Abstract
The trend of solving IP disputes through arbitration, which is final and binding on the parties and any person claiming through or under any of the parties, is observable globally. However, this article doubts that the fair trial or fairness principle will be upheld in IP-related arbitration as a matter of course. This doubt is based on some of the inherent shortcomings of arbitration in general, and international arbitration in particular, namely that there is insufficient oversight and the parties are oftentimes handicapped by the geographic remoteness and astronomical costs of arbitration. This article will illustrate its concerns by looking at one recent ICC arbitration case which awarded the patent licensee a staggering amount of damages in a blatant violation of the patent licensor’s right to a fair trial. Fortunately, the German Federal Court of Justice exceptionally intervened to remedy the wrong. Still, lingering issues of how to reform IP-related arbitration to better suit IP’s public policy considerations need to be addressed.
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26 April 2023
A Correction to this paper has been published: https://doi.org/10.1007/s40319-023-01327-6
Notes
35 U.S.C. § 294 (Voluntary arbitration), (a), (c), and (e).
35 U.S.C. § 135(a)(1) provides: “An applicant for patent may file a petition with respect to an invention to institute a derivation proceeding in the Office. The petition shall set forth with particularity the basis for finding that an individual named in an earlier application as the inventor or a joint inventor derived such invention from an individual named in the petitioner’s application as the inventor or a joint inventor and, without authorization, the earlier application claiming such invention was filed. Whenever the Director determines that a petition filed under this subsection demonstrates that the standards for instituting a derivation proceeding are met, the Director may institute a derivation proceeding”.
35 U.S.C. § 135(f).
According to Okur (2023), p. 4.
Korea Presidential Council on IP (2019), pp. 133–134. However, the implementation of this mandate is less than satisfactory. In 2019, the Korean Commercial Arbitration Board received a total of only 15 cases, including 12 domestic and 3 international cases. The numbers dropped to 8, 5 and 3 in 2020, respectively. See Korea Presidential Council on IP (2020), pp. 158–159. Presumably, the disinterest lies in the Korean Commercial Arbitration Board adopting a single trial system that does not allow the concerned parties dissatisfied with the result to appeal. In contrast, IP mediation is thriving in Korea. The number of requests made to the institutions that support IP dispute mediation has steadily increased over the years. In 2020, the figure increased significantly by 254.7% compared to the previous year. Korea Presidential Council on IP (2020), p. 141.
They are Prof. Dr. Rolf Trittmann, Dr. Wolfgang Peter (both presumably of German nationality) und Dr. Georg von Segesser (chair and presumably of Swiss nationality).
The arbitrators’ fees could be in the millions of euros, given the long duration of the arbitration process and the plurality of arbitrators.
BGH, Ruling of 9 December 2021 – ZB 21/21 – OLG Frankfurt am Main, at: https://openjur.de/u/2336858.html.
Lord Thomas of Cwmgiedd (2016), p. 10.
In 2016, Lord Thomas similarly pointed to a real concern expressed to him “at the lack of case law on standard form contracts and on changes in commercial practice” in certain industries in the UK, see Lord Thomas of Cwmgiedd (2016), p. 11.
Wagner (2014), pp. 1085, 1089.
Art. 1059(1)–(2) of the ZPO provides: “(1) Only a petition for reversal of the arbitration award by a court pursuant to subsections (2) and (3) may be filed against an arbitration award. (2) An arbitration award may be reversed only if: 1. The petitioner asserts, and provides reasons for his assertion, that: (a) One of the parties concluding an arbitration agreement … did not have the capacity to do so ..., or that the arbitration agreement is invalid under the laws to which the parties to the dispute have subjected it, or ... it is invalid under German law; or that (b) He has not been properly notified of the appointment of an arbitral judge, or of the arbitration proceedings, or that he was unable to assert the means of challenge or defence available to him for other reasons; or that (c) The arbitration award concerns a dispute not mentioned in the agreement as to arbitration, or not subject to the provisions of the arbitration clause, or that it contains decisions that are above and beyond the limits of the arbitration agreement …; or … that (d) The formation of the arbitral tribunal or the arbitration proceedings did not correspond to a provision of this Book or to an admissible agreement between the parties, and that it is to be assumed that this has had an effect on the arbitration award; or if 2. The court determines that (a) the subject matter of the dispute is not eligible for arbitration under German law; or (b) The recognition or enforcement of the arbitration award will lead to a result contrary to public order”.
Art. 34 of ICC 2017 Arbitration Rules.
Art. 39.3 of 2018 DIS Arbitration Rules prescribes: “The arbitral tribunal shall send a draft of the award to the DIS for review. The DIS may make observations with regard to form and may suggest other non-mandatory modifications to the arbitral tribunal. The arbitral tribunal shall remain exclusively responsible for the content of the award”. For a comment, see Gerardy and Macher (2020), pp. 5–6.
Such as France, Switzerland, the US, and the UK, which are leading countries in arbitration. See Salger and Trittmann (2019), § 24.
For example, in Singapore according to Sec. 20 of Arbitration Act an arbitrator shall not be liable for (a) negligence in respect of anything done or omitted to be done in the capacity of the arbitrator; or (b) any mistake of law, fact or procedure made in the course of arbitral proceedings or in the making of an arbitral award. Hong Kong and Malaysia have similar rules, see Salger and Trittmann (2019), § 24, Nos. 1187, 1249.
For more, see Liu (2023, forthcoming).
For more, see Liu (2021), pp. 673–676.
Nos. 13 and 14 BGH, Ruling of 9 December 2021.
OLG Frankfurt am Main, Ruling of 25 March 2021 – 26 Sch 18/20, available at: https://openjur.de/u/2336858.html.
Art. 1060(2) of the ZPO prescribes: “The application for a declaration of enforceability is to be denied, and the arbitral award is to be set aside, if one of the grounds for setting aside designated in section 1059 (2) is given. Grounds for setting aside are not to be taken into account insofar as, at the time the application for a declaration of enforceability is served, an application for setting aside based on such grounds has been denied, and such decision has become final and binding”.
No. 70, OLG Frankfurt am Main, Ruling of 25 March 2021 – 26 Sch 18/20.
No. 93, OLG Frankfurt am Main, Ruling of 25 March 2021 – 26 Sch 18/20.
No. 96, OLG Frankfurt am Main, Ruling of 25 March 2021 – 26 Sch 18/20. Art. 1042(4) of the ZPO stipulates: “If there is no agreement between the parties and this book does not contain any regulations, the rules of procedure shall be determined by the arbitral tribunal at its own discretion. The arbitral tribunal is entitled to decide on the admissibility of taking evidence, to carry it out and to freely assess the result”.
Art. 103(1) of the GG stipulates: “In the courts every person shall be entitled to a hearing in accordance with law”.
No. 23, BGH, Ruling of 9 December 2021 – ZB 21/21.
No. 24, BGH, Ruling of 9 December 2021 – ZB 21/21.
No. 25, BGH, Ruling of 9 December 2021 – ZB 21/21.
Art. 321a(1) and (2) of the ZPO stipulates: “(1) Upon an objection having been filed by the party adversely affected by the decision, the proceedings are to be continued if: 1. No appellate remedy or any other legal remedy is available against the decision, and 2. The court has violated the entitlement of this party to be given an effective and fair legal hearing and this has significantly affected the decision. No objection may be filed against any decision preceding the final decision. (2) The objection is to be filed within a statutory period of two weeks upon the party having become aware of the violation of the right to be given an effective and fair legal hearing; the time at which it so becomes aware is to be substantiated. Following the expiry of one (1) year from the issuance of the decision challenged, an objection may no longer be filed”.
No. 26, BGH Ruling of 9 December 2021 – ZB 21/21.
No. 69, BGH Ruling of 9 December 2021 – ZB 21/21.
No. 72, BGH Ruling of 9 December 2021 – ZB 21/21.
Nos. 76–78, BGH Ruling of 9 December 2021 – ZB 21/21.
Art. 577(5) of the ZPO stipulates: “The court hearing the complaint on points of law is to decide on the matter as such if the decision is reversed only for a violation of the law, in application of the law to the situation of fact as established, and if in light of said situation the matter is ready for the final decision to be taken. Article 563(4) shall apply mutatis mutandis”.
No. 83, BGH Ruling of 9 December 2021 – ZB 21/21.
Art. 1059(4) of the ZPO stipulates: “If the reversal has been petitioned, the court may remand the matter to the arbitral tribunal where appropriate, as petitioned by a party, while reversing the arbitration award”.
No. 84, BGH Ruling of 9 December 2021 – ZB 21/21.
Kröll (2022), p. 265.
Kröll (2022), p. 258.
BZW and another v BZV [2022] SGCA 1, para. 18.
BZW and another v BZV [2022] SGCA 1, para. XXX.
Rechtsanwaltskammer beim BGH, at: https://www.rak-bgh.de/verzeichnis/. However, this applies only to litigation cases, whilst in invalidation cases, where the BGH is the appeal instance against invalidation decisions of the German Federal Patent Court, patent attorneys are also allowed to plead before the BGH. In France, “Council lawyers” or “lawyers to the Council of State and the Court of Cassation” (the two supreme courts) are part of an organizational structure that is separate from that of other lawyers; they have the privilege of representing parties before these two jurisdictions. Currently, there are about 100 of them, see https://www.cnb.avocat.fr/en/role-lawyer.
Henke (2019).
This author has personal experience in this regard. His legal opinion written on behalf of PE on the present case was not passed to the BGH by the legal representative of PE in Germany, as the latter believed it was an unusual practice to submit opinions by foreign scholars to the BGH.
See Kochevar (2013), p. 1661.
Tokyo IP High Court, 2013 (Ne) 10043 (16 May 2014), cited from Suzuki (2017), p. 256.
Taiwan IP and Commercial Court has in a dispute involving keyword advertisement by Google asked both the plaintiff Gorgeous Space (https://hhh.com.tw/), a Taiwanese interior design portal, and the defendant Google to each hire and pay for one expert to write a legal opinion. The court received written reports first, heard the oral presentations by the two experts, and took their opinions into detailed consideration when rendering its decision. This author was chosen by the plaintiff. See Taiwan IP and Commercial Court, 2013 Min-Shang-Shang-Zi 8 (decided on 12 February 2015).
Art. 1059(2) of the ZPO, being an exhaustive list (see Salger and Trittmann (2019), § 22, No. 1), strongly restricts an appellate court’s power to reverse arbitration awards, whereas Art. 511 of the ZPO generally and generously allows appeal against first-instance court decisions. Art. 511(1) and (4) of the ZPO provides: “(1) Appeals are an available remedy against the final judgments delivered by the court of first instance” and “(4) The court of first instance shall admit an appeal in cases in which: 1. The legal matter is of fundamental significance or wherever the further development of the law or the interests in ensuring uniform adjudication require a decision to be handed down by the court of appeal, and wherever 2. The judgment does not adversely affect the party by an amount higher than 600 euros. The court of appeal is bound to the admission”.
Art. 13(1) ICC 2017 Arbitration Rules prescribes: “In confirming or appointing arbitrators, the Court shall consider the prospective arbitrator’s nationality, residence and other relationships with the countries of which the parties or the other arbitrators are nationals and the prospective arbitrator’s availability and ability to conduct the arbitration in accordance with the Rules. The same shall apply where the Secretary General confirms arbitrators pursuant to Article 13(2)”.
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Dr. Kung-Chung Liu is a Professor at Renmin University of China; Singapore Management University; Shandong University (Adjunct Chair Professor), China; and the National Law University Delhi, India (visiting). The author declares that he was asked by one of the parties, namely PharmaEssentia, to write a legal opinion on the case discussed below in Section 3 while it was pending before the German Federal Supreme Court. Still, the present writing is strictly academic in nature. Special thanks to Darius Chan (SIDRA, SMU), Heinz Goddar (Boehmert & Boehmert), and Che-Hung Chen (Chen & Lin) for the comments and information they provided.
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Liu, KC. Guaranteeing the Right to a Fair Trial in IP-Related Arbitration – In Germany Perhaps? And Elsewhere?. IIC 54, 1244–1260 (2023). https://doi.org/10.1007/s40319-023-01316-9
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DOI: https://doi.org/10.1007/s40319-023-01316-9