The rise of international arbitration in IP, science and technology disputes

June 2022  |  SPECIAL REPORT: INTERNATIONAL DISPUTE RESOLUTION

Financier Worldwide Magazine

June 2022 Issue

Intellectual property (IP) is a hot topic in the world of international arbitration, with a burst of arbitration activity around IP licensing, trade secrets, and disputes involving technology and pharmaceutical companies. This article offers a brief look at the factors driving this development and the recent experience of IP disputes in arbitration.

International arbitration has been a popular approach for resolving cross-border commercial disputes for decades, having gained widespread acceptance in the latter part of the 20th century, fuelled by the proliferation of international business transactions and the near-universal ratification of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the New York Convention.

Early and consistent adopters have included, for example, the construction and energy industries, which have been stalwarts of international arbitration for decades. Other types of disputes, including those involving patent licences, pharmaceutical transactions, and other complex IP matters, are coming to the table today more so than ever before.

Factors behind the rising use of international arbitration

The recent rise in international arbitration activity in the IP, science and technology arenas may, in part, be the sign of a maturing arbitration market. Arbitration institutions and practitioners, on solid footing, are forever looking to expand their gambit, and technology and pharmaceutical companies with global business footprints are a prime market.

But commercial arbitration is a creature of contract, so parties find themselves in arbitration almost exclusively by advance agreement in their commercial transaction documents. The increase in international arbitration of patent licence, technology licence and pharmaceutical disputes could not occur, except that companies in those industries have planned ahead and incorporated arbitration clauses when drafting their agreements.

The decision to use arbitration in these matters is no doubt a considered one, and it likely is attributable to many of the same factors that have led to the incorporation of arbitration in other areas.

At the top of that list of factors is that arbitration awards tend to be more easily enforceable across borders than court judgments. This is due largely to the New York Convention, which is in force in approximately 170 states and requires the enforcement of arbitration awards rendered in other contracting states, subject to limited exceptions. This relative ease of enforceability may be particularly attractive to parties seeking to protect their IP who can anticipate the need to enforce their rights, once established, in multiple countries.

Also high on the list is the availability of broad confidentiality protection in arbitration. Commercial arbitration is private by its nature, and it is common for arbitration clauses, rules and procedural orders to contain stringent confidentiality restrictions. This is attractive to many commercial parties that prefer to handle their disputes in private, and it may be even more attractive to parties concerned with protecting their IP. But contracting parties should be aware that arbitration is not automatically confidential in every jurisdiction. Care should be taken to incorporate confidentiality protections in arbitration clauses and procedural orders to meet the needs of the situation.

The importance of arbitrator selection

Another important feature of arbitration is the parties’ ability to select the arbitrators. Parties ordinarily will seek to agree on the arbitrator, or each side will have the power to choose one member of a panel of three. Parties are able to choose decision makers in whom they have confidence and who are incentivised to devote the time and attention that a matter requires, sometimes by fee structures but always by the importance of their reputation to getting future business. By appointing arbitrators, the parties can avoid the luck of the draw they would face in local courts or, perhaps more ominously, foreign ones.

In cases involving complex matters of science and technology, many companies place significant value on the ability to present the case to arbitrators who have the time and experience to learn the case and make reliably informed and competent decisions. But that should be understood as the goal, not the automatic result of choosing arbitration. Selecting arbitrators is a key phase in the arbitration process and requires careful attention. At its most basic, companies and their counsel must be able to identify arbitrators who have the experience, knowledge and availability to handle the dispute.

Companies in highly specialised and technical industries often consider whether they should use their power of appointment to select an arbitrator who is a specialist in their field; someone who deeply understands their research and technology or the type of transactions that underlie the dispute. Parties to a dispute balance that imperative against the need for professional lawyers, arbitrators or former judges who know how to manage and contribute to the arbitration process and are expert at determining legal issues.

Finding the perfect combination of attributes can be quite difficult, and parties often resort to selecting senior lawyers or arbitrators who combine some exposure to the industry with the intellectual firepower to grasp difficult specialised concepts and expertise in putting complex issues in a proper legal framework. But every case is different and realising the benefit of appointing arbitrators in a complex case requires an early investment of time and cooperation between companies and their counsel.

IP arbitration during the global pandemic

The past two years have been a uniquely difficult time in the world across borders and across industries. Safe and successful navigation of this period has required ongoing flexibility and continual adjustment. International arbitration has shown itself to be particularly well suited for this unprecedented situation and has been an effective venue for IP and complex technology disputes.

Within a single case, arbitrators and parties are commonly found in numerous locations around the world. Arbitration practitioners have long been accustomed to operating most aspects of a case remotely, handling communications among counsel and the parties by email rather than formal filings, and handling many interim hearings and conferences by teleconference and, even before the pandemic, occasionally by videoconference.

This experience allowed arbitration to pivot to the remote ‘Zoom’ environment nearly seamlessly. Relatively unburdened by court shutdowns, delivery delays and similar issues, most arbitration matters appear to have carried on almost without interruption.

To be sure, converting to fully remote merits hearings (the arbitration equivalent of a trial), rather than bringing all the parties and witnesses together in a single room before the arbitrators, caused some early handwringing and contemplation. No one could be sure whether remote witness examinations would be successful, or whether a tribunal could be fully engaged from a remote location.

But the experience of those hearings has proven quite successful and effective. Given the rapid, widespread uptake of videoconferencing applications, arbitrators and witnesses alike were easy to engage. Of course, there were logistical challenges along the way. For instance, how to put documentary evidence before a witness who found himself locked in a government-enforced quarantine hotel at the time of a hearing. But that and other challenges were resolved with a little creativity and cooperation among counsel.

The remote hearing structure itself may even have helped bring complex matters into greater focus. Quite literally. Displaying technical matters on video screens during hearings has long been an important practice, allowing lawyers to present complex information visually in a way that helps ensure that information is properly conveyed. In a remote hearing, every participant is keenly focused on the screen, ensuring as never before that the visual presentation of complex evidence is observed.

The result is that arbitration continued throughout the pandemic, providing timely resolution of significant matters, even on an urgent emergency basis when needed. This has proven critically important in cases where there is an immediate need to protect trade secrets or other confidential information from disclosure to competitors or the public.

The path ahead

International commercial arbitration has performed strongly in recent years and has proven a suitable venue for IP disputes. Given the frequency of cross-border transactions involving companies that rely heavily on IP and complex science and technology assets, the inclusion of arbitration clauses in their commercial agreements is likely to continue and increase, and the rise in the use of international arbitration along with it.

 

Gregory A. Litt and Douglas R. Nemec are partners at Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates. Mr Litt can be contacted on +1 (212) 735 2159 or by email: greg.litt@skadden.com. Mr Nemec can be contacted on +1 (212) 735 2419 or by email: douglas.nemec@skadden.com.

© Financier Worldwide

BY

Gregory A. Litt and Douglas R. Nemec

Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates

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