Technology transfer is a critical way for innovation companies to enter into new markets and profit from the hard work that they have done in developing new technology. These agreements can take many forms, from an assignment of the intellectual property rights to a licensing agreement, to a joint venture. And unlike the sale of physical assets, with the sale or licensing of IP, there are numerous complicated issues involving exactly what is being transferred, adaptations or further development of the technology, and competition between the technology owner and the transferee.
During the heady moments when reaching a deal, everyone always seems on the same page. But months or years down the road, disputes can often arise, particularly where there are substantial royalty payments in the balance.
Disputes Between U.S. Companies
In the domestic context, when dealing only with U.S. companies, using arbitration to resolve these disputes can make a lot of sense. First, there is no question that you can arbitrate any technology disputes, and the law–35 U.S.C. § 294–specifically allows parties to arbitrate any contractual dispute relating to patent validity or infringement. Further, with arbitration, you can select an arbitrator who is familiar with the technology and able to make difficult decisions on complex technology issues. This is often far better than asking an average jury without any scientific or technical background to make such calls. And you can design the arbitration proceeding to happen quickly if needed. This can be essential when dealing with business uncertainty as to whether a product requires a royalty payment or not.
In the international context, however, the need for an international arbitration clause is even stronger. If a company does not have assets in the United States, then using U.S. courts to try to resolve a dispute may be a fool’s errand. Outside the borders of the United States, U.S. courts have no power to enforce their injunctions or judgments. So you may spend years proceeding through the U.S. court system only to get a judgment that is worthless as a practical matter.
Alternatively, you can sue the other party in the courts within their country. Some countries have sophisticated court systems that will properly adjudicate the claims, and the main issue will be trying to find local counsel in those countries and having to address numerous translation and cross-cultural issues to resolve the dispute. But for other countries, this can be a nightmare. If you are dealing with a party in Brazil or India, it may be a decade or more before the case is resolved in their local courts. Or you may deal with home-court advantage in places like China, where the judiciary is not independent.
International arbitration can limit all of these issues. By including an international arbitration clause, you provide for a dispute resolution method in the place, and with the language, of your choosing. The arbitration clause can be tailored to the parties’ likely disputes, providing for quicker adjudication, or a different number of arbitrators depending on the value at stake. And, most importantly, the arbitrator’s decision is subject to enforcement virtually worldwide pursuant to the New York Convention.
Further, in the technology context, you can use an international arbitration to resolve patent disputes in a single proceeding, rather than having to litigate cases in each of the many countries where such patent protections may apply.
A well-drafted Technology Transfer Agreement, with an arbitration clause, can make sure that both parties are protected and will be able to resolve any disputes as quickly and efficiently as possible. And as our world grows more interconnected, with technologies frequently being transferred to other countries around the world, the use of international arbitration is a necessity for companies.