrators
If the parties have chosen institutional arbitration, the institutional rules will provide a default approach to the number of arbitrators and their method of appointment.[33] The approach differs across institutions, and parties should familiarise themselves with the relevant provisions in the rules they have selected when drafting their arbitration clauses. If the parties have chosen ad hoc arbitration, there may or may not be a default mechanism; this will depend on whether the parties have adopted a set of rules and what those rules provide.[34]
In practice, most parties prefer to specify the number of arbitrators and the method of appointment. Parties that choose a sole arbitrator usually do so because they believe the arbitration will be more efficient and less costly. These benefits primarily come from a reduction in arbitrators’ fees (one versus three) and the efficiency gains associated with a single decision maker. For instance, scheduling hearings may be easier because there are fewer potential conflicts. Parties that choose three arbitrators often do so because they see value in being able to select their own arbitrator. They also believe a three-person tribunal enhances the decisional process, with the idea being that three arbitrators are less prone to errors of law or fact. Because there is generally no right of appeal in arbitration, this is important, especially for complex or high-stakes disputes. Both perspectives have merit.
At the clause drafting stage, it can be difficult to predict what kinds of disputes are likely to arise. Consequently, parties may want to adopt a more flexible approach towards the constitution of the tribunal. For instance, they could agree that lower value (e.g., less than US$5 million)[35] or specific types of disputes shall be resolved by a sole arbitrator,[36] while all other disputes shall be decided by a three-member tribunal.
Whether they opt for a sole arbitrator or a three-member panel (or some combination thereof ), the parties should specify how the arbitrators will be appointed. For three-member tribunals, a common method is for each side to select an arbitrator and for the third (or presiding arbitrator) to be selected by agreement of the parties or appointed by the institution administering the arbitration.
Parties should also consider what happens if one party fails to select its arbitrator in a timely manner or the parties are unable to agree on the sole or presiding arbitrator. If the parties have agreed to institutional arbitration, this prospect is likely addressed in the associated rules, and they do not need to do anything further.[37] For ad hoc arbitrations, parties should consider as a best practice naming a third-party institution to act as the appointing authority.[38]Otherwise, they will have to rely on provisions of the lex arbitri, which usually provides for the appointment to be made by a competent national court.
Another point to consider is the qualifications of the potential arbitrators. For many parties, one of the benefits of arbitration is the ability to choose decision makers who have technical or legal expertise in specific areas. This can be especially important in IP agreements because the disputes are often technically complex. If this is important to a given transaction, parties may wish to consider including criteria or qualifications for the arbitrators in the arbitration clause.[39]
In so doing, parties should be careful not to draw these qualifications too narrowly at the risk of limiting the pool of available candidates or even eliminating arbitrators who otherwise have the right experience, background or knowledge to resolve the dispute. The more specific the qualifications, the higher the risk, particularly in smaller industries where the only arbitrators meeting the criteria may have conflicts or limited availability. In addition, experience may not always be a good thing. For example, based on his or her experience, an arbitrator may hold entrenched views that do not align with a party’s case theory or that otherwise may be difficult to overcome.
Furthermore, the scope of arbitration clauses usually encompasses all disputes arising out of or relating to the agreement, not solely technical disputes. It may be difficult to anticipate what experience and qualifications will ultimately best serve the parties’ interests. Another approach is to provide that the qualifications apply only if certain issues are in dispute. For example, the parties could state that the arbitrators shall have 15 years of experience in patent prosecution if the dispute concerns patent infringement or patent invalidity. For parties considering this approach, one difficulty is how it plays out in practice, as one or more arbitrators may be appointed before the full contours of the dispute are known.
Where parties have decided to include arbitrator qualifications, they should take steps to minimise the risk of delays in the constitution of the tribunal or challenges after the fact based on whether an arbitrator satisfies the criteria. The qualifications should be clearly stated, broad and, as much as possible, objective. In addition, the arbitration clause should provide a ‘sunset’ date from the nomination of the arbitrator, after which time the arbitrator will be deemed to have met any qualifications to both parties’ satisfaction.
Another option for parties that believe it is important to select arbitrators with technical expertise is to choose institutional rules with a dedicated arbitrator list for IP disputes, such as those of WIPO, JAMS, SIAC, the HKIAC, the LCIA or the ICDR, and to agree to select arbitrators from that list. The Silicon Valley Arbitration and Mediation Center also maintains a peer-vetted ‘Tech List’ of arbitrators and mediators with expertise in the technology sector and specific industry focuses.
Interim relief and equitable relief
Parties to an IP agreement often have a critical interest in ensuring they can obtain interim and injunctive relief, as it may be instrumental to preventing a breach of a non-disclosure agreement, preserving a trade secret, enjoining patent infringement or removing infringing goods from the market, among other things.
Most arbitration rules address interim relief.[40] They usually empower arbitrators to grant provisional measures, and most rules now provide some form of emergency arbitration. Emergency arbitration permits the parties to obtain such relief on an expedited basis before the constitution of the tribunal. In general terms, it involves the prompt appointment of an arbitrator (within a couple of days of the request) and a decision to be made within a set number of days or weeks. The enforceability of the decision will depend on the place where enforcement is sought, as well as the rules governing the procedure.
Because interim relief may not always be effective or available in arbitration, parties will usually want to retain the right to go before the national courts of competent jurisdiction. Again, virtually all institutional rules permit the parties to seek interim relief in the national courts without waiving their right to arbitrate. Parties should keep in mind, however, that some rules take a more restrictive approach after the tribunal is formed.[41] Consequently, if parties wish to ensure they retain the unfettered right to seek interim relief from the courts at any point during the arbitration, they should make this explicit in the arbitration agreement. They may also wish to provide for the non-exclusive consent to jurisdiction in specified courts for interim and provisional remedies.
In addition, parties will sometimes seek to carve out equitable relief from the arbitration, particularly for alleged breaches of confidentiality or non-compete provisions. As a rule, carve-out provisions based on remedy should be approached with caution. Parties should balance the perceived benefits of the carve-out against the risk that it will lead to parallel proceedings (and correspondingly to increased costs and delays in resolution of the merits). For example, parties could find themselves simultaneously arbitrating one set of claims where the remedies and relief sought are contractual and litigating a set of related claims where the remedies sought are equitable. These clauses can also be prone to abuse; a party that prefers to avoid arbitration, for example, can use the carve-out to disrupt proceedings or otherwise gain procedural advantage.
Confidentiality
In IP disputes, where highly sensitive commercial information is frequently at issue and even the existence of a dispute can have important commercial consequences, confidentiality may be a paramount concern. However, parties cannot assume that their proceedings will be confidential solely because they have chosen to arbitrate. This is because national laws and courts differ in the degree to which arbitrations will be treated as confidential.
In addition, arbitral institutions take varied approaches to confidentiality. Some rules include an express duty of confidentiality that extends both to the parties and the arbitrators.[42] As noted above, the WIPO Arbitration Rules go further, and include the existence of the arbitration, information disclosed during the arbitration and the award.[43] Others, such as the ICDR Arbitration Rules and the ICC Arbitration Rules, go in the opposite direction and provide relatively limited or almost no confidentiality protections.[44]
Consequently, where confidentiality is important to the parties, the best practice is to address it explicitly in the arbitration agreement itself (especially where the institutional rules are less protective). In so doing, parties should be cognisant that even if they have agreed to keep the arbitration confidential, the award may become public as part of an action to recognise and enforce it (or to set it aside).[45] Accordingly, where confidentiality is a primary concern, parties may wish to include language requiring the tribunal to issue a public version of the award that either redacts or does not include information they have previously identified as highly sensitive or confidential.[46] At the same time, parties should also consider what exceptions to confidentiality are required, such as disclosure to comply with a legal obligation, to enforce or to challenge an award or to obtain interim relief.
Conclusion
Arbitration presents a number of advantages for the resolution of IP disputes, including efficiency, neutrality, flexibility, expertise and enforceability. But as shown by the discussion above, there is no one-size-fits-all approach and no substitute for thinking ahead and careful drafting of the arbitration agreement. Pathological arbitration clauses may at best cause delays and increase costs, and at worst be ineffective or result in an unenforceable arbitral award.
In most cases, parties will be better positioned if they start with the model clauses of the leading arbitral institutions and consider using rules that have been developed with IP disputes in mind (such as the WIPO Arbitration Rules). Parties will also be well served to avoid recycling dispute resolution clauses from one agreement to the next and consider: the scope of the arbitration agreement and the need and scope of carve-outs (if any); the seat of the arbitration; the laws governing the contract, the IP rights and the arbitration agreement; the availability of interim relief; and confidentiality.
Notes
1 Rachel Thorn is a partner at Cooley LLP. The author wishes to thank Lorenzo Sordi, an international arbitration consultant at Cooley, for his assistance with the research and drafting of this chapter.
2 IP agreements run the gamut from licensing agreements, and manufacturing, co-marketing and distribution agreements to technology transfer agreements, collaboration, joint development or research and development agreements, joint venture agreements, and information sharing or non-disclosure agreements.
3 Two further requirements are found in Art. V(1)(a), according to which recognition and enforcement of an award may be refused when (1) the parties were ‘under the law applicable to them, under some incapacity’ or (2) the arbitration agreement ‘is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made.’
4 The writing requirement is also met when the arbitration agreement is contained in an exchange of ‘letters and telegrams’ (Art. II(2) of the New York Convention), which has been interpreted as extending to any means of written communication, including electronic communications. The UNCITRAL Model Law explicitly provides that the writing requirement is met by ‘an electronic communication if the information contained therein is accessible so as to be usable for a subsequent reference’, including electronic mail and ‘means of telecommunication which provide a record of the agreement’. UNCITRAL Model Law, Art. 7(4) (Option 1).
5 For instance, if other corporate entities are (or will be) involved in concluding, performing or terminating the contract, the parties may wish to describe the parties who are bound by the agreement to arbitrate broadly to capture affiliates, subsidiaries or other related entities and thereby minimise a dispute down the road over whether the arbitration clause can be extended.
6 See, e.g., ICC model clause (‘All disputes arising out of or in connection with the present contract . . .’); LCIA model clause (‘Any dispute arising out of or in connection with this contract, including . . .’); ICDR model clause (‘Any controversy or claim arising out of or relating to this contract, or the breach thereof . . .’); SIAC model clause (‘Any dispute arising out of or in connection with this contract, including . . .’); and HKIAC model clause (‘Any dispute, controversy, difference or claim arising out of or relating to this contract, including . . .’). The WIPO model clause goes further than the other institutions to expressly include non-contractual claims: ‘Any dispute, controversy or claim arising under, out of or relating to this contract and any subsequent amendments of this contract, including . . . non-contractual claims.’
7 IBA Guidelines for Drafting International Arbitration Clauses (2010), Guideline 3.
8 One of the few grounds for refusing to enforce an arbitral award under the New York Convention is if ‘[t]he subject matter of the difference is not capable of settlement by arbitration under the law of ‘the country where recognition and enforcement is sought’. (Art. V(2)(a).) In light of this, the parties should consider whether IP disputes are arbitrable in the jurisdictions where they anticipate enforcing an eventual award.
9 Switzerland is a notable exception. See Swiss Federal Office of Intellectual Property Ruling of 15 December 1975 and Dàrio Moura Vicente, Arbitrability of Intellectual Property Disputes: A Comparative Survey (2015) 31 Arb Int’l, 157–158.
10 Oracle Am., Inc. v. Myriad Grp. A.G., 724 F.3d 1069 (9th Cir. 2013).
11 The arbitration clause at issue read in full: ‘Any dispute arising out of or relating to this License shall be finally settled by arbitration as set out herein, except that either party may bring any action, in a court of competent jurisdiction (which jurisdiction shall be exclusive), with respect to any dispute relating to such party’s Intellectual Property Rights or with respect to Your compliance with the TCK license. Arbitration shall be administered: (i) by the American Arbitration Association (AAA), (ii) in accordance with the rules of the United Nations Commission on International Trade Law (UNCITRAL) (the “Rules”) in effect at the time of arbitration as modified herein; and (iii) the arbitrator will apply the substantive laws of California and United States. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction to enforce such award.’ Oracle, 724 F.3d at 1071.
12 Oracle Am. Inc. v. Myriad Grp. AG, 2011 WL 3862027, at *6-7 (N.D. Cal. Sept. 1, 2011).
13 See, e.g., Polymer Tech. Sys., Inc. v. Roche Diagnostics Corp., 2010 WL 3782173, at *2 (S.D. Ind. Sept. 20, 2010).
14 For instance, the American Arbitration Association’s model arbitration clause for its Supplementary Rules for the Resolution of Patent Disputes provides: ‘[a]ny controversy or claim arising out of or relating to this contract, or the breach thereof, including any dispute relation to patent validity or infringement, shall be settled by arbitration administered by the American Arbitration Association under its Supplementary Rules for the Resolution of Patent Disputes . . .’
15 AbbVie Inc., v. Novartis Vaccines and Diagnostics, Inc., 2017 WL 383540 (N.D. Cal. Aug. 31, 2017).
16 The provision at issue was the definition of the term ‘valid claim’, which included ‘any claim of an issued (or granted) and unexpired patent which has not been held unenforceable, unpatentable or invalid by a decision of a court or governmental agency of competent jurisdiction’. AbbVie, 2017 WL 383540, at *2. In advancing its argument, Abbvie relied on an earlier case decided under New York law, which held that language submitting disputes ‘arising under or regarding the interpretation of [the sublicensing] Agreement’ to arbitration did not include challenges to patent validity. Abbott Labs. v. Mathilda & Terence Kennedy Inst. of Rheumatology Trust, 2011 U.S. Distr. LEXIS 158511 (S.D. N.Y. Oct. 14, 2011).
17 Art. I(1) of the New York Convention.
18 Pursuant to Art. I(3) of the New York Convention, a signatory state may limit application of the Convention to awards made only in the territory of another signatory state on the basis of reciprocity, rather than to all foreign arbitral awards, irrespective of where they are ‘made’.
19 See Vicente, supra note 9.
20 See Liv Hidravlika DOO v. SA Diebolt, No. 05-10577, Paris Court of Appeal, 28 February 2008.
21 See Vicente, supra note 9.
22 See ICC Final Report on Intellectual Property Disputes and Arbitration, 2.12 (‘[T]here is no reason of principle in English law why an intellectual property dispute should not be referred to arbitration.’).
23 See 35 USC Section 294(a)-(c), which allows the parties to submit to arbitration ‘any dispute relating to patent validity or infringement’. In the United States, the award only binds the parties to the arbitration and is not enforceable until it has been registered with the US Patent and Trademark Office.
24 See Vicente, supra note 9 at 153–154.
25 For instance, Art. 18(1) of the UNCITRAL Arbitration Rules reserves this choice for the arbitral tribunal, while Art. 18(1) of the ICC Arbitration Rules leaves it to the ICC Court.
26 Exceptions to this include the LCIA Arbitration Rules, Article 16.4 (‘the law applicable to the Arbitration Agreement and the arbitration shall be the law applicable at the seat of the arbitration’, unless the parties have agreed in writing otherwise and ‘such agreement is not prohibited by the law applicable at the arbitral seat’); the WIPO Arbitration Rules, Article 61(b) (same); and the JAMS International Arbitration Rules, Article 19.2 (same). The HKIAC is one of the few arbitral institutions that recommends specifying the law applicable to the arbitration agreement as part of its model clause.
27 Some collaboration and development agreements, for instance, contemplate the possibility of future royalty-bearing licences upon the occurrence of certain events and use a form of ‘baseball arbitration’ as a vehicle to move forward in the event the parties cannot agree on the terms. The arbitrator’s remit is to select the term sheet for the deal based on pre-agreed parameters, such as comparable market terms, scope, state of development and similar.
28 The ICDR and the ICC were among the first institutions to establish such a procedure, quickly followed by the LCIA (Art. 9B), WIPO (Art. 49), the Swiss Chambers’ Arbitration Institution; (Art. 43), JAMS (Art. 2), SIAC (Rule 30) and the HKIAC (Art. 23).
29 WIPO Arbitration Rules, Arts. 51–53.
30 id., Arts. 75–78.
31 Article 542 of the WIPO Arbitration Rules defines confidential information as ‘any information, regardless of the medium in which it is expressed, which is: (1) in the possession of a party; (2) not accessible to the public; (3) of commercial, financial or industrial significance; and (4) treated as confidential by the party possessing it’.
32 See e.g., AAA Patent Arbitration Rules, Rule 3.
33 See e.g., ICC Arbitration Rules, Art. 12; WIPO Arbitration Rules, Art. 14; LCIA Arbitration Rules, Art. 5; ICDR Arbitration Rules, Arts. 11–12; SIAC Arbitration Rules, Rule 9; HKIAC Arbitration Rules, Art. 6; Swiss Arbitration Rules, Art. 6.
34 See e.g., UNCITRAL Arbitration Rules, Arts. 7–10.
35 Lower-value disputes may also qualify for expedited or fast-track procedures. See e.g., ICC Expedited Procedural Rules; ICDR International Expedited Procedures; SIAC Arbitration Rules, Rule 5(1); Swiss Arbitration Rules, Art. 42(2); HKIAC Arbitration Rules, Art. 42. Again, institutions differ on whether the expedited procedures that apply should be default or opt-in, and the amount in dispute as the trigger.
36 Where the clause is silent on the number of arbitrators, most institutional rules default to a sole arbitrator unless the amount in dispute or the complexity of the case warrants otherwise. See e.g., ICC Arbitration Rules, Art. 12(2); LCIA Arbitration Rules, Art. 5(8); SIAC Arbitration Rules, Rule 9(1); WIPO Arbitration Rules, Art. 14(b); ICDR Arbitration Rules, Art. 11; Swiss Arbitration Rules, Art. 6(2).
37 See e.g., ICC Arbitration Rules, Art. 12; WIPO Arbitration Rules, Art. 19; LCIA Arbitration Rules, Art. 5; ICDR Arbitration Rules, Art. 12; SIAC Arbitration Rules, Rules 10–11; HKIAC Arbitration Rules, Arts. 7–8; Swiss Arbitration Rules, Arts. 7–8.
38 For example, the ICC recommends that parties that wish to designate the ICC as an appointing authority for their ad hoc proceedings include the following language in their arbitration agreement: ‘The International Chamber of Commerce (“ICC”) shall act as appointing authority in accordance with the Rules of ICC as Appointing Authority in UNCITRAL or Other Arbitration Proceedings.’ Rules of ICC as Appointing Authority (2018), Suggested Wording.
39 As the parties weigh the pros and cons of arbitrator qualifications, it should be recalled that avenues exist within the arbitration to ensure arbitrators become educated on any technical issues in dispute. For instance, parties are free to present expert evidence, and most institutional rules permit arbitrators to appoint experts to assist them in the proceedings.
40 See, e.g., ICC Arbitration Rules, Art. 28; LCIA Arbitration Rules, Art. 25; WIPO Arbitration Rules, Art. 48; SIAC Arbitration Rules, Rule 30; HKIAC Arbitration Rules, Art. 23; Swiss Arbitration Rules, Art. 26; ICDR Arbitration Rules, Art. 24; UNCITRAL Arbitration Rules, Art. 26.
41 See, e.g., LCIA Arbitration Rules, Art. 25.3 and SIAC Arbitration Rules, Rule 30.3.
42 See, e.g, LCIA Arbitration Rules, Art. 30; Swiss Arbitration Rules, Art. 44; HKIAC Arbitration Rules, Art. 45; SIAC Arbitration Rules, Rule 39.
43 WIPO Arbitration Rules, Arts. 75–78.
44 ICDR Arbitration Rules, Art. 37 (confidentiality limited to the arbitrators and administrator with the tribunal empowered to make confidentiality orders); ICC Arbitration Rules, Art. 22(3) (arbitrators empowered to make confidentiality orders at the request of a party).
45 In some jurisdictions, parties may also be required to register the final award under the applicable IP law for it to be enforceable. In the United States, for instance, an award resolving a dispute relating to patent validity or infringement is not enforceable unless it is registered with the US Patent and Trademark Office. 35 USC Section 294(d)–(e).
46 In this respect, note that the ICC recently adopted the position that all ICC awards made from 1 January 2019 onwards may be published no less than two years after their notification unless the parties opt out. Prior to an award’s publication, any party may object or require that the award be anonymised. Further, where a confidentiality agreement covers certain aspects of the arbitration or the award, the ICC will only publish the award with the parties’ specific consent. ICC, Note to Parties and Arbitral Tribunals on the Conduct of Arbitration Under the ICC Rules of Arbitration (1 January 2019), Paras. 41–44.
By Rachel Thorn