Thomas Legler and Andrea Schäffler, Pestalozzi Attorneys at Law Ltd
This is an extract from the first edition of GAR’s The Guide to IP Arbitration. The whole publication is available here.
Traditionally, disputes concerning IP rights are mainly heard before national courts. Nevertheless, in recent years there has been a significant shift towards arbitration. For example, the number of cases decided under the WIPO Arbitration and Mediation Rules is constantly increasing and the number of specific IP-related arbitral institutions is rising as well. This can be partially attributed to the territorially-limited scope of state court proceedings that no longer meet the requirements of current international economic processes. The move towards arbitration is a logical shift because, as mentioned in previous chapters, arbitration is especially suitable as a more effective process in resolving IP disputes. Arbitration is a confidential proceeding, which is particularly advantageous for IP cases owing to the sensitive nature of the data involved. In addition, specialist knowledge is often required to resolve technical disputes efficiently, a difficulty that can be addressed by appointing suitably qualified arbitrators.
There are crucial questions we must ask with regards to the future of arbitration and its role in IP dispute resolution. What do trends show and where are arbitration professionals focusing their efforts? Can arbitration keep pace with innovation and technological advancements? What advantages will we see in arbitration compared to other methods of dispute resolution? What does the future hold for IP arbitration?
It is common knowledge that arbitration cannot take place in the absence of a valid arbitration agreement, which generally results from a contractual relationship. Alternatively, and in the absence of a contract, parties may still enter into an arbitration agreement after a dispute has occurred, but this is rare. Thus, straightforward disputes over ownership or infringements of IP rights are generally handled by state courts. Furthermore, many countries reserve disputes about the validity of IP rights for the state courts and, therefore, do not recognise arbitral awards on validity. Yet this does not mean that the validity of IP rights cannot be decided by arbitral tribunals. Rather, arbitral tribunals may address this issue not by declaring the IP right to be invalid, but by obliging the owner to withdraw its IP right from the respective registries or by ensuring that the established invalidity has inter partes effect only (e.g., in the United States, Canada, Singapore and France). For example, in August 2019, the Intellectual Property (Dispute Resolution) Bill was passed by Parliament in Singapore and assented to by the President. This Bill strengthens Singapore’s position as a choice venue for the arbitration of international IP disputes because it explicitly states that IP disputes may be arbitrated in Singapore with inter partes effect. Another example can be found in Hong Kong, where parties can use arbitration to resolve any type of IP dispute, including disputes over the enforceability, infringement, validity, ownership, scope or duration of an IP right. Therefore, if Hong Kong is the place of arbitration, an arbitrator has the power to award any remedy or relief that could be ordered by the Hong Kong Court of First Instance in civil proceedings. Consistently, an arbitral award (whether it was made in or outside Hong Kong) can be enforced in Hong Kong by filing with the Court of First Instance. This coincides with the launch of the Panel of Arbitrators for Intellectual Property Disputes at the Hong Kong International Arbitration Centre. In addition, there are state courts that recognise arbitral awards on the validity of IP rights with erga omnes effect (e.g., Switzerland and Belgium). In light of these factors, the question of whether a dispute is arbitrable at all is becoming less relevant.
Generally, one of the reasons parties seem to prefer an arbitral award over a state court judgment is because under the New York Convention, it is possible to enforce foreign arbitral awards in more than 159 jurisdictions. Under the New York Convention system, a foreign arbitral award is simply recognised on request, provided that the duly authenticated original award and the original arbitration agreement is enclosed, and with a translation of these documents if needed (Article IV of the New York Convention). However, arbitral awards in specific IP arbitration proceedings may not be enforceable in all these jurisdictions. For example, enforcement of an arbitral award that concerns the validity of an IP right may be refused in certain jurisdictions where state authorities have sole jurisdiction to determine the validity of an IP right. The advantage of arbitration over state court proceedings is obvious, however, because it remains far easier to enforce a foreign IP arbitral award than a judgment of a foreign national court.
This principal shift – away from ordinary proceedings towards alternative dispute resolution (ADR) in the field of intellectual property – has also been recognised by public authorities. It is very evident that ADR is gaining popularity and is becoming more integrated in ordinary IP state proceedings. Australia and Mexico, for example, provide alternative dispute options for the resolution of IP and technology disputes and in England and Poland, there is an optional cooling-off period by means of mediation in trademark opposition proceedings. There have also been institutional developments in Singapore, where the Intellectual Property Office of Singapore developed a mediation option for trademark and patent proceedings, under its collaboration with WIPO, and an expert determination option for patent proceedings. Korea, Brazil, Spain, the United States and Germany, among others, collaborate with WIPO to develop or enhance their ADR services, especially mediation. Various countries require mandatory mediation proceedings in commercial cases, including IP cases. While in the past, mandatory mediation schemes were typical for some common-law jurisdictions (such as Australia), an increasing number of countries with different legal traditions have decided to do the same (e.g., the Philippines, Argentina, Greece, Romania, India and Turkey).
Especially in Europe, this trend may be partially attributed to a decision of the Court of Justice of the European Union (CJEU) from 2017 (Case C-75/16). In that decision, the CJEU concluded that mandatory mediation as a pre-condition to litigation is not precluded by a legislative framework, provided that the parties are not prevented from exercising their rights of access to the judicial system. In Greece, mediation is mandatory in trademark infringement disputes and Portugal has implemented mandatory arbitration proceedings for certain cases of infringement disputes concerning patents and supplementary protection certificates. Turkey, for example, introduced mandatory civil mediation for commercial cases including money-related IP disputes. In the Philippines, mediation is mandatory for administrative complaints relating to IP rights violations, inter partes cases, such as trademark opposition and cancellation proceedings, and disputes involving technology transfer payments.
It is important to note that state courts strive to maintain their international appeal for commercial disputes (including IP disputes) and many have created corresponding chambers for international dispute resolution. For example, the following chambers have all been established in the past five years: the International Division of the Patent Court of Korea; the Singapore International Commercial Court; the Chamber for International Commercial Disputes of the District Court of Frankfurt am Main, Germany; the International Chamber of the Paris Court of Appeal, France; the Netherlands Commercial Court; and the Brussels International Business Court, Belgium. There is also the Zurich International Commercial Court project in Switzerland.
Unified Patent Court in the European Union
One of the most notable projects in European IP law is the establishment of the Unified Patent Court. This is part of a package of regulations on patent law, the core of which is the introduction of a European ‘community patent’ with unitary effect at the level of the European Union.
Unfortunately, the project has met a few challenges; the UK has made final preparations to withdraw from the Unified Patent Court project and, in March 2020, the Federal Constitutional Court of Germany declared that parliamentary approval of the Agreement on the Unified Patent Court is void on grounds of not achieving the necessary parliamentary majority.
From an arbitration viewpoint, the related framework agreement (Regulation (EU) No. 1260/2012) provides the following in Article 35:
(1)A patent mediation and arbitration centre (‘the Centre’) is hereby established. It shall have its seats in Ljubljana and Lisbon.
(2)The Centre shall provide facilities for mediation and arbitration of patent disputes falling within the scope of this Agreement. Article 82 shall apply mutatis mutandis to any settlement reached through the use of the facilities of the Centre, including through mediation. However, a patent may not be revoked or limited in mediation or arbitration proceedings.
In other words, arbitration is to become a standard feature in this unified patent court system. The jurisdiction of these two arbitration centres is, however, rather limited as they cannot order the cancellation of a patent. A certain margin of interpretation remains and some suggest that an award on the validity of a patent should at least have an inter partes effect.
As already pointed out, ADR in IP matters is by no means a new phenomenon. Recently, however, its importance has increased in the context of licensing of standard-essential patents (SEPs) on fair, reasonable and non-discriminatory (FRAND) terms. Standards setting organisations, such as the Institute of Electrical and Electronics Engineers, suggest the use of arbitration (an arbitration agreement is thus integrated into a FRAND licence offer), inter alia, for the determination of royalties respecting FRAND principles. Several large SEP/FRAND arbitration proceedings have already been conducted and the legal development in this field was furthered by projects such as the ‘Guidance on WIPO FRAND Alternative Dispute Resolution (ADR)’, the SEP communication of the European Commission and the FRAND ADR Case Management Guidelines of the Munich IP Dispute Resolution Forum. Generally, the response from administrative and judicial authorities to resolve SEP/FRAND conflicts through ADR has been exceptionally positive. The advantages of arbitration for such cases lie in the choice of specialised arbitrators with the necessary expertise for SEP/FRAND disputes, which are complex, both in a legal sense and from a technical point of view. Another advantage lies in the possibility of finding tailor-made solutions regarding issues of confidentiality in this highly competitive field, even considering certain restrictions in the interest of other market participants and the general public.
In 2017, WIPO published the Guidance on WIPO FRAND Alternative Dispute Resolution (ADR), which aims to facilitate submissions of FRAND disputes to WIPO mediation and arbitration. The Guidance, inter alia, explains the procedural options that are available at different stages of the process and identifies key elements that the parties may wish to consider to shape the arbitration proceedings, notably, addressing large SEP portfolios and containing time and cost of the proceedings.
In a global pandemic, one does not think about trade fairs, except for those that have been cancelled. Nevertheless, such events will be scheduled again and, as such, arbitral jurisdiction will regain importance. Setting aside pandemics and digital revolutions, statistics still confirm the popularity of trade shows and it is likely that popularity will increase after an exceptional occurrence, such as the current pandemic. If an exhibitor infringes IP rights at a trade fair, the owner of the IP rights can apply for emergency relief – a tool that is used to immediately stop the infringing activity. In the United States, for example, courts may award a temporary restraining order (TRO), which it may do ex parte – without a hearing of the alleged infringer. Aside from the Supreme Court decision in eBay v. MercExchange, the applicability of TROs in connection with trade fairs in the United States is limited under current law. American doctrine does reference ADR.
In fact, ADR at trade fairs is common worldwide because of its fast and efficient application. Some trade show organisers provide legal support for IP right holders, such as the Consumer Technology Association, which runs the International Consumer Electronics Show in Las Vegas. Otherwise, trade show participants are generally made aware of IP clauses in trade shows’ terms and conditions, such as Reed Exhibitions’ ‘IP Issues and Procedures’, applicable for the BookExpo in New York City. The most sophisticated form of trade show organiser involvement in IP enforcement consists of the establishment and maintenance of ADR mechanisms that address IP rights violations alleged to have occurred at trade shows. These ADR procedures are likely to become more important, especially if trade fairs are increasingly taking place online.
Today, for example, Palexpo Trade Fairs in Geneva, Switzerland (based on the former Baselworld watch fair), Spielwarenmesse in Nuremberg, Germany or the AAPEX trade show in Las Vegas, United States, participate in ADR mechanisms for IP disputes. Likewise, in Singapore, SingEx developed a fast-track IP dispute resolution procedure for SingEx trade and consumer fairs in collaboration with the WIPO Center. State courts have also noted that the requirements for proceedings in connection with the infringement of IP rights at trade fairs are different from ordinary proceedings on IP rights infringements. Therefore, some state courts have deliberately adjusted to the needs of trade fair participants and, thus, offer standby services for trade shows. Following China’s example, there is likely to be a merger of national court and ADR mechanisms in connection with trade fairs if alternative systems are introduced into state court systems.
Blockchain and smart contracts
Blockchain is a transparent, secure information storage and transmission technology that operates without a central control body. By extension, a blockchain is a shared database filled with entries (the ‘blocks’ in the ‘chain’) that must be confirmed and encrypted, which contain the history of all exchanges between its users since its creation. This database is secure and distributed; it is shared by its different users, without intermediaries, which allows everyone to check the validity of the string and which makes it difficult or impossible to change, hack or cheat the system. The chained data blocks often contain ‘transactions’, but from a technical point of view, any other type of information can be stored as well. On these grounds, combined with other technologies, blockchain has many useful applications.
A key example of this is smart contracts. These are stand-alone programs that, once started, automatically execute the terms and conditions of a contract (input or ‘oracles’) without requiring human intervention. In the field of intellectual property, smart contracts allow automatic implementation of IP contracts, particularly licensing or exclusive distribution contracts. By combining smart contracts with blockchain technology, a series of coded contractual clauses sit on the blockchain and enable self-enforcement of the rights and obligations of the parties.
The application of blockchain technology may be used in the field of intellectual property in the following ways: proof of the creation or ownership of IP rights, copyright management, particularly in the field of online music distribution, transmission of payments in real time to rights holders, authentication of goods, detection of counterfeits, etc. Therefore, as a stand-alone tool, blockchain technology can simplify and improve existing processes in the administration of any proceedings, and arbitration proceedings in particular (in the same way audio and video conferencing tools did a couple of years ago). In addition, special consideration must be given to the advantages of blockchain technology and the ways it can be used for authentication and validation of smart contracts.
This means, on the one hand, that an arbitration clause could be included in the code of a smart contract – for example, an IP licensing or exclusive distribution contract. In the event of a dispute, a predefined arbitration process would follow. On the other hand, blockchain could also affect the analogue nature of arbitration proceedings themselves, as they could be automated via blockchain. Apart from the arbitration clause in a smart contract, various stages of the arbitration proceeding may be affected: submission and taking of evidence and enforcement of arbitral awards, each using the benefits of the technology to enhance the efficiency of proceedings. In any case as a starting point, an arbitration clause would need to become a smart arbitration clause. Even if some technical and practical questions arise regarding the implementation of such arbitration procedures (e.g., does a smart arbitration clause meet the requirements of Article II of the New York Convention?), this is no longer science fiction and there are already various blockchain-based platforms on the market (see, e.g., JURIPAX, Kleros, CodeLegit, SAMBA).
Advanced use of technical tools in arbitration
Apart from blockchain technology and smart contracts, special attention has recently been given to the technical developments in arbitration proceedings, which has been accelerated by covid-19. With regards to expectations post covid-19, it is generally believed that the use of arbitration may significantly increase because of the greater flexibility it offers in times of crisis. For example, it would be possible in an arbitration setting for the parties to agree to move the venue of a hearing to a region less affected by covid-19, to adopt a documents-only procedure or to perform the hearing virtually or via teleconference.
The WIPO Center is observing a growing interest in and use of these options by parties, including in two recent WIPO mediation cases of trademark opposition and invalidation proceedings before the Intellectual Property Office of Singapore, which were fully conducted online with a successful outcome. Online dispute resolution (ODR) is a valid alternative to traditional physical arbitration, be it only for a short period of time during a pandemic or for many years to come. Not only relating to arbitration but also in general, online dispute resolution is becoming increasingly popular. Beyond online dispute resolution pertaining to domain names, there are different institutions using ODR, such as eBay (in the United States) and Eachnet (in China). Looking to China, it is hardly surprising that three (state) internet courts have already been established to resolve copyright disputes. As if that was not enough, the internet court in Hangzhou admitted evidence that was authenticated by blockchain in one online copyright infringement case. We are curious to see how long it will take for such institutions to emerge outside China.
IP arbitration is on the rise. Globalisation and the advent of new technologies have not only increased the importance of the field of intellectual property but also the number of disputes in this field.
The following are key takeaways relating to the future of IP arbitration:
- The question of whether a dispute is arbitrable at all is becoming less relevant. Arbitral tribunals increasingly address this issue by ensuring that the award has inter partes effect only. Additionally, trends show that state authorities increasingly recognise and enforce arbitral awards relating to IP disputes (including validity issues, in particular).
- ADR is expected to be more integrated in regular state court proceedings; for example, in the European Unified Patent Court system.
- Arbitration may face increasing competition from national courts to handle IP disputes. For fear of losing large international proceedings to arbitration tribunals (including IP disputes), the number of ordinary commercial courts offering a specialised international chamber and the application of English as procedural language is likely to increase.
- With regard to SEP/FRAND and trade fair disputes, arbitral tribunals will become more important in the future as arbitration is more suitable for these types of disputes compared to national courts.
- Development in the area of blockchain and smart contracts is promising. Arbitration proceedings as we know them today could change permanently if arbitration clauses in smart contracts trigger an automated process and the various steps in arbitration proceedings are completed via blockchain.
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