The Availability of Preliminary Remedies as A Reason to Arbitrate IP Disputes

By Daniels, James E. | Dispute Resolution Journal, November-January 2006 | Go to article overview

The Availability of Preliminary Remedies as A Reason to Arbitrate IP Disputes


Daniels, James E., Dispute Resolution Journal


IP licensors and licensees tend to shy away from using an arbitration clause because of the erroneous belief that arbitrators cannot issue preliminary remedies to preserve the status quo. This article sets the record straight on the arbitral power to issue preliminary injunctions and other interim remedies.

* A music publisher learns that an "evergreen" song licensed years ago for synchronization in a major studio's feature film is now in a soon to be released DVD version of the film. If the use is not covered by the license agreement, how can the IP owner seek quick relief to prevent the release of the DVD?

* Strapped for cash and hoping to pay current bills with future profits, a fledgling consumer goods company threatens to launch a big ad campaign before paying the ad agency for its creative, copyrighted concepts. The ad agency's agreement with the client is pretty clear that copyright ownership does not pass to the client until it pays the agency's fee. The agreement also contains an arbitration clause. How can the ad agency prevent the client's launch of the ad campaign?

* An IP licensee owes significant royalties and is rumored to be moving its assets out of the country. How can the IP owner/licensor attach the disappearing assets and get a needed audit?

The answer to these three scenarios, as this article will show, can be achieved in private commercial arbitration.

These scenarios demonstrate how urgent the problem can be for owners of copyrighted materials, trademarks and service marks, and other intellectual property (IP). Once IP is used in an unauthorized way and dispersed into the marketplace, the owner has to try to regain control over the property, stop the wrongdoer from continuing the unauthorized use, and obtain adequate monetary compensation for the unauthorized use.

This problem has become especially acute in today's world of digitally formatted IP, where transmission is so easy, fast and untraceable-and second nature to many who think copyrighted works fall into the public domain once downloaded into a computer. For this reason, many IP licenses contain a clause requiring the licensee to acknowledge that a breach of the license is presumptively injurious to the licensor and that the injury is irreparable and can be enjoined without proof of monetary harm. This allows the IP owner to head into court to seek a preliminary injunction against continued unauthorized use of the property.

But what if the parties had negotiated an arbitration clause? The IP owner could seek the same relief from an arbitrator.

However, many IP lawyers have steered their clients away from arbitration out of the belief that preliminary injunctions and similar interim relief that could stop seemingly wrongful IP infringement in its tracks, before the merits of the case can be tried, are not available in arbitration proceedings. But that belief could not be further from the truth. Preliminary remedies are very much a part of arbitration and are included in the arbitrator's arsenal of powers.

The Federal Arbitration Act and State Law Counterparts

One reason why the power of arbitrators to issue interim remedies went largely untapped and underestimated in past decades is that the Federal Arbitration Act (FAA),1 enacted in 1925, and state laws modeled on the 1955 Uniform Arbitration Act (UAA), were silent on the subject of preliminary relief. These landmark statutes were not directed to arbitral powers or to the arbitration process itself,2 but to the issues most central to the basic role of arbitration in dispute resolution, namely, jurisdictional issues, enforceability of the arbitration agreement, and enforceability of the award. The FAA (which applies to all arbitration agreements in contracts "involving commerce") and the UAA-modeled arbitration statutes direct courts to enforce arbitration clauses according to their terms and to stay their own proceedings so that arbitration can proceed without judicial involvement.

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