Protecting intellectual property rights through international arbitration

In this second article of our International Arbitration Series, we consider the benefits of international arbitration as a dispute resolution mechanism for intellectual property disputes.

The rapid development of new technologies and processes in sectors such as pharmaceuticals, biotechnology, life sciences, aerospace, energy, telecommunications, and information technology has led to an exponential increase in the number of patents and trademarks issued and domain name registrations around the globe. The increase is unlikely to slow with ongoing events like the COVID 19 pandemic, the fourth industrial revolution, and the scramble to address climate change—all of which are driving further innovation.

To harness and capitalize on these advances, many companies and governments are seeking strategic partnerships with international business partners (both public and private), particularly in emerging markets. Business arrangements are increasingly cross-border and complex, often involving multiple parties in high-value, long-term arrangements. Because intellectual property (IP) is often an important asset in many of those arrangements, the transaction documents often include provisions addressing the use of IP, such as licensing, cooperation, or technology transfer agreements. In most cases, these seek to protect IP rights across a number of jurisdictions. With IP disputes common, companies and governments should make sure to choose the right dispute resolution mechanism.

Advantages of international arbitration for IP disputes

Parties are increasingly choosing international arbitration to resolve disputes that might arise in arrangements that involve IP in more than one country. International arbitration is well suited for such complex, cross-border disputes.

While there is no arbitral institution in Turkey established specifically for the resolution of IP disputes, there are specialized IP courts. The availability of specialized IP courts may adversely affect the parties’ willingness to resort to arbitration, but the overall benefits which arbitration provides, particularly the prospects of having the dispute resolved by expert arbitrators, still lead many to choose arbitration as their preferred way of dispute resolution.

Private and confidential 

International arbitration is a private and often confidential process, unlike most court proceedings. This offers benefits, from reducing the risk to proprietary or commercially sensitive information to avoiding airing disagreements between parties in open court.

Less formal and adversarial 

Arbitration is less formal than litigation and, although not always less contentious, it can offer a less adversarial process than litigation. When combined with the confidential nature of most arbitrations, the less adversarial nature can help preserve a long-term or strategically important business relationship, which may be the most beneficial outcome.

Neutrality 

Arbitration provides an impartial forum with neutral decision makers under acceptable law and in a language with which the parties are comfortable. It allows parties to avoid being before foreign courts, which can be particularly important where disputes involve jurisdictions, including emerging markets, where parties have less confidence (a) in the local rule of law or (b) that local courts will decide cases independently, fairly, impartially, and timely. Concerns over neutrality may be compounded where states, state-owned entities, or nationally strategic matters are involved.

One forum for all disputes 

Where companies operate internationally, IP disputes often involve more than one jurisdiction. Because many IP rights protections are territorial in nature, the resolution of a dispute may require parallel litigation in courts in different countries. This can lead to conflicting judgments with the scope of the parties’ rights interpreted differently by different courts. Litigation in multiple fora may also complicate settlement. International arbitration can offer a single forum where multiple disputes can be resolved holistically, before one tribunal. This offers greater consistency of outcome and often presents better opportunities for a global settlement.

Flexible process with good procedural safeguards. Major arbitral rules are designed to work flexibly and accommodate the practices of parties from different legal traditions. Parties can tailor proceedings to their needs and that of the specific dispute. When leveraged properly, this is a powerful tool. As one example, discovery in IP litigation, particularly in the United States, can be extremely expensive. In arbitration, parties can agree on a limited scope of discovery, or agree that evidence will be on paper only and hearings be held virtually, saving significant time and cost. But, parties must actively seek to leverage procedural flexibility. That is where it becomes critical to hire experienced arbitration counsel. Too often these benefits are missed where, for example, proceedings are run by litigators who simply treat the arbitration as they would a lawsuit brought before a court.

That is not to say that it is a procedural ‘free-for-all.’ Arbitration rules provide procedural safeguards. Some are mandatory, while others function through agreement and at the request of the parties. For example, interim relief (often of critical importance in IP disputes) can be sought in the arbitration, although parties often can seek interim relief from the courts in support of the arbitration. Expedited procedures may also be available, from appointment of an emergency arbitrator to accelerating the procedural timeline, curtailing disclosure, or imposing a shorter deadline for issuance of the award.

Cost and time efficiencies 

Because parties and the tribunal can tailor the process, arbitration has the potential to reduce the costs and time of proceedings. As explained above, it does not always live up to this promise, but where counsel leverage procedural flexibility and utilize tools available to minimize costs (such as technologies to drive efficiencies in case management, disclosure, and document review), time and cost savings can be significant. This is magnified when arbitrators are experienced and possess excellent case management skills.

Finality 

Arbitration awards are typically expressed as final and binding. Most arbitral rules and laws limit rights to appeal or challenge awards. While the ability to challenge an award on grounds of procedural unfairness, bias, or want of jurisdiction is usually available, most jurisdictions limit the right to appeal an award to multiple levels of senior courts. In Turkey, however, courts sometimes interpret the public policy defense broadly and tend to review the merits of the dispute at the set-aside stage.

Enforcement 

Arbitration offers significant benefits when it comes to enforcement where disputes are cross-border. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the ‘New York Convention,’ offers a regime for enforcement of awards that is accepted in almost all countries. It restricts the ability of domestic courts to reconsider the merits of awards and limits challenges to enforcement to a limited set of grounds (largely, serious procedural irregularities or lack of jurisdiction), although some courts in Turkey interpret the public policy defense broadly and tend to review the merits of the dispute. There is no equivalent regime for enforcement of foreign court judgments, so it is often harder to enforce court judgments from one country in another country.

Mandatory arbitration on employees' inventions

According to Turkish Industrial Code, and the relevant regulation in relation to employee inventions, certain disputes regarding employee inventions, such as disputes in relation to fee schedule for employee inventions, are subject to a mandatory arbitration, and the arbitration procedure to be followed in the case of disputes is determined by the said regulation.

Limitations of international arbitration for IP disputes 

Pure IP rights disputes can arise between parties with no prior relationship. Arbitration is a consensual process, and the right to go to arbitration is rooted in the parties’ agreement to arbitrate. Where there is no contractual relationship, an arbitration cannot occur except by agreement after a dispute has arisen. If parties can subsequently agree to arbitrate the dispute, they can avoid litigation and reap the benefits of arbitration.

Because arbitration is a form of private dispute resolution, an award that is binding on the parties to the arbitration will not be binding against the whole world. Similarly, the award may not amount to binding precedent. That said, for strategic reasons, these points may sometimes be an advantage rather than a disadvantage. 

Some national laws prohibit arbitration of certain fundamental IP rights. For example, questions of the validity of IP rights (such as the validity of a patent) may not be arbitrable. This varies globally so it is important to consult experienced arbitration counsel when choosing the dispute resolution forum.

Actions by governments can impact the profitability or even viability of commercial arrangements.

Parallel rights under investment treaties 

Where a dispute involves a state and a foreign investor, the investor may have additional rights under a bilateral investment treaty, including the right to sue the state in international arbitration. Such rights often run parallel to rights under domestic law or the law of the contract. Treaty rights can offer important protections, particularly in current times where governments are taking steps to address complex issues of national strategic importance - COVID 19, national health, climate change, the energy transition, energy security, the fourth industrial revolution, trade disputes, rising nationalism - to name but a few. Actions by governments can impact the profitability or even viability of commercial arrangements. In those circumstances, foreign investors may find they have little-to-no recourse before domestic courts. Where they have rights under an investment treaty, however, those rights offer powerful legal protections and a stronger negotiating position.

Concluding thoughts 

As companies and governments seek to leverage opportunities arising from rapid developments in technologies and processes, it is critical that they think about protecting IP assets. A right is only valuable if it is enforceable, and a crucial element of enforceability is having an effective dispute resolution mechanism. Choosing international arbitration to resolve IP disputes offers significant benefits over litigation. However, when deciding on the dispute resolution mechanism, parties should assess the dynamics of the business and contractual arrangements. The best dispute resolution proceedings are tailored to the specific circumstances. An ounce of prevention has always been worth more than a pound of cure.