Arbitration As An Alternative Dispute Resolution Method In IP – Pros And Cons

With the recent launch of the Independent Press Standards Organisation’s (Ipso) consultation into setting up a pilot arbitration service to widen access to justice, it is interesting to consider the advantages of arbitration as an alternative dispute resolution method.

Arbitration has increased its popularity in recent years, and could be very advantageous in IP matters due to its flexibility, private and confidential nature.

Before agreeing to use arbitration to resolve a dispute, it’s important to explore the pros and cons of the option. The main arguments in favour of arbitration in IP disputes include:

+ Privacy

When it comes to IP, especially with trademarks and patents, companies with rich IP portfolios have an incentive to keep any dispute private so that their IP does not suffer in any way. One of the perceived advantages of arbitration is its confidentiality. Parties can keep the nature of their dispute and all other details private. This is essential in some IP disputes especially when sensitive and secret information is involved. For example, in a dispute relating to a trade secret or a patent, a lot of confidential matters will be discussed. In such circumstances, it would be crucial for the owner of the IP to keep the matter private and confidential and make sure any business secrets remain hidden.

Of course, it should be noted that courts in civil litigation would also treat particularly sensitive information as confidential as well, and in this sense there will not be huge difference between both.

Another consideration is that parties could adopt strategies and measures that wouldn’t be available to them if the dispute were public in case it would be harmful or embarrassing to their reputation. In that way a party could act unfairly or inequitably, and yet be awarded the relevant remedy.

Still, one of the main advantages when it comes to arbitration is the very high level of confidentiality of the dispute it guarantees. This is fundamentally crucial for businesses whose reputation and future success are primarily based on intellectual property.

+ Flexibility and better price

Arbitration brings with it the choice of jurisdiction, arbitrator, and language and by doing so ensures an impartial and neutral process. The chosen arbitrator would be an expert in the field. And in a technical and specialised field such as IP, it is important to have someone with industry knowledge to have the competence to decide the matter. However, in jurisdictions where the court systems provide experts in the IP field, this advantage of the arbitration system would not be that significant. What is more, sometimes the act of choosing the arbitrator could lead to suspicion of bias and unfair outcome.

It is also suggested that arbitration is a better option from a financial point of view and is less time consuming as well. The International Survey on Dispute Resolution in Technology Transactions concluded that survey participants spent significantly more time and had higher costs in court litigation than in arbitration and mediation. In US terms this means that in courts parties spent approximately three years and $475,000 while arbitration lasted only a year and cost around $400,000 (WIPO, 2013). However, linking this to my next point, often the length of the dispute could be a reason for the increased cost of arbitration. For example, sometimes it takes from six to nine months just for the arbitration panel to be settled.

+ Shortened procedure

Generally, it is said that arbitration is much faster than court proceedings and there is practical evidence for this as mentioned above. This is due to various reasons related to the characteristics of arbitration one of which could include one of its disadvantages, namely the finality of appeal.

And although it is assumed that arbitration is usually the faster dispute resolution method, there are some arbitration cases which have lasted so long that arbitrators retired and were replaced by their colleagues. This is because the longer the dispute, the higher the price.

These were the main reasons why parties decide to go ahead with arbitration. But one needs to be fully aware of the contra-arguments related to this method. The negative side of arbitration is related more to the consequences flowing from that choice of ADR.

– Not necessarily that cheap and quick

At first arbitration may seem the better choice from a financial point of view especially if the court litigation is as pricy as in the UK. And in many instances it would be. However, as already mentioned, some disputes may last for so long so as to incur costs leading to bankruptcy of a business. Therefore, one needs to explore the options in detail, bear in mind this danger and consult with a professional as to what the impact for the business could be. And in the context of IP, where IP rights are all a business has as an asset, it is likely that the business gets in trouble simply because it is too difficult to evaluate IP rights and use them as a collateral for a loan for example. And it could end up in a situation where the business does not have the money to proceed with arbitration.

–  Finality of appeal

In contrast to court proceedings, arbitration does not give the parties an opportunity to appeal a decision. That is, the decision of the arbitrator is final and binding and that would be the end of the matter. This is of fundamental significance and should be acknowledged when the decision to agree to arbitration is taken. And the chances to be satisfied by the arbitrator’s decision are as high as the chances not to be. Therefore, one needs to balance the pros and cons and decide whether to take the risk.

To summarise this brief outline of pros and cons for arbitration, it is crucial to say that arbitration could be a double-edged sword. On the one hand, it could be helpful for your business especially where reputational issues are at stake. However, on the other hand, it could be a big risk to take especially for SMEs with small IP portfolios who may not be able to bear the eventual high cost of arbitration.