The Case for Arbitrating Intellectual Property Licensing Disputes

By Sayler, Richard H. | Dispute Resolution Journal, February-April 2005 | Go to article overview

The Case for Arbitrating Intellectual Property Licensing Disputes


Sayler, Richard H., Dispute Resolution Journal


Intellectual property, particularly the field of patent licensing, is rife with the potential for disputes. Litigation in this area has led to some of the most intractable and expensive court cases, some of which have lasted for 10 years or more. It is difficult to see any advantage to litigating these disputes. Instead, the author urges patent owners to seek faster and more economical means of enforcing their patent licenses. An experienced IP practitioner, he argues that arbitration is ideal, since it offers the parties a private process, a quicker and less costly resolution, and the ability to select experienced experts as arbitrators to resolve these disputes.

The author is with Jones Day in Cleveland. The views expressed here are the author's and do not reflect the views of Jones Day, its clients, or any other person or entity.

This article discusses some partial solutions to consider when confronting the dilemma of enforcing patents and patent licenses in a timely and affordable manner. Unfortunately, one cannot be seriously engaged in licensing intellectual property (either as a licensing specialist or licensing professional) without becoming involved in litigation. Whether your organization owns a large portfolio of IP or a modest one, it will inevitably be confronted by another company that will challenge your organization's rights in a patent or license, possibly due to the belief that your company is not prepared to enforce its contractual rights, or is too small and insignificant to take on a bigger and more powerful challenger. Another rationale behind some companies' decision to litigate is the belief that the opposing company's infringement always trumps their own.

In my practice as a litigator in trials and appeals of IP matters, I have too often seen business executives with grand titles and egos blithely rely on such flimsy reasons in deciding to commit significant amounts of corporate dollars to long-lived IP litigation. Experience shows that it is simply unrealistic to expect decisions about IP-whether about licensing, cross-licensing, litigation or settlement-to be made solely on the basis of dispassionate, rational, economic analysis. So while you can be reasonably sure that the contract you enter into to buy a refrigerator at your local "big box" store will not end up in court, the same cannot be said about a contract to license IP.

Many patent licensing disputes over the last few years seem to involve licenses that cover substantially less than the whole term of the patent. These licenses may last for five or 10 years, and have built-in "trigger points" that call for earlier review of the parties' relationship. This has led to increasing amounts of litigation. Indeed, litigation over the terms of IP licenses may come from unexpected quarters. Consider this "ripped from the headlines la "Law & Order")" example.

A licensing professional for a company that designs and sells software to guard against personal computer (PC) viruses is asked to solve a problem. The problem is customers who share their evaluations of the company's software with each other and the PC trade press. The licensing professional's boss says that these bad evaluations are always out of date because they deal with problems that the company has already solved. The licensing professional says he can fix the problem by adding a provision in the company's license agreements prohibiting users of the licensed software from discussing its merits in any forum through which their views could be communicated to the public at large or any other third party. The company goes ahead with this proposed solution. Not surprisingly, the company is later served with legal process by the State Attorney General indicating his intention to ask a court to declare this contract provision void as against public policy because it violates the First Amendment.

It sounds silly for a company to solve its "unfair criticism" problem by prohibiting criticism as a matter of contract.

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