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Why technology-related disputes are increasingly resolved by arbitration

(Image credit: Image Credit: NakoPhotography / Shutterstock)

Technology has become critical to most organisations and impacts all industries.  The growing importance of technology in the world economy has led to significant changes in the way technology is developed, transferred and shared.  These changes include the global expansion of technology’s reach, the increasing volume of regulations applicable to technology-related issues and the numerous risks that have come from the integration of technology in all aspects of business life. These developments have in turn led to the rise of new types of technology-related disputes and new ways to approach and resolve such disputes.  Technology-related disputes are now often high-value and international in nature, and – like technology itself – they permeate all sectors.  They may relate to the licensing of patents and copyrights and/or their infringement, IT systems and infrastructure projects, collaborations and joint venture agreements, outsourcing arrangements, breach of data and/or security, media rights, smart contracts.      

How are technology-related disputes resolved?     

Litigation used to be the dominant mechanism of resolving technology-related disputes, in particular disputes arising in the IT and Telecommunications sectors.  Unlike other types of disputes which have traditionally been resolved through arbitration, IT and Telecommunications disputes were generally resolved through the national courts.  Yet, the role that technology has acquired in international transactions has evolved and technology-related disputes have become more significant in terms of their reach and value.  Meanwhile, arbitration has continued to rise and more and more organisations have become aware of its benefits.     

Applied to the context of technology-related disputes as they have emerged in recent years, the benefits of arbitration are even more compelling.   

Arbitration offers the possibility of having the dispute resolved by arbitrators who understand the technology at stake and who were chosen by the parties.  Whilst certain national courts have special judges for technical disputes (like the English courts do), this is not the case in all jurisdictions and judges cannot be appointed by the parties which means that the chances of reaching unpredictable decisions are higher.    

Arbitration provides a means of resolving disputes privately which is often required to protect the parties’ reputation and any intellectual property rights involved in the dispute. Confidentiality appears to be a growing concern to parties involved in technology-related disputes. The level of confidentiality in arbitration depends on the applicable rules and the applicable law (for the most part to be agreed by the parties), but the option is there if parties require it.  Court proceedings are generally public and information and documents disclosed as part of them are generally accessible by the public.      

Arbitration also tends to be far more flexible than court proceedings.  Parties have the ability to choose the number of arbitrators who will determine the dispute and agree to most of the aspects of the procedure.  Arbitration offers an alternative to the courts which – if from a foreign jurisdiction – may involve further risks in terms of delay, unpredictability and bias.  From that perspective, arbitration sometimes simply consists of a way to avoid foreign courts.     

Parties’ ability to agree on the procedure often translates into further control over time and costs, although arbitral proceedings may be delayed as a result of parties’ tactics or arbitrators’ lack of availability or responsiveness.  Whether arbitration in fact provides an economical and efficient alternative to litigation largely depends on the parties’ willingness to act diligently and the arbitrators themselves.  Generally, the finality of awards reduces the overall length of the proceedings because there is less recourse available against an arbitral award (in comparison to a court judgement).  Even for high value contracts, parties are generally willing to surrender their right to appeal on the merits by agreeing to arbitration, no doubt because of the importance of timely decision and the possibility to select arbitrators which may compensate for any risks of an unfavourable decision.     

Technology-related disputes often need to be resolved particularly fast.  Parties may need a decision before they continue to develop or invest in a particular technology.  Similarly, technology evolves rapidly and disputes over a technology that has become obsolete can result in wasted costs.  As regards to costs in particular, if parties’ exposure is relatively limited, arbitration provides the possibility to parties to agree to use expedited procedure rules or limit the scope of evidence.  How parties will consider time and costs also largely depends on the nature and reputation of the particular national courts which would rule on the merits of a particular dispute if parties did not agree to arbitration.  Litigation in the US for example is usually regarded as very costly.  In this particular context, one of the reasons to agree to arbitration might be to limit costs, in particular lawyers’ fees.  Conversely, litigation in certain civil law jurisdictions can be relatively inexpensive in comparison to arbitration.    

Why is dispute resolution relevant to businesses involved in transactions involving technology?     

Having the right dispute resolution mechanism provided for in an agreement means that if something goes wrong recourses will be available to compel the non-complying party to perform or to seek compensation for any losses suffered.  A dispute resolution clause providing for a method of settling disputes that is efficient, and adapted to the agreement and the parties, will assist with maximising the likelihood of transactions being performed and may increase leverage in settlement discussions (whether these are conducted directly between the parties or with the assistance of a mediator).     

Should legal proceedings become necessary to rescue an investment or enforce a contract, having an appropriate dispute resolution mechanism provided for will also enhance the likelihood of obtaining the right outcome and the ability to enforce any favourable judgment or award.  Arbitration indeed offers the possibility to enforce an arbitral award (judgment) in the 157 States that have ratified the New York Convention 1958.  Given the global nature of technology-related transactions and the likelihood that any debt award may have to be enforced in a jurisdiction other than the place where the arbitration was conducted, the enforceability of arbitral awards constitutes another major benefit of arbitration.    

Ultimately there is no one-size-fits-all dispute resolution mechanism.  Options as to the best method of resolving a potential dispute over a contract depend on many factors, including the technology involved, the location of assets and the amount at stake in the transaction.  Clearly different considerations will be applied, whether the contract relates to a relatively small IT project or a technology in relation to which any negative finding could jeopardise the future of an organisation.   

Claire Morel de Westgaver, Associate at Bryan Cave

Image Credit: NakoPhotography / Shutterstock

Claire Morel de Westgaver
Claire Morel de Westgaver is a dual-qualified admitted to practice law in both England & Wales and the U.S. (New York). She has particular experience of disputes relating to joint ventures, licenses, cross-border sale or service agreements, investments and human rights, as well as disputes comprising multiple sets of proceedings.