UK: Practitioners Overlook Arbitration When Resolving Patent Infringement

Last Updated: 21 May 2014
Article by Clive Thorne

Recognised arbitral bodies are responsible for promoting the multitude of advantages arbitration employs as a preferred choice for patent disputes, says Clive D Thorne.

Arbitration as a method of resolving patent infringement and validity disputes has been overlooked by practitioners. Possibly the reason for this is that intellectual property infringement actions are tortious and traditionally arbitration has been used for the resolution of contractual disputes. However, it is commonplace for arbitration clauses to be incorporated into intellectual property licences.

Although there is little scope for the arbitration of 'piratical' disputes, there is in principle no reason why arbitration cannot be used by agreement between two commercial parties eager to resolve the dispute as a whole or in part. As early as 1991, Judge Ford, in the then Patents County Court, created an optional arbitration procedure and a panel of arbitrators. More recently, Article 52 of the rules for setting up the proposed Unified Patents Court to determine disputes relating to the new European Patent provides for arbitration as a means of resolving disputes.

In the United States, although in practice relatively few infringement disputes are submitted to arbitration, the US Patent Act (35 USC Section 294 (a)) provides that any arbitration clause contained in a patent agreement should be presumed "valid, irrevocable and enforceable".

There are glaring advantages of arbitration in such disputes:

Cost It is a trite criticism that the costs of an arbitrator or a panel of arbitrators will add considerably to the cost of resolving the dispute. In March 2013, the World Intellectual Property Organisation (WIPO) published the results of a survey that found resolving technology disputes using arbitration saved more than 55 per cent in costs compared to the equivalent litigation. In the United States the costs of a patent trial can well exceed $2m and in England, despite efforts to minimise procedures, over Ł1m in the Patents Court. The fast-track procedures in the revamped Enterprise and Intellectual Property Court owe a good deal to arbitration.

It is also significant that parties, in determining by agreement the scope of the arbitration, can also make agreed provision for costs, for example, each party bears their own costs in the arbitration or for a limited award of costs.

Privacy Confidentiality is particularly important in patent disputes especially in circumstances where the technical evidence is commercially confidential. Hearings will be in private; pleadings and evidence will be submitted in private and there is no reason why the arbitral award should not be kept confidential. More specifically, licensees and potential licensees of the patent in dispute need not know of submissions made or of the award. Similarly, a third party inclined to attack the validity of the patent will be unaware of and unable to rely upon the evidence given in the arbitration in a later claim.

Control of the process As with all arbitral procedures, it is open to the parties to choose the rules of the procedure to be adopted. For example, disclosure can be limited, time limits can be decided and applied between the parties, and advance agreement can take place on the construction of the patent claims. Above all, it is open to the parties to decide the issues to be the subject of the award. It is open to the parties as to whether there should be a reasoned award or merely a decision contained in the award - highly material in the context of invalidity claims. The parties can agree a panel of arbitrators or a sole arbitrator.

Technical advantages The parties can specify the nature of the technical expert evidence to be given and the number of technical experts. They can agree upon a sole expert or experts for each party. Most importantly, it is possible to agree the technical composition of the arbitral panel. For example, it is not uncommon for a panel to consist of a legally qualified chairman together with two technical panel members nominated by each party. In such circumstances the parties might also agree that no technical expert evidence should be given by each party and that the technical issues should be decided using the technical expertise of the panel.

Validity A major difficulty with a finding of invalidity in litigation is that the judgment binds the world at large (subject to possible appeal) and this will lead to the patent being struck from the register. This may be undesirable for both parties particularly when a successful party might also wish to preserve the validity of the patent claims for future use against third parties, or as the basis for subsequent patent licenses. This problem is obviated in arbitration where the parties are able to agree that a finding of invalidity is to bind the parties to the arbitration only or that validity should not be an issue in the arbitration so that the arbitration should be concerned with infringement only. Alternatively the Panel could be asked to find the patent unenforceable against the other party rather than invalid.

Multi-jurisdictional disputes I have been involved in a number of multi-jurisdictional disputes where the patent is litigated, as it must be, in different jurisdictions. This is particularly common in litigation in respect of an EPC patent where there may be a litigation which potentially gives rise to different findings in the courts of different designated jurisdictions. This is undesirable and expensive. This can be avoided by arbitration with the applicable law of the dispute being that of a chosen jurisdiction which may or may not be consistent with the law of arbitration. Such agreement on arbitration can be decided following commercial negotiation between the parties.

Interim relief The Arbitration Act 1996 and the leading arbitration rules of institutions such as the Chartered Institute of Arbitrators (CIArb), the London Court of International Arbitration (LCIA) and World Intellectual Property Organisation (WIPO), provide for the arbitrator to give appropriate interlocutory orders, such as preserving evidence, disclosure, the use of experiments, injunctions and the interim relief which would generally be awarded by a court. It is only in cases of flagrancy where relief such as the search and seizure order requires the immediate support and authority of the court where in any event arbitration would be inappropriate.

Split litigation and arbitration A common phenomenon is for infringement and validity issues to be the subject of litigation with damages to be assessed according to an agreed formula by way of arbitration. In such cases the advantages of speed, cost and confidentiality are paramount.

Agreed rules of arbitration

It is increasingly common for commercial competitors to agree that all future patent disputes between them should be determined by arbitration in accordance with agreed rules of arbitration. Such parties frequently agree that the seat of arbitration should be a neutral jurisdiction such as Bermuda, Monaco or those with a strong arbitration tradition such as Singapore or Switzerland.

WIPO arbitration rules are particularly suitable for patent arbitration. For example, Article 51 of the current WIPO rules, provides for the provision of technical primer models and drawings if the parties so agree. However parties can rely on other existing rules such as those of CIArb and LCIA or agree specific ad hoc rules designed to cater for the requirements of a patent dispute.

Additionally, universities and other academic institutions have grasped the merits of arbitration for the determination of disputes relating to ownership and entitlement to intellectual property rights by the university and its academic staff. So have corporations for the purposes of determining employee rights to inventions.

Arbitration, therefore, provides substantial potential benefits in the conduct and disposal of patent disputes. The recognised arbitral bodies should be encouraged to promote arbitration as a preferred choice for patent disputes.

Originally published by Solicitors Journal, 31st March 2014.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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