Source: https://www.ipwatchdog.com/2013/06/10/think-patent-arbitration-cant-work-think-again/id=41447/
Timestamp: 2019-04-24 00:56:01+00:00

Document:
Think Patent Arbitration can’t Work? Think Again.
When amicable efforts fail to resolve a dispute concerning patent rights and the aggrieved party wishes to pursue the matter further, it usually initiates litigation or perhaps a U.S. International Trade Commission (“ITC”) investigation, despite the huge costs of such options, because it may assume no other plausible alternatives exist to achieve the desired objectives.
Articles, such as this one, tout arbitration as an alternative: faster, cheaper and more confidential than litigation, with other benefits as well. Apparently the U.S. Supreme Court agrees, having described the Federal Arbitration Act (9 U.S.C. §1, et seq.) as evidencing a “national policy favoring arbitration” (Nitro-Lift v. Howard); and recognized “an emphatic federal policy in favor of arbitral dispute resolution” (Marmet Health Care v. Brown). Likewise, the Patent Act provides at 35 U.S.C. §294(a) that any arbitration clause contained in a patent agreement shall be presumed valid, irrevocable and enforceable.
However, in actual practice, relatively few patent disputes are submitted to arbitration. Worldwide, only a few hundred requests to arbitrate patent disputes are filed each year. By comparison, in 2012 more than 5,000 patent lawsuits were filed in U.S. District Courts, not to mention courts of other nations. So what’s the problem? If arbitration is so great, why are so few patent disputes resolved in arbitration? More important, are patent litigants missing something? Should they rely on arbitration more often?
First, despite the relatively small number of patent disputes resolved in arbitration, compared to litigation, it should be noted that arbitration does play a key role in many substantial patent disputes.
In 2012, the Federal Circuit affirmed an order compelling Promega and Life Technologies Corp. to arbitrate a patent licensing dispute, based on the plain language of an arbitration agreement.
In 2012, Nokia and Research in Motion arbitrated a licensing dispute in Sweden, with the tribunal finding that RIM infringed Nokia’s standard-essential patents (“SEPs”) and owed royalties to Nokia.
In February 2013, Tessera Technologies announced an arbitration award issued in its favor, finding Amkor Technologies owed it $130 million in royalties under a patent licensing agreement, in addition to $64 million in royalties that Amkor had been ordered to pay in an earlier arbitration.
In April 2013, the ITC ordered InterDigital Corp and LG Electronics to enter into arbitration (based on an arbitration clause) concerning the allegation that LG’s products infringed InterDigital’s patents.
In May 2013, Google proposed to Apple that they use arbitration to resolve a dispute concerning certain patents, although the parties failed to reach agreement on that.
In May 2013, the Federal Circuit rejected a request to enjoin foreign arbitration of a licensing dispute between Sanofi-Aventis and Genentech, despite a U.S. District Court having already resolved a closely-related dispute between the two parties.
In short, multi-national companies do arbitrate large patent disputes and often find the process superior to litigation.
Speed and cost are usually listed among the primary advantages of arbitration, for good reason. In March 2013, the World Intellectual Property Organization (“WIPO”) published results of a survey that found resolving technology disputes in arbitration saved, on average, more than 60% in time and up to 55% in costs, compared to litigation. That’s especially true when compared to the high costs of patent litigation. Parties can virtually guarantee savings by carefully structuring the arbitration process to require just one arbitrator, rather than three; restricting the scope of discovery, witnesses and submissions; limiting motions; submitting the case on the pleadings; making the award non-appealable; and so forth. Arbitration also provides substantial savings in disputes concerning patents in multiple jurisdictions by allowing the parties to reach a worldwide resolution in a single forum, instead of litigating in multiple jurisdictions.
Confidentiality is also regularly cited as an advantage and, it’s true, evidence and pleadings in arbitration are filed privately, proceedings are closed to the public, parties and triers of fact are generally sworn to secrecy. However, the confidentiality of arbitration is not absolute. 35 U.S.C. §294(d) provides that no award arising from an arbitration clause in a patent agreement is enforceable until it has been delivered to the Patent and Trademark Office, where it becomes a part of the patent prosecution file. More generally, courts have held that arbitration documents and awards are subject to disclosure in response to court orders and subpoenas, regardless of whatever confidentiality requirements the parties may have agreed to. The Seventh Circuit explained: “Many litigants would like to keep confidential the salary they make, the injuries they suffered, or the price they agreed to pay under a contract, but when these things are vital to claims made in litigation they must be revealed” (Baxter v. Abbott Labs). Risk of disclosure exists with respect to litigation challenging the arbitration award, seeking to enforce the award, or involving unrelated third parties.
The flexibility of arbitration is another advantage: parties may stipulate countless variables to suit their needs and achieve the desired balance between due process and efficiency, including stating the place of arbitration (or none), number and qualifications of arbitrators, access to interim relief, governing law, procedural rules, language, evidence, timing and more. Just an inkling of that diversity can be seen in the fact that the International Chamber of Commerce (“ICC”) received 759 requests for arbitration in 2012, involving parties from 137 countries, with place of arbitration in 59 countries, using arbitrators of 76 nationalities and awards were issued in 12 languages. Arbitration allows parties to avoid litigating in potentially biased forums before judges or juries who may lack relevant knowledge, instead selecting neutral arbitrators with expertise in the particular industry or technology. Most arbitration institutions such as the ICC maintain a panel of highly-qualified arbitrators, many of whom are registered patent lawyers and/or engineers.
Governing law and place of arbitration should be chosen with care, because patent disputes are not capable of being fully resolved by arbitration in all countries. In particular, U.S. courts recognize the right to arbitrate questions of patent infringement and validity, but some countries, such as China and Japan, do not permit validity to be resolved in arbitration, and in other countries the issue is unclear. In jurisdictions where validity is not a proper subject of arbitration, not only is one barred from raising invalidity as a defense, but the local courts may refuse to enforce an award that was issued in another country, if the award includes a ruling on validity.
Finally, there’s enforceability. Several multinational treaties promote the reciprocal recognition and enforcement of arbitration awards between nations including, most notably, the New York Convention, which has been ratified by most major nations. By comparison, relatively few countries are parties to agreements concerning the cross-border enforcement of court judgments. One still must file a legal action to confirm an award in order to enforce it, but at least the award itself should be less vulnerable to attack than a court judgment. In patent cases, court judgments are regularly overturned, modified or remanded back on appeal for various reasons, but potential grounds for overturning arbitration awards are generally much fewer, such as invalidity of the arbitration agreement, failure to comply with the terms of the arbitration agreement, and the like.
It should be noted that arbitration can only result from an agreement reached by the parties, either before or after a dispute arises and it is much harder to reach such agreement after the dispute arises. In fact, that is one reason why so few patent disputes are resolved in arbitration: because patent disputes often don’t involve a pre-existing relationship and the patent owner has little interest in amicable cooperation, preferring to inflict pain, extract maximum damages and set a precedent. When those are the objectives, admittedly, arbitration may not be the best solution.
However, in the many cases where adverse parties have an ongoing business relationship and prefer to work together to achieve a fair, reasonable and cost-effective solution, avoiding the hostility and publicity of litigation, arbitration of patent disputes can make a lot of sense. Prudent counsel won’t treat an arbitration clause as generic boilerplate. Instead, by carefully considering the types of matters described above, and discussing concerns with opposing counsel, one may craft a provision that maximizes the advantages of arbitration and minimizes the disadvantages – the same as one would do with any other contract provision – to best serve all parties.
Given the fact that arbitration awards have no real meaningful appellate review and the high reversal rates for claim construction issues, you’d have to be a fool to agree to an arbitration proceeding.
I think you missed the point. Yes, claim construction issues and patent judgments generally have high reversal rates, and that certainly benefits attorneys handling cases on an hourly basis, but for companies that wish to reach quick and reasonable resolutions of disputes at considerable savings in time and expenses, so they can get back to doing business, high reversal rates and endless litigation and appellate procedures may not be in their best interests and a cheaper, faster process leading to a binding and enforceable outcome may make sense, provided the process is reasonable and the arbitrator/s sufficiently qualified. That won’t always be the case, but often it may be.
Chris, I think you’re missing the point. Who cares how fast or inexpensive (and I have first-hand experience that arbitration can often-times be as or more expensive than district court litigation) the process is if the arbitrator royally screws up the validity, infringement and/or damages issues? And if she/he does, then you have almost no recourse to get meaningful appellate review. So you saved yourself/your client a few million dollars by using arbitration. Now you’ve gotten hit with a multi-million award or lost a multi-million award because the arbitrator royally screwed up (or, giving the arbitrator the benefit of the doubt, merely got it wrong). And you know what? That award stands. Good luck in trying to get it vacated. Not going to happen in 99% of the time. Sorry, Chris. Arbitration is a terrible idea.
A key reason some patent issue arbitrations have indeed been slow and expensive is overly-simple arbitration clauses not adequately drafted to avoid that.
Nor is a competent arbitrator [such as a real patent law disputes resolution expert, even a patent case experienced ex-judge] necessarily more likely to “royally screw up” than a technology-challenged and claim-comprehension-challenged lay jury or judge.
What arbitration is missing is extensive enough discovery to uncover otherwise undiscoverable “smoking gun” evidence, but query how many patent suits are actually won from such evidence that would not have been won anyway?
Also, as the author is trying to point out, a three, four or more delay in a new product launch “hanging fire” to resolve an adverse patent issue may be more costly than a fast adverse arbitration award in some cases.
A post-grant PTO proceeding will be better than either of the above two choices in many cases now, but is limited to only invalidity [not infringement] issues, and the only one usually avialable is an IPR or an ex parte reexamination, which are both limited to only prior art patents and publications, and a reexamination is usually too slow.

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