DEVOTED TO INTELLECTUAL

PROPERTYLITIGATION &

ENFORCEMENTEdited by Gregory J. Battersby

and Charles W. Grimes

Litigator

SEPTEMBER/OCTOBER 2016

VOLUME 22 NUMBER 5

SEPTEMBER/OCTOBER 2016 I P L i t i g a t o r 1

Arbitration Saves Money and Patents in International Disputes

The advantages and disadvantages of arbitration versus litigation have been long debated. Because arbitra-tion is a matter of contract, parties are free to adopt existing procedural and substantive rules or invent their own. This freedom can complicate comparisons.  For example, the parties can include or exclude discovery, per-mit or prohibit direct testimony, and require prompt and detailed rulings—or not. Arbitrations have one advantage that is unquestioned—treaties make the international enforcement of arbitra-tion awards easier and more likely than the enforcement of state judgments.

Arbitration has become a favored provision in certain industry con-tracts, including construction, secu-rities, and labor. Arbitration, on the other hand, rarely is used in relation to patent disputes. While arbitration provisions are a part of many patent licensing agreements, most patent disputes are not between licensees and licensors.  Even though the US Supreme Court changed a pre-existing Federal Circuit rule to permit patent licensees to file declaratory judg-ments seeking invalidity against licensed patents in Medimmune, Inc. v. Genetech, Inc. [549 U.S. 118 (2007)], this rule cannot prevent a stay for any dispute falling within the provisions of an arbitration clause.

If parties to a license or industry dispute resolution agreement devote

appropriate time and effort to pre-paring an arbitration provision to meet their specific objectives, arbi-tration can be a valuable tool in resolving patent disputes. Trial law-yers will tell you that the number of documents introduced at trials is a minuscule subset of those that are categorized, reviewed, and consid-ered. This search has become more massive and only marginally more productive with the vast eDiscov-ery now accessible. The search for smoking gun documents can drift far afield at great expense to the combatants. Similarly, both the num-ber of witnesses questioned and the length of the questioning contribute to the skyrocketing costs of patent litigation.

Arbitration, on the other hand, allows the parties involved to negotiate provisions that can bal-ance the competing objectives of thoroughness with cost and speed. Significant items to consider when negotiating arbitration provi-sions are:

• limits to representative claims and prior art

• specify the number and qualifica-tions of arbitrators (take care not to over-specify qualifications)

• limits on discovery or exclusion • the convenience and expense of

the arbitration venue • specify that the “loser” pays

(limits can also be placed on the amount of payment) 

• waiving a written decision or requiring the arbitrator provide an analysis of her reasoning.

The parties also can approve a specific arbitration (or series of arbi-trators) in the agreement, enabling patent owners to gain some confi-dence in allowing their patents to be subject to an invalidity determina-tion. However, the provision must be clear on what procedures are employed if the selected arbitrator(s) fails to accept the appointment for whatever reason. Invalidity determi-nations also can be controlled by the contract. For example, the parties might agree that an invalidity deter-mination by the arbitrator would not become final for 30 days after the issuance of the ruling and only if the patent holder failed to grant a covenant not to sue on the patent at issue to the prevailing party prior to the expiration of the 30 days. The parties could provide that obviation of an arbitrator’s invalidity ruling by the covenant not to sue would not affect other rulings of the arbitrator.

Use of arbitration is not limited to pre-existing contractual provisions. Because of its contractual nature, par-ties can agree to arbitration after a dis-pute arises. Furthermore, parties often agree to modify existing arbitration pro-visions to optimize an arbitration after the details of the dispute are known.

With the soaring costs of litigation, patent holders have become more reluctant to enforce patent rights. Evaluation of whether or not to pur-sue an infringer is a business decision that in many instances may turn on factors other than the strength of the case. Artful and careful use of arbitration provisions can provide a company with a before-the-fact or even after-the-fact opportunity to design a potential solution that fits within the company’s objectives and budget. Whether or not this tool is appropriate for a particular contract or other situation, it always should be carefully examined.

Arbitration clauses often are one of the last clauses negotiated in con-tracts. This late treatment may lead to failure to cover essential elements

Praxis

ArbitrationKirk Watkins

for enforceability or mere adoption of a form provision without careful tailoring to the parties’ needs and objectives. The decision to arbitrate or not should be determined only in the context of the specific provision being chosen and the ability of that

provision to meet all of the objec-tives of the parties.

Kirk Watkins is a partner with Womble Carlyle Sandridge & Rice LLP where he practices in the areas

of Intellectual Property Litigation and International Arbitration. He is the President-Elect of the Atlanta International Arbitration Society and is an editor and major contributor to the Georgia Intellectual Property Litigation Blog.

Copyright © 2016 CCH Incorporated. All Rights Reserved.Reprinted from IP Litigator, September/October 2016, Volume 22, Number 5, pages 15–16,

with permission from Wolters Kluwer, New York, NY, 1-800-638-8437, www.wklawbusiness.com