The arbitration of international intellectual property disputes presents unique challenges. Intellectual property is a valuable asset, yet, unlike other assets, it is rarely subject to territorial boundaries. Intellectual property, by its nature, travels rapidly across international boundaries with relative ease. It must be protected on an international basis or it will be lost. In addition, much intellectual property, particularly in the technology, publishing and entertainment fields, has a short life span. As the market for intellectual property increases and product life cycles decrease, the need for rapid resolution of disputes becomes paramount.
Intellectual property disputes subject to written arbitration clauses typically fall into the following general categories: licensing agreements for technology (software, hardware) or other trademarked, copyrighted or patented materials; distribution agreements; corporate acquisitions; high-technology joint ventures; agreements respecting research and development projects; and, finally, employment related contracts. In each of these situations, given the ephemeral nature of intellectual property, preventing the dilution, infringement, or loss of intellectual property rights should be the primary concern for the intellectual property owner. As detailed below, international arbitration offers several significant advantages over judicial resolution in this regard.
American Arbitration Association and its International Rules
The American Arbitration Association is a not-for-profit public service organization that provides dispute resolution services ranging from mediation to arbitration as well as other alternative dispute resolution techniques. Founded in 1926, it has been witness to exponential growth consistent with the success of international commercial arbitration. In 1996, for example, more than 200 'international' cases (and many more cases with international components) were filed with the AAA and its new International Centre. AAA has 38 offices within the United States as well as cooperative agreements with the arbitral institutions of approximately 50 other nations.
AAA's International Rules were first promulgated in 1991, and are modelled after the UNCITRAL model arbitration rules, which, in turn, are generally recognized to represent an international arbitration standard.
Overview of the 1997 amendments
The 1997 amendments to the AAA International Rules fall into four broad categories: applicability of the rules; arbitration procedures; ensuring fairness; and availability of punitive damages.
Applicability
The 1997 amendment to Article I essentially changes the 'default' position regarding applicability of the International Rules (as opposed to AAA's Commercial Arbitration Rules). Specifically, the amendment makes clear that if the dispute submitted to arbitration is international in nature, arbitration will be conducted under the International Rules in those instances where the parties have chosen AAA Arbitration without designating any particular AAA rules. ln the past, the International Rules were applicable only where specifically selected; as a result, there were instances where international disputes were arbitrated under the Commercial Arbitration Rules due to the failure to specifically identify the International Rules in the arbitration agreement. Thus, the Amended Rules allow for three arbitrator tribunals, detailed awards and other features typical of international arbitrations where the arbitration agreement does not provide otherwise.
Arbitration procedures
Although categorized as changes to procedure in this article, these amendments necessarily have an effect on the substance of international arbitrations. First, Articles 3 and 6, which pertain to the time limits for submitting statements of claims and defenses and for appointment of arbitrators have been shortened. More specifically, the time period for filing pleadings and proposals has been reduced from 45 days to 30 days (Article 3) and a corresponding change (from 60 to 45 days) was made in Article 6 regarding the appointment of arbitrators.
In addition, Article 6 was amended to encourage parties to develop their own solutions for arbitrator appointment in multi-party disputes. However, it provides a default mechanism for the appointment of arbitrators in the event that multiple parties with divergent interests fail to agree on the appointment of arbitrators.
Article 16 (Conduct of the Arbitration) permits the arbitrators to manage the evidence more aggressively in the conduct of the proceedings as necessary to reach a decision. More importantly, it explicitly authorises the arbitrators to bifurcate proceedings in order to hold separate or initial hearings on threshold matters, such as those that may summarily dispose of the entire case.
Article 28 (Applicable Laws and Remedies) clarifies that a monetary award shall be in the currency of the contract unless the tribunal considers a different currency to be more appropriate. More importantly, the amendment to Article 28 makes clear that the Arbitral Panel may, taking into consideration the contract and applicable law, award pre- and post-award interest as appropriate.
Ensuring fairness
Article 7 (Impartiality and Independence of Arbitrators) was amended to specify the scope of any ex parte communications with the arbitrator or the candidate for appointment as party-appointed arbitrator. Unlike domestic arbitrations, Article 7 requires that communications with party-appointed arbitrators not address the merits of the dispute.
Availability of punitive damages
Finally, Article 28 (Applicable Laws and Remedies) clarifies that in agreeing to the AAA International Rules, the parties waive any right to punitive damages unless their contract or a statute provides otherwise: 'Unless the parties agree otherwise, the parties expressly waive and forego any right to punitive, exemplary or similar damages unless a statute requires that compensatory damages be increased in a specified manner. This provision shall not apply to any award of arbitration costs to a party to compensate for dilatory or bad faith conduct in the arbitration.' Consistent with the consensual nature of the arbitration proceeding in the first place, the parties may expressly provide for punitive damages in their arbitration agreement.
Arbitration of international intellectual property disputes
International arbitration offers significant advantages over judicial resolution of intellectual property disputes, particularly in light of the 1997 Amendments.
Single neutral forum
The single greatest advantage to arbitration of an international intellectual property dispute is that it will be resolved in a single, neutral forum, and the award will be enforceable internationally by treaty. In contrast, a dispute involving many international intellectual property contracts (such as a multinational distribution agreement or a multi-national research and development venture) may require resort to the courts of any number of countries on the merits. In addition, reliance upon judicial procedures in a single country requires reliance on local judicial methods for extra-territorial enforcement of judicial awards. At a minimum, this process would be expensive and would run the risk of inconsistent outcomes.
One of the greatest concerns for either side in any international dispute is the substantive and procedural fairness of the foreign court system. Absent international arbitration, the protection of intellectual property permitted to pass beyond national borders is often subject to the whims of a foreign court. In short, international arbitration provides a means for a single, neutral forum as opposed to the court system of any particular jurisdiction, whether biased or not. The award will be immediately binding in a wide number of jurisdictions without resort to lengthy local court proceedings.
The amendment to Article 1 of the AAA International Rules furthers the goal of a single, neutral forum by expanding the applicability of the International Rules, ie, changing the 'default' position regarding applicability. Now, more contracts which are international in context but do not designate specific rules will nonetheless be handled under the International Rules.
Expense
A second advantage to arbitration of intellectual property disputes is, typically, the relative low cost, particularly compared with traditional litigation (and the necessity of collateral proceedings to enforce a judgment in any number of jurisdictions).
The revised AAA International Rules should further this goal in several key provisions. Most notably, the amendment to Article 16 (Conduct of Arbitration) explicitly provides that arbitrators will be able to more aggressively tailor the taking of evidence in order to reach a decision in the most expeditious manner. In addition, this provision provides for bifurcation of proceedings which can eliminate the need for subsequent proceedings. As amended, Article 16 (Conduct of the Arbitration) provides that:
The tribunal, exercising its discretion, shall conduct the proceedings with a view to expediting the resolution of the dispute. It may conduct a preparatory conference with the parties for the purpose of organizing, scheduling and agreeing to procedures to expedite the subsequent proceedings.
The tribunal may in its discretion direct the order of proof, bifurcate proceedings, exclude cumulative or irrelevant testimony or other evidence, and direct the parties to focus their presentations on issues the decision of which could dispose of all or part of the case.
Thus, the arbitrators are now specifically permitted to consider whether any one threshold issue will resolve the case as a whole, and thus make the remaining proceeding unnecessary. In a similar manner, the amendments to Article 6 regarding the appointment of multi-party arbitrator should streamline the process and make it even less expensive than traditional arbitration (and, obviously, than formal litigation). Finally, the reduction of certain time limits (Article 3 and 6) will shorten the arbitration process and therefore make it less expensive to a certain degree.
On a broader level, arbitration is also less expensive because, generally speaking, the award at the arbitration level is final, ie there is no option of an automatic appeal.
Qualifications of the tribunal
A key benefit to arbitration of intellectual property disputes is the ability of the parties (or the party-appointed arbitrator) to appoint an arbitrator experienced in intellectual property. In short, resort to foreign courts is unlikely to result in a decisionmaker schooled in any particular intellectual property area. By contrast, in arbitration, one may appoint arbitrators that are technically sophisticated in the particular area in dispute. This streamlines the process on its own, and moreover, lessens the need for the hiring of expert witnesses.
The Amendments to Article 6 further this goal by streamlining the process through which arbitrator appointments are made. In particular, by providing a 'default' mechanism for the appointment of arbitrators in the event that multiple parties with varying interests fail to agree to an arbitrator, the 1997 Amendments recognize the importance of selection of arbitrators as expeditiously as possible.
Confidentiality
Another benefit to arbitration of intellectual property disputes is the ability to impose confidentiality on the proceedings. Whereas public policy dictates that court proceedings in most jurisdictions should be, and are, open to the public, in-house counsel crafting an agreement governing intellectual property in the multi-national setting should be aware of confidentiality concerns for several reasons. First and foremost, certain intellectual property such as trade secrets must be kept confidential or protection will be waived. In a similar manner, patent pending and copyrighted information is typically kept confidential for business concerns. As a result, an arbitration clause for intellectual property contracts should contain provisions regarding confidentiality, both of the substantive intellectual property and any proceedings in arbitration. This will preserve the secrecy of the intellectual property, avoid other disputes, and will prevent damage to the reputation of either party
While the Amendments to Article 20 could go further, they, nonetheless, enhance confidentiality by specifically recognizing the importance of attorney-client privilege in the conduct of an arbitration. Section 6 of Article 20 states that: 'The tribunal shall take into account applicable principles of legal privilege, such as those involving the confidentiality of communications between a lawyer and client.'
It bears noting that Section 4 of Article 20 specifically states that: 'Hearings are private unless the parties agree otherwise or the law provides to the contrary. The tribunal may require any witness or witnesses to retire during the testimony of other witnesses. The tribunal may determine the manner in which witnesses are examined.' These provisions are valuable in the preservation of confidentiality of intellectual property in the resolution of a dispute subject to arbitration.
The 1997 Amendments will better ensure confidentiality (and fairness) through the amendment to Article 7 which delineates the permissible scope of ex parte communications with any arbitrator or any candidate for appointment as an arbitrator. This is particularly relevant given the fact that, when seeking party-appointed arbitrators (particularly those with appropriate qualifications) individuals most schooled in the intellectual property in question inevitably will be considered. In other words, when researching the availability of arbitrators for a copyright dispute involving software, for example, arbitrators with experience in that field (and therefore ties to participants in that market) will make the most obvious choices. Restricting ex parte communications preserves confidentiality and contributes to greater fairness.
Punitive damages
As noted above, the 1997 Amendments provide that in agreeing to the AAA International Rules, the parties waive any right to punitive damages unless their contract or a statute provides otherwise. See Amended Article 28. This Amendment is largely a response to United States case authority that interpreted certain private arbitration rules to permit imposition of punitive damage awards. See Mastrobuono v Shearson Lehman Hutton Inc - US - 115 S Ct 1212 (1995).
In Mastrobuono, the Supreme Court held that punitive damages could be awarded in an arbitration conducted under the rules of the National Association of Securities Dealers (NASD), despite the fact that the contract in question was governed by New York law, and New York law does not permit arbitrators to award punitive damages, Id, 115 S Ct at 1217-19. The NASD rules do not specifically authorise punitive damages; they simply authorise an award of 'damages and other relief', Id at 1218. The Supreme Court, however, concluded that, '[w]hile not a clear authorization of punitive damages, this provision appears broad enough at least to contemplate such a remedy', Id. Accordingly, Mastrobuono results in exposure to punitive damages unless the arbitration clause or arbitral rules in question specifically prohibit imposition of such damages.
Now, under the Amendments, exposure to punitive damages is limited, ie, unless there is a specific agreement or statute to the contrary, the parties waive any claim to punitive or exemplary damages. This Amendment removes a significant obstacle to obtaining agreements to arbitrate in the United States where punitive damage awards are permitted and are, in certain cases, disproportionate to the underlying harm. As a result, international arbitration of disputes under the AAA International Rules should be viewed by the international business community as a significantly improved option.
Widely enforceable awards
Another important attribute of arbitration of intellectual property disputes is that the award is widely enforceable. In particular, under the New York Convention, Article V, a foreign arbitration award may be denied enforcement only if the party seeking to avoid enforcement furnishes proof that: (i) the parties lack capacity; (ii) the arbitration agreement is invalid; (iii) there was inadequate notice; (iv) the matter arbitrated was outside the scope of the arbitration agreement or was not otherwise arbitrable; (v) the arbitral tribunal was not properly constituted in accordance with the parties' agreement or the law of the place of arbitration; (vi) the award is not binding or has been set aside by the court where it was rendered; or (vii) the award is against public policy
Obviously, this is a short and highly constrained set of circumstances in which enforcement may be avoided. By contrast, there is no multinational treaty on the enforcement of judicial decisions. Rather, enforcement of a court judgment in any number of jurisdictions will be cumbersome and subject to various bilateral instruments or national laws.
Interim relief
No discussion of intellectual property disputes would be complete without some consideration of the question of interim relief. Injunctive relief is often a critical concern for the owner of intellectual property rights, but the availability of interim relief is not consistent from country to country in either the judicial or arbitration context. Although the Amendments to the AAA International Rules do not address interim relief, 'Interim Measures of Protection' are provided for by the existing AAA Rules and are enforceable under the New York Convention. See Article 21: 'At the request of any party, the tribunal may take whatever interim measures it deems necessary, including injunctive relief and measures for the protection of conservation of property. A request for interim measures addressed by a party to a judicial authority shall not be deemed incompatible with the agreement to arbitrate or a waiver of the right to arbitrate.'
Conclusion
Intellectual property is a global commodity. The arbitration of international intellectual property disputes offers various advantages over judicial procedures. The 1997 Amendments to the AAA International Rules increase the attractiveness of the AAA as an international arbitral institution and its standing as one of the leading contenders for the administration of intellectual property arbitrations.