Patent Disputes - Arbitrating All The Way!

Abstract

From the International standpoint, one cannot disregard the importance of intellectual property as a vital instrument of economic prosperity, international trade and commerce in the cosmopolitan world.

Through the medium of this article, the author endeavours to draw attention of the readers towards the need for shift from legal battles to amicable settlement mechanisms for resolving patent disputes. The author has also carried out a comparative study of patent litigation regime of various nation states. Furthermore, the author has tried to analyze pros and cons of arbitration in respect of settlement of patent infringement issues. Concluding remarks by the author define her overall perspective of the broad issue of the required shift as aforesaid.

Introduction

Growing reliance on technology as a means of procurement of goods and services has requisitioned the need for patent protection from threat of possible infringement. Redressing infringement of counterpart patents, copyrights or trademarks in various countries entails litigation in multiple foreign jurisdictions with different judicial systems and judges with varying degrees of experience and qualifications. Moreover, litigating is an expensive solution with chances of inconsistent results. Therefore, to avoid protracted legal battles, the Alternate Dispute Resolution mechanism has been highly recommended.

International Commercial Arbitration

“International Arbitration may be defined as the substitution of many burning questions for a smoldering one” -Ambrose Bierce[2]

International Commercial Arbitration can be conceived as a real steal, expeditious and conclusive way of resolving international commercial disputes. It affords numerous benefits[3]over adversarial litigation. Some of these are cited hereunder:

· Confidentiality

· Flexibility

· Expert attention towards specific disputes

· Promotion of business interests

· Swift control of proceedings

· Foreclosure of parallel proceedings in different jurisdictions

Arbitration also poses as a potential instrumentality in discharge of patent infringement and validity issues, that otherwise would have to be addressed in separate courts, applying anomalous procedural and substantive laws[4]. In the age of Globalization and Privatization, it is highly recommended that the Multi-National Companies should consider International Commercial Arbitration in multifarious contexts including formulation of licensing policies.

Patent expert Alexander Poltorak, CEO and Chairman of General Patent Corporation says,“Multi-tier patent system, specialized patent courts and patent arbitration forums are the key facilitators for the speedy resolution of patent disputes.”

Amelioration in the field of Science and Technology suggest that there is going to be no paucity of patent cases in future. Hence, an able dispute resolution mechanism becomes a pre-requisite. The Industries, Corporate Houses, Patent Offices and above all the Creators of technology must prepare themselves to tackle such disputes in an efficacious manner. Despite show of enthusiasm among certain International players, arbitration has failed to reduce the patent caseload of public courts[5]. Legal encumbrances, particularly in multi-jurisdictional patent controversies, are still encountered by parties interested in this method of dispute settlement.

Nature and Scope of Patent disputes

As already discussed, patent rights are granted only for inventions, fulfilling the three-fold criteria of novelty, non-obviousness and industrial applicability. Hence, it could be asserted that patent disputes would involve the most abstruse and convoluted issues. The settlement of such issues is an uphill task pertaining to the time, cost and effort required.

Patent Disputes can be broadly classified into the following:

·  Disputes regarding the grant of patent- The grant of a patent can be challenged by a“person interested” by way of Pre-Grant and Post-Grant Opposition proceedings. In many jurisdictions these kinds of disputes are considered non arbitrable for the reason that statutory rights cannot be decided upon by parties themselves[6].

· Validity of the patent- The validity of a patent may be disputed if it does not fulfill the essential conditions, i.e. Novelty, Non-Obviousness and Industrial applicability.

· Infringement of  the rights of the patentee- Disputes arise due to unauthorized making, using, selling, and importing of the patentee’s invention by a third party. They also include disputes pertaining to the license agreements, assignment of patent rights, etc.

Patent infringement

Patent infringement is an inclusive term. It generally refers to the unauthorized making, using, importing, offering for sale or selling any patented invention. In a suit for Patent infringement, the patentee may claim relief from a court of competent jurisdiction, in the forms of interim injunction, award of punitive damages, account of profits, etc.

Can Patent Disputes be resolved by Arbitration? – An overall perspective

Arbitrability refers to the question of whether a particular dispute can be submitted to arbitration[7] or it befits solely to the jurisdiction of the courts. Both the New York Convention, 1958 and the Model law on International Commercial Arbitration, 1985 provide for settlement of international disputes by way of Arbitration. It also involves the recognition and enforcement of foreign awards by the courts of different jurisdictions. Whether a particular dispute falls within the ambit of arbitrability under a given law, is fundamentally a matter of Public policy. Public policy varies from state to state and constantly evolves with changes in the society.

Intellectual property rights are one such subject wherein countries have expressed skepticism concerning the dispensation of disputes by means of Arbitration. The foremost reason accorded by them, is the concept of Public policy.

As already discussed, patent rights are the property rights conferred by the State upon an inventor. These are statutory monopoly rights which are granted to the patentee to manufacture and market their inventions for commercial gains for a specified period of time. These rights could be exigent to the overall development of the society.

Intermittently it is contended that since these are territorial rights created by a sovereign entity, only the courts of this sovereign entity should have the authority to adjudge matters relating to such rights. In the view of Redfern and Hunter, the grant and validity of patents is outside the scope of arbitration. Moreover, it has been held that a patent right is available against the whole world at large. On the other hand, Arbitration, as a dispute settlement resolution, is the outcome of a concerted agreement between two parties who are bound by certain rights and obligations towards each other. Consequently, concerns were raised with respect to subject-matter arbitrability of patent disputes throughout the international community. In the beginning, disputes pertaining to the rights and entitlements to intellectual property could not, for a long time, be referred for arbitration[8]. However, with the passage of time, disputes arising from commercial arrangements such as transfer or assignment of rights, license agreements or multi-jurisdictional disputes, were considered to be prima facie arbitrable[9]. It is justifiable to conclude that since the nature of the relationship between the parties is purely contractual in the above cases, arbitration agreements may be entered into, and the awards thereto shall be considered as final and binding.

The municipal laws of various countries have different stands over subject matter arbitrability of patent disputes. United Kingdom and Singapore allow arbitration in IP rights, but to a limited extent and with the prior sanction of the court. U.S.A and Switzerland, on the contrary, follow a liberal approach. As a matter of fact, the United States Code expressly provides for arbitration in case of any kind of patent disputes[10].

It is also noteworthy, that the issue of subject matter arbitrability of patent disputes has been laid down as a condition precedent for the recognition and enforcement of a foreign award under the New York Convention, 1958.

Article V[11] of the said convention provides that if a contracting state does not does not consider a subject matter capable of arbitration, an agreement to arbitrate on such subject matter shall be considered as invalid and shall be refused enforcement.

Hence, voluntary arbitration is more or less dependent upon the municipal laws of a country in so far as they are in compliance with the International Conventions.

Patent Ligation- Going the traditional way?

Patent infringement cases have sky-rocketed in the modern times owing to the scientific and technological advancements in various field of study. Market competition has motivated the manufacturers to come up with inventions and thereafter get exclusive rights over them for economic benefits. Along with this competition comes a predictable brouhaha of patent infringement disputes which have led many parties to court[12].

It is a worldwide known fact that patent litigation can cost in millions. Moreover, patent infringement cases dealt through litigation get delayed over a long period of time especially because of the procedural and technical hazards. This further increases the cost. There are concerns over confidentiality as well, since the courts are generally open to the public. Many times the judges are ill-equipped to resolve the conflicting assertions. They might lack the required technical expertise. Therefore, the implementation of an alternative system for settlement of patent disputes is the need of the hour.

Patent litigation trends in various countries

I) Patent Litigation in U.S.A-

In litigation Abraham Lincoln once remarked, “The nominal winner is often a real loser in fees, expenses and waste of time.”

According to a 2007 survey by the American Intellectual Property Law Association, the average U.S patent infringement case costs more than $2.5 million[13].  Oft-times high costs are attributed to discovery as to the patentability of the invention, expert testimony, attorney’s fees, etc

Patent litigation has increased over 230% in the past two decades[14] especially in the fields of mobile technology and pharmaceuticals. In 2008, 2,896 patent infringement actions were filed - merely 179 fewer than the peak year 2004 - and have been increasing by 5.6 percent since 1991[15].  

IP analysts in the U.S argue that patent infringement litigation has risen due to the growth of an“Innovative Economy”. According to USPTO, the number of patent filings and patent suits roughly correlate with each other. Companies are utilizing patents to gain competitive preeminence and increase their market share. In 2009, the top 10 patent-holding firms accounted for 298,466 (7.8%) of all patents granted in the United States since 1977. Although a larger patent portfolio is beneficial for a company, it might lead to an increase in the probability of litigation.

According to a study carried out by PricewaterhouseCoopers in 2012, the number of patent suits jumped to 4,015 in the year 2011 as compared to 2010, representing a 22% increase. Overall, patent litigation has grown up by 6.4% every year since 1991. The amount of damages awarded during the periods of 1995-2000 and 2001-2005, were considerably higher, to the tune of $5.3 million and $8.7 million respectively. In the recent case of Apple v. Samsung, a U.S. Court ruled in favour of Apple and awarded damages to the tune of $1 billion.

II) Patent Litigation in European Union (EU) 

The European Commission in Brussels has been affronted with two major issues, i.e. reduction in the cost of obtaining patent protection and the complexities of patent litigation. The Commission’s Green Paper in 1997 dealt with the issue of patent litigation. The European Patent Convention is still unsuccessful in harmonizing the enforcement of patents. The Commission is also drafting a unitary patent protection regime with the two-fold objective of reduction in costs and litigation suits.

As per the data available from 1997-2009, an estimated 9,200 patent infringement cases[16]have been filed in Germany, 886 in England and Wales, 3,200 in France, 1,300 in Italy and 780 in Netherlands. According to a survey conducted in Germany, the success rate of a patent litigation suit was approximately 63% (2006-09).

In U.K, between January 2008 to August 2009, 47 patent validity and infringement cases were filed before the Patents County Court, the Patents Court, the Court of Appeal and the House of Lords. 18 of 47 cases were won by the patentee[17].

III) Patent Litigation in China

A study conducted by the State Intellectual Property Office (SIPO), in January 2011, indicates that total patent issuance in China, from 1985-2010, is approximately 3,897,359. This includes patent issuance for inventions, utility models and designs[18].

China bested the United States to become world leader in patent filing in 2011 by obtaining 526,412 invention patent applications, compared to 503,582 utility patent applications in the US. Of these, 79 percent went to domestic Chinese entities, as compared to 49.2 percent to domestic entities in the U.S[19].

The statistical data from 2004-2011 suggests that there has been no dearth of patent litigation cases in China. According to SIPO White Papers, in 2011, approximately 7819 patent lawsuits were filed in Chinese courts[20].

There have been significant changes in the amount of damages awarded to the patentee in infringement suits. Earlier, low damages were awarded, but the symbolic doubling of the maximum statutory damages from RMB 500,000 to RMB 1 million in 2008 sent a clear message that the Chinese government is keen to support innovations more appropriately[21].

For instance, in the leading case of Chint v. Schneider[22] the First Instance Court in Zhejiang province issued the highest damages award in China to date (RMB 334 million), and the two parties settled at the Appellate Court in the amount of RMB 157 million (about US$ 23 million).

Undoubtedly, the People’s Republic of China will soon become an “Armageddon” of patent disputes.

IV) Patent Litigation in Japan

In Japan, the questions of validity and infringement are decided by different tribunals. The litigation proceedings tend to be relatively expensive. Ordinarily, Japanese courts have interpreted the patent claims in the strictest sense, often using the literal rule as an internal aid of construction.

After the establishment of the Intellectual Property High Court, many empirical studies have been conducted addressing the incentive structure for inducing patentees to file suits under the US patent system[23]. Bessen and Meurer (2005) make empirical analysis concerning patent infringement suits and litigation costs[24]. This study provides with a database which contains 477 decided cases (1988-2005), 279 cases, terminated by the District courts, 192 by the higher courts, and 6 by the Supreme Court (2005-2010)[25].

Patent infringement proceedings are heard before the Osaka or Tokyo District Court, which have exclusive jurisdiction over different geographical areas. Both district courts have designated IP divisions, whose technical advisors (saibansho chÅsa-kan) brief judges on the complex technical matters often involved in patent infringement cases[26].

V) Patent Litigation in India

The Patents Act, 1970 is the primary legislation with respect to patent protection in India. It has been amended twice, in 2002 and 2005. By the 2005 amendment product patent regime was introduced in agricultural, chemical and pharmaceutical industries. This gave rise to a number of patent disputes between the inventors and the Indian generic drug industry, thereby increasing the chances of patent litigation. Many high profile cases, such as Bayer v. Cipla (patent linkage system) and Natco v. Bayer (grant of compulsory license) have surfaced since then. Due to lack of technical expertise, specialized IP courts, other legal and practical obstacles, mostly patent litigation has been employed as a standard means of dispute settlement.

According to a study conducted by the leading IPR firm, K&S Partners, the National phase applications filed in 2008-09 were 25,706, and the PCT applications were 887. In the same year, 40,749 publications were made under Section 11A of the Act of 1970. Furthermore, 153 pre-grant oppositions were filed.

Number of patent litigations filed in India[27]-

Patent Litigation vis-à-vis Patent Arbitration

So far we have discussed the meaning, nature and scope of patents, patent infringement, arbitrability of patent disputes as well as the trends followed by some of the leading international players in terms of resolving patent related issues. Let us now deliberate upon the advantages of international commercial arbitration as a dispute settlement mechanism.

Advantages of arbitration over traditional litigation

1.  Speedy trial and Inexpensive- It helps in the speedy settlement of disputes. It is more cost-effective than the litigation proceedings in the courts. Statistics show that arbitration can save disputants up to 2/3 or more of the cost of litigation[28]. According to a study conducted by AIPPI in 2006, the average expenditure in a patent dispute in any U.S Court came down to $2 to $4 million. On the other hand, the cost of arbitration was $1 to $1.5 million[29].

2. Forum Certainty- Since patent rights are territorial in nature, a lot of complexities might arise due to multiplicity of court proceedings. Despite well-meaning efforts to streamline and harmonize the patent litigation system, the reality is that multinational entities are forced to pursue parallel litigation in each country where disputes arise. However, international arbitration provides a single forum for settlement of multi-jurisdictional patent disputes[30].

3. Party Autonomy- In case of litigation, there parties do not have the discretion to choose any of the standard procedures. Whereas in case of international arbitration, the parties are free to choose the arbitrators, substantive law to be applicable, place of arbitration, language of the proceedings, etc. Thus, the parties have an opportunity to exercise greater control over the way their dispute is to be resolved. This makes the procedure of arbitration very effective. The parties are also free to challenge the appointment of the arbitrators on the grounds of their independence and impartiality. In litigation, for instance, the parties can neither challenge the integrity of the judge nor his technical expertise.

4. Neutrality- When two parties contest a legal battle internationally, one of the parties inevitably enjoys the home advantage. For example- one could say that in the recent case of Apple v. Samsung, which was filed under multiple jurisdictions, Apple was at advantage in U.S. On the contrary, Arbitration ensures neutrality and an unbiased approach since the parties can mutually decide upon the appointment of the arbitrators. There is absolutely no scope for favouritism or home advantage. As compared to litigation, arbitration is more fair, just and transparent.

5. Confidentiality- Patent disputes involve such information which if disclosed would be detrimental to the rights of the patent-holder. This includes technical information regarding the specifications, composition of the product, process or method, technical drawings, claims, etc. The proceedings of a court are carried out in open and not in camera. The documents submitted before the court become public and can be examined easily by any person. Sometimes special orders could be taken under some jurisdictions to restrain disclosure.  However, disclosure of such sensitive information, even in a single jurisdiction, could prove fatal for such invention and the party concerned. Arbitration on the other hand, is a private and consensual procedure, wherein both parties and the arbitrators are under an obligation not to disclose sensitive and confidential information to third party. WIPO has formulated strict rules and regulations for the same[31].

6. Availability of Expertise- Inventions are highly technical in nature and require expert handling at every stage. Most of the times the judges and other jury members do not possess sufficient knowledge to decide patent infringement and validity suits. They may not be able to appreciate the substantial amount of hard work put into the invention, or analyze and decide on disclosures and scientific evidences submitted in each case. Thus, the probability of misjudgments would increase. However, in case of patent arbitration, the parties can choose an arbitrator who is competent and possesses the required qualifications.

It cannot be denied that arbitration may not altogether be the best option for settlement of patent disputes. It also suffers from certain limitations. One of the major concerns in the employment is the recognition and enforcement of awards in different jurisdictions. We have already discussed how confidentiality of information poses as a great advantage in case of arbitration. But where a question of public policy has arisen, as in case of secrecy directions, information may need to be disclosed. Effective implementation and enforcement of award may also be the reasons for disclosure. Other disadvantages could be limited judicial review and lack of awareness.

Past and Future Trends in Patent Arbitration

International Commercial Arbitration is a form of Alternative Dispute Resolution (ADR). It means arbitration between parties to disputes, which have arisen or may arise, with respect to legal relationships, whether contractual or not, considered as commercial in nature. Patent Arbitration is a mode of arbitration, giving personalized attention to the disputes pertaining to the validity and infringement of patents.

Customarily, seldom patent disputes are referred to arbitration. The primary reasons could be the jurisdictional issues, public policy grounds, requirement of a pre-existing contractual relationship. In 2007, only 39 cases involving IP disputes were filed with the International Chamber of Commerce (ICC), representing 5.5 percent of the ICC’s arbitration caseload. In 2006, 53 ICC arbitrations involved IP disputes, which represented 8 percent of the ICC’s caseload. Similarly, in 2007, only 33 arbitrations were filed with the World Intellectual Property Organization (WIPO), and 26 arbitrations in 2006[32].

Earlier, many companies hesitated to submit patent disputes to arbitration because there is generally no right to appeal from an arbitral award. They were reluctant to entrust the arbitrators to adjudicate upon the infringement of their estimable IP assets. A provision for Voluntary Arbitration has been enshrined under 35 U.S.C and more specifically under Section 294. This section authorizes the submission of patent disputes before an arbitral authority, whereby the parties have agreed upon the same as per an “arbitration clause” under the contract. Despite this provision for patent arbitration in matters of patent infringement and validity issues, parties preferred to bring their disputes before the federal judges[33].

In Canada, the Supreme Court has held that parties to an arbitration agreement “have virtually unfettered autonomy in identifying the disputes that may be the subject of arbitration”[34]. Similar provisions are present in the patent laws of Switzerland[35].

A decision[36] of the Paris Court of Appeal, dated February 28, 2008, holds that, under French law, arbitrators have the authority to rule on a patent invalidity defense. This was the first time when such power was given to the arbitrators. This decision also emulated a new trend in support of resolving patent disputes through arbitration. Arbitration was being looked upon as robust and cost-effective substitute to adversarial litigation. Until then, the French courts had persistently argued that arbitrators lacked authority to decide patent validity issues, as a matter of public policy.

On the other hand, countries like Singapore and Romania, do not allow patent arbitration[37]. In the People’s Republic of China, patent validity issues are administrative in nature, hence they are non-arbitrable[38].

Indian law is unsettled as regards the subject-matter arbitrability of patent disputes. Apart from a reference in Section 103(5)[39] of the Indian Patents Act, 1970 to arbitration in the context of governments seeking to use a patented invention, neither the said Act nor the Arbitration and Conciliation Act, 1996 denote whether patent validity or infringement issues may be arbitrated.

In the case of Apple v. Samsung, after a long drawn legal battle the mobile technology majors have expressed their concerns over the ever increasing litigation costs, and multiplicity of suits, and have decided to take the arbitration route. More recently, Nokia wants to enforce an arbitral award against blackberry in an infringement suit filed by the former regarding patent infringement in the WLAN technology.

Concluding Remarks

The above trends suggest that International Commercial Arbitration has a long way to go in the settlement of patent disputes. If implemented effective, it can play a significant role in the protection of rights of the patentee. However, we must understand the system of courts cannot be completed eliminated.  But a certain shift is definitely required. The best way to decide between patent litigation and patent arbitration would be to look at the facts and circumstances of each dispute and then act accordingly.

Resham Jain[1]

[1] The author is a 5th year student of BA.LL.B(H) at Amity Law School, Amity University