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ADR in patent agreements


Twenty five years ago, alternative dispute resolution (ADR) of patent disputes was not universally held in high esteem. One or two well known arbitrations around that time did not give the benefits hoped for; they were reputedly expensive, partly because of challenges in court to the arbitrators’ decisions, certainly not entirely confidential, and definitely not quick, and these raised doubts about the applicability of arbitration to patent disputes (of course, there may have been many successful ADRs of patent disputes that remained unknown). Things have changed, however, and ADR clauses are now a common, although by no means universal, feature of patent agreements, such as licences.

A part of the reason for the increased popularity of ADR of patent disputes may be the large number of countries – 146 at present – that are now party to the New York Convention, which provides that decisions from properly constituted arbitrations are readily enforceable where necessary and severely limits the circumstances under which such decisions may be set aside by national courts. Other factors may be increasing experience of arbitration clauses in patent agreements (by parties and practitioners), and less willingness by (as well as less opportunity for) national courts to uphold challenges to decisions from arbitrations. Another significant factor may be the increased familiarity with arbitration services such as the American Arbitration Association and the International Commercial Court, with patent disputes, and the introduction by WIPO of its patent arbitration service through its Arbitration and Mediation Center must have helped significantly.

ADR is normally a two stage process. The first stage is mediation, in which the parties try, with the aid of a mediator, to reach a settlement with which they are both happy, or at least equally unhappy. No decision is reached on the merits of either party’s position. If mediation does not work within an agreed time, the parties move to arbitration, in which a neutral arbitrator (or panel of arbitrators) reaches a decision on the merits of the parties’ cases.

The benefits of ADR can include:

  • Speed: Depending on the ADR procedure used, ADR can be quicker than court proceedings (which are likely to include an at least one appeal stage, not usually provided for in ADR).
  • Cost: Again depending on the agreed procedure, ADR can be cheaper, potentially much cheaper, than court proceedings, especially if a single ADR procedure is effective in all countries of concern to the parties.
  • Confidentiality: ADR proceedings are usually confidential; court proceedings are not.
  • Inter partes effect of decisions: A finding in an ADR of, for example, ‘invalidity’ of a patent is effective only between the parties; it does not affect the actual validity of the patent so far as third parties are concerned. (This is not the case in all jurisdictions; in Belgium and Switzerland, a finding of ‘invalidity’ of a patent in ADR proceedings may result in the patent being declared invalid by the patent authorities in those countries.)
  • Reliability of tribunal: ADR allows parties to avoid proceedings in jurisdictions where courts may not be well equipped to deal with specialist matters such as patent validity and infringement.
  • Flexibility of procedure: An ADR provision in an agreement can be drawn to meet the requirements of the parties, such as what law is to apply, whether live witnesses may be brought and whether certain issues, such as validity of the patent, can be disputed at all. Outcomes can be limited, such as by placing a limit on damages that can be awarded.

Of course, by the time a dispute happens if not before, some of the foregoing may be considered to be disadvantages by one or the other party. For example, having all ones eggs in one basket rather than having several shots in different national courts may not be attractive, and the confidentiality and inter partes nature of the proceedings means that several arbitrations may be needed if there are several ‘infringers’.

ADR of patent disputes almost always occurs as a result of an arbitration provision in a patent agreement. There is no reason why ADR should not be used in arm’s length disputes, and it sometimes is, but the chances are slight that parties already in dispute will agree on the numerous matters on which agreement is required if ADR is to be used. If ADR is to be effective, it is of paramount importance that ADR provisions in a patent agreement are such that the decision of the arbitrator cannot be challenged in national courts.

ADR provisions in a patent agreement should be very carefully considered. Provisions that are considered unreasonable are one reason for an arbitration decision to be set aside by a national court. Similarly, it is very important that the provisions are properly carried out in the event of a dispute. It is usual to specify mediation followed (if unsuccessful) after a specified time by arbitration. Expert determination may also be provided for, to settle disputes about detailed aspects of the agreement quickly, without recourse to courts. The ADR provisions should specify an arbitration service (WIPO, AAA, ICC), the issues that can be arbitrated (this is a very important provision – if the arbitrator goes outside the remit, the decision may be set aside by a national court), the number of arbitrators (usually one or three), how the arbitrator(s) are to be selected, the law that is to apply, the seat of arbitration (this determines which national court has supervision of proceedings, not where any hearings take place), the language of the arbitration, what remedies are available (such as whether or not an injunction is available, or a limit on damages), what types of evidence are allowed, whether witnesses can be examined, how much disclosure of documents will be required, whether experiments can be required, and so on. As well as being important for the enforceability of the arbitration decision, it is likely to be easier to agree on details of ADR proceedings when the parties are negotiating the agreement than when a dispute has arisen.

ADR will not be appropriate for all patent agreements (or rather, for all parties), but it often will be. When it is provided for, the provision must be detailed and complete if the ADR is to be effective.

This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking before any action in reliance on it.

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