IP arbitration amendment Bill passed today in Hong Kong but hurdles remain

The Hong Kong government has passed amendments today to the territory’s arbitration ordinance to clarify that IP rights can be the subject of arbitration. The existing legislation does not specify that this is possible. The provisions in the ordinance will take effect on January 1, 2018. While the amendment may encourage more parties to go for this form of dispute resolution for IP cases, barriers still remain in choosing arbitration.

The arbitration Bill has been in the works for close to two years. It clarifies that all disputes relating to the scope, validity, ownership, infringement and subsistence of IP rights are arbitrable. The change is in line with the government’s drive to promote Hong Kong as a dispute resolution centre.

Making IP arbitrable

Charmaine Koo

Unlike other areas such as construction, arbitration has not been used as widely for dispute resolution. “IP as an arbitrable subject matter has been challenging because IP is territorial, so rules apply separately in different places,” says Charmaine Koo, partner at Deacons. “In Hong Kong the trade mark registry is based on prior rights for example, and if parties go through arbitration, which is based on parties fundamentally having their own authority and taking matters into private hands, what goes on the trade mark register affects other people, so people need to know what is decided and decisions affect policies.”

The Bill clarifies that an award relating to IP rights does not cover a third-party licensee who is not a party to the arbitral proceedings. But can awards be enforced? “There is still uncertainty whether awards can be enforced in places that do not allow for IP arbitration, such as China. In the US, the law specifically says that parties using arbitration can register their decisions with the public register,” adds Koo.

“An increasing number of jurisdictions now recognise contractual IP disputes, which are disputes arising out of commercial contracts, licensing and technology development that can be resolved inter partes as arbitrable,” says Sarah Grimmer, secretary general, Hong Kong International Arbitration Centre (HKIAC). “Additionally, an increasing number of jurisdictions also now recognise issues concerning the validity of IP rights as arbitrable, at least as between the parties; these jurisdictions include the United States, Canada, Switzerland, Japan, Singapore and Belgium.”

Drafting proper arbitration clauses

Ensuring that an arbitration clause is drafted properly is of utmost importance to avoid pitfalls in the arbitration process. “In drafting arbitration clauses, parties should agree on where the arbitration should take place, how many arbitrators will be on the panel and the subject matter for arbitration, or else parties may separately go to the patent office to invalidate the other party’s patent in a patent case for example,” says Koo. “Parties should think carefully of issues that may come up so that they do not fall foul to the wording of a clause. For example, agreeing on where an award may be enforceable, the language of arbitration, applicable law used, procedural rules and which arbitral organisation to use for the arbitration.”

Sarah Grimmer

“Parties negotiating a contract relating to IP rights should be aware that their choice of arbitral procedure can significantly impact the conduct of the arbitral proceedings and the availability of interim or emergency relief, which is particularly relevant for the protection of IP rights,” says Grimmer. “Parties are advised to use model arbitration clauses in their contracts, like the 2013 HKIAC Administered Arbitration Rules model clause. Model clauses are designed to ensure effective dispute resolution proceedings and can be included in any contract.”

To arbitrate or not to arbitrate?

Confidentiality and the ability to enforce awards are important motivations for parties to choose arbitration but it is still not widely used in Hong Kong. Strategies to help parties lower costs and duration of arbitration may help.

“The New York Convention provides a regime for the recognition and enforcement of foreign arbitral awards across 156 contracting states,” says Grimmer. “The broad coverage of the New York Convention does not have a litigation equivalent. The recognition of court judgments is reliant on several bilateral and multilateral treaties and agreements, which makes arbitration significantly more attractive than litigation for cross-jurisdictional disputes.”

“For countries that are signatories to the New York Convention, enforcement is easier and it is more common for parties to choose arbitration for matters related to breach of confidence and trade secrets because of the confidentiality issue,” says Koo. “However, the court can be faster as parties are more likely to settle. There is the stigma that with court proceedings, parties feel more pressured.”

“Another significant advantage to arbitration is procedural flexibility,” says Grimmer. “In the context of IP disputes, it may be important for parties to preserve the confidentiality of information exchanged during the course of the arbitral proceedings or to select arbitrators with the technical expertise. Also, parties can exercise control over the cost and duration of the proceedings by, for example, agreeing to refer the dispute to a sole arbitrator rather than a three-member tribunal or by limiting the number of submissions exchanged and the scope of the document production process.”

Hong Kong wants to make arbitration more attractive for IP dispute resolution. Anyone contemplating the possibility of using it for IP matters should understand the benefits and drawbacks and draft arbitration clauses carefully so that there is no ambiguity should arbitration be necessary in the future. Measures to save costs and reduce the time required can help parties overcome procedural challenges in the arbitration process.