Written by: Norman Zhang
Patent litigation is an essential yet loathsome process undertaken by any firm with valuable intellectual property, ranging from multinational corporations to small domestic businesses. Whoever the party, it is safe to say no defendant or claimant enjoys a process where 30% to 50% of patent construction decisions are reversed in the court of appeals. Neither is there much attraction in a field where the typical cost of patent infringement litigation averages over $2 million for a claim under $25 million; discovery alone costing $1.6 million on average. For foreign litigants in the United States, there is the further fear factor involved in being subject to punitive damages awarded by an unsophisticated jury.
Arbitration appears to be a highly attractive alternative. In a patent dispute arbitration, parties may limit discovery as much as desired, be at ease from risks of reversal, and designate technical experts to decide issues not trusted with the bench. More importantly, in an era of exploding cross border trade, there are no issues of jurisdiction when both parties agreed to arbitrate. Furthermore, the award mechanism inherent to arbitration resolves one of the greatest inconveniences of global patent disputes. Instead of having to litigate parallel patent claims in every single infringing jurisdiction, a claimant could theoretically arbitrate in only one jurisdiction, and rely on the New York Convention to enforce the resulting award in any jurisdiction.
The advantages of resolving patent disputes by arbitration have been reflected in its growing adoption. Although only a few hundred patent disputes were filed for arbitration in 2012, compared to the approximately 5000 cases filed in district courts, arbitration has come to play a substantial role in several major disputes. For example, in 2013 Google agreed to a consent order with the Federal Trade Commission to engage in arbitration with its users to determine the licensing rates for Google’s SEPs (cellular standard essential patents: one of the most litigated category of patents in the technology industry). The FTC described the process as the ‘template for the resolution of SEP disputes’. In another instance, an ICC tribunal awarded an estimated $218 million annually to Nokia in a licensing dispute with Samsung.
As a general overview, there are four types of patent claims that may arise: (1) the interpretation and application of licensing agreements: calculating the amount of royalty’s due; (2) adjudicating the ownership of patents: a common issue for older patents where companies have merged and winded up; (3) infringement: whether something made infringed a patent; (4) validity: whether a patent was granted in error. Patent ownership and licensing claims are frequently settled through arbitration, sometimes through the World Intellectual Property Organization, founded in 1994. Patent infringement arbitration is also conducted in some countries. In the United States, the AAA has developed an elaborate framework for infringement disputes, where parties can choose between arbitration rules that produce a binding, or non-binding decision.
On the other hand, most countries do not allow the arbitration of patent validity claims. The Netherlands, Germany, France, and China all take this view of non-arbitrability. The view in those countries is that deciding the validity of a patent is a public function. The argument goes that it is the government’s role to determine whether an invention warrants recognition as personal property. On this aspect, the United States is an outlier, allowing private arbitration of patent validity. The American statute works on the principle of inter partes preclusion. If an arbitration determined a patent was valid, the challenger would be blocked from challenging the validity of the patent again in the US and foreign courts. However, non-parties to the arbitration would be able to continue challenging the validity of the patent.
Therein lies a principal barrier of embracing arbitration as an alternative to multi-jurisdiction patent litigation, at least on disputes involving patent validity. An award validly rendered in the United States remains at risk of not being recognized or enforced in foreign jurisdictions where patent validity is non-arbitrable. Parties may avoid the New York Convention Art. V(1)(a) ground of denying recognition and enforcement because an award was ‘not valid under the law which parties have subjected it’, by drafting a choice of law clause pointing to the United States intellectual property law. However, even this work around may be defeated depending on foreign courts’ interpretation of New York Convention Art. V(2), which permits non-recognition and non-enforcement that would be ‘contrary to public policy’. The risk of non-enforcement of awards on this ground diminishes the utility of resorting to international arbitration.
Another issue of choosing arbitration for international patent disputes is the inter partes nature of arbitration. Intellectual property can be infringed upon concurrently in multiple jurisdictions. Even if an award of patent validity was rendered in the United States and taken to a jurisdiction which permits the arbitrability of patent validity, the resulting enforcement would still only affect the original infringer. Thus, multiple arbitrations would be required to capture all infringing parties, defeating the expediency purpose of arbitration.
In sum, arbitrating patent disputes appears best suited for minor matters between firms who wish to resume a working relationship. It could also potentially be a boon for multinational corporations seeking to resolve a patent dispute in one swoop against another multinational corporation. For instance, Apple’s current litigation in China and the United States with Qualcomm would be ripe for such a single universal decision. However, for firms locked into disputes over patents essential to their survival or looking to enforce their intellectual property against multiple infringers, the litigation system may remain more attractive. Potential for reversal and ex parte effect can be positive attributes in fields like intellectual property.
Arbitrating patent disputes domestically and internationally has potential to be an improvement on multi-jurisdictional litigation. However at present, its model is not one size fits all.
 Mihir Chattopadhyay, Recent Event: The Case for Arbitration of Patent Disputes, Kluwer Arbitration Blog (Feb. 25, 2016), available at http://arbitrationblog.kluwerarbitration.com/2016/02/25/recent-event-the-case-for-arbitration-of-patent-disputes/.
 David A. Allgeyer, In Search of Lower Cost Resolution: Using Arbitration to Resolve Patent Disputes, Conflict Management Newsletter, Volume 12, No. 1, Fall 2007, available at http://www.aipla.org/committees/committee_pages/adr/Committee%20Documents/2007%20In%20Search%20of%20Lower%20Cost%20Resolution%20-%20Using%20Arbitration%20to%20Resolve%20Patent%20Disputes%20by%20David%20Allgeyer%20-%20Article.pdf.
 Nick Wingfield, Jury Awards $1 Billion to Apple in Samsung Patent Case, The New York Times, Aug. 24, 2012, available at http://www.nytimes.com/2012/08/25/technology/jury-reaches-decision-in-apple-samsung-patent-trial.html (last visited 11/24/2017).
 Thomas H. Lee, International Arbitration of Patent Claims, Contemporary Issues in International Arbitration and Mediation: The Fordham Papers 2015 (Arthur W. Rovine, ed., 2016)
 Chris Neumeyer, Think Arbitration Can’t Work? Think Again, IP Watch Dog (June 10, 2013), http://www.ipwatchdog.com/2013/06/10/think-patent-arbitration-cant-work-think-again/id=41447/.
 Nokia Receives Decision in Patent License Arbitration, Nokia News Release (Feb. 1, 2016), https://www.nokia.com/en_int/news/releases/2016/02/01/nokia-receives-decision-in-patent-license-arbitration-with-samsung-positive-financial-impact-for-nokia-technologies.
 Intellectual Property: Principles Governing Jurisdiction, Choice of Law and Judgments in Transnational Disputes, The American. L. Inst. 2008, http://www.wipo.int/edocs/lexdocs/laws/en/us/us218en-part1.pdf (last visited Nov. 11, 2017).
 Donald R. Dunner and John M. Williamson, Arbitration Rules for Patent Infringement Disputes, Just Resolutions (March 2016), available at https://www.finnegan.com/en/insights/arbitration-rules-for-patent-infringement-disputes.html.
 See generally, M.A. Smith et al., Arbitration of Patent Infringement and Validity Issues Worldwide, 19 HARV. J.L. & TECH. 299, 305 (2006).
 35 U.S.C. § 294
 Christian de Looper, Apple vs. Qualcomm: Everything you need to know, (December 1, 2017) https://www.digitaltrends.com/business/apple-vs-qualcomm-news/.
 Neumeyer, supra note 5.