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Technology transfer agreements are increasingly important business tools, particularly for growing companies operating in intellectual-property-rich industries. Whether a broad license of well-defined intellectual property, a narrower field-of-use license under pending and issued patents, or simply an agreement permitting the initial testing of existing or future technology, a technology transfer agreement can help a company realize value from its own intellectual property (by licensing that technology to others for use in non-competing applications) as well as from others’ IP (by acquiring rights to key technology that will help drive the company forward in a particular market). These agreements are frequently international in scope, particularly where the transferor does not compete in the transferee’s market but may still have significant IP rights in that market. As with all business agreements, each technology transfer agreement brings with it the opportunity for future disputes. Counsel negotiating technology transfer agreements — particularly international agreements — need to pay careful attention to any arbitration clauses that may be proposed in the course of negotiations. There are real differences in the manner in which various arbitration organizations work. Many of these differences can be neutralized if the parties agree in the arbitration clause on key aspects of how the arbitration will be structured. Where the dispute arising out of a technology transfer agreement crosses national boundaries, there is one reason in particular to favor arbitration over litigation in court: enforceability. Court judgments rendered in one country, particularly the United States, can be difficult to enforce in other countries because many nations have not signed a mutual enforcement treaty with the United States. An award that is the product of an international arbitration, by contrast, can be enforced directly through the home courts of the losing party by way of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention. This convention, adopted by more than 120 countries (with some reservations on a case-by-case basis), allows the prevailing party seeking to enforce an arbitration award to go directly to the appropriate court in the losing party’s country with the award and the underlying arbitration agreement. Barring sustainable objections from the losing party, which are permitted on limited grounds, and do not include objections on the merits, the foreign court will recognize the award and it can then be enforced as can a money judgment or injunction under that country’s law. This can be particularly helpful where the losing party is a corporation with operations and assets in more than one country. Another reason to consider arbitration of disputes arising out of international technology transfer agreements is the strong possibility of securing one or more arbitrators who have a technical background. This can be accomplished by including in the arbitration clause a requirement that the arbitrators have certain technical qualifications, or by nominating such arbitrators when the dispute arises. Parties to a court proceeding, of course, are not able to have the same influence over the selection of the person who will be judging their dispute. The usual laundry list of reasons in favor of arbitration in general applies to international arbitrations as well: speed, decreased cost, flexibility of operation, ability to maintain confidentiality. So too do the usual arguments against arbitration apply in the international context: more limited discovery, lack of appeal, relaxed evidentiary standards, and a perceived tendency of arbitrators to “split the baby.” An arbitration clause in an international technology transfer agreement may serve another purpose. Some foreign parties may be wary of subjecting themselves to being “home-towned” by U.S. court proceedings and U.S. laws. The arbitration clause provides a way to deal with those concerns, by negotiating a dispute resolution process — including the location of the arbitration and the governing substantive and procedural law — that both parties are comfortable with. Depending on how one looks at things, there are four or five major procedural avenues for the international arbitration of technology transfer disputes. The International Chamber of Commerce International Court of Arbitration, or ICC, administers a substantial number of international commercial arbitrations each year and is one of the largest and best-known arbitration institutions. Another well-known administering institution is the London Court of International Arbitration, or LCIA. The American Arbitration Association, the administering institution that U.S. practitioners are most familiar with, has an international arm called the International Centre for Dispute Resolution (referred to herein as the AAA). Finally, the World Intellectual Property Organization (WIPO), known primarily for arbitration of domain-name disputes, also provides intellectual property arbitration services. Each of these administering institutions has slightly different operating rules that can have a material effect on how an arbitration is conducted. Another type of arbitration, referred to as “unadministered,” occurs when parties agree to arbitration but elect not to use any particular arbitration institution. In such a case, the United Nations Commission on International Trade Law (UNCITRAL) has a series of procedural rules that can be used in unadministered arbitrations, and are sometimes used by administered arbitrations as well. These are by no means all of the options available to parties considering an arbitration organization. There are dozens of arbitration providers all over the world, each with its own set of procedural rules, and there may be good reasons for contracting parties to select one of these as opposed to one of those mentioned above. By becoming familiar with the rules under which some of the leading arbitration administering institutions operate, however, counsel will be better positioned to consider whether it makes sense to designate one of these alternate venues in a given agreement. PLANNING FOR ARBITRATION The rule differences among the major arbitration administering institutions are worth considering at the contract negotiation stage. With a few exceptions, each of the major arbitration organizations will accede to what the parties agree to in terms of how the arbitration is structured. For this reason, when a party is negotiating the arbitration clause of a technology transfer agreement, it makes sense for that party to have some idea of how it would like to structure any eventual arbitration, and make sure the arbitration clause specifically describes the desired features. Failure to be specific will mean either that the warring parties will need to agree on details of the arbitration after the dispute has arisen, or that the rules of the arbitration administering institution will control the structure of the arbitration, including both the procedural and substantive law used to resolve the dispute. This can make a material difference in the manner in which the arbitration is conducted. For example, in the absence of direction from the parties, there are differences in the way the arbitration panels will be composed. Where the parties have not stated an agreed preference, the LCIA and the AAA will appoint a single arbitrator, while the UNCITRAL rules call for three arbitrators. The ICC and WIPO take a middle ground, and will appoint a sole arbitrator if the parties have not agreed upon the number, unless it appears that the dispute will warrant a three-person panel. The nationality of the appointed arbitrators is also treated differently depending on the organization and, again, depending on the parties’ arbitration agreement. All of the rules emphasize that the arbitrators are to be independent of the parties and impartial. The ICC, LCIA, and WIPO rules go somewhat further, and provide that a sole arbitrator shall not have the same nationality as any of the parties, unless the parties otherwise agree. The UNCITRAL rules mention taking nationality into account when selecting arbitrators, while the AAA rules are silent on the point. If the parties fail to specify the law that is to be used to resolve the dispute, each of the administering institutions gives the arbitration panel the power to select what it believes to be the appropriate law. Thus, parties often make the substantive law an important topic of negotiation, and will frequently settle on a “neutral” state’s law that appears to favor neither party. The organizations differ as to how much control the parties may exercise over their choice of arbitrators. The ICC and LCIA make it clear that they, and not the parties, appoint arbitrators. While “due regard” may be given for the preferences of any party, each of these organizations reserves the right to make its own appointments. The AAA and WIPO are somewhat more liberal, and permit the parties to select arbitrators using an agreed procedure. They will compel an appointment only in the event that the parties do not make their appointments within a specific period of time. The UNCITRAL rules provide a procedure for the parties to appoint their own arbitrators, with a provision for selecting an appointing authority in the event one party fails to make an appointment. FEES AND COSTS Selecting a specific arbitration organization has financial consequences, as the way the fees paid to the arbitration organization and to the arbitrators are determined also varies widely. The ICC ties both its administrative fees and the arbitrators’ compensation to schedules that use the total amount in dispute, determined at various points during the course of the arbitration, to determine what the parties owe. The LCIA’s administrative fees are a combination of a fixed fee, hourly fees for time spent by its registrar, and 5 percent of the fees paid to the tribunal. The AAA uses a schedule of administrative fees based on the amount of the party’s claim or counterclaim. WIPO uses a similar administrative fee schedule, but one that is based on the amount in dispute. In exchange for the administrative fees, the parties to the arbitration receive the benefit of the structure and guidance of the underlying organization, including, if necessary, assistance with moving the arbitration along. The ICC, in addition, will scrutinize the award rendered by the arbitration panel and apply a sort of “quality control” that can make an ICC award generally easier to enforce internationally than an award from a lesser-known institution. For arbitrator compensation, the AAA, LCIA, and WIPO each employ an hourly arbitrator compensation scheme, where the costs will vary depending on the amount of time the arbitrators put into hearing and resolving the dispute. A self-administered arbitration under the UNCITRAL rules may save on administrative fees, but may cost more overall depending on how efficiently it is managed by the parties. Confidentiality of the arbitration proceedings is another area of some difference. There is no specific requirement in the ICC rules that the parties keep the arbitration proceeding or the award confidential (the tribunal is, of course, bound), though the tribunal may take measures to protect disclosure of trade secrets and confidential information. This stands in contrast to the AAA, WIPO and UNCITRAL, each of which provides some degree of confidentiality. All of them, for example, consider the arbitration hearings private and awards to be confidential, but do not specifically impose a confidentiality requirement on parties. The LCIA includes a specific requirement that parties keep documents produced in the proceeding confidential, along with the arbitration award. WIPO requires that the parties keep the existence of the arbitration private. Parties may also choose to incorporate evidentiary rules, such as those of the International Bar Association, that provide a level of protection beyond that provided by the procedural rules of the arbitration. Given the variances in protection in this area, if confidentiality is a concern it would be prudent to include detailed language to that effect in the arbitration clause. Awards of fees and costs can also be a subject of prior agreement by the parties. In the absence of such, the tendency of the arbitration venues, including the UNCITRAL rules, is to apportion the legal fees and costs in favor of the prevailing party. Both the language and the seat of the arbitration can be set by the arbitration organization where the parties have not come to some earlier agreement. In the case of the LCIA, for example, the “default” location is London. If the parties fail to specify the language in which the arbitration shall be conducted, all of the arbitration organizations will either give “due regard” to the language of the underlying contract (ICC), or will simply use that language (AAA, LCIA, WIPO). The UNCITRAL rules leave the decision on language up to the arbitration panel. PUT IT IN WRITING There are significant benefits to having a preferred arbitration format, and to making sure that negotiated arbitration clauses in international technology transfer agreements describe that format in detail. Knowing what the default provisions of the major arbitration organizations are can make it easier to discuss the language of the arbitration clause during the contract negotiation stage, and can yield an arbitration clause that provides a preferred structure for any future arbitration. Such a detailed arbitration clause can neutralize many of the features of the rules of a given arbitration organization that a party may find undesirable. Kelly D. Talcott is a partner at Kirkpatrick & Lockhart Nicholson Graham, where he practices intellectual property and technology law. If you are interested in submitting an article to Law.com, please click here for our submission guidelines.

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