Arbitration and the Advent of New Technologies
This is an Insight article, written by a selected partner as part of GAR's co-published content. Read more on Insight
With the pandemic abruptly forcing world markets to go remote, technology and its different uses appear to be growing at an exponential pace. New technologies have now become commonplace in spheres previously unassociated with technology. The advent of these new technologies has significantly widened the scope of the ‘classic’ definition of telecoms as these new technologies are now part and parcel of telecoms in the broadest understood sense in the modern era. Adopting a wider time lens, the use of technology has, in the past few decades, also penetrated a wide array of different commercial sectors blurring the lines between ‘business’ and ‘personal’. New tech now resides in our homes, phones, applications, virtual assistants, transportation and medicare, among other spheres of everyday life. This everyday presence is accomplished through the growth of technology in essential sectors not only limited to telecommunication, but also security, biotechnology and cloud-sharing, to name a few.
With the meteoric growth of the different types of technology, in the past decade, technology dispute resolution and technology arbitration has, albeit perhaps at a less exponential pace, also grown in parallel. As technology forays deeper into existing markets, is introduced into new sectors and is employed for new uses, there is a growing likelihood many such disputes will arise therefrom.
While nobody at the outset of a collaborative venture believes that it will end in dispute, it is frequently how things end up. As such, the implications and risks arising from different types of technologies used are best addressed at the design and planning stages of any such relationship, particularly as applied to dispute resolution clauses, including as applied to the forum. As a result, it is increasingly important that lawyers understand technologies used by their clients and help them through the process in a way that best serves the parties.
This chapter will explore new technologies starting with a brief walk through the technologies in question, followed by a high-level analysis of the extent to which arbitration is suitable as a means to resolve such disputes.
Types of technology
Internet of things, data privacy and cybersecurity
Internet of things (IoT) technology is essentially the communication of data between one device or platform to another over the internet or other communications networks. IoT now resides in our vehicles, our watches, traffic monitoring and location tracking, home tech assistants and wearable health trackers among other ‘things’.
For instance, in the security sector, security is monitored by internet video technology. Indeed, concerning home security, motion-sensor activators can securely trigger the activation of a monitoring system to record movement; a fact which, when considered against the risk that home webcams can be easily hacked and monitored by unauthorised third parties, gives rise to a number of security, consumer-right, manufacturer obligation, data privacy and cybersecurity issues on a massive scale.
Indisputably, IoT technology requires the processing of significant amounts of personal data. One major issue that has arisen with the use of IoT in the UAE relates to data residency requirements of certain data sets such as personal data, particularly since service providers may require to transfer data outside of the country for troubleshooting, or indeed when customers access services outside of the country.
It is sometimes also the case that greater protection and security of data exists where service providers are able to host customer data in various locations, thereby limiting any exposure in the event of breach, or being able to transfer data outside of the state in the event of a natural disaster impacting local data centres. While data privacy, protection and cybersecurity are different things, they are considerations equally brought to the forefront under IoT.
In light of the sensitivities intricate to these data, cybersecurity and data breach claims are being increasingly resolved in arbitration, which is widely seen as providing an efficient and, more importantly, entirely confidential and tailored dispute resolution process. Arbitrator expertise in networking and cybersecurity is also a big selling point when choosing the dispute resolution mechanism for intricate high-tech disputes that bring to the fore particularly sensitive technical or legal issues; as such, the choice over such expertise could provide significant efficiencies and assurances to the parties.
Artificial intelligence (AI) is essentially the use of computers and technology, such as machine learning, to simulate intelligent behaviour. Its use has been recently proliferating, and we benefit from AI and machine learning in our everyday lives, such as in email spam filtering and prediction of preferences and recommendations on applications such as social media. AI might also be used in, for example, the ability of autonomous vehicles to operate independently without any, or with limited, human involvement.
AI is also used in the field of medicine, such as the digitisation of medical records or even for diagnosis. Deep learning is also an element of machine learning that uses high volumes of unstructured data fed into the AI model for analysis and results. This technology can also be used at a large-scale country level to determine facts about populations never known before.
Continuing with the autonomous vehicle example of AI, because of the complexity of multiple service provider business models, liability for damages resulting from an accident involving an autonomous vehicle can rest, in whole or in part, on the automotive manufacturer, hardware vendor, software licensor, mobile network operator, technology provider, or any number of suppliers used by the technology provider. All of these entities and service providers are together responsible in varying degrees for the provision of the components and services required for operation of the autonomous vehicle, where liability can be even more complex if various issues arise simultaneously, which is often the case with interdependent technologies. This will also involve a number of international party, cross-border transaction, IP protected products and technologies, and trade secrets.
With this spread of IoT and AI, a number of issues arise that would – arguably – be best resolved by arbitration, particularly for what it offers as benefits compared with traditional litigation (as will be discussed in this chapter). Considering that existing regulations are not drafted in a manner that accounts for technically specific intricacies that must be dealt with at length in legal disputes, the court system may not be best equipped to deal with issues such as AI in autonomous vehicles.
The European Union Commission released a White Paper on AI in February 2020, which states that ‘in the case of an AI based system such as autonomous cars, it may be difficult to prove that there is a defect in the product, the damage that has occurred and the causal link between the two.’ This white paper was based heavily upon the Report by the European Commission’s Expert Group on Liability and New Technologies issued in 2019 titled Liability for Artificial Intelligence and Other Emerging Digital Technologies, which suggested a reasonable approach might be to impose strict liability as an ‘appropriate response to the risks posed by emerging digital technologies [which] may typically cause significant harm. Strict liability should lie with the person who is in control of the risk connected with the operation of emerging digital technologies and who benefits from their operation.’
Even under normal circumstances, such clear separation of liability is not always easy to determine. How one would assess which entity or individual most benefits from an AI system such as that of an automatic vehicle, or which entity exercises the most control over it, is anything but simple.
In the case of any multi-party interdependent technology dispute, there may be many different parties involved and accordingly determining a clear separation of proportional liability would be a difficult task and one which would likely turn on the input of a number of differently disciplined and sophisticated expertise, best managed in a flexible and confidential dispute resolution process, such as arbitration.
Biometric data, biotechnology, and the right to privacy and protection of personal data
One of the most obvious grounds for disputes in emerging technologies tends to centre around data privacy, particularly since this is an area that is developing so rapidly. While it is the case that certain rights to privacy might be compromised in return for benefiting from emerging technologies that can make daily activities easier, there is still a general expectation that the personal data that is collected is sufficiently safeguarded and not subject to misuse. The level of protection afforded to personal data will vary depending on the type of data held.
Biometric data and biotechnology is a prime example of the interplay of (1) the delicate balance that hangs between an individual’s right to privacy and that individual’s use of technology, and (2) the wider contractual, commercial or corporate liability that may ensue from the data resulting from such use. Biometric data refers to biological features that can identify an individual such as their physical features, voice and facial expressions.
The collection and processing of biometric data, which is generally considered as sensitive data by most data protection regulations, is now a part of everyday life. For example, voice recognition is used in telephone banking to make transactions more secure, and we scan our fingerprint or facial features to securely access certain sensitive applications on our phones. Similarly, fitness trackers collect and process swathes of personal activity and health information for which the user’s consent has already been obtained. The device held by the user does not process this biometric data; rather the data is processed in a service provider’s data centre (the cloud) and the results of such processing are communicated to the device in a manner easily conveyed to the customer.
Biotechnology projects and use biometric data in technical, expensive, high-risk and collaborative ways. Often, these projects will involve a number of different parties from various jurisdictions, regarding confidential subject matters and sensitive data, thereby requiring complex technologies and arrangements. The cost, internationality, complexity and need for confidentiality associated with such projects make them well suited to arbitration.
On a corporate scale, biometric security is becoming less a feature solely in fields that require additional security, but more a commonplace precaution, such as the scanning of fingerprints. With this enters issues of consent and the lawfulness of such consent. For example, under best-practice regulations, if a real alternative to the collection of biometric data is not offered (for example, an OTP), consent will not be considered freely given, and thereby illegal. While this may not be the case under some regional data protection regulations, it does highlight a number of complex issues that overlap between employee data privacy rights and corporate cybersecurity and confidentiality interests, where such overlap, if turned contentious, could benefit from arbitration.
The major risk is that the data held by these entities is compromised, knowingly or unknowingly, thus opening various entities up to a number of multi-party based liabilities, data breaches and possibly cybersecurity breaches. A breach of information security and personal data occurs by illegal or unauthorised access, including copying, sending, distributing, exchanging, transmitting, circulating or processing data in a way that leads to disclosure to third parties, or damage or alteration thereof during storage, transmission or processing.
However, the complexity of business models concerning current service providers means that contracts contain within them various separations of liability between controllers, processors and sub-processors of data and personal data. Therefore, often when a breach occurs that compromises an individual or individuals’ personal data, it can be difficult, if not impossible, to pinpoint exactly which entity was responsible.
Each entity would usually point to all the security measures that had been taken, and all the best practices utilised in the protection of the data (such as encryption, data minimisation, least privilege access measures, anonymisation techniques, and so on) to prove it is not liable for the breach.
This has led to some suggestions for joint and several liability between processors of personal data, barring an agreement between them that provides otherwise. At first glance, this might seem like an appropriate solution; however, processors are often subject to strict confidentiality obligations regarding the type of personal data held and the processing activities carried out, and as such, an agreement detailing the same in order to separate liability would counteract such confidentiality obligations.
It is also a very significant part of such disputes that they may result in not only financial damage, but also reputational damage, which is sometimes more difficult to recover from, because if companies cannot ensure the security of customer data, then that company will inevitably lose business. Since privacy in the interests of all parties to such a dispute, a private and entirely confidential dispute resolution process is indispensable.
Technologies like fintech rely on the collection and processing of large amounts of customer personal data, and while regulation in this space is growing rapidly under the various regulatory frameworks and authorities, it is still a relatively new area where regulation currently must stretch to cover business models not envisioned by the regulators.
Within the fintech space, payment services is one of the fastest growing areas. It necessarily requires that sensitive customer transaction data is stored and processed, sometimes in a tokenised manner to allow for faster repeat transactions. This speed comes at a cost of less security, however, since a tokenised transaction usually does not require 3D security measures such as multi-factor authentication. Because of this, merchant payment agreements and other payment service provider agreements tend to have encompassing clauses detailing exclusions of liability, including for the use of tokenised transactions that may appear authorised when in fact they are not.
Such issues arising from breaches are common throughout emerging technologies, but there is another area of potential dispute within the fintech space: intellectual property. With so many fintech solutions being created that are very similar in scope and function, there are bound to be some disputes as to which fintech developer or service provider owns what technology. Along with the issues inherent in a dispute concerning largely misunderstood emerging technologies, IP litigation also happens to be notoriously complicated, expensive and slow.
In a similar vein, cryptocurrencies and virtual assets are steadfastly emerging as a new class of digital instruments, which exist without physical counterparts but can be exchanged, stored and sold, through pair trading or fiat currency, using blockchain technology. Cryptocurrency is a form of cryptographically decentralised digital currency issued by a decentralised entity, and traded on a blockchain ledger that may or may not support other virtual assets.
Much to the worry of many, crypto assets and currencies are not issued by any sovereign institution or commercial banks, and thus may not be as stable as regular currencies, being based on a generally under-regulated and decentralised platforms absent a unified inter-governmental or international approach.
Of course, disputes can arise in connection with the transfer of virtual assets, the enforceability of smart contracts, and other security concerns, but they may also concern ownership. For example, the buyers of a non-fungible token (NFT)do not own the underlying virtual asset, nor the licence thereto; they only own the NFT. However, the platform can unilaterally sever the NFT’s link to the underlying asset, thereby making the NFT worthless. This can be done if, for example, the buyer does not comply with the terms and conditions of the platform.
Similarly, while NFTs do not normally grant IP rights in the underlying asset, an NFT seller (assuming the NFT seller is also the owner of any IP rights in the underlying asset) can transfer such IP they own to the buyer. This transfer is usually assigned separately and in writing, and is not part of the NFT per se. IP assigned separately to the sale of NFTs is therefore an area of potential dispute due to difficulty in proving IP rights associated with an NFT that remains unattached to it.
Against this context, the lack of regulation and the fact that anonymity is generally granted to the investor, parties in dispute will likely prefer having access to a timely, confidential and non-state-based neutral forum of dispute resolution. International arbitration is one such form of dispute resolution that provides the parties autonomy in deciding upon the profile of arbitrators, the arbitration rules and the governing law that will apply, as well as the seat or venue of the arbitration without government intervention.
It is perhaps not surprising that the 2016 Queen Mary University of London Survey on Pre-empting and Resolving Technology, Media and Telecoms (TMT) Disputes recorded that at least 75 per cent of the TMT organisations surveyed had mediation followed by arbitration as the most preferred dispute resolution mechanisms, and that 92 per cent of respondents viewed international arbitration as well suited for TMT disputes.
Historically, international TMT dispute resolution has relied heavily on international arbitration; this reliance having been rooted in the need for a perceived fair, neutral, and confidential dispute resolution process, detached from the risk associated with choosing a national court and thus, with the perceived risk of foreign or national court bias.
Arbitration shares many of the benefits offered by these new technologies, including the potential for time and cost savings, control and efficiency. When compared to litigation, it goes further in offering benefits specifically suitable for these sector disputes, and ones that may be of particularly high value such as privacy and confidentiality, specialised expertise, international enforcement and delocalisation.
Dissecting what international arbitration could offer to technology disputes compared with court litigation
Neutrality versus nationality
Neutrality of forum and ‘judge’ is one of the most fundamental features of arbitration. Indeed, the most quintessential elements of international arbitration are (1) a non-national, delocalised, forum, headed by (2) an impartial, independent, equidistant and neutral tribunal. This has become such a cornerstone feature of arbitration that most institutional rules include a requirement that the tribunal not be of the same nationality of either party (unless otherwise agreed to by the parties) so as to maintain the appearance of neutrality, non-nationality, and most importantly equidistance.
In terms of neutrality of forum, the same considerations apply. International parties will often be hesitant to agree to a foreign court’s jurisdiction for a number of these considerations as well as a perceived potential bias in favour of the party that is of the same nationality of that court.
Set against the context of emerging technology disputes, arbitration is more removed from state interference or association, and is perceived as more suitable to, for example, crypto disputes where state-control is minimal, or indeed the state may even display anti-cryptocurrency rhetoric, where an investor would seek to restrict such policy objectives being passed on to the judiciary. As a neutral and non-state based forum of dispute resolution, cryptocurrency investors are likely to have more confidence and therefore prefer opting for arbitration rather than traditional, centralised court-based dispute resolution.
Neutrality and nationality considerations would also likely be viewed as particularly suitable benefits for disputes arising in connection with biotechnology projects that often involve a number of international parties and cross-border personal and sensitive data.
Given the fundamentally borderless nature of international technology transactions, the benefits of global enforcement of arbitral awards under the New York Convention on the Enforcement of Foreign Arbitral Awards, offer a significant advantage over the enforcement of national court judgments.
That being said, it remains to be seen how international arbitral awards are issued in respect of disputes where the subject matter thereof may be relatively unregulated (such as for cryptocurrencies). Perhaps the subject matter of the dispute could be considered ‘inarbitrable’ in certain jurisdictions in which enforcement may be sought – possibly, due to public policy considerations.
It can also be problematic to issue an award over virtual assets on a blockchain platform. While arbitration is a consensual and finally binding dispute resolution process, one must consider the decentralised nature of the platform where transactions occur and are verified through complex algorithms permanently retained as a ledger on the platform. Traditional means of enforcing awards by attachment of assets may therefore be troublesome if, as per the example given above, the owner of NFTs has its link to the underlying asset severed thereby making any award concerning the same worthless. Nor can one reverse transactions on the blockchain in the event it is deemed virtual assets were sold in an attempt to dissipate assets prior to an award. These are potential complexities that require detailed regulation.
Choice of arbitrator and expertise
Specialised expertise is considered the most important benefit of technology-related arbitration. The ability for parties to choose arbitrators with specific expertise, and the ability of parties to choose third-party independent experts to opine on technical issues in support their case, lies at the heart of arbitration as some of its main advantages.
Each new advance in technology, as well as in its use, development, and distribution, creates greater demand for sophisticated expertise in dispute-resolving decision-making. Although much has been debated about the need for more qualified, specialised and diverse decision-makers in arbitration, it remains the case that this pool of expertise significantly outweighs the expertise of national judges who will often only have strictly legal or judicial training backgrounds.
International technology disputes will often involve an array of sensitivities, whether in relation to the data in question, the technology and its IP or trade secrets, to name a few factors. Confidentiality is often presented as having been the decisive factor in opting for this alternative method of dispute resolution in preference to state justice. Arbitration is set to a default presumption of confidentiality and non-publicity, affording parties a much greater scope for international privacy and confidentiality, than it would obtain in national court proceedings. Evidently, the confidentiality of arbitral proceedings provides the parties with protection against the dissemination of information related to the underlying dispute.
Trade secret technology disputes, for instance, are ideally suited to the private nature of arbitration. Of course, there will always be parties who prefer opting for a public forum, whether for genuine public-interest motives or otherwise. However, for most companies, dispute resolution by arbitration offers a better recourse for private and confidential dispute resolution, the ramifications of which extend to the very commercial nature of that business when related to confidential data or IP rights.
Flexibility, control and adaptiveness
By its inherently consensual nature, arbitration affords parties greater control over how proceedings are managed and to what extent. This includes control by agreement over virtually every aspect of the process, including matters as fundamental as the profile of the arbitrators (their qualifications, nationality, background, means of appointment and number) and the institutional or ad hoc rules to adopt, to aspects as granular as whether, and to what extent, document disclosure or discovery may be necessary, and the latest hour by which a deadline will be considered as having been met.
Parties can also agree the format of proceedings, and the extent to which – and more widely what – technologies may be used in these proceedings.
A more recent example of such flexibility and control in action, and a testament to the flexibility of arbitration as a process, was the speed at which arbitral proceedings went ‘remote’ at the outset of the pandemic, and the speed within which institutions issued updated guidance to this practice as a response. Indeed, the majority of organisations now offer online dispute resolution to emphasise the speed and convenience of the procedure.
On the back of covid-forced virtual arbitrations, attention on the benefits of e-arbitration has now magnified, particularly for what it affords in efficiency and time and cost savings. As electronic arbitration appears not to lend itself to one particular location, it would seem a particularly well suited fit to emerging technology dispute resolution.
E-arbitration, and the use of technology in arbitration, may be particularly attractive to technology parties, who may, depending on the use of technology, be able to exercise even greater control over proceedings and the confidentiality exercised over, for instance, the secured access to and electronic case management of evidence and pleadings and the electronic case management of the arbitration.
As the underlying technology of e-arbitration would be digital file sharing, the immediate vulnerability would be cybersecurity, the risk of which only increases as more sensitive data is uploaded online, transferred and accessed by the parties. It would therefore be incumbent on the arbitral institutions and parties to put in place security processes that would mitigate against such risks.
Speed and efficiency
Traditionally, the main advantage associated with arbitration is achieving a rapid solution that does not paralyse business life and the normal exchanges between commercial partners. Conversely, proceedings in a state court often take months, if not years, to reach a conclusion.
Speed is often treated as a double-edged sword in the context of arbitration. Depending on the jurisdiction in question, disputes resolved by arbitration are generally concluded much sooner than those resolved by national courts. In some jurisdictions, it may take a number of years to even schedule a trial date into court calendars, which are often backlogged, whereas in arbitration, a hearing date can usually be obtained within a few months, and the availability of the tribunal is a matter that is disclosed prior to appointment. As such, arbitration hearings can conveniently be scheduled based on the availability of parties and the arbitrator.
While it is widely admitted that arbitration offers a much speedier dispute resolution mechanism than that of national courts, a criticism is often centred around it not being quick enough.
In seeking to address these concerns, there has been a noticeable industry shift in arbitration that has seen a move by prominent arbitral institutions to establish expedited and emergency procedures, including a promise of a six-month expedited arbitration administered by the likes of the International Chamber of Commerce in Paris, rolled out as the expedited procedure provisions (EPP) process.
Most of the time, but not always, arbitration is less expensive than litigation, particularly in light of the finality of awards (discussed below). The predominant driving factor in cost is legal fees, which, when taken out, leaves the significant expenditure with the costs of the tribunal’s fees, the administrative costs of the institution if not ad hoc, and the costs of any experts. The fact of the matter is arbitration can be as cheap or as expensive as one makes it. For instance, online dispute resolution allows the dispute to be settled remotely, replacing travel costs of the parties or their legal representatives, witnesses and tribunal members flying out for any hearings, with the cost of an internet connection and the cost of a virtual hearing service provider.
This is indeed a major advantage of arbitration over litigation where normally, and although now e-appearance is accepted in some court cases, some extent of travel is still required, thereby impacting costs.
Arbitration costs were historically also a predominant factor in the perception of the inaccessibility of arbitration to small technology businesses. Recent amendments to the arbitral rules of WIPO and the ICC rules offer SMEs a streamlined and more cost effective way to seek arbitration as their means of dispute resolution.
Effective as of 1 July 2021, the updated WIPO Mediation, Arbitration and Expert Determination Rules provide for a 25 per cent reduction on the WIPO ADR Centre’s fees that applies if one or both parties to a dispute is an SME with up to 250 employees.
As with the 2017 Rules, the 2021 ICC Rules include updated EPP. The EPP also offers an expedited streamlined procedure with reduced time and cost implications.
Another benefit of arbitration over litigation is the finality of arbitral awards. There are generally very limited grounds on which an arbitral award may be set-aside or challenged (i.e., appealed): an arbitral award cannot be appealed on the basis of merit. That gives finality to the arbitration that is not available with court judgments, which are often open to two-tier appeals on procedural or substantive grounds, where appeals often stretch for years. This is also a significant factor as to why arbitration is a speedier mechanism for final dispute resolution than litigation.
While this may be a significant benefit if you find the arbitration award favourable, it may be worrisome to some parties who may likely face a dispute connected with new and unregulated subject matters or sectors; in such circumstances, the underlying decisions may be made based on the legal framework in place at the time of the dispute, which may not necessarily be suited to the extent to which the technology or issues in question have advanced. However, this would also be true of national courts’ judgment in respect of the same issue, except added to that would be the perceived risk of any national policy bias or non-neutrality. As such arbitration would appear to be the more attractive option, limited appeal rights notwithstanding.
As a number of new technologies have emerged in the past decade, these will undoubtedly continue to advance, bringing to the fore new issues and implications that are entirely new. While the long-term future of these technologies and, in turn, technology arbitration, remains relatively malleable, the existing traditional dispute resolution afforded by litigation will have to be reinvented to account for the new environment we are moving into.
The litigation-based legal system is largely geography-based, mostly as a result of the world we live in, and the current legal concepts and terms that have been formed with this world as their basis. Such concepts and terms include habitual residence, places of business and regulated commercial transactions, which form core elements of the legal framework based on their traditional definition.
With the growth of new technologies such as the blockchain and virtual reality, these traditional concepts will soon be considered outdated definitions, unfit for extension onto the new and constantly evolving legal spheres.
Until such time as traditional dispute resolution mechanisms catch up, arbitration remains – and quickly adapts and develops to remain – the most suitable means of dispute resolution for emerging technology-related disputes. Arbitration remains at the forefront as a forum that is perceived as fair for all parties with remedies that provide a multinational scope with a private and flexible process with maximum control, culminating in a final, internationally enforceable solution unbound by the geographic limitations of court judgments.
One of the primary advantages of arbitration remains that of specialised expertise, particularly as concerns technology-related disputes. The ability for parties to choose arbitrators with specific expertise, as well as independent experts to opine on technical issues in support of their case, provides for an environment fully equipped to deal with even the most complex matters.
 Nasser Ali Khasawneh is a partner, Maria Mazzawi is a senior associate and Ricardo Christie is an associate at Eversheds Sutherland LLP.