Top 5 Reasons for Life Sciences Companies to Use International Arbitration for Intellectual Property Disputes
Arbitration continues gaining popularity for resolution of cross-border disputes. A 2013 PricewaterhouseCoopers survey shows that 52% of the respondents preferred international arbitration to court litigation and mediation. Over the past 10 years, the number of new cases in most of the major arbitration institutions grew, with some reporting almost a four-fold increase. The International Chamber of Commerce (ICC), for instance, reported a record 2016 year for new arbitrations with 966 new cases, which is up from 801 cases in the previous year and 793 cases in 2010. ICC also reported a record number of pending cases in 2017, suggesting that the upward trend will continue.
Arbitration has traditionally been popular for resolving disputes in the energy and construction sectors. This is unsurprising since companies in these sectors are often involved in long-term international projects worth tens of millions of dollars. The international character of these projects, their extended duration, and significant investments dictate the need for a neutral and private dispute resolution mechanism alternative to traditional public court proceedings.
These factors apply similarly to disputes in the life sciences sector, where technology commercialization involves multiple players from different countries and the duration of R&D and licenses is measured in decades. The World Intellectual Property Organization (WIPO) reported that more than 90% of the companies involved in international arbitration concluded agreements with parties from other jurisdictions, including 80% of the agreements concerning technology patented in at least two countries. The disputes arose most often in cases involving licenses, followed by R&D agreements and non-disclosure agreements.
Our experience suggests 5 key characteristics of international arbitration that make it well-suited for resolving disputes involving intellectual property in the life sciences arena.
First and foremost, arbitration offers considerable flexibility. Arbitration is a consensual binding dispute resolution procedure. Because arbitration is a creature of a contract, the parties have considerable flexibility in devising a dispute resolution mechanism that fits their particular needs and that is unlikely to be available in judicial courts. The parties can select the number of arbitrators, a place of arbitration, and applicable arbitration rules. They can decide which arbitration institution, if any, will administer the proceeding and choose the language of proceedings, and can agree on the rules applicable to the disclosure of information. To reduce the costs, the parties can agree to resolve the dispute on documents only or to have hearings by means of a video conference. These and other considerations are important in adapting procedures that are most appropriate to the specifics of a particular dispute.
The often cited advantage of international arbitration is the ability to recognize and enforce the award in multiple jurisdictions. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the “New York Arbitration Convention” or the “New York Convention,” is one of the key instruments in international arbitration. The New York Convention applies to the recognition and enforcement of foreign arbitral awards and the referral by a court to arbitration. Currently, 156 nations are party to the New York Convention. There is no comparable multilateral treaty that would provide for the enforcement of court judgments. The U.S. is also a party to the Inter-American Convention on International Commercial Arbitration (Panama Convention), which is very similar to the New York Convention.
The New York Convention allows a party in arbitration to take the award to any signatory country to be recognized and enforced by a local court and empowers courts to order parties to an arbitral agreement to submit to arbitration. The New York Convention provides for mandatory recognition of arbitral awards subject to limited grounds for refusal of recognition. These grounds are exclusive, and the courts are not permitted to review merits of the award de novo.
The simplified mechanism for enforcement of arbitral awards makes arbitration an expedient tool for resolution of cross-border disputes.
Confidentiality and privacy are salient features of commercial arbitration, which are especially relevant to disputes concerning trade secrets, non-disclosure agreements, and R&D projects. Privacy also helps to ensure that the resolution procedure is focused on the merits of the case rather than on extraneous issues.
A word of caution is necessary: confidentiality of arbitration is not necessarily automatic. Arbitration clauses and arbitration rules may or may not provide for appropriate non-disclosure obligations of the parties and the arbitrators. If there are concerns regarding confidentiality and non-disclosure, the parties should consider including appropriate provisions in the arbitration clause and procedural orders.
International arbitration provides a neutral dispute resolution mechanism. Parties often cite a potential bias of local courts as a strong impetus for the use of alternative resolution. Unlike local court proceedings, which often impose jurisdictional limitations, parties to an arbitration agreement are free to choose a seat of the arbitration in a third country to allay concerns of local impartiality. The parties are also free to nominate arbitrators of a specific nationality or possess certain language skills. Moreover, the parties’ appointed arbitrators can select a chair that would not be a national of either party’s country.
Expertise of Decision Makers
Finally, arbitration provides the parties with the unique ability to select arbitrators that are appropriate for the subject matter of the case. This is especially important for disputes involving biotechnology, patents, pharmaceutical R&D, and intellectual property matters that involve complex technical issues. Arbitrators with particular industry experience and knowledge in a specific area of law could help parties in a fashion that is more effective and predictable than generalist state court judges.
In sum, arbitration of intellectual property disputes has many advantages, including enforceability, privacy, neutrality, and specialized arbitrators. Companies in the life sciences should consider international arbitration as a valuable tool for their dispute resolution needs.