Arbitration of Intellectual Property Disputes

The Supreme Court of New South Wales has added weight to the push towards alternative dispute resolution in a recent decision[1] that found that disputes involving questions of ownership of patents and patent applications do not fall exclusively within the province of the Commissioner of Patents or the Federal Court.

The Court also considered a challenge to the arbitrator’s jurisdiction on the basis that certain aspects of the Notice of Dispute were hypothetical and therefore could not give rise to a dispute.

The Commercial Arbitration Act 2010 (NSW) provides that an arbitral tribunal may rule on its own jurisdiction to arbitrate a commercial dispute[2].  If the arbitral tribunal rules that it does have jurisdiction a party may seek a ruling from the Court to decide whether or not the arbitral tribunal does so have jurisdiction[3].  The decision of the Court at first instance is final, (assuming, of course, that the Court is within the limits of its jurisdiction in making the decision)[4].

The arbitration arose from a dispute in relation to a licensing agreement (containing an arbitration clause), which allegedly granted a worldwide licence to use, commercialise, exploit, adapt, modify and improve various technologies including, amongst other things, various patents.

Subsequent to the licensing agreement being executed, a wholly owned subsidiary of the Licensee allegedly filed a patent application which covered alleged modifications of or improvements to the licensed technologies.

Further, it was alleged that the Licensee, by way of settlement of an alleged infringement of the licensed technologies had various patent applications in the United States of America and Australia assigned to it (or a nominated assignee).  Those patent applications were said to have infringed the Licensor’s patents.

The Licensee wrote to the Licensor stating that they were in dispute regarding, amongst other things, what rights the Licensor had in the patents owned by the Licensee’s subsidiary, what rights the Licensor had in the allegedly infringing patent applications in the United States of America and Australia assigned to the Licensee and whether any fees were payable by the Licensee to the Licensor other than the licensing fee paid pursuant to the licensing agreement.

The Licensor replied that, amongst other things, pursuant to the licensing agreement:

  • the patents owned by the Licensee’s subsidiary and the allegedly infringing patent applications in the United States of America and Australia assigned to the Licensee belonged to the Licensor, subject to the alleged operation of a licence back arrangement under the licensing agreement;
  • the Licensee was obliged to assign the allegedly infringing patent applications in the United States of America to the Licensor; and
  • the Licensee was obliged to pay licence fees where it exploited the technologies itself rather than by way of a sub-licence.

The Licensee subsequently delivered an Arbitration Notice of Dispute to the Licensor, which set out various matters in dispute to be referred to arbitration including, amongst other things:

  • Whether the Licensee was required to assign the patents owned by the Licensee’s subsidiary and the allegedly infringing patent applications in the United States of America and Australia to the Licensor;
  • Whether the Licensor has any right, title or interest, whether legal, equitable or otherwise, in the patents owned by the Licensee’s subsidiary and the allegedly infringing patent applications in the United States of America and Australia;
  • How the licensing fees payable pursuant to the licensing agreement were to be calculated.

The Licensor claimed that some or all of the issues raised in the Notice of Dispute concerned intellectual property and therefore could not be settled by arbitration.

The Licensee replied that all the matters contained in the Notice of Dispute related to the licensing agreement and the agreement had not provided any exception from the obligation to refer disputes to arbitration.

An arbitrator was appointed and ruled as a preliminary question that he had jurisdiction to hear the dispute.

The Licensor then commenced proceedings in the Supreme Court of New South Wales requesting the Court to decide the matter of jurisdiction.

The Licensor challenged the arbitrator’s jurisdiction in relation to the disputed ownership of the patents owned by the Licensee’s subsidiary and the allegedly infringing patent applications in the United States of America and Australia assigned to the Licensee, claiming those disputes were not arbitrable, falling exclusively within the province of the Commissioner of Patents and the Federal Court.

The Licensor also challenged the arbitrator’s jurisdiction in relation to the calculation of licensing fees in various hypothetical scenarios, claiming that such scenarios do not give rise to a dispute.

The Licensor submitted that by reason of the need to determine eligibility for patents (for which applications were made by third parties who were not proposed to be included in the arbitration) the proposed arbitration involved more than a private two party contractual dispute.

The Licensor also submitted that the patent related relief sought by the Licensee could only be granted by the Court.

The Licensee submitted in reply that it was not seeking to bind parties other than the Licensor in seeking to establish the presence or absence of any right of the Licensor in and to the patents owned by the Licensee’s subsidiary and the allegedly infringing patent applications in the United States of America and Australia assigned to the Licensee.

The Licensee also submitted that the declaratory relief sought in the arbitration should not be determinative of the arbitrability of the dispute.

Hammerschlag J did not consider that the dispute over ownership of the patents owned by the Licensee’s subsidiary and the allegedly infringing patent applications in the United States of America and Australia assigned to the Licensee contained a sufficient element of legitimate public interest to make its resolution by arbitration inappropriate.

His Honour’s reasoning included, amongst other things:

  • The arbitrator was not required to make a declaration as to who is or is not an eligible person under the Patents Act or to grant a patent;
  • The fact that the Licensee’s subsidiary and the allegedly infringing third party who assigned patent applications in the United States of America and Australia to the Licensee have made patent applications and the fact that the Licensor has challenged the eligibility of those patent applications does not give rise to a public interest excluding resolution by arbitration;
  • The arbitrator’s decision regarding whether the Licensee must or is not obliged to allow the Licensor to own the patents owned by the Licensee’s subsidiary and the allegedly infringing patent applications in the United States of America and Australia assigned to the Licensee could not bind the Commissioner of Patents or the Federal Court in their determination of to whom the patents may be granted.
  • While an arbitrator cannot make a declaration binding third parties or the public at large, there is no reason why an arbitrator cannot otherwise give declaratory relief.

His Honour pointed out that his findings were consistent with the Court’s policy of encouraging resolution of disputes by arbitration.

On the question of whether an arbitrator has jurisdiction to determine a purely hypothetical dispute, the Court held that in this instance, although the issues the Licensee sought to be determined involved an element of futurity, this did not in itself make them incapable of being the subject of determination and therefore the claims fell within the jurisdiction of the arbitrator.

These findings also support the use of ADR to resolve commercial disputes about the potential application of existing contracts to new circumstances which may arise and for which it would be commercially useful to know how a contract would work with certainty.

[1] Larkden Pty Limited v Lloyd Energy Systems Pty Limited [2011] NSWSC 268

[2] Commercial Arbitration Act 2010 (NSW), s16(1)

[3] Commercial Arbitration Act 2010 (NSW), s16(9)

[4] Commercial Arbitration Act 2010 (NSW), s16(10)

Sarah Pike is a lawyer with the firm White SW Computer Law and practices in the areas of Intellectual Property, Commercial and Contract law.  Ms. Pike has worked on a number of litigation matters conducted in the Federal Court in both Victoria and New South Wales, and the Supreme Court of Victoria involving trade practices law, internet law, licensing disputes and intellectual property disputes, including copyright, trade mark and patent infringements.

White SW Computer Law is a boutique law practice with offices in Melbourne and Sydney, which provides legal services to, amongst others, the information technology industry; information technology customers; intellectual property owners; and the telecommunications industry.  It provides commercial legal advice, litigation, mediation and arbitration with an emphasis on intellectual property, information technology and telecommunications issues.

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