Resolving disputes over IP agreements

friendsHow should the parties to a licence agreement, or other IP agreement, resolve their contract disputes?

Some would reply: amicably, quickly, reasonably. If they can, all well and good, and no special contract terms are needed. But the drafter of the IP agreement needs to cater for the possibility that they can’t.

If you know what the dispute is about, you can form a view on the most favourable dispute resolution mechanism to protect your client’s interests. For example, do you want a thorough examination of the legal issues by a superb court that leaves no stone unturned, and comes up with a magisterial (and public) conclusion? Or would you prefer something cheap, quick and private, focussed more on commercial outcomes than legal precedent?

At the time the agreement is made, it may be difficult or impossible to predict whether any disputes will arise, and what they will be about. So, any dispute resolution clause is a bit of a gamble. It may be best to stick to something ‘plain vanilla’ and, if a more fancy mechanism is needed, try to negotiate it with the other party when the dispute arises.

But what is a plain vanilla solution? Should you go for litigation in court, or arbitration? In the latter case, do you opt for a 3-person arbitration panel which will be expensive but reduce the risk of a quirky decision, or is it best to have a single arbitrator?

In the middle of negotiations, and depending on one’s bargaining position, the priority may be to find a solution that is not obviously terrible. The issue is important, and may justify two or three rounds of proposal and counter-proposal, but probably not many more.

IP Draughts’ preferences tend to reflect the type of clients that instruct him, and his background as an English solicitor. Others may have a different starting point that is better for them and their clients.

There is no absolute right or wrong on this issue, but the closer one can get to a list of preferences, the easier it is to strike a deal.

Trial by Ducking Stool - not part of the ADR toolkit

Trial by Ducking Stool – not part of the modern ADR toolkit

Remember that the final method of dispute resolution is either to go to court or arbitration. Other methods of ADR, such as mediation, can only be viewed as intermediate steps. If you want to force the parties to go to mediation or to have the CEOs negotiate, fine, but IP Draughts doubts the value of such an obligation. It may be better to include these as voluntary options that the parties must consider, but not be obliged to follow.

For the final dispute resolution mechanism, IP Draughts’ preferences, if English law and jurisdiction are not acceptable, include:

Choice of law

Dealing with European parties

  • A large trading nation with a ‘North European’ approach
  • Laws that are not too prescriptive
  • Difficult to get a common law legal system (there aren’t many in Europe)
  • Possible solutions: Swedish or Dutch law
  • Second choices: German or Swiss
  • To avoid: French, Italian, Greek, smaller nations

Dealing with US parties

  • Try to avoid US, offer European alternative
  • But if forced to choose US, go for large State with reputation re commercial disputes
  • Preferably East Coast
  • Preferably laws as close as possible to English law
  • Possible first choice: New York law
  • Second choices: Massachusetts or Delaware

Dealing with parties in the Far East, India, etc

  • Common law system if possible, eg Australia, Hong Kong, Singapore

Choice of dispute resolution mechanism

Generally

  • No overall, strong preference for courts or arbitration
  • In England, courts are efficient so may be preferable
  • Arbitration may be preferable in countries whose court systems are unattractive
  • If confidentiality is a major issue, this may point to arbitration

If arbitration is chosen

  • Essential to specify arbitration body
  • Consider WIPO arbitration
  • Avoid ICC – too expensive, heavyweight, not user friendly
  • Prefer single arbitrator
  • Sometimes prefer expedited arbitration procedure (eg for smaller claims)
  • Need to specify seat of arbitration – procedural laws in that jurisdiction will govern

If court litigation is chosen

  • Should be same as law – don’t have law of country A and courts of country B
  • Overlapping issues with choice of law, above
  • Avoid corrupt, biased, slow, jury trials, difficult to get to from Heathrow Airport

 

11 Comments

Filed under Contract drafting, General Commercial, Intellectual Property

11 responses to “Resolving disputes over IP agreements

  1. somewildwildlife

    Thanks for a thought-provoking read. Jurisdiction does need to be selected very carefully (not only as an afterthought to choice of law), so that any judgement may be enforced. A judgement issued by the English courts is of little use when the counterparty against whom judgement was given is in China – in that case a choice of English courts (having exclusive jurisdiction) could defeat the object of the contract entirely. I don’t have the answer to this – I’m still working on that! Interested to know if it’s something that troubles you much..

    • According to the lawyers at China Law Blog, the only solution to your problem is that the agreement must be in the Chinese language, under Chinese law and subject to the jurisdiction of a Chinese court. Eg see: http://www.chinalawblog.com/2014/05/china-contracts-that-work.html

      • somewildwildlife

        China may be an extreme (though, common enough) example. What this underlines is that enforcement/enforceability of the contact should be front of mind when considering dispute resolution provisions. Too often I see the safe and familiar choice of English courts (exclusive), in circumstances where this would entirely frustrate enforceability (the counterparty having no presence in England/UK/EU)

    • Hello. Very interesting article. Very brave article. Could you please expand why you don’t think Mediation is really a choice? According to my view mediation is a relatively cheap and thoroughly confidential alternative after (direct) negotiation and before adjudicative means (Court/arbitration). Plus it preserves the parties’ relationship (better than the other alternatives, at least).

      • I don’t have a problem with the parties mediating, for the reasons you say. I just don’t think it adds anything to make it compulsory. Either the parties want to negotiate (with or without the assistance of a mediator) or they don’t. A clause saying they will consider mediation is fine. Saying they must mediate seems less useful to me. I was also making the point that it is not a final dispute resolution mechanism. Some people include it INSTEAD of court or arbitration, and leave out the most important point, which is the final dispute resolution stage.

  2. Vance:
    (1) I agree that clients more often than not want cheap and quick, and I try to build it into many agreements, eg referral of disputes over diligence obligations to an expert (often accepted in Europe but never in US). But if cheap and quick doesn’t get them their money (to use your phrase), who gets the blame?
    (2) On Mass., what would be your third choice, after NY and Delaware?
    (3) I don’t have anything against mediation, I just don’t think making it compulsory achieves much. My limited experience of executive escalation is that it is a waste of time. Perhaps things are different in large US corporations.
    (4) LCIA is good but it rarely works for me to propose it as an English lawyer, in view of the “L” bit in the title which makes it sound too much in my favour.

  3. An in-house lawyer friend is vice president for global litigation of a Fortune 500 company, and for many years was a litigation partner at a big regional law firm. He was a panelist for a continuing-legal-education conference about ADR a few years ago. The moderator (me) asked each panelist what their favorite single ADR technique was. His response was “the mini-trial to senior executives.”

  4. Aaron Levine

    Is there any cost to sign up this service?

    Aaron Levine

  5. vrkoven

    A few thoughts: First, whether you prefer magisterial and precedent-setting or cheap and dirty depends on whether you’re the lawyer or the client. Clients have no interest in the tidyness of the law, they want their money.

    Second, on choice of law where the US is involved, I see no particular advantage of Massachusetts (with the minor exception that it doesn’t recognize the doctrine of third-party beneficiaries). New York and Delaware have statutes that allow you to specify their law even if the contract has nothing to do with their states, so that’s a plus. A number of technology-based contracts I’ve seen have plumped for California, but personally I’d avoid it because of the general quirkiness of their decisional law. Ditto Texas, which, having a circuit system like the Federal courts doesn’t really establish a precedent until you get to the state supreme court.

    Third, on whether to include mediation or “executive escalation,” there’s some virtue in doing it, as the intended result is a compromise between the parties. While this could in theory be done without the intervention of a third party, a good mediator can bring the parties to an agreement where they couldn’t internally.

    Finally, as to arbitration officiants, I’m curious why you didn’t mention LCIA, which by reputation is clean, efficient and less expensive than ICC.

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