les Nouvelles June 2019 Article of the Month
Arbitration & Mediation—ICC Patent Arbitration
Morrison & Foerster LLP
Partner
Washington D.C., USA
This chapter addresses patent arbitration under the rules provided by the International Chamber of Commerce (ICC). The ICC rules are fairly sparse and allow for a great deal of flexibility, either in a contract containing an arbitration clause or in the conduct of the arbitral proceedings themselves. Despite the potential for flexibility, in practice there are a handful of authoritative treatises and several norms and customs governing ICC arbitration.
I. Scope of Relief in ICC Arbitration
The ICC, like most other arbitration venues, gives itself the power to determine its own jurisdiction. Article 6(4) of the ICC's Arbitration Rules (Rules) provides that "In all cases referred to the Court under Article 6(3), the Court shall decide whether and to what extent the arbitration shall proceed." The "Court" refers to the International Court of Arbitration of the ICC, and it is the independent arbitration body of the ICC. (Rules Article 1(1).) If the Court finds it plausible that there is an agreement to arbitrate between the parties, then the Court will allow the case to move forward in front of a Tribunal of arbitrators to address any issues of jurisdiction or the merits of the dispute.
In terms of the contents of a Request, the ICC requires that all requests contain the following information:
a) The name in full, description, address and other contact details of each of the parties;
b) The name in full, address and other contact details of any person(s) representing the claimant in the arbitration;
c) A description of the nature and circumstances of the dispute giving rise to the claims and of the basis upon which the claims are made;
d) A statement of the relief sought, together with the amounts of any quantified claims and, to the extent possible, an estimate of the monetary value of any other claims;
e) Any relevant agreements and, in particular, the arbitration agreement(s);
f) Where claims are made under more than one arbitration agreement, an indication of the arbitration agreement under which each claim is made;
g) All relevant particulars and any observations or proposals concerning the number of arbitrators and their choice in accordance with the provisions of Articles 12 and 13, and any nomination of an arbitrator required thereby; and
h) All relevant particulars and any observations or proposals as to the place of the arbitration, the applicable rules of law and the language of the arbitration.
(Rules at Article 4(3).) The ICC's official commentary states that, subject to these procedural requirements, "The claimant enjoys considerable freedom in determining how to present its Request." (Secretariat's Guide to the ICC Rules ("Guide") § 3-80.)
As a practical matter, the scope of relief available in a patent arbitration will be limited by applicable arbitration agreements because arbitration requires an agreement to arbitrate. It is certainly possible for two parties with no pre-existing contractual arrangement to agree to litigate a patent infringement dispute in an ICC arbitration, but this is rare. More typical are arbitrations about existing agreements, commonly patent licenses. Depending on the nature of the license, questions of infringement, invalidity and other "technical" patent law topics can arise. If a technical dispute, such as patent infringement, could plausibly arise out of a contract subject to ICC arbitration, such as a patent license, the drafters of the contract should consider a requirement that at least one member of the tribunal have an appropriate technical background.
II. Fact-Finding and Evidence
The ICC rules are deliberately vague on the subject of discovery. The only official rule regarding discovery is that "The arbitral tribunal shall proceed within as short a time as possible to establish the facts of the case by all appropriate means." (Article 25(1).) The arbitral tribunal also may, but need not, hear from fact and expert witnesses. (Article 25(2)-(3).) Appendix IV to the Rules provides the following suggestions regarding the exchange of documentary evidence between the parties:
d) Production of documentary evidence: (i) requiring the parties to produce with their submissions the documents on which they rely; (ii) avoiding requests for document production when appropriate in order to control time and cost; (iii) in those cases where requests for document production are considered appropriate, limiting such requests to documents or categories of documents that are relevant and material to the outcome of the case; (iv) establishing reasonable time limits for the production of documents; and (v) using a schedule of document production to facilitate the resolution of issues in relation to the production of documents.
As a practical matter, the ICC tribunals almost always apply, or at the very least take their cues from, the International Bar Association's Rules on the Taking of Evidence in International Arbitration (IBA Rules). The IBA Rules provide that witnesses, fact and expert, testify via written direct testimony and live cross-examination. As a matter of practice, most ICC procedural schedules include a date by which a party must state which if any opposing witnesses it wishes to cross-examine. It is fairly common for parties to waive cross-examination for at least some witnesses.
The IBA rules are more detailed about the scope of document requests and the admissibility of evidence. The IBA Rules provide that document requests must contain:
(a) (i) a description of each requested document sufficient to identify it, or (ii) a description in sufficient detail (including subject matter) of a narrow and specific requested category of documents that are reasonably believed to exist; in the case of documents maintained in electronic form, the requesting party may, or the arbitral tribunal may order that it shall be required to, identify specific files, search terms, individuals or other means of searching for such documents in an efficient and economical manner;
(b) a statement as to how the documents requested are relevant to the case and material to its outcome; and
(c) (i) a statement that the documents requested are not in the possession, custody or control of the requesting party or a statement of the reasons why it would be unreasonably burdensome for the requesting party to produce such documents, and (ii) a statement of the reasons why the requesting party assumes the documents requested are in the possession, custody or control of another party.
(IBA Rules at Article 3.3.) Pursuant to the IBA Rules, the procedural schedule for document discovery in ICC arbitrations usually contains a date for exchanging document requests, a date for producing responsive documents to which there are no objections, a date for objections to the document requests (this date is often the same as the previous date), a date for ruling on those objections and a date for production of documents consistent with the tribunal's rulings.
The requests, objections and rulings are almost invariably collected in what is called a "Redfern table." A Redfern table has five columns: (1) the description of the requested document(s); (2) an explanation of the relevance of the requested document(s); (3) an explanation of why the requested document(s) are assumed to be in the possession, custody or control of the party to whom the request is addressed; (4) the response by the party to whom the Request to Produce is addressed; and (5) the arbitral tribunal's ruling. (See, e.g., Arbitrating under the 2012 ICC Rules at 175-76 (Grierson and van Hooft; Jan 2012).) While the Redfern table does not appear anywhere in the ICC Rules, as a practical matter virtually every ICC arbitration, even ones that do not explicitly rely on the IBA Rules, uses one to govern document discovery.
As to the admissibility of evidence, the ICC Rules provide no concrete guidance, but the IBA Rules provide the following potential grounds for exclusion of proffered evidence:
(a) lack of sufficient relevance to the case or materiality to its outcome; (b) legal impediment or privilege under the legal or ethical rules determined by the arbitral tribunal to be applicable; (c) unreasonable burden to produce the requested evidence; (d) loss or destruction of the Document that has been shown with reasonable likelihood to have occurred; (e) grounds of commercial or technical confidentiality that the arbitral tribunal determines to be compelling; (f) grounds of special political or institutional sensitivity (including evidence that has been classified as secret by a government or a public international institution) that the arbitral tribunal determines to be compelling; or (g) considerations of procedural economy, proportionality, fairness or equality of the parties that the arbitral tribunal determines to be compelling.
(IBA Rules at Article 9(2).) Under the substantive law of arbitration in most countries, however, failure to consider evidence is one of very few grounds for vacatur of an arbitral award. Therefore, tribunals are very reluctant to exclude evidence outright and instead are far more likely to simply consider it "for what it is worth" rather than absolutely excluding it from consideration.
III. Strategic options
1. Warning Letters
The ICC rules are silent on the subject of pre-arbitration communications. As a matter of practice, most agreements with arbitration clauses contain so-called escalation provisions that require the parities to provide notice of dispute and an opportunity for high level discussion of the dispute before any arbitration can be filed. Therefore, litigation style "warning letters" are comparatively rare as the parties are generally required to at least make a show of resolving the dispute without arbitration. Of course, not all agreements contain such escalation clauses.
2. Preliminary Relief
The ICC Rules provide for three potential avenues for preliminary relief. First, the ICC rules explicitly contemplate that a party may seek interim relief from a court. Article 28(2) of the Rules provides that: "Before the file is transmitted to the arbitral tribunal, and in appropriate circumstances even thereafter, the parties may apply to any competent judicial authority for interim or conservatory measures." This is generally recognized as a provision allowing for an injunction in aid of arbitration. The tribunal receives the file from the ICC as soon as the parties agree on the membership of the tribunal and have paid necessary advance fees to the ICC. Consequently, this provision generally only applies early in the proceedings between the parties and is not meant to allow for a party to seek injunctive relief from a court while an arbitration is well underway.
The second source of potential preliminary relief is the arbitration tribunal itself. After the tribunal has received the file from the ICC, it can enter its own injunctions pursuant to Article 28(1) which provides that:
[T]he arbitral tribunal may, at the request of a party, order any interim or conservatory measure it deems appropriate. The arbitral tribunal may make the granting of any such measure subject to appropriate security being furnished by the requesting party.
The 2012 amendments to the ICC rules provide that a party can ask for the ICC to appoint an emergency arbitrator to provide "urgent interim or conservatory measures that cannot await the constitution of an arbitral tribunal ('Emergency Measures')." (Article 29.) The emergency arbitrator provisions only apply to arbitration agreements executed after the 2012 amendments to the ICC rules, and therefore there have been relatively few times when emergency arbitrators have been used, but the number of such cases should generally increase over time.
Regardless of whether the emergency relief comes from a court, the tribunal or an emergency arbitrator, the purpose of such relief is almost always to attempt to freeze the status quo pending the resolution of the merits of the arbitration. Emergency relief is fairly uncommon in patent arbitrations. Most patent arbitrations concern the interpretation of licenses, and the existence of a license is often strong evidence that a victim of alleged infringement can be compensated with money damages. Moreover, the parties can agree to stipulate to preserve the status quo or agree to a consent order from the tribunal rather than having a contested dispute about emergency relief. ICC arbitrators generally consider themselves empowered, if not encouraged, to find creative ways to facilitate expeditious resolution of business disputes. Litigating emergency relief, a purely procedural matter that does not result in a ruling on the merits, expends time and effort without meaningfully advancing resolution of the dispute.
3. Main Proceedings
The most notable aspect of the ICC Rules for the main proceedings is that there hardly are any. The only rule on point simply states that "The arbitral tribunal shall proceed within as short a time as possible to establish the facts of the case by all appropriate means." (Article 25(1).) The only document that the ICC rules require the tribunal to provide, other than the ultimate ruling, is the terms of reference. The terms of reference is a largely ministerial document that sets forth the parties' contentions of fact and law. (Article 23.) ICC arbitrators have extreme latitude to set whatever schedules and procedures seem most appropriate to the case at hand.
There are certain common procedural steps that appear in almost all ICC arbitrations. After the terms of reference is prepared and executed by the parties, the most common sequence of events in ICC arbitration is statement of claim (i.e., claimant's opening brief); statement of defense; document discovery; statement of reply; statement of rejoinder; submission of all materials that may be used at the hearing on the merits (this is called the hearing bundle) and a live hearing. The procedural schedule almost always requires parties to submit any witness statements (fact or expert), legal authorities and documentary evidence that supports any of the four briefs along with that brief. The statements of reply and rejoinder are usually limited to responses to the Statements of defense and reply, respectively.
This procedure—sequential briefing, two briefs for each side and the submission of all supporting documents with the briefs—is not unique to the ICC and is likely familiar to many litigators from other jurisdictions and forums. The timing and procedures for document discovery are somewhat unique to international arbitration. Litigation in the United States usually includes very broad document discovery before the parties' submit briefs on the merits of the dispute, and other court systems have little if any document discovery other than by court order. Scheduling discovery between the two briefing cycles is meant to allow the parties to exchange one set of limited document demands, which are informed by the statements of claim and defense. On the other hand, this requires the parties to set forth their factual and legal contentions in opening briefs without the benefit of discovery from the other side. A party who wishes to seek discovery at the outset of the proceedings can, of course, ask the tribunal to order such discovery.
IV. Procedural Aspects
1. Bifurcation
The ICC's recommended case management techniques explicitly includes bifurcation as an option in appropriate cases: "Bifurcating the proceedings or rendering one or more partial awards on key issues, when doing so may genuinely be expected to result in a more efficient resolution of the case." (ICC Rules at Appendix IV.)
Bifurcation can help encourage efficient resolution of a dispute when one (or more) discrete issue is driving the conflict.
For example, if the arbitral tribunal decides that it has jurisdiction, the parties will know that the arbitration will go forward. This could prompt them to discuss settlement. Similarly, if the tribunal finds a party to be liable, the parties may prefer to settle the issue of damages rather than incur the time and expense of completing the arbitration.
(ICC Arbitration in Practice (Second Edition) at 373 (Verbist, Schäfer and Imhoos; Dec 2015).) In the patent context, there are several possible candidates for bifurcation of issues. A ruling on claim construction may effectively resolve issues regarding claims of invalidity and/or infringement. A case may turn on the interpretation of a particular clause in a contract. There may be a single technical question, such as does a given product fall into a category that requires the payment of royalties.
Bifurcation is not the only means of front-loading certain issues in an arbitration. An ICC tribunal has broad authority to hear motions and weave them into the traditional procedural schedule. A party could move for summary disposition of some or all of a case, arguing that a contract is clear and should be interpreted as a matter of law or that a discrete ruling on particular merits issue will resolve the case. Formal bifurcation of the proceedings into phases is not strictly necessary in a flexible venue like the ICC.
2. Who Can Sue and Be Sued
The law of who is able to invoke and who is bound to an arbitration agreement is largely a matter of the governing law of the purported arbitration agreement. The ICC Rules provide that, if a party contends that it is not bound to arbitrate a matter, "the court (of the ICC) shall decide whether and to what extent the arbitration shall proceed. The arbitration shall proceed if and to the extent that the court is prima facie satisfied that an arbitration agreement under the Rules may exist. In particular." (Article 6(4).) The Secretariat's Guide explains that:
The underlying purpose of this preliminary assessment is to filter out as early as possible any arbitral proceedings where the court considers there is no objective basis for asserting ICC arbitral jurisdiction…The court is limited to a prima facie decision on whether an ICC arbitration agreement may exist, leaving any arguable jurisdictional questions to the arbitral tribunal.
(Guide § 3-209.)
Therefore, it is generally the tribunal itself that will resolve issues of jurisdiction and the scope of arbitration to which the parties have agreed. This is not unique to the ICC; it is a general principle of international arbitration that arbitrators should determine their own jurisdiction to hear disputes. A party that disagrees with a jurisdictional ruling typically has recourse to national courts after the proceedings. A finding of a lack of jurisdiction is a grounds for vacatur of an award in most jurisdictions. Such a challenge to the award, however, will come after the conclusion of the arbitration.
3. Timing Including Preparation
The default rule in the ICC is that the tribunal should issue a final award on the merits of the dispute, subject to review by the ICC court, within six months of execution of the terms of reference. (Article 31(1).) In practice, complex cases are never resolved this quickly and the terms of reference will set the real due date for the tribunal to issue its award. The tribunal also has the power to push back its own deadline at its own discretion.
4. Costs and Cost Reimbursement
Costs of ICC arbitrations fall into two general categories. First are the expenses of the ICC and the arbitrators' fees. The ICC Rules come with a fee schedule for these expenses. (Appendix III.) According to the Rules, the tribunal has the power to determine what proportion of these fees should be borne by each of the parties. (Article 38(4).)
The arbitrators also have broad power to shift all of the other costs of the arbitration—such as attorneys' fees, witness costs, and the like—between the parties:
In making decisions as to costs, the arbitral tribunal may take into account such circumstances as it considers relevant, including the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner.
(Article 38)5).) There are no real limits to the arbitrators' discretion to fix the costs of the proceedings. As expected, the most common allocations of costs are all parties bear their own costs, total costs are shared equally, or "costs follow the event" in which the prevailing party recovers its costs in proportion to its recovery. (See, e.g., ICC Arbitration in Practice (Second Edition) at 219-20 (Verbist, Schäfer and Imhoos; Dec 2015).)
5. Enforcement and Review of Decisions
After the tribunal issues an award, the ICC court reviews the award. (Article 34.) This is generally not a meaningful appellate review. The ICC court does not generally reverse or substantively change the findings of arbitrators. The ICC rules provide that, after the ICC court has reviewed and confirmed the award, "every award shall be binding on the parties." (Article 35(6).)
Actual enforcement of ICC awards is a matter of the law of any jurisdiction where a prevailing party attempts to confirm an award and reduce it to a judgment. In general, losing parties comply with awards, meaning that recognition and enforcement are not necessary. (See, e.g., Arbitrating under the 2012 ICC rules at 222 (Grierson and van Hooft; Jan 2012).)
Most jurisdictions where a party would seek enforcement of an arbitral award are parties to the New York Convention for the recognition and enforcement of foreign arbitral awards. The New York Convention generally requires signatory nations to recognize arbitral awards from other nations and to enforce them without review of the merits of arbitration decision. The grounds for refusing to recognize an award are very limited and they are: invalidity of arbitration agreement, lack of due process or procedural fairness, arbitrators exceeding their authority, violation of procedure agreed upon by the parties, vacatur by courts at the seat of the arbitration, conflict with local law, and public policy. All of these grounds go to whether the parties 1) really agreed to arbitrate the dispute that led to the award; 2) whether the arbitrators followed the parties' agreement; and 3) whether the award is consistent with the law of the country where recognition is sought.
6. Protection of Confidential Information
The ICC Rules provide that:
Upon the request of any party, the arbitral tribunal may make orders concerning the confidentiality of the arbitration proceedings or of any other matters in connection with the arbitration and may take measures for protecting trade secrets and confidential information.
(Article 22(3).) ICC proceedings are not automatically considered confidential. It is extremely common for the parties to agree to a protective order or other arrangement to explicitly require confidential treatment of the papers exchanged in arbitration and the proceedings themselves.
In intellectual properly litigation, a common issue with confidential information is restricting access to one party's most sensitive information to only those individuals on the other side who have a need to access the information in the context of the litigation. In U.S. litigation, this is usually accomplished through designating certain material as "attorneys'-eyes-only" or "outside counsel only." Such material may be reviewed by an adverse party's attorneys, experts, and support staff but cannot be shared with the employees of the adverse party. Such designations are extremely common in U.S., and other, intellectual property litigation. There is nothing in the ICC rules forbidding a similar structure of restricted access to discovery. As a matter of practice, many ICC arbitrators disfavor such designations.
This may be a reason to avoid patent arbitration, or not to draft arbitration agreements that would subject certain disputes to patent arbitration. There is no guarantee that an ICC arbitral tribunal will allow for the production of highly sensitive material to only the outside representatives of a potential adversary. Of course, parties drafting arbitration agreements who would like to use the ICC rules can add a side agreement allowing for attorneys'-eyes-only document production as a condition of agreeing to arbitrate. ■
Available at Social Science Research Network (SSRN):
https://ssrn.com/abstract=3271180.381