Arbitrating SEP/FRAND disputes “polarising” among experts

Arbitrating SEP/FRAND disputes “polarising” among experts

SEP/FRAND disputes are contentious and so is the concept of arbitrating them. There are significant advantages and drawbacks of using alternative dispute resolution (ADR) in this space, and leading patent litigators, pool experts and strategists from this year’s IAM Strategy 300 Global Leaders offer their takes. While some are adamant that the conversation as a whole is entirely unnecessary, others get into the weeds to measure the strengths and weaknesses of arbitration to determine whether it can beat litigation as a dispute resolution forum.

Licensing disputes – an overstated problem?

“Arbitration can be polarising,” pool expert Giustino de Sanctis of Vectis admits. “Those that have had success with it continue to endorse it, but it is usually patent licensors in favour and implementers against.” He claims that the former often reasons that a guaranteed and timely outcome is better than a drawn out and costly “war of attrition”, while the latter wonders why they should pay when they may not have to, “with little or no penalty for delaying as long as possible”.

Garrard Beeney of Sullivan & Cromwell describes arbitration as “a solution in search of a problem”. The market works far more often than it doesn’t, he argues, with “hundreds of thousands” of consensual licences flying under the radar every year. “In order to correct and address a miniscule proportion of transactions that ultimately result in disputes, the proposals to create an enormously expensive and uncertain infrastructure really do overstate the problem.” While Sullivan & Cromwell encourages ADR for parties that believe it is the right path, Beeney insists that “imposing the cost of a heavy-handed government-run regulatory programme is entirely unnecessary”.

Indeed, de Sanctis states that Vectis believes in balance between innovators and implementers, and this helps to “reduce friction” with prospective licensees, largely making stakeholders “less willing to wage international wars”. This would suggest that perhaps such disputes are indeed being overstated. However, even when Vectis fails to reach an agreement and does need to escalate a dispute, de Sanctis sees little inclination towards arbitration and still prefers traditional dispute resolution routes, such as litigation.

Arbitration versus litigation

Saving on costs

Every single aspect of a dispute is bespoke, Jern Ern Chuah of DCC Advanz Malaysia claims, making it imperative to weigh up clients’ needs to determine the best path forward. Even if it is true that arbitration exaggerates the problems associated with SEP/FRAND disputes, such disputes do still inevitably arise. When they do, parties generally want to resolve them in the cheapest and most time-efficient way possible. In this case, these “alternative methods may work well”, Chuah muses. “Crucially, we put ourselves in our clients’ shoes and think, what makes the most sense from a business and cost perspective?”

Yolanda Jia of Haiwen & Partners agrees. “It is widely accepted that arbitration has many advantages compared to litigation, such as confidentiality, lower cost and high efficiency, its wide scope (ie, both patent and FRAND-related disputes can be settled in one case) and arbitral tribunals, which can resolve disputes on a global scale.”

Selecting an arbitration panel

When engaging in arbitration to settle a dispute, Reising Ethington’s Rick Hoffmann insists that it is “crucial that at least one person who owns a patent be on the arbitration panel”, and that any arbitration should “allow for an appeal for review to a court, to keep the panel in check”.

Indeed, one benefit of arbitration is that “both sides get to select one of the three panel members”, according to Denise De Mory of Bunsow De Mory. “This assures that at least one member has the relevant expertise to understand the nuances of such cases.” Other benefits include a “faster and cheaper” path to resolution, as well as “the ability to define the issues to be determined by the panel”.

Avantech Law’s William Woodford concurs. ADR “offers a unique opportunity to select an arbitration panel that has niche expertise in SEP/FRAND disputes”, and also provides a swifter resolution, which often culminates in “months compared to years” of litigation.

Both routes are necessary

For Jun Qiu of Liu Shen & Associates, it is not a matter of one versus the other; SEP/FRAND disputes will continue to rely on both litigation and ADR, and so both should be embraced. “Arbitration, as well as other solutions, will definitely help to broaden the scopes of the parties to negotiate and reach an agreement.” In his opinion, such resolution is possible when the two sides of the dispute have exchanged sufficient information and know the strengths and weaknesses of the respective SEP portfolios. However, “sometimes it can be difficult to reach this position without decisive court judgments on some of the dispute’s fundamental issues”, which means that arbitration and litigation cannot be viewed as mutually exclusive.

Sometimes, litigation is inevitable. It may benefit the parties to agree to arbitrate narrow disputes ahead of litigation, such as whether the relevant technology is covered by an SEP or what the FRAND rate should be. “Confidentiality of arbitration awards could cut either way,” De Mory says, “patent owners may want to avoid setting a harmful precedent on invalidity, infringement or licensing rates if a determination does not go their way.” 

Intrinsic disadvantages of arbitration

However, litigation is still widely preferred for SEP/FRAND disputes. Jia reports that “currently, most SEP/FRAND cases are tried before the courts, probably because arbitration has intrinsic disadvantages”. It first requires both parties to reach a consensus on whether to solve the dispute by arbitration in the first place, as well as the scope of the matters to be arbitrated, such as whether to issue an injunction. Consensus, in the IP world, can be challenging to come by. Further, “arbitrators often have no technical background at all, and less experience than judges when it comes to hearing patent and other technology-related cases”. It also has “no compulsory enforcement power”, so if a party does not voluntarily enforce the arbitral decision (eg, a permanent injunction), the other party has to get the decision affirmed by a court for compulsory enforcement.

Indeed, de Mory confirms that the “obvious downside” to arbitration is the inability to appeal or challenge an arbitration award, except on very narrow grounds.

Even though ADR can be more cost-effective due to streamlined discovery and leads to a swifter resolution, “efficiency is not without its problems”, Woodford admits. The most telling evidence in SEP/FRAND disputes is often prior licensing records, detailed contentions pinpointing how the asserted patents cover some aspect of the standard and deposition testimony, which elucidates patent holders’ rationales behind SEP licensing fees in previous transactions. “The curtailed discovery in alternative dispute resolution could hinder the unearthing of such pivotal evidence,” Woodford states. “The elimination of the opportunity to discover such evidence, coupled with the absence of appellate oversight, can make [arbitration] a precarious choice – especially in high-stakes scenarios and in cases where the outcome could subsequently set a precedent for SEP/FRAND rates.”

The future of ADR for SEP/FRAND

Debates around whether arbitration should be implemented to resolve SEP/FRAND disputes are still ongoing. However, it would appear that currently litigation is king when it comes to these cases, and although arbitration has its strengths, many believe it should stay that way – at least for now.  

IAM Strategy 300 Global Leaders 2024 is IAM’s annual opportunity to showcase the world’s leading IP luminaries who offer their insight into the industry’s most pressing topics and is available to read here.

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