A Look to the Future of International IP Arbitration

Introduction

Traditionally, disputes concerning IP rights were mainly heard before national courts. In recent years, however, there has not only been a general increase in IP-related disputes but also a significant shift towards the resolution of IP disputes through arbitration.^[2] For example, the number of cases decided under the World Intellectual Property Organization (WIPO) Arbitration and Mediation Rules increased from 31 in 2012 to 182 in 2020 and to 263 in 2021, showing an increase of approximately 45 per cent over only one year.^[3] The IP-related caseload of established arbitral institutions is rising, as is the number of IP-related arbitral institutions around the globe.^[4]

There are many reasons for this trend towards arbitrating IP disputes. Primarily, this trend is because of the territorially limited scope of state court proceedings. This feature of state court litigation no longer meets the requirements of complex cross-border economic processes and transactions, and related disputes arising from a more globalised world.^[5]

The move towards arbitration is a logical shift because arbitration is particularly suitable as a more efficient process to resolve international IP disputes involving multiple jurisdictions.^[6] Arbitration not only brings advantages to solving international disputes but its confidential nature is also especially valuable for IP disputes in general because of the sensitive nature of confidential information and know-how regularly involved in such disputes. In addition, specialist knowledge is often required to resolve technical IP disputes efficiently – a difficulty that can be addressed by appointing suitably qualified arbitrators. All these advantages contribute to the rise of and the trend towards using international IP arbitration.

Based on the conclusion that international IP arbitration continues to grow in popularity, certain crucial questions arise regarding the future of arbitration and its role in IP dispute resolution:

• What do trends show and where should arbitration professionals focus their efforts?
• Can arbitration keep pace with innovation and technological advancements? And how should it adapt and prepare for upcoming trends?
• What additional advantages can arbitration bring in the future compared to other methods of dispute resolution?

Latest trends

Arbitrability and enforceability

It is well established that arbitral proceedings cannot take place in the absence of a valid arbitration agreement, which generally results from an existing contractual relationship.^[7] In the absence of a contract containing an arbitration agreement, parties may still agree to enter into an arbitration agreement after a dispute has occurred, taking into account the advantages that arbitration brings compared to state court proceedings; this is, however, rather rare.^[8]

Because disputes over ownership,^[9] validity or infringements of IP rights generally do not involve a previous contractual relationship between the parties, these disputes are most often handled by state courts.^[10] In addition, many countries reserve disputes about the validity of IP rights for state courts (arbitrability) and do not recognise or enforce foreign arbitral awards on the question of validity (enforceability).^[11] Accordingly, parties do not have any interest in agreeing to arbitration if the enforcement of the award would have to take place in such a country.

This does not mean that international arbitral tribunals are always prevented from deciding disputes over the validity of IP rights. While the legislation or case law of many countries does not allow arbitral tribunals to declare IP rights to be invalid with erga omnes effect (and, respectively, does not allow enforcement of such awards^[12]), arbitral tribunals may require the owner to withdraw its IP right from the respective registries if a country acknowledges that the award establishing the invalidity may have inter partes effect.^[13]

In general, there appears to be an international trend towards extending the arbitrability and enforceability of any type of IP dispute, including disputes on ownership, validity and infringement, making the question of whether a dispute is arbitrable less relevant.

Singapore, for example, enacted the Intellectual Property (Dispute Resolution) Act 2019. This law strengthens Singapore’s position as a choice venue for the arbitration of international IP disputes because it explicitly states that any type of IP dispute, including those regarding ownership, infringement and validity, may be arbitrated and enforced in Singapore with inter partes effect.^[14]

Hong Kong has passed similar legislation. Whereas Hong Kong’s Arbitration Ordinance did not expressly address the question of arbitrability of IP disputes in the past, an amended ordinance (which came into force in 2018) now clarifies that parties can use arbitration to resolve any type of IP dispute.^[15] Arbitral tribunals seated in Hong Kong now have the power to award any remedy or relief that could also be ordered by the Hong Kong state courts in civil proceedings.^[16]

An arbitral award, whether it was made within or outside Hong Kong, for any type of IP dispute can consistently be enforced in Hong Kong.^[17] The enactment of the amended ordinance coincided with the Hong Kong International Arbitration Centre’s launch of a new Panel of Arbitrators for Intellectual Property Disputes, which comprises experts with experience in IP disputes. This initiative was aimed at further strengthening Hong Kong as an international IP arbitration venue.^[18]

There is not only a trend in legislation but also in case law in favour of wider recognition of the arbitrability of validity cases. In Germany, the Landgericht München recently expressed in a decision an obiter dictum according to which it doubts that validity disputes should not be arbitrable at all.^[19] It saw no reasons why an arbitral tribunal should not be able to decide such a matter with inter partes effect. In the present case, the court held that a claim for an assignment of a patent application is arbitrable as parties can agree on the assignment of a patent at any time (disposable monetary claim); therefore, this can also be subject to a decision of an arbitral tribunal.

There are also countries with legislation or case law recognising arbitral awards on the validity of IP rights with erga omnes effect. In Switzerland, every aspect of IP disputes may be subject to arbitration with erga omnes effect. Belgium also has a relatively liberal approach, but the arbitrability of validity disputes depends on the nature of the right involved (disputes about the validity of copyrights and patents are generally arbitrable, but those related to trademarks and designs are not).^[20]

Whereas it might be simple to find a place of arbitration providing for the arbitrability of all kinds of IP disputes, the question of enforceability remains relevant. One of the main reasons parties prefer an arbitral award over a state court judgment is because of the New York Convention, which allows for a simple enforcement of foreign arbitral awards in more than 169 jurisdictions.^[21] The enforcement of awards on the validity of IP rights is, however, still limited in numerous countries.

Article V(2)(a) of the New York Convention enables the courts of a contracting state to refuse recognition and enforcement of an award if they find that the subject matter of the dispute that led to the award is not capable of settlement by arbitration under the law of the country where recognition and enforcement is sought. Accordingly, even if a dispute is arbitrable in a certain jurisdiction, the advantage of arbitration is lost if the award cannot be enforced in countries where it should have its effects. Continuation of the trend towards increased international arbitrability and enforceability of any IP dispute is, therefore, to be welcomed.

Integration of ADR in state court proceedings

The fundamental shift away from ordinary proceedings towards alternative dispute resolution (ADR) in the field of intellectual property is not only evident from the trend towards arbitration; ADR is also becoming more integrated in IP-related state court proceedings.^[22] Among other things, over 50 countries have cooperated with WIPO to develop or enhance their ADR services, especially with respect to mediation.^[23] The number and ways of collaboration with WIPO are manifold and constantly increasing.

Various countries require mandatory mediation proceedings in commercial cases, including in IP disputes. While in the past, mandatory mediation schemes were typical for some common law jurisdictions (e.g., Australia), an increasing number of countries with different legal traditions have decided to implement the same types of schemes (e.g., the Philippines, Argentina, Greece, Romania, India and Turkey).^[24] Turkey, for example, introduced in 2019 mandatory civil mediation for commercial cases including monetary IP disputes.^[25] In the Philippines, mediation is mandatory for certain types of IP disputes administered by the Intellectual Property Office.^[26] There have been similar institutional developments in Singapore, where the Intellectual Property Office developed a mediation option for trademark and patent proceedings under its collaboration with WIPO, and an expert determination option for patent proceedings.^[27]

This trend towards integrating ADR is also apparent in Europe. Greek legislation made mediation mandatory in all civil and commercial disputes of a monetary claim of €30,000 and more, as well as for non-monetary claim disputes (e.g., claims for prohibiting IP infringement).^[28] Portugal has even implemented mandatory arbitration proceedings for certain cases of infringement disputes concerning patents and supplementary protection certificates.^[29] In England and Poland, there is an optional cooling-off period by means of mediation in trademark opposition proceedings. This trend towards ADR was supported by a decision of the Court of Justice of the European Union (CJEU) from 2017 (Case C-75/16). The CJEU concluded that mandatory mediation as a pre-condition to litigation is not inadmissible under the EU legislative framework, provided that the parties are not prevented from exercising their rights of access to the judicial system.^[30]

In light of the fact that international commercial disputes (including IP disputes) are increasingly being heard in arbitration, some countries are seeking to retain their state courts’ appeal by establishing specific courts or chambers for international commercial dispute resolution. In the past few years, many new courts or chambers have been established around the globe, for example: 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. In Switzerland, there are plans to establish an International Commercial Court in Zurich and Geneva.

Future developments

UPC

One of the most notable projects in Europe related to IP dispute resolution is the establishment of the Unified Patent Court (UPC). The establishment of the UPC goes along with the introduction of the unitary patent, which makes it possible to obtain a European patent with unitary effect in the EU Member States participating in the UPC system. The UPC will have exclusive competence in the participating Member States in respect of unitary patents and (subject to exceptions during transitional periods) European patents. The start of operations of the UPC is expected to be in early 2023.^[31]

In addition to the UPC (comprising a court of first instance, a court of appeal and a registry), the UPC Agreement also provides for the establishment of a Patent Arbitration and Mediation Centre. It is intended that this centre will provide facilities for mediating and arbitrating patent disputes falling within the scope of the UPC Agreement. Accordingly, ADR is to become a standard feature in this UPC system.

The jurisdiction of the arbitration centre is, however, rather limited as a patent may not be revoked or limited in mediation or arbitration proceedings. There remains a certain margin of interpretation regarding the wording of the UPC Agreement, and some suggest that an award on the validity of a patent should at least have an inter partes effect.^[32]

SEP/FRAND

ADR in technology-related disputes is a matter of growing interest and is by no means a new phenomenon. It is, therefore, unsurprising that the importance of ADR has also increased in the context of the licensing of standard-essential patents (SEPs) on fair, reasonable and non-discriminatory (FRAND) terms.^[33] Technical standards play an increasing role in the modern world, and FRAND disputes have been addressed by state courts in several jurisdictions, resulting in the determination of FRAND licensing terms under different applicable laws and different approaches and methodologies.^[34] Because multi-jurisdictional litigation has several drawbacks, there has been a trend in recent years towards arbitration for such disputes.

Standards setting organisations, such as the Institute of Electrical and Electronics Engineers, nowadays support the use of arbitration (e.g., by including arbitration agreements in their IP policies) for, among other things, the determination of royalties respecting FRAND principles.^[35]

Several large SEP/FRAND arbitration proceedings have already been conducted,^[36] and different initiatives have been launched to further strengthen the importance of arbitration. In 2017, WIPO developed and published the Guidance on WIPO FRAND Alternative Dispute Resolution (ADR), which aims to facilitate submissions of FRAND disputes to WIPO mediation and arbitration.^[37] The Guidance, among other things, 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.^[38] In 2018, the WIPO guidance was followed by the FRAND ADR Case Management Guidelines of the Munich IP Dispute Resolution Forum.^[39] While the WIPO guidelines focus closely on the services provided by the WIPO Center, the guidelines of the Munich IP Dispute Resolution Forum expand on FRAND ADR in general and, as such, may work in synergy with the WIPO guidelines.^[40]

The response from authorities and the public to resolving SEP/FRAND conflicts through ADR has been positive. The advantages of arbitration for SEP/FRAND disputes are manifold:

• it is more effective in terms of settling disputes over a large number of jurisdictions with simpler enforcement;
• there are specialised arbitrators with the necessary expertise, both in a legal sense and from a technical point of view;
• there is more flexibility in setting the process rules regarding, for example, issues of confidentiality in this highly competitive field;
• there may be consideration of certain restrictions in the interest of other market participants and the general public.^[41]

Accordingly, the trend towards arbitration in this area is expected to continue.

Trade fairs

During the peak of the covid-19 pandemic, most trade fairs around the globe were cancelled. Currently, such events have been rescheduled, and in certain areas there seems to be a need to catch up on the missed opportunities in prior years. Consequently, dispute resolution mechanisms related to trade fairs are again returning to the spotlight. ADR at trade fairs is widely used around the world because it offers a fast and efficient dispute resolution mechanism, which is required to resolve the dispute and to stop infringements with immediate effect during a trade fair.^[42]

Trade fair organisers have an interest in supporting their trade fair exhibitors and IP rights holders in dealing with IP disputes to minimise such disputes and the disturbance of the trade fair. There are, in principle, three different ways^[43] for them to do so:

• Trade fair organisers may inform the exhibitors about IP protection and include IP clauses in their trade fair terms and conditions that are aimed at preventing IP disputes by obliging exhibitors to follow IP laws.
• Trade fair organisers may provide legal support for IP rights holders. This is, for example, done by the Consumer Technology Association, which runs the International Consumer Electronics Show in Las Vegas and which supports IP rights holders if they want to visit exhibition booths where they believe that the exhibitor displays infringing products.^[44]
• The most sophisticated form of trade fair organiser involvement in IP enforcement consists of the establishment and maintenance of ADR mechanisms that address IP rights violations that have allegedly occurred at trade fairs.^[45]

IP rights holders usually want to immediately stop any infringing activity at a trade fair. Local law may provide for emergency relief proceedings in national courts. In the United States, for example, courts may award a temporary restraining order (TRO), which it may order ex parte, without hearing the alleged infringer.^[46] As a result of the US Supreme Court decision in eBay v. MercExchange,^[47] the applicability of TROs in connection with trade fairs in the United States is limited because TRO motions require a showing of evidence of a likelihood of irreparable harm, which is unlikely to be collectible in the short time frame of a trade fair.^[48]

Some national courts have noted that the requirements for proceedings in connection with the infringement of IP rights at trade fairs are different from ordinary proceedings in which infringement of IP rights is alleged. Thus, some national courts have deliberately adjusted to the needs of trade fair participants offer standby services for trade shows.^[49]

If a national court system does not provide suitable avenues for relief, ADR offers alternative mechanisms. For example, Palexpo Trade Fairs in Geneva, Switzerland (based on the former Baselworld watch fair) offer ADR mechanisms for IP disputes.^[50] The fast-track procedure, established together with WIPO, grants exhibitors and non-exhibitors a cost- and time-efficient legal mechanism to protect their IP rights and related commercial interests at the trade fair within 24 hours. Likewise, in Singapore, SingEx offers a fast-track IP dispute resolution procedure for SingEx trade and consumer fairs in collaboration with the WIPO Center.^[51]

ADR procedures are likely to become more important if trade fairs increasingly take place online. ADR procedures are more flexible and can provide for online dispute resolution. It will be interesting to watch whether the pandemic will have a lasting impact on the manner in which trade fairs are conducted and on related opportunities for ADR.

Blockchain and smart contracts

In recent years, there has been an increase in blockchain-related technologies in commercial contracts and the proliferation of smart contracts.^[52] In essence, blockchain technology is a transparent, secure information storage and transmission technology that operates without a central control body.^[53] Blockchain can be described as a shared database filled with entries (the ‘blocks’ in the ‘chain’) that must be confirmed and encrypted and that contain the history of all exchanges between its users since its creation.^[54] The 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.^[55] The chained data blocks often contain ‘transactions’, but from a technical point of view, any other type of information can be stored as well.^[56] On those grounds, combined with other technologies, blockchain has many useful applications.

A key example of a blockchain application are smart contracts. These are stand-alone programmes stored on a blockchain that, once started, automatically execute the predetermined terms and conditions of a contract (input or ‘oracles’) without requiring human intervention.^[57] By using blockchain technology for smart contracts, a series of coded contractual clauses sit on the blockchain and enable self-enforcement of the rights and obligations of the parties.^[58]

Blockchain technology may have many applications in the field of intellectual property. For example, it may be used:

• in smart contracts to automatically execute IP contracts, such as licensing contracts;
• in proving the creation or ownership of IP rights;
• in copyright management, particularly in the field of online music distribution;
• in the transmission of payments in real time to rights holders;
• in the authentication of goods; and
• in the detection of counterfeits.^[59]

The internet court in Hangzhou, China has admitted evidence that was authenticated by blockchain in an online copyright infringement case.^[60]

How could the use of blockchain technology potentially change arbitration? As a stand-alone tool, blockchain technology may be used to simplify and improve existing processes in the administration of arbitration proceedings.^[61] This means, on the one hand, that an arbitration clause could be included in the code of a smart contract (e.g., an IP licensing or exclusive distribution contract).^[62] In that event, an arbitration clause would need to become a smart arbitration clause.^[63] In the event of a dispute, a predefined arbitration process would follow.^[64] On the other hand, blockchain could also affect the analogue nature of arbitration proceedings themselves, which could be automated via blockchain.

Apart from the arbitration clause in a smart contract, various stages of the arbitration proceedings could also potentially be affected. For example, the submission and taking of evidence and the enforcement of arbitral awards could each potentially use the benefits of the technology to enhance the efficiency of proceedings.^[65]

Even if technical, legal and practical questions still exist regarding the implementation of blockchain-based arbitration dispute resolution mechanisms (e.g., whether a smart arbitration clause meets the requirements of Article II of the New York Convention), this is no longer the realm of science fiction; there are already various blockchain-based platforms on the market (e.g., Juripax, Kleros, Codelegit, Aragon, Mattereum and Sagewise).^[66] Kleros, for example, describes itself as a decentralised court system allowing for the arbitration of smart contracts by crowdsourced jurors relying on economic incentives.^[67] The smart contract must specify the dispute resolution mechanisms, such as which court (of the Kleros system) will be used, how many jurors will hear the case, what are the options for jurors to vote, and what the consequences on the contract will be after the ruling is made.^[68]

As long as local and international legislation or case law does not explicitly recognise and regulate such new dispute resolution mechanisms, the impact of such new technologies on arbitration remains to be seen. But this is a trend worth following closely.

Advanced use of technical tools in arbitration

Although it may take some time until blockchain technology and smart contracts significantly influence the arbitration process, we have seen in recent years how other technical developments have already changed arbitration proceedings, in particular during the covid-19 pandemic.

The pandemic demonstrated that arbitration could provide greater flexibility in times of crisis than litigation in national courts. Arbitrators and practitioners around the world reacted quickly to the challenges posed by the pandemic by, for example, shifting to remote hearings as an alternative to in-person hearings, moving the venue of a hearing to a region less affected by pandemic-related restrictions and adopting a documents-only procedure.^[69]

Although there was a growing interest in the use of technology in arbitration even before the onset of the pandemic, the pandemic led to an increased use of already existing technological tools. The WIPO Center, for example, makes available at no cost to interested parties an online case administration platform, the WIPO eADR platform (which is already used in 30 per cent of the cases), and assists in the hosting of online meetings and hearings.^[70]

For its part, the International Chamber of Commerce (ICC) established a working group, in response to the pandemic, to update the 2017 edition of its report on information technology in international arbitration. The report has undergone a complete overhaul and now includes a variety of practical resources, including sample procedural language relating to technology tools and solutions, checklists for virtual hearings, items to consider when choosing an online case management platform and a template procedural order.^[71]

Before the pandemic, online dispute resolution was already widely used for domain name disputes. Internet domain name disputes are usually governed by the Uniform Domain Name Dispute Resolution Policy of the Internet Corporation for Assigned Names and Numbers, which provides for online dispute resolution. Online dispute resolution is now increasingly used in other areas, and the trend towards online dispute resolution will likely continue and outlast the pandemic because of cost and time benefits.

Further, as a growing number of practitioners now have experience with online dispute resolution, they are increasingly comfortable with it. Traditional proceedings without any use of technological methods will becoming increasingly harder to justify. This is apparent from the ICC survey conducted in 2021, which showed, among other things, that 88 per cent of practitioners agree that it should be the norm post-pandemic to conduct case management and other procedural conferences as virtual, rather than in-person, meetings.^[72]

Online dispute resolution will no doubt continue to play an increasingly more active role in the arbitration landscape.

Summary

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.

Many current trends will continue and have a lasting impact on 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).
• ADR is expected to become more integrated in regular state court proceedings (e.g., in the European UPC 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 the procedural language is likely to increase.
• Regarding SEP/FRAND and trade fair disputes, arbitral tribunals will become more important in the future as arbitration is more suitable for those types of disputes as compared to national courts.
• Developments in the area of blockchain and smart contracts are 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 through blockchain.
• The trend towards online dispute resolution and the use of various technological tools will continue and outlast the pandemic because of demonstrated cost and time advantages.

Nobody knows precisely what the future will bring to IP arbitration. Lawyers should keep an eye on the evolving practice in the field as new technologies continue to develop.

Notes