Why Arbitrate International IP Disputes?

Introduction

International arbitration provides an appealing alternative to adjudication in national courts for many international and cross-border IP disputes. 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^[2] in most parts of the world;
• procedural flexibility tailored to the individual dispute; and
• the cost-effective and consolidated resolution of complex cross-border IP disputes, which may otherwise entail various parallel national court proceedings.

Arbitration may not be the preferred choice in every instance: where a party requires speedy provisional 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.

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. For instance, arbitration users from common law jurisdictions may dislike what they view as excessively limited disclosure. Conversely, those from civil law jurisdictions may decry 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 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 – 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 ownership or rights to IP or indemnity obligations regarding IP infringement claims.

Even in those contexts, the choice between arbitration and national court litigation is highly fact-specific and, to some extent, subjective.

Speed and efficiency of arbitral proceedings

Arbitration is commonly viewed as faster, leaner and less costly than litigation.^[3] Litigating IP disputes in national courts, by contrast, may entail a lengthy (and accordingly more expensive) process, given the relative complexity of IP disputes and the availability of multiple levels of appeals.^[4] By comparison, while statistics are not available for every arbitral institution, data released by leading institutions indicate a substantially shorter period for reaching a result in arbitration.^[5]

Between 2013 and 2016, the average arbitration administered by the London Court of International Arbitration (LCIA) lasted 16 months (for cases with an amount in dispute greater than US$100 million, this increased to 29 months).^[6]

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.^[7]

Between 2013 and 2021, the average Hong Kong International Arbitration Centre (HKIAC) administered arbitration was 16.9 months.^[8]

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.^[9] More recently, 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.^[10] Between 2013 and 2016 the Singapore International Arbitration Centre (SIAC) reported that the average duration of a SIAC-administered arbitration was 13.8 months.^[11]

As a general matter, arbitration can offer relative expediency. But whether it affords an actual advantage in cost and duration will depend greatly on the background and circumstances of the parties and other participants, including the parties’ counsel, experts and the members of the arbitral tribunal, as well as the nature of the dispute and which national court system is being held up for comparison.

From a common law perspective, arbitration may appear to offer significant cost and time improvements over national courts. This includes the 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^[12] with comparatively limited examination of witnesses^[13] and the absence of appeals of awards on the merits. 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., in Germany) – where the examination of evidence is conducted directly by the judge in the inquisitorial tradition and where there is largely no disclosure phase – the average duration of national court proceedings may be on par with, or faster than, the average arbitration.^[14]

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.^[15] This principle of finality is a hallmark of both domestic and international arbitration.^[16]

On the other hand, national appellate courts may bring to disputes a highly developed body of jurisprudence that promotes high-quality decision-making. One example in the United States is the US Court of Appeals for the Federal Circuit, which hears all appeals of patent suits. 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.^[17]

By contrast, in arbitration, the parties have autonomy to designate trusted, specialised and experienced arbitrators to adjudicate their dispute from the outset. And the role of appellate courts in national litigation of developing jurisprudence, and articulating and applying broad 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 – especially if, as is ordinarily the case, decisions about the validity and scope of IP rights will be made on an inter partes and not an erga omnes basis. On the whole, parties to a contractual relationship with an IP element that value certainty and a speedy and final conclusion, would likely prefer to forgo lengthy appeals.

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.

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. At the same time, if such dispositive motions do not succeed in resolving a case, they will have added to the time and expense of court litigation without expediting the final outcome.

Accordingly, the general perception that arbitration is faster and cheaper than national court litigation is not always grounded in reality. No two arbitrations are alike, and certain 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.^[18]

This procedural flexibility may enable certain abuses by recalcitrant parties seeking 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 makes it somewhat difficult for parties to accurately predict costs and duration; however, as discussed below,^[19] many arbitral institutions also offer parties the choice of expedited and emergency arbitration rules and procedures.

Consolidation of parallel cross-border proceedings

A significant advantage that arbitration may offer over national court litigation is the resolution in a single forum of complex cross-border disputes.^[20] If parties’ business relationship involves IP-related rights in two or more countries, resolving disputes in a single national court may not be possible. The ability to address such disputes in a single arbitral proceeding is highly attractive.^[21] The time and cost advantages of such consolidation are obvious: fewer lawyers and decision makers are involved, and witnesses need testify only once. Likewise with experts, 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.^[22] This is, therefore, a critical point that should be closely considered when deciding between arbitration and litigation.

Such consolidation has increasingly become a best practice in the IP context. This is especially true with global IP licensing programmes and of related SEP/FRAND disputes, where pursuing ‘piecemeal’ litigation in diverse national courts would be complex, cumbersome and expensive.^[23] Parallel national court proceedings also entail the risk of contradictory decisions.^[24] In addition, as discussed below,^[25] the relative difficulty of enforcing a foreign court judgment further adds to the appeal 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^[26] and other model arbitration clauses and submission agreements developed for FRAND disputes.^[27] WIPO-administered arbitration also provides specific rules governing preliminary relief, a critical consideration for many IP disputes.^[28]
• Similarly, the American Arbitration Association (AAA), in collaboration with the US National Patent Advisory Council, which consists of 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.^[29]
• 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.^[30] More generally, the CPR’s 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’.^[31]

Some of those arbitral institutions, such as the CPR and WIPO, offer specific expertise in cross-border and international IP disputes.^[32]

Consolidation considerations may involve added complications where parallel or related national court proceedings are already pending. How much or little deference an arbitrator will show to prior pending arbitration or court proceedings related to the same or similar IP rights will depend on a variety of factors, including the extent to which the identity of the parties, the causes of action and the relief sought exists (the triple identity test). Arbitral tribunals steeped in the civil law tradition may be more willing to apply the doctrine of lis pendens during the pendency of the national court proceedings, whereas common law jurisdictions tend to adopt the more discretionary approach of the doctrine of forum non conveniens.

Forum neutrality and choice of arbitrators

A related advantage of arbitration over national courts is the ability to select arbitrators who possess some level of relevant expertise.^[33] IP disputes frequently require delving into very specific fields of science or technology. While some national court judges may possess the necessary 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.^[34] In addition, the parties may agree on certain desired characteristics of the presiding arbitrator (including that the arbitrator 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.^[35] To assist parties, many leading arbitral institutions maintain panels or listings of arbitrators specialising in IP disputes, including WIPO,^[36] HKIAC,^[37] CPR^[38] and SIAC.^[39]

The mere availability of specialised arbitrators may not always result in the preferred outcome. The decision of whether to select arbitrators with IP experience and specialisation may present special challenges to parties, especially where those arbitrators may decide to 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 very 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 upon which an arbitral award may be denied recognition and enforcement are extremely limited.^[40] 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 surely 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 foreign court judgments internationally. 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 on the Recognition and Enforcement of Foreign Arbitral Awards have largely failed.^[41] 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.^[42]

In this context, prevailing parties in complex cross-border IP litigation often face lengthy and costly battles seeking 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.^[43]

Confirmation and enforcement of arbitral awards also requires separate court proceedings following the arbitration process, but this step is usually straightforward. As many commentators have highlighted, the vast majority of arbitral awards are complied with voluntarily and without recourse to enforcement proceedings.^[44]

Confidentiality

In international IP disputes, confidentiality concerns arise in (1) keeping the existence or outcome, or both, of the proceedings secret and (2) guarding the confidentiality of commercially sensitive information (e.g., trade secrets and business know-how) that may need to be submitted to the court or arbitrators 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 confidentially may gravitate towards arbitral institutions with express confidentiality protections in their rules.^[45] 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, for example – 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 as is the case particularly in the US court system; for that reason, confidentiality, or at least privacy, is more likely to be assured in such courts than in the US system. 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 accustomed to the US system.

Regarding the second concern, considering the highly sensitive nature of many IP disputes, related to high-tech know-how and trade secrets, the degree to which confidentiality is able to be guaranteed, and for how long, will be a central concern for parties that consider whether to opt for arbitration over litigation of their differences. Certain institutional rules also 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: (1) of the existence of the arbitration; (2) of disclosures made during the arbitration; (3) of the award; and (4) undertakings by the WIPO Center and arbitrators.^[46]

However, many national courts are equally well-equipped and experienced in protecting confidential information (e.g., trade secrets cases in US courts) and are typically willing to keep truly confidential and sensitive information under seal; therefore, the comparative advantage of arbitration in this regard largely depends on the tools available before 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 specific circumstances of the particular dispute. Nevertheless, these general principles offer an overarching road map for the types of disputes that may be better suited for international arbitration.

Below, we discuss countervailing 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’; and the ‘American Rule’, whereby each party bears its own costs regardless of the outcome.^[47]

While litigation in national courts usually means the parties are subject to that jurisdiction’s rules regarding cost allocation, an arbitration clause permits the parties to decide on their preferred approach to cost allocation; 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 once they have expressed a preference for arbitration to ensure that any assumptions or expectations underlying that decision are actually reflected in the arbitration agreement, or at least in the institutional or ad hoc rules or the lex arbitri that the parties choose, or both.

Potential limitations of arbitration in international IP disputes

Overview

Unlike national courts, arbitral tribunals enjoy limited coercive power.^[48] The arbitral tribunal’s authority is circumscribed by the scope and contents 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 the existence of an infringement, or obtain equitable relief to vindicate their IP rights. 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 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 the area of copyright and 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 terminate the violation of rights and contain the resulting economic damage are especially attractive.^[49] 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, among other factors, the inclination of the specific tribunal to exercise a power to render interim relief and the practical effectiveness of such relief in a jurisdiction outside the seat of arbitration.^[50]

Given an arbitral tribunal’s limited coercive power, international IP disputes implicating urgent interim measures may be better suited to adjudication in national courts. That said, arbitration practice has developed mechanisms to address this concern. The leading institutional rules all generally provide for emergency procedures or interim relief, although they may differ regarding timing.^[51] 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.^[52]

Where suitable preliminary or expedited relief is available from an arbitral tribunal, enforcement of that relief will require (with rare exceptions^[53]) 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.^[54]

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. With this in mind, parties should give careful consideration to the designation of institutional rules and the laws and practices at potential seats of arbitration when drafting their arbitration agreements.

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. Whether arbitration proceedings are already pending is usually irrelevant.^[55]

In the US context, one might imagine that plaintiffs generally prefer to seek interim relief before a national court rather than before an arbitral tribunal; however, in the area of patent infringements, a trend in favour of arbitration is clearly discernible. This is because of the powers of the arbitral tribunal in the field of interim relief, which may go beyond those of the national court. Pursuant to the AAA Rules, for instance, the arbitral tribunal is expressly authorised to grant injunctive relief to terminate infringement.^[56] If interim relief is urgently needed before the constitution of the arbitral tribunal, seeking such relief from a national court of appropriate jurisdiction will be the only option.

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 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 – that is, they bind only the parties to the proceedings.^[57] In the context of international IP disputes, the effect of arbitral awards may present certain drawbacks.

First, arbitral tribunals generally cannot invalidate registered IP rights with erga omnes effect.^[58] Second, arbitral awards are generally not capable of binding non-signatories to the arbitration agreement, such as sub-licensees, except in limited circumstances.^[59] It is not clear, however, that either party has an interest in having the resolution of a dispute apply to other parties (and many may actually prefer that it not). With a dispute involving patent validity, for example, the party challenging validity likely does not care whether its successful challenge to a patent’s validity will benefit others. A patent owner would certainly prefer that a finding of invalidity not apply erga omnes. And under US rules, at least, a finding that a patent is valid in one proceeding (including in court litigation) would not serve to bar other parties from challenging the validity of the patent in other proceedings.

Accordingly, where a decision’s effect on third parties is implicated, arbitration may have perceived advantages or disadvantages depending on a party’s priorities. If setting a public precedent to deter future infringements is desired, proceedings before national courts may still be the preferred option, including owing to the lesser degree of confidentiality or privacy generally attached to court decisions as compared with commercial arbitral awards.

Evidential issues in IP arbitration

The general approach to the taking of evidence is another important variable to assess the perceived efficacy of arbitration in a given IP dispute. A party’s expectations concerning available evidential features may be a decisive factor in deciding between national courts versus 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 hybrid approach of the IBA Rules to evidence 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). The Prague Rules purport to promote greater efficiency in arbitration by adopting an inquisitorial approach to evidence that is well known in most civil law jurisdictions.^[60] As such, the Prague Rules eschew the hybrid approach of the IBA Rules, eliminating the default application of various common law evidential features, such as document disclosure,^[61] party autonomy over the examination of witnesses,^[62] the use of party-appointed experts^[63] and evidential hearings.^[64] The tension between the IBA Rules and the Prague Rules is emblematic or symptomatic of common and civil law divides or perceived divides in this respect.

This civil law–common law divide with regard to evidential features may be particularly relevant in many international IP arbitrations, where the strength of a claim may depend on access to an adversary’s documents, such as internal testing results, meeting notes and internal communications.

In the previous edition of this chapter, it was noted that in the United States, 28 USC Section 1782 makes a wide range of US discovery tools available to litigants in foreign proceedings, and that there was a split among US courts on whether foreign arbitral proceedings are covered by Section 1782. On 13 June 2022, in ZF Automotive US, Inc v. Luxshare, Ltd, the US 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’.^[65]

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. Unfortunately, there is a common perception that arbitrators struggle with these assessments.^[66] 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. 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. In this sense, the uncertainty surrounding an arbitral tribunal’s treatment of damages can be viewed as a disadvantage of arbitration.

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) 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, 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, parties’ 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

Similar assessments may arise with regard to expert evidence. Given the highly technical nature of certain patent and other IP rights, expert evidence may play a key role in guiding a court or arbitral tribunal seized with an IP dispute. An inexperienced arbitral tribunal might exhibit a willingness to abdicate its fact-finding and decision-making roles to the opinion of whichever of the parties’ experts is more convincing for complex and technical factual determinations. Moreover, parties’ freedom to select and present experts and expert issues may be highly strategic and may not reflect the expert evidence that would be most useful or material to the arbitral tribunal in its determination of the outcome.^[67]

The same types of concerns arise in national court litigation, and in some instances may be exacerbated. In the United States, as noted, disputes are typically decided by juries (unless the parties have waived a jury trial). In most instances, jurors will not possess technical expertise and are not permitted to ask questions of witnesses, with the result that even the most earnest of jurors may have difficulty absorbing complex expert testimony and, therefore, may be more influenced by an expert’s performance skills than the substance of the analysis. Typically, civil law court proceedings in civil law jurisdictions do not have juries, although the tribunals may include lay judges who do not necessarily have any expertise in the technical issues in dispute and, therefore, may see considerable value in the expert testimony proffered.

Some of the concerns outlined above could be addressed through the appointment of a neutral expert. Use of neutral experts is not common in court litigation, at least in the United States. Use of neutral experts is likewise not particularly common in many civil law jurisdictions, while at the same time it is worth highlighting that party-appointed experts in such jurisdictions are usually expected to be more proactive and overt in understanding that their duty is owed to the court itself, and not in the first instance to the party that hired them.

In arbitration, by contrast, this option ordinarily would be available; however, expert analysis is already one of the biggest cost contributors to arbitral proceedings.^[68] While differences in attitudes towards the role of the expert may generally be animated by common law and civil law divides,^[69] the added cost and expenses of a tribunal-appointed expert in addition to the party-appointed experts may be viewed as a drawback in arbitration.^[70]

In any event, tribunals differ widely with regard to their inclination to exercise their power to appoint their own expert, and generally the parties should not rely on such an appointment being made in most case; however, 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.

Arbitrability

Issues of arbitrability may arise where the subject matter in dispute is not capable of resolution by arbitration under the law at the seat of the arbitration or the laws of those jurisdictions where an award would be enforced, most commonly on public policy grounds.^[71] Arbitrability is discussed in more detail in Chapter 2 but warrants brief consideration here.

Historically, a number of jurisdictions regarded IP disputes as non-arbitrable because they were perceived to be inherently intertwined with public policy and to be within the exclusive province of the sovereign.

While many jurisdictions now provide that IP disputes are generally arbitrable,^[72] non-arbitrability may remain a concern depending on the parties’ choice of forum and governing law, and the nature of the IP rights involved. For instance, in mainland China, patent and trademark disputes are in the exclusive purview of administrative agencies and courts.^[73] A finding of non-arbitrability may result in the invalidation of the arbitration agreement, an anti-arbitration injunction from national courts, or the refusal to enforce an award premised on certain legal determinations. As a result, depending on the laws at the seat of arbitration and the place of enforcement, it may be necessary to litigate, in whole or in part, the substance of the parties’ IP dispute, notwithstanding the existence of an arbitration agreement.

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.^[74]

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.^[75]

Competition law claims

Competition law issues can arise in international IP disputes where a third party accuses an IP rights owner of obtaining exclusivity to the detriment of the public, or where an IP rights owner claims that a competitor is engaged in unfair competition. Such competition law claims are often an important component of international IP disputes, but may present certain challenges and limitations in arbitration.

First, 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) excludes competition claims from the categories of disputes that an arbitral tribunal has jurisdiction to adjudicate.^[76]

Second, notwithstanding any determination regarding its own jurisdiction, 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,^[77] this is not the case in certain other jurisdictions.^[78]

Finally, arbitration of competition law claims can also implicate complex choice-of-law issues regarding which substantive law should apply to the competition law claims. Many jurisdictions, including the United States and the European Union, deem antitrust and competition laws to be mandatorily applicable and non-derogable – so that these laws may apply to a matter 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. The existence of competition law claims or defences may thus create added complexity to arbitral proceedings.

Conclusion

The discussion in this chapter seeks to provide a high-level road map of the considerations parties should weigh in determining whether an arbitral tribunal or national court is the preferred forum for their international IP dispute. As a general matter, where the vindication of IP rights involves multiple jurisdictions, complex cross-border legal arrangements or the need to apply foreign law, international arbitration offers key potential advantages in the form of a single forum for resolving the dispute and by offering specialised tools and arbitrators with technical expertise.

Many of the pitfalls or perceived limitations of arbitration in the context of IP disputes can be mitigated by forethought and proper drafting of the arbitration agreement. 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.

Ultimately, parties should exercise their autonomy and affirmatively plan for and draft their arbitration agreements carefully to address any anticipated or potential shortcomings and limitations. In so doing, they 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 particular commercial sensitivities and priorities of the parties.

Notes