George Clooney on Perpetual Agreements

Last week, the Draughtatrix took IP Draughts to see the latest George Clooney film, the Descendants. IP Draughts was intrigued to see George Clooney playing the role of a low-key property lawyer (albeit one who is the sole trustee, and one of the beneficiaries, of a large family inheritance on a Hawaiian island).

The unlikely premise of the film is that the family inheritance is at risk under the Rule Against Perpetuities, which invalidates certain trusts if the beneficiaries are defined too widely.  George, as trustee, needs to take a decision on whether to sell a large area of beautiful, unspoilt land to property developers.  The beneficiaries, led by a raddled bar-fly played by Beau Bridges, naturally want the land to be sold.

The other main plot-line concerns George’s screen wife, who is in hospital on a life-support machine, after a speedboat accident.

As the film dragged on, IP Draughts felt that it would have been more interesting if George had delivered a lecture on how the rule against perpetuities applied under Hawaiian law.

English lawyers of IP Draughts’ generation were taught at law school to be wary of the English version of the rule.  In an IP context, a provision stating that a licence was “perpetual” rang an alarm bell in the mind of a right-thinking lawyer, and the instinctive reaction was to delete the word “perpetual” and replace it with wording stating a long, but definite, time-period.

IP Draughts recalls doing some research on this point in the 1980s and concluding that the English rule, if it applied at all to IP licences, could only apply to the situation where future improvements of the licensed IP were brought within the scope of the licence for an unlimited period.  Such a provision was also problematic under Article 85 of the Treaty of Rome (now Article 101 of the Treaty on the Functioning of the European Union), and this was the area of law that it was worth spending time on; the perpetuity point was theoretical and of marginal significance.

At around the same time as he did this research, IP Draughts recalls seeing a trade mark licence agreement, drafted by a prestigious firm of lawyers in the City of London, in which there was a clause stating that the perpetuity period, for the purposes of the agreement, was 80 years. Specifying a perpetuity period was a way of avoiding the invalidating effect of the rule.  This is the only time that IP Draughts has seen such a provision in an IP agreement.

English law on perpetuities has been overhauled since the 1980s, most recently by the Perpetuities and Accumulations Act 2009, and the revisions make it even less likely than before that the rule is an elephant trap for the IP contract drafter.  In summary, for instruments created after 2010, the Act only applies to a limit category of trusts and wills.  Most IP licence agreements do not create trusts, so it seems that the rule cannot apply to them.

IP Draughts would be interested to know if the rule has any continuing application to IP agreements under the laws of any other country or US state.  Can any reader enlighten us?

Arbitration of international contract disputes: which arbitration body is best?

In IP Draughts’ experience, a majority of IP licence agreements, R&D collaboration agreements and other IP-rich contracts are between parties who are incorporated in different jurisdictions.  An issue that often comes up when negotiating such contracts is which law and jurisdiction should apply to the contract.

Many factors come into play when deciding this point, too numerous to cover in this short posting.  A commonly-encountered scenario is that Party A, based in country A, would like the laws of country A to apply, and disputes to be referred to the courts of country A.  However, Party B, based in country B, would like the laws of country B to apply, and disputes to be referred to the courts of country B.

Sometimes, one party gets its own way, or the parties agree on a neutral law and jurisdiction.  Sometimes, the parties are willing to compromise on the jurisdiction point by agreeing to refer the dispute to arbitration, either in country A, country B or some mutually inconvenient location.

Where arbitration is agreed, IP Draughts’ strong advice is to have an arbitration clause in the contract that states (among other things) that the arbitration is to be conducted under the arbitration rules of a named arbitration body.  If this point isn’t covered, and unless the parties agree otherwise when the dispute arises, they will end up with what is known as ad hoc arbitration, which is not a good idea.

One of the potential advantages of litigating in the courts rather than in a private arbitration, is that national laws typically provide procedural rules on how the litigation is to be conducted.  The judge typically has sanctions that he can impose on a party to ensure that it complies with those rules.  The combination of binding rules and a strong judge should help to avoid or reduce the opportunity for a party misbehaving in the litigation, eg by missing time limits or failing to supply documents.

In an ad hoc arbitration there are no rules, other than those that a supervising court may impose.  It is much better, in IP Draughts’ view, to specify an arbitration body’s rules in the contract, to avoid this situation arising.

Which arbitration body’s rules should be chosen?  Here are IP Draughts’ thoughts on each of the main arbitration bodies.  These thoughts are based on a mixture of anecdote, advice from others whose views we respect, and some light research that we conducted a few years ago.  Obviously, you should take your own legal advice before deciding what is appropriate in an individual case.

International Chamber of Commerce (ICC): there are many international template agreements in circulation that specify arbitration under the rules of the ICC Court of Arbitration.  In IP Draughts’ view, ICC arbitration is not best suited to most of the contracts with which he is involved.  ICC arbitration is expensive, heavyweight and considered by some to be inflexible, with arbitrations conducted the ICC way, and with insufficient flexibility to accommodate the parties’ preferences.  The ICC has good political influence, which may be useful if one is trying to persuade a national government to enforce an arbitration award.  ICC arbitration may be suitable for a major international contract worth hundreds of millions of pounds, not a small IP contract with a dispute over, for example, whether the right royalties have been paid.

London Court of International Arbitration (LCIA): similar “weight” to ICC arbitrations, but more flexible and less expensive.  Would be a good choice for some IP contracts, but it is sometimes difficult for an English party to negotiate LCIA arbitration with an overseas party in view of the word “London” in the title – this is a shame, as it is a good arbitration body!

World Intellectual Property Organization (WIPO): WIPO is actively trying to make itself the arbitration body of choice for international IP contract disputes.  IP Draughts has attended WIPO’s courses on arbitration and mediation and has been impressed by the quality of the lecturers, who have experience of conducting WIPO arbitrations as either arbitrator or counsel for one of the parties, or both (but not at the same time).  The case studies used in these courses were very relevant to IP Draughts’ practice.  IP Draughts would recommend WIPO arbitration, and not just because he is now on WIPO’s list of arbitrators and mediators…

American Arbitration Association (AAA): this body seems to be the default choice for many US arbitrations.  IP Draughts’ research some years ago led him to the view that AAA were okay but their administration was not the best.

Judicial, Arbitration and Mediation Services (JAMS): some people in the US consider JAMS to be a superior alternative to AAA.

Stockholm Chamber of Commerce: parties sometimes compromise on Swedish law and arbitration.  In such cases, the rules of arbitration of the Stockholm Chamber of Commerce may be the obvious choice.

Do readers agree with the above summaries?  Do they have their own favourites?  Please let us know via comments.