Italy

18 October 2019

Emanuela Truffo

Introduction

Although Italy has not taken the lead in the tradition of international arbitration, [1] alternative dispute resolution (ADR) practices are playing an increasingly relevant role in the business community as an ordinary way to settle disputes, especially in corporate, banking and intellectual property (IP) matters. [2]

This scenario has been outlined in a recent report [3] that aims to present the state of the art of ADR in Italy according to both qualitative and quantitative parameters. Furthermore, a long-standing study issued by the Chamber of Arbitration of Milan highlights that, in the past five years, recourse to arbitration has been constant in Italy, with more than 300 proceedings in 2018 and an average value of roughly €900 million. [4] This is essentially due to the fact that the Italian rules governing domestic and international arbitrations grant the disputing parties few but very useful tools for managing disputes in the way that best matches their business needs.

First, the parties are free to choose the language of the proceedings. Rather than being an issue of lower importance, this faculty embodies the very nature of the arbitration, which more often than not entails subjects (including the arbitrators) that come from different countries and speaking different languages. In this sense, the choice of the procedural language becomes particularly important in light of the overall purpose of the arbitration: the consensual, or at least shared, resolution of the dispute.

The selection of the proper language of the proceedings is also connected with the efficiency of the arbitration itself. From the missives in the early stages of the dispute, to the appointment of the arbitrators, the parties need to know in advance how to communicate with each other, which will result in considerable time being saved. Even the evidence-taking procedures could be appreciated within the same perspective, especially when a large number of non-Italian translated documents are involved. For example, in patent litigation, judges have to deal with numerous documents containing thousands of pages that all require a sworn translation.

Therefore, if the parties are accustomed to using a specific language in their business communication and the documents upon which they intend to base their defence in arbitration are drafted in the same language, both sides will have a substantial advantage in terms of time and costs saved by choosing that language for communication in the arbitration procedure.

In addition to the above, the parties are offered the option to choose the venue and the ‘form’ of arbitration that better suits their needs.

As in other legal systems, administered arbitration in Italy (arbitration conducted under the rules of an arbitral institution, such as the Chamber of Arbitration of Milan) coexists with the ad hoc arbitration procedure, which is conducted by the parties and the arbitrators without the assistance of an administering entity.

Based on the specific characteristics of the dispute (including the particular confidentiality needs that may arise in certain circumstances, or the necessity to act outside the imposed procedural schemes) the parties will be free to choose either form of arbitration.

As far as the arbitration award is concerned, arbitration offers the parties at least three considerable advantages.

  • They can agree to a binding deadline by which the arbiter must issue a decision.
  • They can rely on a relatively high stability of the award, in respect of which the Italian Code of Civil Procedure (CCP) offers very few grounds for a possible appeal. That said, naturally, the award must respect the overriding principle of public policy and national constitutional values (namely, the right of defence and due process), notwithstanding any waiver or derogation. Accordingly, any breach of these principles and values will constitute mandatory grounds for challenging the award.
  • The winning party will be able to enforce the award without facing particular risks. In fact, the only remedy offered to the losing party consists of challenging the award for formal and procedural vices that are not related to the merits of the decision.

All the above provisions are aimed at achieving a single purpose: to allow the parties to tailor the arbitration to their specific needs. Indeed, the principle of party autonomy is held in high regard by the Italian legal system.

Therefore, different arbitral procedures that are brought before the same authority may differ significantly in the procedural details, but they all share a common destiny: the award, once issued, is not likely to be reformed, except for specific and strictly regulated reasons.

This legal framework is capable of providing benefits to both the private and public sides of the issue. On the one hand, the prevailing party obtains a promptly enforceable decision without the risk of specious challenges and, on the other hand, the domestic courts are called to preside over a minimum number of award appeals.

Overall, it is not difficult to recognise that the favour of the Italian legal system towards arbitration is strictly connected to the desire to reduce the workload of the civil courts.

Arbitration and intellectual property rights

The increasing importance of technology and innovation in the modern economy has led to a consistent increase in international disputes in the intellectual property right (IPR) field.

A considerable number of these proceedings involve parties from different countries and IPRs that are protected under the laws of various legal systems, which lead to the proliferation of legal actions in a multitude of jurisdictions and the risk of contrasting decisions relating to the same subject matter.

To prevent serious inconsistencies, the economic operators constantly turn to arbitration to obtain a single, rapid (and possibly definitive) decision on disputes connected to the exploitation of their IPRs around the world.

Although confirmed by the growing activities of Italian law firms in the arbitration sector, this trend does not emerge from the most recent statistics published by the Chamber of Arbitration of Milan. The available data shows that, in 2015, IP represented 5 per cent of the subject matters submitted to the Chamber, while in 2017 it constituted only 0.8 per cent.

These statistics need to be interpreted in light of the other cases submitted to the Chamber: it is clear that, along with international tendency (see the caseload summary provided by the World Intellectual Property Organization in 2018), [5] the Italian legal system is progressively gaining experience in IP arbitration.

This seeming discrepancy in the data is easily addressed. IP is a subject that is often inserted into complex contractual structures involving several other disciplines, such as contract law (distribution and merchandising agreements), franchising (know-how related issues) and even M&A (especially with regard to due diligence operations). In addition, IPRs play a role in various contracts throughout an research and development project life cycle, from the preliminary phases (consortium and outsourcing contracts) up to the final licensing agreements. For this reason, the statistics cited above include, for example, a legal issue relating to a distribution agreement that is categorised as a contract law dispute and not as an IP dispute.

The point here is that the majority of IP disputes brought before an arbitration panel relate to contractual matters, which are regularly arbitrable in Italy.

However, in disputes where the validity of the IPRs involved is challenged, the question of whether an IP right has been lawfully registered can be resolved only by the domestic courts and not by private arbitrators. The lack of arbitrability area of IP litigation is limited to the matters concerning the validity and existence of a registered IP right: this is a clear result of the ‘territorial’ nature of IPRs.

It may happen that the existence, the ownership or the scope of IPRs constitute a preliminary question that must be resolved on the merits by a court. In these cases, a two-step decision process is required: the first decision issued by the domestic court and the second by the arbitration panel.

The litigating parties, however, rarely challenge the validity of the underlying IP right in an arbitral proceeding. As anticipated, many IP arbitrations are based on licensing agreements: these agreements usually include a ‘no challenge’ clause, which prevents the validity of the IP right from being attacked.

Since the validity of IP rights is not a question that is eligible for determination by the arbitrators, problems relating to the arbitrability of IPRs are prevented from arising.

Within these boundaries, IP arbitrations rarely relate purely to the determination of IP issues. It is therefore understood that the statistics at hand tend to include IP-related matters under different categories, mainly contract law, thus presenting a distorted representation of the actual situation. The percentage of IP disputes before arbitration panels is in fact higher than is indicated in the available data.

This result is inevitable: the peculiarities of IPRs make the related legal actions particularly suitable to be submitted to an arbitral panel.

In the first place, arbitration provides the opportunity for a dispute related to an IPR that is registered in different countries to be resolved with a single action under the law selected by the parties. Furthermore, arbitration procedures provide a high degree of confidentiality, the relevance of which is particularly evident in, though not limited to, disputes involving trade secrets. This also raises the consideration of one of the most relevant and risky issues that an economic operator in the IP field is likely to face: the exploitation and commercialisation of a product or process without infringing a third party’s IPRs, especially patents.

When a company plans to develop and launch a new product, there might be a risk that commercialisation on the market may come into conflict with a patented technology owned by another subject. For this reason, many companies seek to secure their freedom to operate (FTO) (ie, certainty that the use and marketing of the product and process does not infringe third-party IPRs, even before the production and commercialisation of the new technology begins).

While an absolute guarantee of freedom to operate is not attainable, arbitration might be used to create an FTO agreement between the IPR owner and the operator seeking to use its new technology. This might be achieved by an ad hoc proceeding, established with the sole purpose of preventing a potentially endless series of legal actions throughout the world by the same parties.

A properly structured ‘ad hoc’ arbitration, in fact, could bring advantages in terms of time, money and confidentiality. A non-institutional proceeding places a heavier burden on the arbitrators to organise and administer the arbitration itself, but it can operate free of external inference (either from an institutional arbitration tribunal or by its own regulation applied to the proceeding). The risk of failure of one (or both) parties to fully cooperate to obtain a decision is low. All the economic operators are fully aware of the usual difficulties connected with ‘ordinary’ litigations, therefore it is very unlikely that the parties would not reach an agreement that could remove an obstacle to both sides’ business interests.

Thus far, the defining characteristic of arbitration has been party autonomy. However, it must always be kept in mind that such an autonomy ends where the public interest begins: IPRs are in fact monopolies granted by the state and some IPRs must be registered with specific national registers. Historically, state authorities have posed substantial resistance to arbitration on registered IPRs, but many, including Italy, have started to recognise the advantages of this means of ADR.

In any case, the resolution of the ‘everyday’ conflicts related to the exploitation of IP rights may be obtained not only through administered arbitration, but also (and perhaps more likely) through ad hoc proceedings.

The latter, which is entirely regulated by the arbitrators appointed by the parties, may allow even greater confidentiality due to the absence of an administering structure, as well as a faster solution to the dispute (as predetermined regulation procedures that must be followed tend to slow down the procedure).

In modern-day economies, a negative, but quick, decision might be more useful to one of the parties than a favourable, but belated, one.

The limits to the appeal of the award

The legal grounds that an award may be appealed under Italian law are limited to only three cases:

  • invalidity of the award;
  • motion for a new trial; and
  • third-party opposition.

The appeal must be filed before the court of appeal of the district in which the arbitration was based.

In Italy, the average number of appeals against arbitration awards is fewer than 500 per year. More relevant, however, is the percentage of success in the appeal cases. The statistics show that the Courts of Appeal of Milan, Turin, Brescia and Florence grant the appeal in only 4 per cent of the proceedings brought before them. [6]

This is a clear indication of the favour of the courts towards arbitration, as well as an incentive to resort to these means of alternative justice, especially in IP matters where the costs are high and the need for a quick decision is particularly pertinent.

Indeed, it is well known that, when it comes to licensing agreements, research and development contracts or distribution agreements, it might be especially useful to obtain a rapid solution to the dispute rather than engage in a years-long proceeding, at the end of which the initial needs of all the parties involved may have already disappeared.

The framework depicted by the available data shows that the stability of the arbitration award is particularly high. This stability, far from being a mere statistic to be viewed as an axiom, can be easily understood in light of the actual scope of the three grounds of appeal mentioned above. Indeed, the first ground, challenges to the validity of the award, is a form of appeal that is only eligible in respect of situations that affect the validity of the procedure that leads to the award itself and vices inherent in the judgment.

The losing party is therefore not allowed to appeal the award on the merits of the dispute. The aim of these limitations is to safeguard the right of the parties to obtain an impartial, unbiased and enforceable award within the limits established in the arbitration agreement.

As far as the other two means of appeal are concerned, it must be briefly highlighted that both the motion for a new trial and third-party opposition are of marginal relevance. The former is strictly regulated by the law under article 395, No. 1, 2, 3 and 6 of the CCP, while the latter allows a third party that did not intervene in the proceedings to assert its rights through an autonomous action even after the dispute has been resolved with a definitive decision.

Put differently, the main goal of the Italian legal system in this area is to limit the grounds of appeal to cases of clear noncompliance with the minimum standards required by the law and violations of the fundamental rights of defence and due process (as discussed in the introduction of this article).

Parties considering arbitration of IPRs should look at the data on award appeals not as an obstacle to the exercise of their own rights, but as a disincentive to pursue specious and unfounded challenges to the award. This legal framework would clearly result in an additional advantage in terms of time as well as money.

The enforcement of the award

The enforcement of an arbitration award is relatively straightforward.

The winning party is required to file the award and the contract containing the arbitration clause with the court presiding over the district in which the arbitration was based, which will issue an order declaring it enforceable.

In the event an appeal against the award is filed, even in this case, the court will only assess the regularity of the formal elements [7] of the award and, if these are determined sufficient, declare it enforceable. After this phase, the winning party in the arbitration may encounter three possible (and weak) impediments from the other side.

First, the parties are allowed to file a challenge against the order that denies or confirms the enforceability of the award. Italian case law and legal scholars consistently state that this action (which is a means of appeal) may only be brought to challenge specific procedural vices, such as the lack of jurisdiction of the court or the invalidity of a power of attorney. [8] It is therefore clear that this type of action presents very few risks.

Once the deadline to proceed with this sort of appeal has expired, the losing party may still bring two additional challenges against pre-enforcement and enforcement procedures. The first would challenge the service of the writ of execution, while the second would be employed when the enforcement proceedings have effectively started. These actions, however, are de facto connected to formal and procedural profiles concerning the writ of execution (in the first scenario) and the right of the winning party to enforce the award (in the second scenario).

It is therefore clear that there is little chance to successfully oppose the enforcement of the award. So long as all the formalities are respected, the losing party will have no means to pursue opposition proceedings.

There is one final aspect to be highlighted. According to article 283 of the CCP, the Court of Appeal can provide for the suspension of the enforceability of the appealed award in the presence of ‘serious reasons’. The evaluation of the court here is based on a global opportunity assessment that consists of a summary decision of the validity of the grounds of the appeal and on the economic prejudice that the losing party may suffer, [9] if the request for suspension is denied. On these procedural bases, the courts do not generally grant the suspension of the enforceability of the award.

As outlined above, the decision to suspend also involves an assessment of the success of the appeal proceedings itself. In line with the low degree of success of appeals in Italian case law (see the previous section), the suspension of the enforceability of an award is particularly rare.

All the above considerations are valuable elements that may be adduced in favour of arbitration over ordinary lawsuits before the domestic courts.

The key concept is ‘time saving’: predictable and straightforward enforcement procedures represent not only a helpful instrument in the hands of the prevailing party, but also a deterrent for the losing party from filing specious opposition proceedings to slow down the enforcement of the award.

Conclusions

Arbitration in Italy is progressively gaining relevance in a considerable number of economic fields, including IP. As outlined above, IP is a trans-sectoral subject that involves both corporate and contract law issues, and requires a rapid and possibly definitive resolution of disputes.

In this respect, arbitration is a valuable instrument that can be used to break long-standing stalemates that may annihilate any interest in turning to the domestic court to obtain a decision.

The ability to appoint a trusted arbitrator, the limits imposed by the law that target the scope of appeals of the award and the straightforwardness of the enforcement procedures are pertinent elements that should motivate parties to insert an appropriate arbitration clause in all IP-related agreements.

As highlighted in the previous sections, all the difficulties that might arise after the award is issued are strictly connected with whether the procedure and the award respect the formalities imposed by the law. A favourable decision is therefore nearly unassailable and usually fully enforceable.

Therefore, resort to arbitration constitutes an effective solution to all economic operators, not only in the IP field,but also in all those fields of the law that require quick, stable and confidential decisions.

Far from being an isolated point of view, this approach is a well-consolidated trend in Italy, as demonstrated by the consistently increasing number of arbitrations and ADR proceedings that parties choose to engage in every year.


Notes

[1] P Pouché – N Yarrow, ‘ARBItalia: Italy’s Continuing Commitment to Arbitration’, in Inside arbitration: Perspectives on Cross-border Disputes, 8, 2019, 29 ff. See also: T Giovannini – V Renna, ‘The Italian Experience of Arbitration and the Arbitration Rules of the Chamber of Arbitration of Milan: a Parallel View’, in Vindobona Journal of International Commercial Law and Arbitration, 14, 2010, 297 ff.

[2] In general terms, in 2016 the alternative justice proceedings in Italy were roughly 275,000 while only 100,000 in 2008.

[3] See ‘Decimo Rapporto sulla diffusione della Giustizia Alternativa in Italia’ (ie, ‘Tenth Report on the diffusion of Alternative Justice in Italy’), available at https://www.camera-arbitrale.it/upload/documenti/centro%20studi%20pubblicazioni/10-decimo-rapporto-giustizia-alternativa.pdf.

[4] CAM Arbitration – Facts & Figures 2014, available at https://www.camera-arbitrale.it/upload/documenti/statistiche/2014-cam-arbitration-facts-figures.pdf. CAM Arbitration – Facts & Figures 2015, available at https://www.camera-arbitrale.it/upload/documenti/statistiche/2015camarbitrationfactsfigures.pdf. CAM Arbitration – Facts & Figures 2016, available at https://www.camera-arbitrale.it/upload/documenti/statistiche/2016-cam-arbitration-facts-figures.pdf. CAM Arbitration – Facts & Figures 2017, available at https://www.camera-arbitrale.it/upload/documenti/statistiche/2017cam-arbitration-facts-figures.pdf. CAM Arbitration – Facts & Figures 2018, available at https://www.cameraarbitrale.it/upload/documenti/statistiche/arbitration-facts-figures2018.pdf.

[5] WIPO Caseload Summary, available at https://www.wipo.int/amc/en/center/caseload.html.

[6] A Briguglio, ‘Judicial control of the award: necessary evil, essential pivot of any comparative arbitration survey, and keystone of the placement of the arbitration in the system and in the concrete experience’ (translated to English), in Rivista dell’arbitrato, 2016, 423 ff.

[7] C Mandrioli – A Carratta, Diritto processuale civile, Vol. III, Giappichelli, Turin, 2016, 471, footnote no. 182.

[8] C Consolo, Codice di procedura civile–commentato, Ipsoa, Milano, 2010, 1975.

[9] Court of Cassation, 25 February 2005, No. 4060, in Pluris.