THE FUTURE OF INTERNATIONAL ARBITRATION IN THE TMT SECTOR: VIEWS ON QMUL’S 2016 INTERNATIONAL DISPUTE RESOLUTION SURVEY

The Queen Mary University of London (“QMUL“) recently released its International Dispute Resolution Survey relating to Technology, Media and Telecoms (“TMT“) disputes.

The comprehensive survey was conducted over 2 phases and involved a variety of respondents, including private practitioners, in-house lawyers to respondent companies from more than 13 TMT-related sectors.

We have summarised the survey’s key findings, distilled the TMT sector’s general perceptions of international arbitration, and drawn some broad conclusions on the way forward below.

What are the most common types of TMT disputes and where / in which sectors do they take place?

The respondents cited intellectual property (“IP“) disputes as the most common (50%), with joint venture / partnership collaboration disputes (39%) and licensing disputes following closely behind (37%).

  • The rise in IP-related disputes could be attributed to IT implementation programmes, data related issues, reputation management issues and outsourcing programmes.
  • The rise in joint venture / collaboration disputes reflects the general increase in start-ups, digital disruption and the general need within the TMT industry to work with other businesses.

The Telecoms sector was the most contentious, with 71% of respondents experiencing more than 20 disputes and 83% indicating that their largest disputes were at the highest end of the scale (i.e. more than US$100m).

Asia reported the highest incidence of disputes, with 37% experiencing more than 20 disputes and 25% experiencing a dispute at the highest end of the scale.

Predicted future areas for disputes are: IP, collaborations and data / security issues.

What are the in-house Dispute Resolution (“DR“) policies and preferences?

75% of the organisations surveyed had a DR policy and within such policies, mediation is the most preferred mechanism (50%), followed by arbitration (47%).

However, within specific sectors, the responses were varied:

  • The Telecoms sector showed a preference for expert determination / adjudication, whilst no respondent actually encouraged litigation.
  • The IT sector saw litigation as the most encouraged mechanism (50%) with arbitration falling some distance behind (27%).
  • The Energy, Construction and Manufacturing industries all rated arbitration as the most encouraged DR mechanism.

When all respondents (including private practitioners and other dispute resolution practitioners) were assessed on their personally preferred DR mechanism, most stated a strong preference for arbitration (43%) over litigation (15%).

What are the top considerations affecting an organisation’s DR policy to international arbitration?

While various factors were cited as important to an organisation’s DR policy on international arbitration, the top two factors are (1) choice of institution and (2) seat of the arbitration.

Unsurprisingly, these are important elements for a well-drafted arbitration clause, and are usually provided for in the model clauses of most major arbitral institutions, such as the Singapore International Arbitration Centre (“SIAC“), London Court of International Arbitration (“LCIA“) and the International Court of Arbitration (“ICC“).

Whilst 40% of respondents expressed a preference towards mediation, there is “no common view” as to what form mediation should take. Overall, there is a lack of familiarity with mediation, particularly in civil law jurisdictions. Whilst respondents from the civil law jurisdictions tend to view mediation as an evaluative process, those from the common law jurisdictions essentially saw mediation as “facilitated negotiation“.

DR mechanisms in practice: preference vs reality

Not all disputes progress to a binding decision with 41% being settled.

Whilst most respondents indicated a strong personal preference for arbitration, the most commonly used DR mechanism over the past 5 years was in fact litigation (litigation : arbitration / 44% : 35%). This could be attributed to the following:

  • Many disputes emerge more than 5 years after the contract is drafted. These disputes may involve contracts written before the surge in popularity in arbitration over the last decade.
  • Customers and suppliers tend to have differing views about arbitration, and this could explain a lack of agreement to arbitration in the DR provisions at the contract drafting stage.
  • Litigation may be the default position, particularly for disputes that do not involve contracting parties, i.e. IP, competition, data protection / security disputes.
  • At the procurement stage, parties may have given little attention to the DR provisions, either to time constraints or because neither anticipates a major dispute arising.

The key to greater inclusion of international arbitration into DR clauses appears to lie in educating the Board of Directors, Senior Executive or CEO of the organisation (57%), as they tend to be the main decision-makers on whether to introduce formal legal proceedings.

While General Counsel or Head of Legal are the second most common decision-makers (36%), the survey appears to indicate that most are well-acquainted with and/or generally aware of the advantages of arbitration.

The future of international arbitration and TMT disputes – advantages, weaknesses and ways to improve

A “striking majority” of respondents (92%) indicated that international arbitration is well-suited for TMT disputes, and 82% anticipate that there will be a general increase in its use to resolve TMT disputes.

The oft-cited advantages of arbitration include:

  • The procedural flexibility available to arbitration as compared to court procedures;
  • Confidentiality;
  • Enforceability in multiple jurisdictions.
  • The uncertain political climate (i.e. Brexit) is another reason why respondents chose international arbitration over court proceedings.

Some perceived weaknesses / disadvantages of arbitration are:

  • The difficulty in obtaining injunctive relief;
  • Prohibitive costs of arbitration; and
  • The lack of arbitrators with TMT expertise.

Whilst lower costs are the most obvious way to improving arbitration (58%), a need for specialist knowledge of the TMT sector was also highlighted:

  • A main reason cited for the reluctance to use arbitration is the lack of specialist arbitrators with TMT expertise.
  • Technical knowledge and sector expertise are ranked highly when it comes to choosing external counsel and arbitrators.
  • Key ways of improving arbitration for TMT disputes include: (1) the creation of a neutral system for the accreditation of specialist arbitrators; (2) having a specialised roster of arbitrators for TMT disputes; and (3) the appointment of more industry experts.

TMT disputes and arbitral institutions

The ICC, World Intellectual Property Organisation (“WIPO“), LCIA, International Centre for Dispute Resolution (“ICDR“) and SIAC were ranked amongst the top five most preferred arbitral institutions for TMT disputes.

  • In the United States, the ICDR was the most preferred choice at 55%.
  • In the EU, the ICC came in highest at 74%.
  • In Asia, the SIAC was most popular at 67%, followed closely by the ICC at 61%.
  • WIPO is more favoured for IP disputes.

Conclusion

TMT disputes tend to be high risk and high-value, with many involving sums in excess of US$100m.

Asia was the most contentious region surveyed, although Europe and North America had the most claims at the highest end of the scale.

The future of international arbitration in the TMT sector is bright, with most within the industry predicting its use to increase.

Key ways of exploiting this advantage include:

  • gaining greater buy-in from the Boards of TMT organisations;
  • advising on its inclusion in DR clauses for TMT contracts;
  • gaining industry confidence by building up more specialist TMT arbitrators and counsel.

With thanks to Lakshanthi Fernando.

 

 

About Wei Ming Tan

International Dispute Resolution and Arbitration Lawyer
This entry was posted in Arbitration, TMT. Bookmark the permalink.

One Response to THE FUTURE OF INTERNATIONAL ARBITRATION IN THE TMT SECTOR: VIEWS ON QMUL’S 2016 INTERNATIONAL DISPUTE RESOLUTION SURVEY

  1. Akram Aburas says:

    Very informative report and to the point, outstanding job

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