Readers of our blog who have been following our Technology and Outsourcing Hot Spots series would already have read about some of the pertinent issues which arise out of technology and outsourcing agreements including pre-contractual negotiations, governance and change control procedures, termination and post termination rights, ADR and dispute resolution clauses as well as multi-tier and unilateral arbitration clauses.

World Intellectual Property Organisation (“WIPO“) recently released its International Survey on Dispute Resolution in Technology Transactions (“Survey”) (see press release here). The Survey tracks the responses of 393 respondents from 62 countries and sheds very interesting light on this paticular area of international arbitration. The Survey is also very timely in light of Singapore’s recent release of its IP Hub Master Plan (see our report here).

The technology agreements and tech disputes referred to in the survey include patent related agreements and patent disputes. In fact such patent related agreements and disputes form the bulk of the technology agreement and disputes surveyed.

We comment below on some of the key highlights of the Survey.

Tech arbitration versus Tech litigation

One of the key findings in the Survey is that arbitration of technology disputes is cheaper and much quicker than litigating such disputes, especially in foreign courts. Unsurprisingly, mediation was the cheapest and quickest method.

• Litigation in home jurisdictions required approximately 3 years on average. Where litigation was in a foreign jurisdiction, it took on average 3.5 years. On average, the legal costs of litigation in home jurisdictions amounted to US$475,000.00, whereas the legal costs of foreign court litigation amounted to slightly over US$850,000.
• Arbitration took on average slightly more than 1 year and the legal costs on average were just over US$400,000. In other words, as compared to litigation, parties in an arbitration would be looking at savings of over 66% in terms of time and between 15% to 55% in terms of costs savings.
• Mediation was the cheapest and quickest method of resolving disputes, taking on average 8 months to conclude. Furthermore, 91% of respondents stated that costs of mediation typically did not exceed USD 100,000.

Court litigation across various jurisdictions can also vary dramatically in terms of time and costs. So for example, whilst in the USA it would take an average of 37 months and cost parties an average of US$1.4 million to resolve a technology dispute through court litigation, in Switzeland it would take an average of 28 months and cost parties US$634,000 in Switzerland.

The Survey’s comparison across jurisdictions is highly instructive. For example, French domestic court proceedings take the longest to resolve disputes (39 months on average) but they are also the cheapest (US$217,000). The UK is the joint quickest with Japan (26 months) and their court proceedings are one of the cheapest too (US$381,000). We have ordered the table by the speed at which a technology arbitration can be resolved through domestic court proceedings.

 Nature of Technology Disputes

According to the Survey, most technology disputes, whether contractual or non-contractual, revolve around patents. Patent disputes formed a full 50% of contractual disputes as compared to copyright (25%) and know-how (25%). In non-contractual disputes, patents formed 55% of such disputes with copyrights at 27% and know-how at 18%.

When asked what type of technology agreements gave rise most often to disputes, 25% of all respondents said that the most “contentious” technology agreements were licensing related agreements. In terms of the types of agreements which gave rise most often to disputes, these were:

• Licenses (25% of Respondents);
• R&D agreements (18% of Respondents);
• NDAs (16% of Respondents);
• Settlement agreements (15% of Respondents);
• Assignments (13% of Respondents); and
• M&A agreements (13% of Respondents)

Furthermore, only 2% of technology agreements gave rise to formal proceedings. However, what the numbers do not indicate is the number of disputes that get resolved even before formal proceedings are initiated.

The large bulk of arbitration cases administered by WIPO involve licensing disputes (40%).

Choice and Considerations of Dispute Resolution Clause

The Survey reveals that Dispute Resolution Clauses in technology agreements are negotiable and generally negotiated. In fact, 94% of survey respondents stated that negotiating the dispute resolution clause formed part of their contract negotiations. However, those negotiations formed only a minor part of contract negotiations.

The most popular choice of dispute resolution clause for technology agreements concluded in the last two years was court litigation (32%), followed closely by arbitration (30% – 26% arbitration and 4% expedited arbitration) and mediation (29% – 12% of agreements provided for mediation as a standalone mechanism, the remaining 17% as part of a multi-tier clause). For more information regarding the use of multi-tier clauses, see here.

Where an ADR clause was chosen, respondents overwhelmingly preferred institutional ADR (86%) over non-institutional means (14%). The most popular institution was the ICC (34%), followed by WIPO (17%), AAA (16%) and then jointly at 4% each, the DIS (German Institution of Arbitration), LCIA and SIAC.

Perhaps unsurprisingly, the geographical region in which respondents were based tended to influence their choice of institutions:.

• North American respondents tended to designate AAA as the ADR institution of choice (50% of technology agreements).
• Asian respondents preferred to designated arbitral institutions within Asia (ICC at 34% of agreements, followed by SIAC at 15%).
• South Americans overwhelmingly choose ICC (57% of agreements, followed by AAA at 15% and WIPO at 9%).
• The majority of Oceania agreements adopted non-institutional means (31% of agreements followed by WIPO at 23% and ICC at 22%).

In choosing a dispute resolution clause, the two main considerations were time and costs. This was regardless of whether a respondent had a majority (>60%) of its dispute resolution clauses as litigation, mediation or arbitration. Other highly relevant factors included, Business Solution, Enforceability and Quality Outcome (including specialisation of decision-maker).

According to the Survey, the top 3 considerations for each category are as follows.

• Where court litigation clauses were used in >60% of technology agreements: the top 3 considerations were Costs (69%), Enforceability (49%) and Time (48%). Quality Outcome (including specialisation of decision-maker) came in 4^th at 41%.
• Where mediation clauses were used in >60% of technology agreements: the top 3 considerations were Costs (84%), Time (79%), Business Solution (53%). NB: Enforceability came in joint 5^th at 37% after Neutral Forum (42%)
• Where arbitration clauses were used in >60% of technology agreements: the top 3 considerations were Time (64%), Costs (58%) and Quality Outcome (including specialisation of decision-maker) at 56%. Enforceability came in 4^th at 51%.

Observations for Dispute Resolution in Technology Transactions

It is worth concluding by highlighting WIPO’s summary of what respondents should do in respect of dispute resolution in technology transactions

1. Contracts should anticipate dispute – the amount of time and effort spent negotiating dispute resolution clauses was disproportionately tiny in comparison to the time and costs incurred by parties should disputes arise.
2. Dispute policies should anticipate international elements in technology transactions – Despite the fact that many of these technology agreements (especially IP) have a cross-border international element, respondents considered that the choice of dispute resolution mechanism did not necessarily take into account the risk of foreign dispute resolution.
3. Dispute policies should aim to minimise costs and time – given that ADR tends to be cheaper and faster than court litigation (especially litigating in foreign jurisdictions), parties should take a look at their general reliance on court litigation clauses. This is particularly so given that time and costs were consistently the top two considerations for parties.
4. Parties should not shy away from comparing court litigation with ADR especially in patent disputes. Given that time and costs are the two main considerations in resolving technology disputes, parties should seriously consider ADR (arbitration, negotiations, mediation etc.) given the benefits that ADR offers over litigation in terms of time, costs and (cross-border) enforceability.

Conclusion

The arbitrability of IP (particularly patent) disputes is an area of concern in growing the use of arbitration to resolve technology disputes. This was highlighted in Singapore’s IP Hub Master Plan. Nevertheless, ADR is not simply arbitration (meditation and negotiations have very important roles to play in resolving technology disputes). Overall, the results of this Survey are an excellent as a launching pad to stimulate further discussion on the use of ADR to resolve IP/technology disputes.