ADR of Intellectual Property DisputesADR of Intellectual Property Disputes Philip J. McConnaughay Dean and Donald J. Farage Professor of Law The Pennsylvania State University Dickinson School of Law This paper addresses that aspect of the 2002 SOFTIC Symposium that concerns the use of private rather than public (i.e., judicial) mechanisms of dispute resolution for the resolution of intellectual property (“IP”) disputes. The principal private mechanism with which this paper is concerned is arbitration. Arbitration is the private, non-judicial adjudication of a commercial dispute, usually by a panel of one or three private arbitrators appointed by the parties, which results in a binding outcome. The other private mechanism with which this paper is concerned is mediation. Mediation (or conciliation) is the process by which a neutral third party attempts to assist disputing parties in reaching a voluntary resolution of their dispute. Collectively, arbitration and mediation (and other private mechanisms of dispute resolution, such as friendly negotiations, executive meetings, mini-trials) are known as “alternative dispute resolution” (i.e., alternatives to public courts), or “ADR.” All methods of ADR, including arbitration, are consensual in nature – the parties must have consented to the procedure before they can be compelled to participate in the procedure and before public courts will defer to the procedure. Arbitration and other forms of ADR typically are not imposed involuntarily. This paper discusses two specific issues relating to the use of ADR for the resolution of IP disputes: (i) the reasons why an owner or user of IP rights might or might not prefer to resolve disputes concerning those rights by means of ADR, and (ii) whether or not disputes over IP rights permissibly may be resolved by arbitration rather than by the government judiciary (i.e., the issue of whether IP rights are “arbitrable”). My discussion of the first issue is not specific to2 any particular nation; my brief discussion of the second issue reports on the state of the law in the United States. I. Reasons to Consider ADR for Intellectual Property Disputes As a general principle, intellectual property rights are territorial in scope. The United States Patent Act, for example, provides that the grant of a patent confers a “right to exclude others from making, using, offering for sale, or selling the invention throughout the United States.” U.S. courts also hold that U.S. copyright law also does not apply beyond U.S. territorial boundaries, even though the U.S. Copyright Act is not explicit on the point. The same principle is generally true of trademarks (although infringing activity in the case of trademarks sometimes is found to occur outside of U.S. territorial boundaries), and trade secrets. At the same time, contracts and licenses concerning IP rights and transactions frequently create and extend related legal rights and obligations beyond a single nation’s territorial boundaries, and, because of international treaties and the harmonization of national laws concerning intellectual property, the same IP rights increasingly are recognized and protected simultaneously in many different nations. A. Certainty as to Forum. As with any commercial transaction implicating the laws and judicial power of several different jurisdictions, one of the primary reasons in an IP transaction for including a contractual clause mandating the ADR rather public court adjudication of any disputes is simply to provide the parties with the certainty that, in the event of a dispute, they will be submitting their dispute to a simple forum for resolution rather than potentially to several different forums in several different jurisdictions simultaneously.1 Without such an arbitration 1 International law generally recognizes that every sovereign nation has the right to apply its laws (i.e., to exercise its “prescriptive jurisdiction”) and exercise its judicial power (i.e., to adjudicate disputes and to require parties to comply with judicial judgments) with respect to conduct within its territory or with respect to conduct outside of its territory that has a substantial intended effect within its territory. Thus, for any commercial transaction that occurs or has effects in more than one nation, the laws of several nations might apply to the transaction and the courts of several nations might have power to adjudicate disputes between parties to the transaction.3 clause,2 one party or the other might file a lawsuit in each of several different jurisdictions having power to apply its law or its judicial power to the parties or transaction. Courts of the United States, as in most other nations, will refuse to hear a lawsuit that is within the scope of a valid contractual arbitration clause, and will instead refer the parties to arbitration.3 Thus, such clauses generally are viewed as indispensable by commercial parties whose transactions are subject to the laws or judicial power of more than one nation or jurisdiction.4 B. The Relative Speed of ADR. Properly managed, arbitration and other ADR mechanisms tend to provide speedier resolutions of disputes than public court adjudications. This typically occurs either because the arbitration/ADR proceedings, unlike public court adjudications, are able to commence immediately (i.e., there is not an entire docket of cases competing for the attention of the adjudicator), or because the procedural flexibility of arbitration/ADR results in the proceeding taking less time. The speed of dispute resolution is 2 I will use the term “arbitration clause” to refer to any contractual clause that mandates that, in the event of a dispute, the parties to the contract use ADR methods to resolve the dispute rather than public court adjudication. Ordinarily, these clauses will mandate that disputes be resolved by “arbitration” (i.e., by the imposition of mandatory decision by private arbitrators hired for the purpose of resolving the dispute) even if the clause also provides that the parties must attempt to “mediate” or “conciliate” their dispute (i.e., to seek the assistance of a neutral third party in attempting to resolve the dispute voluntarily) prior to proceeding to arbitration. This is because most national laws (e.g., the Federal Arbitration Act in the United States, 9 U.S.C. Sections 1-16
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