Transcript Slide headline - Sunstein Kann Murphy & Timbers LLP

Arbitration of International Disputes
Joel Leeman
Bromberg & Sunstein LLP
www.bromsun.com
© 2008 Bromberg & Sunstein LLP
Arbitration Advantages -- in any kind of
case
Faster than litigation
Cheaper than litigation
Private & confidential
Single proceeding
Arbitrator expertise
Parties can define the issues for determination
Likelier to preserve business relationship
2
Delay can harm both licensor and
licensee
Postpones licensor’s enforcement of patent
rights (painful in fast-developing fields)
Casts cloud of wrongdoing over accused’s
effort to market his own products
3
Arbitration Disadvantages -- in any kind
of case
Less discovery
Rules of evidence not followed
Generally not reviewable
Not necessarily cheaper than litigation
Requires cooperation between parties
Cannot coerce cooperation of third parties
Sets no precedent
Split-the-baby tendency may repel “total victory”
seekers
Lacks message-sending/public-spectacle value
Or are these actually advantages?
4
Arbitration advantages in int’l disputes
Avoids int’l jurisdictional dispute
Allows choice of neutral forum
Allows choice of place for arbitration, and
thereby the applicable procedural law
Allows choice of language
Avoids playing on adversary’s home court
Allows selection of arbitrators who are not
nationals of either party
Due to NY Convention, arbitral awards are
much easier to enforce than court judgments
5
Arbitration basics
Arbitration occurs only by agreement, usually
before dispute arises
Mature parties may agree to additional terms
after dispute arises
Lex arbitri: Law of the venue country governs
procedure, e.g., appointment & challenge of
arbitrators, available remedies
Court involvement is minimal:
 At the start, to enforce agreement
 In unusual circumstances, to issue interim relief
 At the end, to confirm award
Decision is called “award”
Int’l arbitration relies on int’l conventions for its
enforceability
6
Every country (almost) has joined the
New York Convention
Prepared in 1958 by the U.N., and formally
known as the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards
 A foundational instrument of international
arbitration, the Convention requires courts of
contracting states to enforce arbitral agreements
and awards to the same extent as awards made
within their own borders
7
Typical license disputes
Is particular item newly added to licensee’s
product line covered by the licensed
patents?
Is licensor’s purported termination of the
license justified by the agreement?
Is licensee using ‘best efforts’ to market
licensed products?
Has licensee underpaid his royalties?
Is licensor aiming to stifle competition?
Are the licensed patents invalid or otherwise
unenforceable?
8
Patent law amendment (1982) allows
arbitration
35 U.S.C. § 294. Voluntary arbitration
(a) A contract involving a patent or any right
under a patent may contain a provision requiring
arbitration of any dispute relating to patent
validity or infringement arising under the
contract. . .
(b) . . . In any such arbitration proceeding, the
defenses provided for under section 282 of this
title shall be considered by the arbitrator if
raised by any party to the proceeding.
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Section 294 (cont’d)
(c) An award by an arbitrator shall be final and binding
between the parties to the arbitration but shall have no
force or effect on any other person. The parties to an
arbitration may agree that in the event a patent which
is the subject matter of an award is subsequently
determined to be invalid or unenforceable in a
judgment rendered by a court of competent
jurisdiction from which no appeal can or has been
taken, such award may be modified by any court of
competent jurisdiction upon application by any party to
the arbitration. Any such modification shall govern the
rights and obligations between such parties from the
date of such modification.
10
Can you arbitrate a patent’s validity ?
In U.S. and Canada, it is explicitly allowed
In several countries, it is allowed, but result
binds only the parties, not other accused
infringers
 U.K., Australia, Germany, Netherlands
In France & Italy, it is contrary to l’ordre
publique
Countries that disallow arbitration of patent
validity do allow arb’n of licensing issues
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Is “ordre publique” out of order?
Animating idea: Only a gov’tal court can
undo a right granted by a gov’tal agency
Critique:
 Parties are merely agreeing to act based on a third
party’s views
 A patentee is free to surrender (or not enforce) his
patent, without gov’tal approval
 Other rights that are worthless without the
possibility of gov’t enforcement are routinely
submitted to arbitration
12
Antitrust claims are arbitrable
Arbitration clause in an international
contract should be enforced, even though
the claims are based on antitrust laws, not
on the terms of the contract.
 Mitsubishi Motors, 473 U.S. 614 (1985)
European Court of Justice goes further: As a
matter of public policy, arbitrator must
ascertain that award is compatible with EC
competition laws, lest award be annulled.
 Eco Swiss China Time Ltd v. Benetton Int'l NV
(1999)
13
London Court of International Arbitration
Based in London, established in 1891, name
changed to LCIA in 1981 to reflect nature of
work
Handles disputes in all areas of international
commerce
Flexible rules to allow parties to agree on
procedural matters, other administrative support
varies on wishes/needs of parties
Expedited procedures available
Parties can nominate arbitrator(s), but court
makes final appointment
Fixed registration fee, then hourly rates for LCIA
administration and arbitrator fees
14
High hopes for the London Court
At its inauguration, one observer wrote:
“This Chamber is to have all the virtues
which the law lacks. It is to be expeditious
where the law is slow, cheap where the law
is costly, simple where the law is technical,
a peacemaker instead of a stirrer-up of
strife."
15
American Arbitration Association
AAA founded in 1922
International Centre for Dispute Resolution was
established in 1996 as AAA’s international
division
Cooperative agreements with 62 arbitral
institutions in 43 countries
AAA does not itself arbitrate, but provides
administrative support for arbitration
Case managers assist in selection of arbitrators
and start case with conference call
Administrative fees based on amount in dispute,
arbitrators set own fees
16
ICC International Court of Arbitration
Based in Paris, established in 1923
Procedures developed specifically for international
context
National committees identify arbitrators – no preestablished list
Requires arbitrator(s) to file a Terms of Reference
document within two months
Unique ICC Court monitors cases and reviews awards
Revised rules allow for injunctive relief
Pre-arbitration procedure for urgent relief available,
but must be specified in arbitration agreement
Court fixes arbitrator’s fee at the end of arbitration,
based on amount in dispute (Cost Calculator online)
17
WIPO Arbitration and Mediation Center
Based in Geneva, Switzerland, established in
1994
Procedures developed specifically for intellectual
property disputes
Rules contain provisions for confidentiality and
experimental evidence
Assists parties in selection of arbitrator from
database of 100 neutrals
Separate expedited arbitration procedures
available
Allows for emergency interim relief
Fixed administrative and arbitrator fees based on
amount in dispute
18
Law applicable to arbitration clause
Arb’n clause itself is governed by main
contract’s governing law
 But beware: Clause may be severable and may be upheld
even if main contract is called into question. Prima Paint
(1967)(legal fiction: clause is separate from “container”)
 Likewise, int’l arbitration embraces “competencecompetence” doctrine:
― Arbitrators are presumed competent to decide their own
jurisdiction
― Otherwise, obstreperous respondent could thwart arbitration
by questioning existence of agreement
― Under doctrine, expiration or invalidity of main agreement
does not necessarily extend to arbitration clause
19
Which country’s substantive law
applies?
If the parties specify a country, that country
If they don’t:
 The country where the arbitration is held - for
procedural issues, like arbitrability, how arb’r is
appointed/challenged, what remedies he can award
etc. (lex arbitri)
 The country that issued the patent- for substantive
issues, like patent scope/validity/infringement
If venue country disallows arb’n of validity,
award may address inf’t but any invalidity
determination will go unenforced
20
Litigation threatens confidentiality of
sensitive information
Hearings & trials are in open court
Some judges are loath to seal materials
broadly
Judgments are public
Appeal poses fresh risk of disclosure of
information that had been protected at trial
21
If confidentiality is important, say so
If parties are silent as to confidentiality:
 Some forums infer confidentiality
 Others do not
 Yet others treat only trade secret information as
confidential
22
Confidentiality—not an unalloyed good
Even if parties agree to confidentiality,
enforcement of the award in court may
breach it
Public companies with reporting
requirements may be hamstrung by a strict
confidentiality requirement
U.S. law bars enforcement of an award
relating to a patent unless the patentee files
notice with the PTO. 37 CFR §1.335
Appears to be no implied exception to
confidentiality to prove estoppel! Stipulate
accordingly
23
Interim relief an unsettled issue
As in litigation, proceeding may be useless
without interim relief that will preserve
status quo
 Examples: Orders to preserve property or to post
security; attachments; injunctions, e.g., against
using disputed IP rights, or terminating an
agreement, or disclosing trade secrets
 Big problem: Hard to obtain as quickly as in court,
because tribunal takes time to be constituted
 Risky: Requests for interim relief can be abusive;
issuance might apply unfair pressure to other party
24
Will the courts step in to provide
interim relief?
Some U.S. courts will consider such relief
only if parties have expressly contemplated
it; otherwise, they’ll intervene only to
compel arbitration
Other U.S. courts are more sensitive to
preserving status quo; PI hearing will focus
on classic injunction criteria
Quagmire: Losing party in court has right of
appeal, further defeating the purpose of the
arbitration clause
25
Interim relief: Can arbitration match
litigation?
Patentees who litigate often crave a
permanent injunction more than damages
In U.S., arbitrator can award injunction,
unless parties’ agreement bars it
 Submitting to arbitration implies broad authority
 Circuit courts have affirmed arbitrator’s injunctions
against further infringement
 AAA rules specifically authorize injunctions against
infringement (if arb’n clause is silent on the issue)
 Arbitrator’s power may exceed a court’s, e.g., he
might not have to find monetary relief inadequate
26
Interim relief in arbitration:
How about outside US?
Consent theory likely to allow injunctions, i.e., if
parties explicitly agree
U.K. leans toward having court issue injunction
as part of confirmation
Many institutional forums allow for injunctions;
but if forum country allows only its courts to
enjoin, complexity is introduced
WIPO makes arb’r available for emergency relief
on short notice
In any forum, arbitrator will respect clause
barring injunctive relief
27
How to deal with discovery ?
On one hand, each side needs some
discovery to support claims and defenses
On the other, pre-trial discovery is a money
sinkhole
 Estimated to account for 80% of total litigation
budget
For arbitration to be more efficient, creative
containment is needed
Problem: How to set discovery limits when
the nature of your future dispute is
unknowable?
28
Ways to control pre-arbitration
discovery
Set numerical limit on interrogatories,
document requests, depositions, etc.
Confine discovery to specific issues
Agree to discovery period of X months
Bifurcate discovery: liability & damages
Establish early claim-construction hearing
Authorize arbitrator to control discovery,
starting at preliminary hearing
Authorize arbitrator to impose sanctions
29
Special terms for $$-only disputes
High-Low arbitration. Highest and lowest
amounts that arbitrator may award are
agreed in advance
Baseball arbitration. Each party submits an
award amount. After the hearing, arbitrator
must pick one of them; cannot compromise
30
Does award give rise to claim
preclusion and issue preclusion?
In the U.S., yes, full preclusion among the
parties, as long as the record reveals what
issues and claims were actually contested
and determined
 This may not be possible with a “naked” award, i.e.,
one without finding of fact, conclusions of law, or
reasons
 If preclusion is important, this will affect the type of
award that the parties bargain for
31
Examples of preclusion
In U.S. arbitration:
if patent is found invalid, owner cannot press
validity in a later action against the same or
different foe
 If a claim element is found to embrace a particular
structure, the party who urged otherwise cannot
assert the contrary in a later case

Outside U.S, however, “mutuality of
estoppel” means that if winner cannot assert
estoppel against stranger, stranger should
not be able to assert it against the loser
32
Stringent limits on appealability
FAA allows appeal to a court only for
corruption or fraud on arbitrator’s part, or if
he decides a matter not submitted to him
Supreme Court recently interpreted this
strictly:
Even if parties agree that district court may
set award aside if it gets the law wrong or is
not supported by evidence, appeal is
unavailable
 Hall Street Associates v. Mattel (2008)
Many other countries also bar or limit appeal
33
Drafting Arbitration Clauses
Necessary provisions:







Scope of arbitration
Arbitrator selection procedure
Choice of rules
Reference to emergency procedures
Location of arbitration
Choice of law
Choice of language
Detailed arbitration clauses are rare since
parties cannot foresee nature of future fight
34
Partial (but long) list of issues to
consider in choosing to arbitrate
Identify administering agency, whose rules
will govern
State if arb’n must be preceded by mediation
Specify number of arbitrators
State the language to be used
Specify the issues submitted for
determination
Specify the governing substantive law
Specify the place of arbitration, whose law
controls procedure, remedies, enforcement
35
Issues list (cont’d)
Set out process for interim relief
Consider authorizing arbitrator:


to control discovery
to exclude evidence if irrelevant or redundant
State expectations for confidentiality
Recite expectation that process will
conclude in X months, and award delivered
within Y days thereafter
Specify: Naked or reasoned award
State whether, and under what
circumstances, fees can be awarded
36
Sample Arbitration Clause - WIPO
Any dispute, controversy or claim arising under, out of
or relating to this contract and any subsequent
amendments of this contract, including, without
limitation, its formation, validity, binding effect,
interpretation, performance, breach or termination, as
well as non-contractual claims, shall be referred to
and finally determined by arbitration in accordance
with the WIPO Arbitration Rules.
The arbitral tribunal shall consist of [three
arbitrators][a sole arbitrator].
The place of arbitration shall be [specify place]. The
language to be used in the arbitral proceedings shall
be [specify language].
The dispute, controversy or claim shall be decided in
accordance with the law of [specify jurisdiction].
37
Sample Arbitration Clause - ICDR
Any controversy or claim arising out of or
relating to this contract, or the breach
thereof, shall be determined by arbitration
administered by the International Centre for
Dispute Resolution in accordance with its
International Arbitration Rules.
The parties should consider adding:
 The number of arbitrators shall be (one or three)
 The place of arbitration shall be (city and/or
country)
 The language(s) of the arbitration shall be ___.
38
Sample Arbitration Clause - ICC
All disputes arising out of or in connection
with the present contract shall be finally
settled under the Rules of Arbitration of the
International Chamber of Commerce by one
or more arbitrators appointed in accordance
with the said Rules.
Parties may also stipulate:
 the law governing the contract;
 the number of arbitrators;
 the place of arbitration; and
 the language of the arbitration.
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Sample Arbitration Clause - LCIA
Any dispute arising out of or in connection with
this contract, including any question regarding
its existence, validity or termination, shall be
referred to and finally resolved by arbitration
under the Rules of the LCIA, which Rules are
deemed to be incorporated by reference into this
clause.
The number of arbitrators shall be [one/three].
The seat, or legal place, of arbitration shall be
[City and/or Country].
The language to be used in the arbitration shall
be [
].
The governing law of the contract shall be the
substantive law of [
].
40
Sample Arbitration Clause - UNCITRAL
Any dispute, controversy or claim arising out
of or relating to this contract, or the breach,
termination or invalidity thereof, shall be
settled by arbitration in accordance with the
UNCITRAL Arbitration Rules as at present in
force.
Parties may wish to consider adding:
 The appointing authority shall be ... (name of institution
or person);
 The number of arbitrators shall be ... (one or three);
 The place of arbitration shall be ... (town or country);
 The language(s) to be used in the arbitral proceedings
shall be ...
41
Ad hoc or Institutional?
Ad hoc pros:
 Extreme autonomy and flexibility
 Parties can tailor the rules; UNCITRAL’s often used
 No administrative costs
Ad hoc cons:
 No oversight
 Added complexity requires elaborate negotiation of
arbitration clause
 Recalcitrant party can obstruct process; parties may
end up in court
42
Ad hoc or Institutional?
Institutional pros:
 Established, familiar process
 Predictable structure; reputations for reliability
 Oversight and management (procedural and
jurisdictional issues are governed by body of rules)
Institutional cons:
 Bureaucracy
 Administrative costs
43
Ad hoc Arbitration
Must have balance between set rules and
arbitrator flexibility
 Custom set of procedural rules (parties define
procedures)
 Reference to UNCITRAL Rules (broad discretion given to
arbitrator)
Sticking point is usually selection of arbitrator
 UNCITRAL rules address arbitrator selection, challenge,
replacement
Intellectual property concerns
 UNCITRAL rules are not specific to IP;
 Do not contain provisions on confidentiality;
 Provide for interim relief, but no emergency protocol
44
ICDR Arbitration Timeline
Respondent
files answer;
parties propose
arbitrator
File Request for
Arbitration; pay
registration fee
30 days
45
First Hearing;
case service fees due
Timeline to be determined by arbitrator
Render Final
Award
Fee Comparison - ICDR
Amount in
dispute
46
Administrative
Arbitrator fees
fees
$100,000
$2,550
$1 million
$11,250
$10 million
$14,000
$100 million
$12,500 + .01%
amount above $10
million + $6000
$1 billion
$12,500 + .01%
amount above $10
million + $6000
Arbitrator
determines own
fee
ICC Arbitration Timeline
Court fixes costs;
only paid claims
proceed
File Request for
Arbitration; pay
registration fee
30 days
47
Respondent
files answer;
select arbitrator
2 months
Arbitrator files
Terms of Reference
Render Final
Award
6 months
Fee Comparison - ICC
Amount in
dispute
48
Administrative Arbitrator fees
fees
(average)
$100,000
$4,650
$9,325
$1 million
$19,500
$36,985
$10 million
$51,400
$106,235
$100 million
$88,800
$202,485
$1 billion
$88,800
$499,485
LCIA Arbitration Timeline
Respondent
submits
Statement of
Defense
Respondent
files answer;
court selects
arbitrator
File Request for
Arbitration;
advance fees
may be due
30 days
49
Claimant submits
Statement of
Case
30 days
30 days
Render Final
Award
Court may
request advance
costs
Timeline to be
determined by
arbitrator
Fee Comparison - LCIA
50
Administrative fees
Arbitrator fees
£1,500 registration fee +
Hourly rates for
administrative support
(£100-200 per hour) +
5% for overhead +
Expenses
Arbitrator determines
own fee, within range of
£150-350 per hour, fixed
prior to appointment
WIPO Arbitration Timeline
File Request for
Arbitration;
registration fee
due
Center assesses
costs; parties
must pay deposit
Respondent
files answer;
parties select
arbitrator
Traditional
30 days
Expedited
20 days
51
Arbitrator closes
proceeding
Render Final
Award
9 months from
commencement
3 months from
commencement
3 months
1 month
Fee Comparison – WIPO Regular
Amount in
dispute
52
Administrative
Arbitrator fees
fees
$100,000
$2,000
$1 million
$2,000
$10 million
$10,000
$100 million
$10,000 + .05%
amount in dispute
$1 billion
$10,000 + .05%
amount in dispute
By agreement,
within range of
$300-600 per
hour
Fee Comparison – WIPO Expedited
Amount in
dispute
53
Administrative
Arbitrator fees
fees
$100,000
$1,000
$20,000
$1 million
$1,000
$20,000
$10 million
$5,000
$40,000
$100 million
$5,000 + .05%
amount over $10 mil.
By agreement
$1 billion
$5,000 + .05%
amount over $10 mil.
By agreement
Selected Bibliography
(in reverse chronological order)
Lamb, Sophia, and Garcia, Alejandro., Arbitration of Intellectual Property
Disputes, 10 No. 1 E-Commerce L. Rep. 5 (January, 2008)
Berry, David C., Harnessing the “Sport of Kings:” Using Pre-Dispute
Arbitration Agreements to Control Discovery in Patent Disputes, 9 T.M.
Cooley J. Prac. & Clinical L. 1 (2006)
Connor, Terry W. and Richards, Bradley J., International Considerations in
Licensing, 762 PLI/Pat 681 (September 2003 – January 2004)
Wang, William, International Arbitration: The Need for Uniform Interim
Measures of Relief, 28 Brook. J. Int’l L. 1059 (2003)
Janicke, Paul M., “Maybe We Shouldn’t Arbitrate”: Some Aspects of the
Risk/Benefit Calculus of Agreeing to Binding Arbitration of Patent Disputes,
39 Hous. L. Rev. 693 (2002)
Arnold, Tom, Booby Traps in Arbitration Practice and How to Avoid Them,
ALI-ABA Course of Study Materials (1998)
Cousté, M.; Shaughnessy, A.; Branch, J., Arbitration of Patent Infringement
and Validity Issues Worldwide, 19 Harv. J.L. & Tech. 299 (Spring 1996)
54
Bibliography
(cont’d)
Laturno, Camille A., International Arbitration of the Creative: A
Look At the World Intellectual Property Organization’s New
Arbitration Rules, 9 Transnat’l Law. 357 (Spring 1996)
Mills, Jennifer, Alternative Dispute Resolution in International
Intellectual Property, 11 Ohio St .J. on Disp. Resol. 227 (1996)
Park, William, Illusion and Reality in International Forum
Selection, 30 Tex. Int’l 135 (Winter 1995)
Blessing, Marc, Drafting Arbitration Clauses, Worldwide Forum on
the Arbitration of Intellectual Property Disputes,
http://www.wipo.int/amc/en/events/conferences/1994/blessin
g.html
Butler, Cynthia Jeanne, The Propriety of Judicially Granted
Provisional Relief in Pending Arbitration Cases, 9 Ohio St. J. on
Disp. Resol. 145 (1993)
Stein, Steven J. and Wotman, Daniel R., International Commercial
Arbitration in the 1980s: A Comparison of the Major Arbitral
Systems and Rules, The Business Lawyer; Vol. 38, August 1983
55