THE ARBITRATION OF INTELLECTUAL PROPERTY DISPUTES
Julian D.M. Lew
Chairman, Working Group on Arbitration and Intellectual Property
International Chamber of Commerce, Commission on International Arbitration;
Solicitor, Partner, Coudert Brothers;
Head, School of International Arbitration, Centre for Commercial Law Studies
Queen Mary & Westfield College, University of London, United Kingdom
Is there anything special about intellectual property disputes that justifies the need for a specialist arbitration institution or any special arbitration rules?
Arbitration is increasingly the preferred forum for dispute resolution in international commercial transactions of all kinds. Construction contracts, investment transactions, agency and distribution arrangements, joint ventures, maritime, purchase and sale of goods and, of course, licence agreements.
The major commercial arbitration institutions, e.g., the International Chamber of Commerce, the American Arbitration Association, the London Court of International Arbitration, the Stockholm Chamber of Commerce, will all deal with every type of arbitration. The types of arbitrators and the issues that arise will differ according to the different types of contract out of which these arbitrations arise. What then are the specific characteristics and needs of intellectual property disputes and arbitration?
In this paper I would like to consider several problems which arise and which have a particular relevance in arbitrations arising out of intellectual property disputes.
I shall specifically deal with the following issues:
1. Types of contract that could give rise to an arbitration.
2. Selection of arbitrators.
3. Interim relief.
4. Confidentiality of proceedings.
At the outset, however, it may be interesting to identify the number and type of arbitrations with an intellectual property aspect. This information is drawn from the statistics of the International Chamber of Commerce.
1. Statistics for ICC Arbitration Practice
These statistics discussed below are drawn from cases which have been submitted to the ICC Court of International Arbitration. They may relate to make various decisions with regard to the place of arbitration, constitution of the arbitral tribunal, in order to set the proceedings in motion. Interestingly, approximately 75% of the requests for arbitration submitted to the ICC reach the stage of the appointment of arbitrators and the referral of the case for Terms of Reference to be drawn up and the actual commencement of the proceedings.
In the three-year period from 1990 to 1992, 787 new cases were set in motion by the ICC Court. Out of these, 108 (13.72%) cases contained an intellectual property aspect (1).
Parties from 40 different nationalities were involved in these 108 cases, either as claimants or defendants.
Of the parties in the 108 cases (at least 216 parties) over half came from five countries: USA (38); France (28); Italy (22); the Federal Republic of Germany (18); Switzerland (12). Almost 85% of all the parties (170) were from the market economy developed countries. By contrast, 15% of the parties came from the developing countries, the most numerous being for Turkey (5); India (4); Iran (3); China, Indonesia, the Republic of Korea and Yugoslavia (2 each).
Interestingly, out of the above 108 cases, 76 (about 70%) involved parties from developed market economy countries only. There were only three cases where both parties were from the developing world. Accordingly, there were 29 cases involving parties from "development" and "developing countries," of which:
- 15 cases involved plaintiffs from developed countries; and
- 14 cases involved plaintiffs from developing countries.
A breakdown of the types of intellectual property rights which had a connection with the subject-matter of the dispute indicated the following: (2)
Licence agreements 62
Know-how, technical assistance 45
Trade names and ensigns 15
Patent validity, infringement of other 12
Trademarks validity or other 12
Designs and models 7
Copyright and audiovisual rights 6
II. Contracts Giving Rise to Intellectual Property Disputes
As stated earlier, disputes arising out of almost every type of commercial dispute are regularly submitted for resolution by arbitration. These cases give rise to problems that are specific to their particular character or industry and, more significantly, have common, general characteristics. Disputes involving intellectual property rights have many of the common, general characteristics, and some specific industry problems arise.
There seems to be three typical contracts which would involve intellectual property rights:
This is the most obvious whereby the owner of a particular intellectual property right grants permission or authority to another, a third party, to use, by way of manufacture, promotion and sale of the particular right.
The most obvious will be:
- the right to manufacture with the patent of another;
- the right to affix trademarks of another to goods for sale in a particular market;
- the right to use another's copyright in developing or expanding computer software, or to translate written materials into other languages or into stage and film productions
These licence arrangements will invariably be typically one-off contracts. However, they will also arise in contracts, the particular purpose of which is different, but in which the licence arrangement may be an element. For example, in a joint venture contract where one party is contributing intellectual property rights, or in a turn-key contract, where plant and machinery are to be delivered under the contract, and this includes the right (and in some circumstances the obligation) to use and trade, using certain specific intellectual property.
Such disputes may involve simply, unpaid royalties, i.e., are they due, and quantum, or the effect on the parties to maintain, protect, enforce and develop the various rights, or the implications of a breach of warranty as to the existence of such rights.
In most acquisitions there is some warranty about ownership of intellectual property, the extent of licences, the status of patent and trademark registrations, and the capacity of know-how. These transactions often provide for a revision or determination of the price at a later stage, i.e., an earn out. If the intellectual property was not what was warranted both the asset value and the income may reduce considerably, giving rise to post-acquisition disputes. Where there is an arbitration cause, such disputes will require the arbitrator to determine the existence or ownership of the right (subject to arbitrability and finality), the effect of such right on the warranty and other performance obligations and, of course, on the price arrangement.
An employment or research contract:
It is common (and advisable) expressly to state in a contract of employment for an individual who is involved in research or writing, or preparation of any product which will, may or could result in the development of new or improved intellectual property, who is to own such property. This is particularly the case for researchers in scientific institutions or to designers who are preparing business plans and corporate logos. When something valuable is developed, it should be clear who owns it. The fact that one party has paid the other to develop such rights will not necessarily be dispositive of the issues. Hence, the preference and advisability always to cover this directly in the written contract.
III. Selection of Arbitrators
The selection of arbitrators is one of the most important elements in every arbitration system. A good, firm, commanding, but fair arbitrator will have the confidence of the parties. The management of the case and acceptance of procedural orders and an award from the arbitrators will be much easier to accept in these circumstances. However, this fact is equally relevant for every type of arbitration, regardless of the subject matter.
Disputes involving intellectual property issues will include the following problems for arbitrators to determine: meaning and extension of the licence, the intellectual property rights covered by the licence, validity of a particular intellectual property right (subject to arbitrability), interpretation of the agreement and questions as to whether parties have performed their obligations under the agreement; royalty disputes; and rights of parties in the post-contractual period. These issues give rise to specific characteristics relevant in the intellectual property area, but they do not generally affect the structure of the arbitration in any way. The major issue is to ensure the selection of arbitrators with an understanding and experience of that type of commercial transaction, the nature of the intellectual property rights concerned and the particular issues in dispute.
Selection of arbitrators is always of very great importance. It necessitates not only someone who has a thorough knowledge and understanding of that particular area of law and business, but also a person who has the flexibility of mind, and perhaps experience, of private international law, of understanding parties from different systems, and who appreciates the importance of ensuring that all parties have a full opportunity to set out their case, in no particular formal way, and to answer the case that is put against them.
Most arbitration institutions do keep records, formal or informal, of the areas of expertise of arbitrators. They all endeavor to select arbitrators most suitable for the particular case. The parties and their lawyers are generally less well informed about the skills of those they consider as party nominated arbitrators. Published lists of arbitrators as proposed by WIPO may go some way towards assisting with this problem.
IV. Interim Relief
As with other forms of arbitration, there are instances in intellectual property cases where an expedited procedure may be deemed desirable. This is particularly the case where one party is taking a course of action unacceptable to the licensor or intellectual property owner. Whether this action is justified by the agreement or not, a quick response may be needed. Where parties are both anxious to resolve a matter of this sort with expedition, it will invariably be possible to persuade the arbitrators for a quick hearing, or at the very least to find an arbitrator willing to deal with the matter with such expedition.
In practice and reality, in issues of this sort, frequently one party is not willing to move as quickly as the other. This may necessitate resort to the courts. This will apply in all forms of arbitration where, essentially, the arbitrators are the "servants" of the parties, and party autonomy will invariably govern, i.e., where the parties have agreed on a course of conduct, a procedure, a structure for the arbitration, as well as the arbitrators' role and power that the will of the parties will prevail. He who pays the piper selects the tune!
This leads naturally into the question of interim relief being given by arbitrators. The question then is: can an arbitrator, and in what circumstances, make an interim award giving interim relief to one of the parties, or to preserve the status quo?
There are many instances where arbitrators are requested to give injunctive or other relief, both during the course of the arbitration, to preserve the status quo, or as a final remedy. The power of the arbitrators in this respect depends, primarily, on the law governing the arbitration and the applicable arbitration rules. If such power does not exist or is precluded in the relevant arbitration rules, then the arbitrators cannot issue such orders. However, where such orders are in any event issued, it will be a matter for the local court of enforcement to determine whether it will recognize such interim relief.
As a general rule, arbitrators can make interim orders to relate to the parties, inter se, i.e., that govern the relations between two parties themselves. It is fundamentally more difficult and generally ineffective for arbitrators to make orders that will have an effect on third parties. In particular, an arbitrator cannot make an order that will affect the obligations of a third party, such is the blockage of funds in a bank account. Where one has a licence agreement, an arbitrator may be asked to make an order that, pending the outcome of the arbitration a licencee should not, for example, use the trademark or patent of the licensor, sell products manufactured under the licence, hold itself or one of its subsidiaries out as an authorized licencee for the products, give sub-licence rights to third parties, or take any other action that could possibly affect the validity and value of the intellectual property right.
In England, an arbitrator may issue an interim order for the preservation, storage, interim custody and sale of goods which are the subject of the arbitration (Section 12(1) Arbitration Act 1950), provided that the goods are under the control of one of the parties to the arbitration. If goods are under the control of a third party, the order must be obtained from the Court (Section 12(6) 1950 Act). An English arbitrator cannot grant a "Mareva" injunction, i.e., to block funds in a bank account, or an "Anton Piller" order, i.e., to seize goods in the other party's premises. Such orders must be obtained from the court which may provide them, in support of the arbitration procedure, but the court's powers can only be used in exceptional circumstances.
In France, arbitrators may also grant the same interim measures as judges. Arbitrators may render one or several interim awards provided that the object of those measures is closely limited to the matter in dispute. However, the arbitration agreement does not prevent the national court from taking conservatory or provisional measures and this course of proceedings is often preferred in practice since the effect is more immediate than that of an award, the provisional enforcement of which having in any case to be confirmed by the court.
By contrast, I understand that in Germany interim measures for protection of goods in dispute may not be ordered by arbitrators. These measures must be requested from the competent court.
The UNCITRAL Model Law was indicative of contemporary thinking. In Article 17 it provides:
"Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order any party to take such interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject matter of the dispute. The arbitral tribunal may require any party to provide appropriate security in connection with such measures."
Equally, in the United States, under the Federal Arbitration Act, arbitrators have the power to issue injunctive relief. American courts are not often willing to grant this relief where parties have referred the matter to arbitration, and the power has been passed on to arbitrators. Application can be made to the court where there will be undue delay in waiting for the arbitrators to make such an order, and where the goods may be damaged. The American courts are very reluctant to grant interim measures, except to preserve the status quo and prevent irreparable injury. The concern is that where a court grants a remedy prior to the award being made this could influence the arbitrator to determine the issue in the direction that the court has indicated (see Domke on Arbitration, paragraph 26:03).
Swiss law also gives the arbitrator the power to order provisional or protective measures at the request of one party, unless this power has been excluded by the parties. If the parties so ordered do not comply voluntarily with the order of the arbitrators, a request may be made to the Court (Article 183, Swiss Federal Private International Law Act 1985).
This situation is equally recognized in most of the major arbitral institutions' rules. Accordingly, the Rules of the London Court International Arbitration expressly give the power to the arbitral tribunal to:
"... order the preservation, storage, sale or other disposal of any property or thing under the control of any party." (Article 13.1(h).
Under the International Arbitration Rules of the American Arbitration Association, a tribunal:
"... may take whatever interim measures it deems necessary in respect of the subject matter of the dispute, including measures for the conservation of the goods, which are the subject matter in dispute, such as ordering their deposit with a third person or the sale of perishable goods." (Article 22).
The UNCITRAL Arbitration Rules repeat the power given to arbitrators to make awards in respect of interim measures. Article 26 provides:
"At the request of either party, the arbitral tribunal may take any interim measures it deems necessary in respect of the subject matter of the dispute, including measures for the conservation of the goods forming the subject matter in dispute, such as ordering their deposit with a third person or the sale of perishable goods."
This does not preclude either party making a request for interim measures to a judicial authority, and is not deemed to be a waiver of the arbitration agreement (Article 26(3)).
Article 39 of the proposed WIPO arbitration rules contain identical language to the UNCITRAL Arbitration Rules.
The power to make interim awards is generally recognized in the law and in the arbitration rules, and reflects contemporary international arbitration thinking and practice. The real issue, at the end of the day, is whether national courts will give recognition to these awards. This matter will be dealt with specifically tomorrow.
This is a controversial subject at the present time. The question is simple: is arbitration private and confidential? Are the parties entitled to inform third parties of the existence, nature and content of their dispute, how the arbitration is being conducted, who the arbitrators are, and what the ultimate award is?
Arbitration is a private system of dispute settlement. It is the parties that decide to submit to arbitration and it is they who decide how and to what extent they wish the arbitration to be a private procedure. In reality, this is not an issue that they normally address either before agreeing to the arbitration clause or subsequently.
Generally, it is only the parties, their lawyers and other representatives who will attend an arbitration hearing. I have not experienced an arbitration where everybody present needs to be justified. Normally, the Tribunal will ask to be informed of who each member of the two sides are but rarely are questions asked about exactly the status of the individuals on each side. I have also never personally experienced anyone present at a hearing being challenged. This, however, is not necessarily indicative of any rules. Intellectual property disputes give rise to a particular characteristic. Frequently there may be secret and confidential information which parties would not want divulged. This would include not only the confidential know-how, but also details of customer lists, challenges to intellectual property rights, difficulties with licencees/licensors. Furthermore, a manufacturer and owner of intellectual property rights may well prefer to keep private and confidential the fact that is has a dispute arising out of a licence agreement with one of its licencees. If the licensor should be shown to be wrong, this may have far reaching implications with respect to all other licencees.
An arbitrator and counsel have a duty of both privacy and confidentiality. Without the agreement of the parties, they cannot divulge the names and details of the arbitration. But are the parties equally restricted? Is there some rule that prevents a licencee, or another party to an arbitration, telling a third party that it is involved in a dispute with the licensor or the owner of intellectual property rights? Is such licencee precluded from giving details of the nature of the dispute, even perhaps telling third parties exactly was the claim is about, and evidence produced or perhaps handing over copies of pleadings.
The motives of the licencee may be innocent. It could be to show how wonderful the process is, or to extol the virtues or otherwise of one or more of the arbitrators. It may equally be to exchange information, through some form of "war council" between licencees, preparing and fighting a case.
In many countries the law is silent as to confidentiality. In the common law world there is presently some uncertainty. There are English cases that suggest that by going to arbitration there is an implied undertaking to keep the details of the arbitration confidential. However, there are recent decisions in Australia, and in the United States, that make it clear that there is no such obligation of confidentiality. Arbitration is private, i.e. access to the arbitration hearing is limited to those who are agreed can attend by the parties and/or the arbitrators. Divulgence of information, however, is a matter for the parties themselves. This issue is presently en route to the Court of Appeal in Australia.
Most licence agreements contain provisions for confidentiality, and these provisions are expected to continue in effect both during and after termination of the licence. Accordingly, where certain confidential information is presented to an arbitration tribunal, the obligation on one or both of the parties to keep such information confidential will continue during the arbitration procedure. This, however, in my view, does not necessarily affect other issues that perhaps are non-confidential. For example, whilst specific clients and sales figures may be confidential, the amount of a royalty dispute or the interpretation of the licencee's obligations may not be subject to the same confidentiality requirements.
To the best of my knowledge, there are only two sets of arbitration rules which pose a clear obligation of confidentiality on "the tribunal, the arbitrators and the parties." The draft WIPO Rules contain a clear confidentiality provision in Article 56(a) which provides:
"Unless the parties agree otherwise, the International Bureau, the arbitrators and the parties shall treat the arbitration, any disclosures made during the arbitration and the decision of the tribunal as confidential, except to the extent necessary in connection with a judicial challenge to, or enforcement of, an award, or as otherwise required by law."
(The other arbitration rules are the English Electricity Industry Association Rules).
There is no such provision in the ICC Court, London Court of International Arbitration, Stockholm Chamber of Commerce, American Arbitration Association or UNCITRAL Arbitration Rules.
For this reason, licensors and owners of intellectual property rights may consider it appropriate to add to the arbitration clause a provision that provides, expressly, that the parties will keep fully confidential all details of the arbitration procedure, and perhaps even the existence of the arbitration procedure and the dispute, and the ultimate award. This obviously has to be limited to those individuals who need to be informed, such as lawyers, accountants and other parties that are essential to the conduct of the arbitration and, of course, as required where there are court proceedings in support of, or in opposition to, the arbitration proceedings or award, or for the enforcement of the award.
1. It is interesting to note that an earlier study made in 1977 on the ICC Court's experience in relation to intellectual property arrived at a similar figure (14%). See: Yves Derains, L'expérience de la Cour d'arbitrage de la Chambre de Commerce Internationale en matière de propriété intellectuelle. Revue de l'arbitrage, 1977, p.10 and foll.
2. In several cases, more than one aspect of intellectual property rights is to be found - for example, very often, patent licensing agreements are combined with know-how or technical assistance agreements.