Arbitration is a form of alternative dispute resolution (“ADR”) that provides an alternative to a civil proceeding before the national courts.
Arbitration is an ancient institution. For arbitration, private parties autonomously and mutually agree to give an impartial third party the authority to settle a dispute between them. Before modern nations were even conceived, arbitration was already going strong; over time, it has evolved along with society. In the modern market, there are certain advantages to choosing arbitration, and everyone should be aware of them.
ARBITRABLE DISPUTES UNDER ITALIAN LAW
Not every dispute can be subject to arbitration. Different countries make different choices as to what is arbitrable and what is not. In Italy, Article 806, paragraph 1 of the Italian Code of Civil Procedure (“CCP”) establishes what can be the subject of arbitration and, in so doing, expressly excludes disputes concerning what are commonly called “non-disposable rights.”
The provision establishes the arbitrability of disputes in general. Exceptions are “the disputes provided for in articles 409 and 442 CCP, matters of status and personal separation between spouses, and those that cannot be the subject of a transaction (because they relate to or are unavailable rights).”
More and more, when arbitration is possible, that option is selected. Thanks to simplified arbitration proceedings, now this trend also concerns disputes of lower value.
WHEN NOT TO ARBITRATE IP-RELATED DISPUTES
One of the main issues parties must consider is whether IP rights can be settled by arbitration under the applicable law. Every jurisdiction, including Italy, answers this question differently.
Article 806 CCP provides that parties can arbitrate all contractual disputes, except for those concerning non-disposable rights or rights that cannot be deferred to arbitration under law. Italian law does not expressly prevent parties from arbitrating IP rights. However, scholars hold that IP rights partially fall under the notion of non-disposable rights in the sense of Article 806 CCP.
Accordingly, registrations and declarations of invalidity of patents, trademarks, and designs cannot be settled by arbitration under Italian law, as only tribunals and the relevant administrative bodies may decide on them with erga omnes effects. Nevertheless, back in 1956 the Italian Court of Cassation[1] conceded that arbitration tribunals can incidentally decide on patent validity, when the invalidity of a patent is incidental to the resolution of the dispute. Keep in mind that the question of whether moral rights stemming from copyright can be subject to arbitration under Italian law is subject to debate.
Conversely, Italian courts have consistently accepted the arbitrability of rights of economic exploitation in IP rights. Thus, the parties may refer to arbitration a dispute regarding the scope of a patent/trademark license, and the arbitrators can eventually decide on the validity of the IP right registrations, with effect between the parties only. In such a scenario, the decision about the registration of the IP right will not be binding for national judges, and the same issue may subsequently be brought in front of the relevant national authority. On the other hand, a decision about the validity of the license will be binding for the parties once the award is determined by the tribunal (even though the award may be based on the validity/invalidity of an IP right registration).
Moreover, parties should keep in mind that the arbitrability issue may appear in another guise at the enforcement stage. Indeed, courts may refuse to enforce an award if they consider the object of the dispute non-arbitrable under domestic law. Thus, foreign awards for non-arbitrable IP rights could fail to be enforced in Italy if the courts consider them in contravention to Italian public policy. However, applicants can always try to advocate for a less strict approach from the court by invoking application of international public policy (i.e., policy arguments could be invoked when the “most basic notions of morality and justice of a jurisdiction may be violated”).
Regarding the disadvantages of arbitration proceedings, Section 818 of the CCP expressly prevents arbitrators from granting freezing orders or other interim measures, except where expressly provided by law (i.e., companies’ articles of association may authorize shareholders to determine the validity of a company’s resolution by way of arbitration). Access to these urgent measures is crucial in IP-related disputes, as they allow alleged infringements to be stopped promptly and prevent major disruption to the business of the owner of the infringed rights. When interim measures are needed, the applicant applies to the competent court for interim relief in support of arbitration under the general rules of the CCP.
As for interim measures, Article 26 of the Milan Chamber of Arbitration (“CAM”) Rules offers a partial solution to this issue: “At the request of a party, the Arbitral Tribunal may issue all urgent and provisional measures of protection, including those of an anticipatory nature, that are not barred by mandatory provisions applicable to the proceedings. In any case, unless otherwise agreed upon by the parties, the Arbitral Tribunal, at the request of a party, has the power to adopt any determination of a provisional nature with binding contractual effect upon the parties.” Thus, interim measures only have effect between the parties under Article 26 CAM Rules. Noncompliance entitles the parties to bring legal action for breach of contract before the national courts.
In conclusion, under Italian law, the parties should consider avoiding arbitration when a dispute revolves around interim measures, or when seeking a decision with effect upon everyone over the validity/invalidity of IP rights.
WHY ARBITRATION IS CHOSEN
Arbitration offers significant advantages over ordinary judgment.
First, it is a time-efficient option. In the Italian legal system, an arbitral award is final. Choosing arbitration means that the parties give up the possibility of an appeal and the inherent opportunity to influence the timeline.
Another relevant element is the confidentiality of arbitration proceedings, as opposed to the typical methods for publicizing ordinary civil proceedings.
In addition, arbitration is characterized by a high degree of flexibility and autonomy for the parties in dictating the rules for the proceedings. This means that they can determine in detail each and every stage of the proceedings.
Last but not least, in arbitral proceedings the parties have the right to choose their own arbitrators, which is particularly valuable in disputes where a high degree of technicality requires specific knowledge.
WHAT KIND OF IP-RELATED DISPUTES ARE TYPICALLY ARBITRATED
IP-related disputes are mainly referred to arbitration due to arbitration clauses in IP-related agreements. The subject matter of these proceedings most commonly includes contractual disputes (e.g., patents, trademarks, and software licenses, trademark coexistence agreements, distribution agreements, and research and development agreements).
For example, disputes arising out of license agreements between international parties are often settled through arbitration. These disputes may concern—for example—the scope of the license, the definition of the licensed products or technology, the amount of royalties due, and/or other contractual and IP-related issues. Moreover, the WIPO Arbitration and Mediation Center (“WIPO ADR Center”) also includes arbitration proceedings over international production and co-production agreements on its relevant list.
Sometimes, alleged patent/trademark infringements (i.e., non-contractual disputes) may be brought to arbitration by the IP owners, as they may consider arbitration less risky than court proceedings. That is because, even if the respondent later contests the validity of the underlying IP right, arbitrators cannot invalidate the registration of IP rights in most jurisdictions. The effect of the final award will only have bearing between the parties.
WHERE TO ARBITRATE IP-RELATED DISPUTES
In 1994, the World Intellectual Property Organization (“WIPO”) established the WIPO ADR Center to deal with the increasing need for arbitration and mediation in international IP-related disputes.
Although an IP dispute can be brought before a court, state courts are not always equipped to take account of the distinctive elements of this type of dispute. The WIPO ADR Center focuses on resolving IP disputes, especially IP- and technology-related contractual disputes involving parties from different jurisdictions.
The WIPO ADR Center offers the parties a choice from a list of more than 1,500 highly specialized arbitrators and mediators from all over the world. Moreover, the WIPO ADR Center also provides a list of recommended arbitration and mediation clauses and a set of Arbitration and Expedited Arbitration Rules. Finally, the WIPO ADR Center has established the Domain Name Dispute Resolution Service for Generic Top-Level Domains. This service is particularly useful for companies that are victims of what is known as cyber-squatting, (i.e., when a third party buys a domain name that others may want and tries to generate profit from doing so). In that scenario, the WIPO ADR Center renders a decision pursuant to the Uniform Domain Name Dispute Resolution Policy (adopted by the Internet Corporation for Assigned Names and Numbers), which applies to the registers of many of the gTLDs of second-level domain name registrations (e.g., .aero, .asia, .biz, .cat, .com, .coop, .info, .jobs, .mobi, .museum, .name, .net, .org, .pro, .tel) and all the applicants that register one.
To promote the use of arbitration and mediation in IP-related disputes in Italy, the WIPO ADR Center has established a partnership with the Italian Patent and Trademark Office and the CAM.
[1] Italian Supreme Court, decision of October 3, 1956, no. 3329.
