Joel Leeman
Bromberg & Sunstein LLP www.bromsun.com
© 2008 Bromberg & Sunstein LLP

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Faster than litigation
Cheaper than litigation
Private & confidential
Single proceeding
Arbitrator expertise
Parties can define the issues for determination
Likelier to preserve business relationship

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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

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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?

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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

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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

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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

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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?

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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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(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.

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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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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

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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)

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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

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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."

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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

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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)

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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

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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

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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

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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

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If parties are silent as to confidentiality:
 Some forums infer confidentiality
 Others do not
 Yet others treat only trade secret information as confidential

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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

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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

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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

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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

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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

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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?

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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

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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

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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

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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

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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

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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

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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

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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

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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].

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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 ___.

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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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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 [ ].

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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 ...

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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

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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

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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

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File Request for
Arbitration; pay registration fee
Respondent files answer; parties propose arbitrator
First Hearing; case service fees due
Timeline to be determined by arbitrator
30 days
Render Final
Award

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Amount in dispute
Administrative fees
Arbitrator fees
$100,000 $2,550
$1 million
$10 million
$100 million
$1 billion
$11,250
$14,000
$12,500 + .01% amount above $10 million + $6000
$12,500 + .01% amount above $10 million + $6000
Arbitrator determines own fee

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File Request for
Arbitration; pay registration fee
Respondent files answer; select arbitrator
Court fixes costs; only paid claims proceed
Arbitrator files Terms of
Reference
30 days 2 months 6 months
Render Final
Award

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Amount in dispute
Administrative fees
Arbitrator fees
(average)
$100,000 $4,650 $9,325
$1 million $19,500 $36,985
$10 million
$100 million
$1 billion
$51,400
$88,800
$88,800
$106,235
$202,485
$499,485

File Request for
Arbitration; advance fees may be due
Respondent files answer; court selects arbitrator
Claimant submits
Statement of Case
Respondent submits
Statement of Defense
Court may request advance costs
Render Final
Award
30 days
30 days 30 days
Timeline to be determined by arbitrator
49

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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

File Request for
Arbitration; registration fee due
Traditional
Expedited
30 days
20 days
Respondent files answer; parties select arbitrator
Center assesses costs; parties must pay deposit
9 months from commencement
3 months from commencement
Arbitrator closes proceeding
3 months
Render Final
Award
1 month
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Amount in dispute
Administrative fees
Arbitrator fees
$100,000 $2,000
$1 million
$10 million
$100 million
$1 billion
$2,000
$10,000
$10,000 + .05% amount in dispute
$10,000 + .05% amount in dispute
By agreement, within range of
$300-600 per hour

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Amount in dispute
Administrative fees
Arbitrator fees
$100,000 $1,000 $20,000
$1 million
$10 million
$100 million
$1 billion
$1,000
$5,000
$5,000 + .05% amount over $10 mil.
$5,000 + .05% amount over $10 mil.
$20,000
$40,000
By agreement
By agreement

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(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)

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(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