THE ARBITRATION OF INTELLECTUAL PROPERTY DISPUTES
Chairman, Intellectual Property Specialist Group
The Chartered Institute of Arbitrators
London, United Kingdom
The arbitration of disputes relating to intellectual property is a topic which lies at the intersection of two rapidly growing branches of the law. Arbitration is increasingly chosen as a means of objective and final adjudication of commercial disputes, particularly those which reach across national boundaries. Intellectual property is similarly a burgeoning field of law with ramifications that commonly pertain to more than one jurisdiction. The purpose of this paper is to examine some of the major considerations which arise in the conjunction of these two disciplines.
A convenient definition of intellectual property is supplied by Article 2(viii) of the Convention establishing the World Intellectual Property Organisation in 1967, as amended in 1979. This Article provides that "'intellectual property' shall include the rights relating to:
- literary, artistic and scientific works;
- performances of performing artists, phonograms, and broadcasts;
- inventions in all fields of human endeavour;
- scientific discoveries;
- industrial designs;
- trademarks, service marks, and commercial names and designations;
- protection against unfair competition;
and all other rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields."
This definition expresses the essential nature of intellectual property, that it results from intellectual activity and consists of exclusive rights to the products of man's mind. Note that the definition is extensive and thus able to comprehend new forms of property such as the recently acknowledged rights in the design of semiconductor topographies.
The commercial importance of intellectual property in the last decade of the twentieth century can hardly be over-estimated as we witness the historical transition from an industrial society founded on tangible assets in manufacturing plant to an information society based on intangible assets in knowledge generated by talented individuals. Intellectual property is the source of many of the most dynamic world enterprises. It is the foundation of the publishing industry, the entertainment industry, the pharmaceutical industry, and the most rapidly developing industry of all - that based on information technology. The computer industry generates much of the current interest in intellectual property with the vast commercial activity in new genres of work such as semiconductor designs, computer programs and digital databases.
It is inevitable that the industrial and commercial activity stemming from intellectual properties will engender legal disputes of diverse types. These disputes relate not only to title to the property and infringement of the exclusive rights but also to the problems arising from contracts relating to these properties - the licence agreements, the royalty bargains, and covenants of various kinds.
Advantages of Arbitration
It is the theme of this paper that the character of intellectual property disputes makes them especially suitable for resolution by arbitration rather than by litigation.
A distinctive feature of these disputes is that they often contain highly technical subject matter and can benefit by an adjudicator with specialised knowledge. This is manifest in the case of patents where the property resides in novel and non-obvious subject matter. But it applies also to many copyright matters, such as disputes about computer programs, and in disputes over property in trade secrets. The advantage of arbitration is that the tribunal may be chosen to possess the technical know-how which can appreciate the subtleties of the technical questions at issue. The parties may select their tribunal, they are not bound to argue their case before a judge nominated by the State. They may choose someone in whom they have confidence and in particular the confidence that he will fully grasp the technical content of the property right.
The technical competence of the tribunal is especially important when expert evidence is called, as it so often is in intellectual property disputes. A tribunal which is familiar with the technical matters can more easily receive and evaluate this evidence. It is the arbitrator's ability to engage in fruitful dialogue with the expert, using the same technical language and grasping confidently the technical complexities, that makes arbitration an effective method of dispute resolution.
Intellectual property disputes often involve evidence which is confidential. This is self-evident where the disputes focus on rights to trade secrets. But it may also be the case that analysis in open court of a method of using a patent or of a licensed technology, or of a list of customers, will present commercial advantage to a competitor. Of course in suitable circumstances litigation may conducted in camera, but the natural privacy of the arbitration process is superior in this respect. The parties can arrange that none of the evidence before the tribunal is available to the public. Even the existence of the dispute can remain confidential. The danger that information will be revealed by judicial review of the award can be avoided by agreement of the parties to exclude such appeal.
Many intellectual property disputes concern licence agreements or contracts for the transfer of technology where it is anticipated there will be a fruitful relationship between the parties extending over many years. It is then desirable that all disputes which arise be settled by the same tribunal. It is much easier for an arbitrator to supply this continuity than for a judge. In the case of arbitration the continuity is secured by an agreement between the parties and the arbitrator. It is unlikely that a judge would be able to enter into such an agreement.
Intellectual property disputes often have an international character since the intangible nature of the property makes it readily transportable across national boundaries. Intellectual property may be communicated down a telephone line or sent across the world by satellite transmission or distributed globally by way of a computer network. The multilateral intellectual property treaties such as the Paris and Berne Conventions are designed to promote the protection of these properties internationally. Parties to a dispute may be unwilling to have an international dispute resolved in the courts of one of the disputants. Arbitration then has the distinct advantage that the parties may select a neutral forum of their own choice. Furthermore if one of the parties is a sovereign State then it is more likely to waive immunity before an arbitrator than before a national court.
There is a further significant reason why arbitration may be a more desirable forum for intellectual property disputes than a public court. These disputes may involve matters which are at or beyond the leading edge of the law where legal principles have yet to be fully developed. In these cases, by no means infrequent in the computer industry, arbitrators can resolve disputes more readily than judges and without such far-reaching legal consequences.
Title and Infringement
Intellectual property is a form of personal incorporeal property and disputes may relate to questions of title to, and infringement of, that property. It is in general more difficult to establish title to incorporeal property than corporeal property and more difficult to establish trespass to (say) a copyright than a trespass to land. Arbitration of property disputes raises special considerations because the award of an arbitrator is a decision in personam binding only between the parties whereas property constitutes rights in rem enforceable against the whole world.
This feature of property rights should not however be exaggerated. It is well established in England, for example, that disputes relating to the title to real property may be arbitrated provided such a dispute comes within the terms of the arbitration agreement. An award dealing with title would bind not only the parties but those claiming through or under the parties to the agreement. Thus in an early nineteenth century English case where an arbitrator's award dealt with title to a parcel of land, the lessee of one of the parties was held bound by the award. The same result would apply where the licence is to intellectual rather than to real property. This same case is authority for the principle that though an arbitration award may make a direction in respect of title it cannot itself operate as a conveyance of the title. If an arbitrator's direction in respect of title, to a patent or copyright for example, is not complied with then in England the conveyance would require an application to the court to enforce the award or the alternative procedure of an action on the award.
It must always be remembered that the arbitration agreement is the source of the arbitrator's authority and of the parties' rights in the arbitration. Thus if the parties agree that an arbitrator may make an award in respect of title and infringement, then in English law the parties would be estopped from denying the validity of the award because they have consented to the finality of the process. Such finality is, of course, subject to judicial review where applicable. In English law the parties may by written agreement exclude judicial review or they may prospectively consent to it. It would also be open to the parties to agree that, if an arbitrator declares in his award that a patent is invalid, the party owning the patent will revoke or surrender it. It would seem unlikely that the owner of a patent would assent to such a term but it emphasizes the essential authority that derives from the parties' agreement.
There is one aspect of arbitration of property disputes that is worth mentioning. An arbitrator, in English law, may be given power by the parties to deal with questions as to the future use of property. So an arbitrator could, for example, give precise and detailed directions as to the manner in which a copyright work is to be used in the future. In this respect the powers of an arbitrator may exceed those possessed by the court.
Intellectual property rights, like all other property rights, are secured by the State. Thus a patent is secured by a patent grant, a trademark or service mark by registration, and copyrights and trade secrets by the operation of the law, either statute or common law. There is consequently a public interest in the ownership of these rights and it is necessary to consider whether in a particular jurisdiction there is a public policy which is inconsistent with the arbitration of intellectual property issues.
This matter becomes particularly significant in the recognition and enforcement of foreign arbitration awards under the provisions of the New York Arbitration Convention of 1958. By Article V(2) of that Convention the recognition and enforcement of an award may be refused in a jurisdiction where a dispute is of a kind not capable of settlement by arbitration or where recognition and enforcement is contrary to public policy in that country.
There is no alternative when considering questions of public policy but to look carefully at the rules of each jurisdiction where they have been expressed. In England there is no statutory or other bar to the arbitrability of intellectual property disputes. Furthermore, there is no reason to suppose that a foreign arbitration award dealing with intellectual property issues within the terms of the agreement, including disputes concerned with title and infringement, would not be recognised or enforced in England under the provisions of Article V of the New York Convention as being contrary to the policy of the United Kingdom. At least in this respect England embraces the principle expressed by Blackstone, one of its great eighteenth century jurists: "The public good is in nothing more essentially interested than in the protection of every individual's private rights."
A feature of intellectual property disputes is the importance of interlocutory relief. In practice a high proportion of such disputes are determined at the interlocutory stage. It may therefore be necessary for an arbitrator to make one or more interim awards before the main hearing takes place and it is vital that the arbitration agreement sets no bar on the making of such interim measures. It is also necessary for the arbitration agreement to vest power in the arbitrator to make orders in respect of interim injunctions and such matters as the detention, preservation and inspection of property.
Of course it is the court which has the coercive power to enforce such interim orders, as it is the court which has the ultimate power to enforce an award. Only the court can act against the party by the coercive remedies of a fine, sequestration of assets or, in the last resort, by committal. But it is the arbitrator who is seized of the details of the case, of the evidence and argument supplied by the parties and of the authority to make directions. Thus the parties should be encouraged by the arbitration agreement to seek interlocutory remedies first from the arbitrator, so that the court may act to support the arbitrator rather than act of its own motion.
Intellectual property disputes by their inherent nature are well adapted for determination by arbitration. The essence of arbitration is the agreement of the parties to choose their own tribunal and to select the powers of that tribunal and the proceedings to be followed. The agreement is the fount from which success or failure flows. A carefully drafted arbitration agreement provides the opportunity to select the substantive law, the procedural law and the panoply of powers granted to the arbitrator. This agreement can embody those special requirements of intellectual property disputes such as interlocutory powers and procedures. A most valuable contribution that WIPO can supply is advice and precedents on the making of arbitration agreements designed distinctively for the singular nature of intellectual property disputes.