Practical Aspects of IP Arbitration: A China/European Union Perspective

1. Practical Aspects of IP Arbitration:A China/European Union Perspective Jean-Frederic Gaultier Ling Ho Miquel Montana Thorsten Vormann 14 September 2009

2. 1. What means could it use, if any, to compel the reluctant party to arbitrate?

3. Q.1 • What means could it use, if any, to compel the reluctant party to arbitrate? • Under the ICC Rules of Arbitration, once a Request for Arbitration is received by the Secretariat of the Court, the arbitral proceedings are deemed to have commenced. • The Chinese company does not need the other party’s consent to start the arbitration process.

4. SPAIN • Q.1 • What means could it use, if any, to compel the reluctant party to arbitrate? • The Chinese company would be able to commence arbitration proceedings as long as the arbitration compromise is valid. • If the Spanish company would not designate its arbitrator within 30 days of the requirement from the Chinese company, this would be entitled to ask a Court to appoint the arbitrator.

5. FRANCE • Q.1 • What means could it use, if any, to compel the reluctant party to arbitrate? • Unless the arbitration clause is obviously null, there is no need of the other party’s consent for the arbitration to proceed • Arbitrators can be appointed by ICC or French courts if a party fails to do so • Fees can be paid by one party

6. GERMANY • Q.1 • What means could it use, if any, to compel the reluctant party to arbitrate? • Unless the arbitration clause is obviously null, there is no need of the other party’s consent for the arbitration to proceed • Arbitrators can be appointed by ICC (or, in ad hoc proceedings, German courts) if a party fails to do so

7. CHINA • Q.1 • What means could it use, if any, to compel the reluctant party to arbitrate? • Subject to the validity of the arbitration agreement, the Chinese courts would recognize and respect the parties’ agreement to resolve the relevant dispute by arbitration. • Validity of an arbitration clause is determined in accordance with the governing law of the arbitration clause. • Validity of arbitration agreement is dependent on: • Prohibition on ad hoc arbitration (not administered by an arbitration institution). • Prohibition on choice of arbitration and litigation. • Stipulation of arbitration commission. → Important to give due consideration to the language of arbitration clauses.

8. CHINA • Q.1 • What means could it use, if any, to compel the reluctant party to arbitrate? • Under the PRC Arbitration Law, if the parties fail to reach agreement on the selection of arbitrators, the arbitrators should be appointed by the chairman of the arbitration commission.

9. 2. Can the arbitral tribunal issue a decision by default?

10. SPAIN, FRANCE, GERMANY • Q.2 • Can the arbitral tribunal issue a decision by default? • Pursuant to art. 6.3 of the ICC Rules, the arbitration shall proceed notwithstanding any failure or refusal of any party to take part in the arbitration. • The arbitral tribunal may render an award by default against the other party.

11. CHINA • Q.2 • Can the arbitral tribunal issue a decision by default? • The PRC Arbitration Law confirms that an arbitral tribunal can issue a decision by default if the respondent fails to attend the hearing after due service of process. In principle, therefore, a decision by default should be enforceable in China.

12. 3. Would the arbitral tribunal have competence to make a decision on:

13. SPAIN, FRANCE AND CHINA • Q.3 • Would the arbitral tribunal have competence to make a decision on: • The validity of the license agreements Yes. • Claims based on infringement of competition/antitrust law? Yes, although the decision would only be binding on the parties. • The validity of the patents? Yes, although the decision would only be binding on the parties. • The right to obtain a trademark registration? → Yes, in relation to so-called “relative” nullity grounds (e.g. risk of confusion or association with respect to a previous trademark). → No, in relation to so called “absolute” nullity grounds (e.g. Lack of distinctiveness). • Patent and trademark infringement? Yes.

14. GERMANY • Q.3 • Would the arbitral tribunal have competence to make a decision on: • The validity of the license agreements Yes • Claims based on infringement of competition/antitrust law? Yes, although the decision would only be binding on the parties. Preliminary ruling proceedings before ECJ require assistance of state courts. • The validity of the patents? No, exclusive jurisdiction of patent courts. Same is true for utility models. • The right to obtain a trademark registration? → Yes, in relation to so-called “relative” nullity grounds. → No, in relation to so called “absolute” nullity grounds. • Patent infringement? Yes, but invalidity of patent not a possible defence. If the court wants to reject claim due to invalidity, it has to stay proceedings. Court could state invalidity of utility model with binding effect for the parties (not examined right). • Trademark infringement? Yes, even on defence of invalidity if counterclaim is based on relative grounds or non-use.

15. 4. Would a non-registered patent/ trademark licence agreement entitle the licensee to assert claims against third parties?

16. FRANCE • Q.4 • Would a non-registered patent/ trademark licence agreement entitle the licensee to assert claims against third parties? • Yes if the licence is exclusive. • No if the licence is non-exclusive.

17. GERMANY • Q.4 • Would a non-registered patent/ trademark licence agreement entitle the licensee to assert claims against third parties? • Same as France. If it is a non-exclusive license, the IP owner would have to assign its rights under the standing to sue doctrine.

18. SPAIN • Q.4 • Would a non-registered patent/ trademark licence agreement entitle the licensee to assert claims against third parties? • In principle not, unless the IPR owner were able to show that the alleged infringer was aware of the licence agreement.

19. CHINA • Q.4 • Would a non-registered patent/ trademark licence agreement entitle the licensee to assert claims against third parties? • Under PRC Trade Mark and Patent Laws The registered owner or any interested party • Under SPC Judicial Interpretations “interested party” includes; → Exclusive licensee may file a suit jointly with the registrant or alone when the registrant does not do so → Sole licensee may bring suit → Licensee may institute legal proceedings with express authorisation of the registrant

20. 5. Could the Chinese company raise the compulsory license defence?

21. SPAIN, FRANCE, GERMANY • Q.5 • Could the Chinese company raise the compulsory license defence? • Requirements of anti trust compulsory license • If refusal constitutes an abuse of a dominant position according to Community law (Art. 82 EC). • Three requirements: • the undertaking which requested the license must intend to offer new products or services for which there is a potential consumer demand; • the refusal cannot be justified by objective considerations, and • the refusal is such as to reserve to the undertaking the relevant market, by eliminating all competition on that market. • ECJ, IMS Health (C-418/01). • The European Commission and some national courts remain reluctant to fix the price of the license

22. GERMANY • Q.5 • Could the Chinese company raise the compulsory license defence? • “Dolo agit” defence • Admissible against damage and prohibitory claims • Defence is founded if the licensee has submitted an offer which the patent owner has refused and which fulfills the following requirements: • The offer is not only submitted on condition that the court approves an infringement of the patent; • on such terms that the patent owner cannot refuse without violating his obligations under anti trust law; and • the licensee must treat the IP owner as if the license agreement had already been concluded, in particular: • frequently report on degree of utilization, turnover and output figures; • pay or deposit reasonable consideration for the use of the patent • German Federal Supreme Court (BGH), judgment of 6 May 2009, KZR 29/06 – “Orange-Book-Standard”

23. 6. Would the Chinese company be able to have recourse to national courts to obtain evidence?

24. FRANCE • Q.6 • Would the Chinese company be able to have recourse to national courts to obtain evidence? • Yes: • prior to the commencement of the arbitration proceedings: possibility to obtain conservatory measures to preserve evidence. • after the commencement of the arbitration proceedings: only in case of urgency. • French courts may order collection of evidence on an ex parte basis (“saisie-contrefaçon”) subject only to proving it owns a trademark or patent or an application therefore enforceable in France.

25. GERMANY • Q.6 • Would the Chinese company be able to have recourse to national courts to obtain evidence? • Yes: • The arbitrators or either party would be able to ask assistance from a German court if the arbitral tribunal itself is not able to take the requested measure. • The “assistance” may be, for example: • Order witnesses or experts to appear; • order the production of documents from a non-cooperative third party; and/or • administer oaths or affirmations in lieu of an oath. • Chinese company could face inspection of premises but unlike French “saisie-contrefaçon” not only subject to have an IP right registered but also to have shown a certain likelihood of infringement.

26. SPAIN • Q.6 • Would the Chinese company be able to have recourse to national courts to obtain evidence? • Yes: • The arbitrators or either party would be able to ask assistance from a Spanish court. • The “assistance” may be: → Hearing the evidence (e.g. witnesses, experts, etc) before the Spanish court; or → Orders so that the evidence may be heard before the arbitrators.

27. CHINA • Q.6 • Would the Chinese company be able to have recourse to national courts to obtain evidence? • Domestic arbitration. • CIETAC or other local arbitration commissions in China. • Evidence and asset preservation orders can be obtained in aid of arbitration. • Foreign arbitration. → No available interlocutory relief in aid of arbitration. • Evidence preservation orders. → Application made through the arbitral tribunal. → Notarisation and legalisation formalities. → Time limit for issuing order. → Service of order. → Disclosure of information.

28. 7. Would the national courts have competence to order provisional measures to guarantee the relief sought in the arbitration proceeding?

29. ICC • Q.7 • Would the national courts have competence to order provisional measures to guarantee the relief sought in the arbitration proceeding? • Under the ICC Rules, the arbitral tribunal may order any interim or conservatory measures it deems appropriate. However, the ICC Rules expressly provide for the possibility for the parties also to apply to national courts: • Before the file is transmitted to the arbitral tribunal. • After the file is transmitted to the arbitral tribunal, « in appropriate circumstances ».

30. CHINA • Q.7 • Would the national courts have competence to order provisional measures to guarantee the relief sought in the arbitration proceeding? • Yes, the Chinese company would be able to request provisional measures: • Before the arbitration tribunal. • Before the Chinese court. • No interim injunction relief available in aid of arbitration. • Asset and evidence preservation available in aid of domestic arbitration.

31. GERMANY • Q.7 • Would the national courts have competence to order provisional measures to guarantee the relief sought in the arbitration proceeding? • German courts grant provisional measures in case of urgency regardless of whether or not the arbitral tribunal is constituted. • Could be ordered: • seizure of assets to secure a potential future monetary judgment; • preliminary injunction to safeguard other rights or provisionally regulate a legal relationship.

32. FRANCE • Q.7 • Would the national courts have competence to order provisional measures to guarantee the relief sought in the arbitration proceeding? • French courts have always considered that they can grant provisional measures in case of urgency, regardless of whether or not the arbitral tribunal is constituted. • Could be ordered: seizure of assets, preliminary injunction, and potentially an account on damages

33. SPAIN • Q.7 • Would the national courts have competence to order provisional measures to guarantee the relief sought in the arbitration proceeding? • In Spain, the parties would be able to request provisional measures: • Before the arbitration tribunal. • Before the Spanish court.

34. 8. Should the Chinese company appear before the national courts to resist the patent infringement claims?

35. SPAIN • Q.8 • Should the Chinese company appear before the national courts to resist the patent infringement claims? • In Spain, if the Chinese company were to appear before the National Court and do any act other than contesting the jurisdiction of the National Court, the latter would consider that the Chinese company has tacitly accepted jurisdiction.

36. GERMANY AND FRANCE • Q.8 • Should the Chinese company appear before the national courts to resist the patent infringement claims? • In Germany and France, the Chinese company may well appear in court and plead as long as it contested the jurisdiction of the court beforehand.

37. CHINA • Q.8 • Should the Chinese company appear before the national courts to resist the patent infringement claims? • Challenge jurisdiction of the Chinese courts. • Question: do the alleged patent infringements fall within the scope of the agreement subject to the arbitration agreement? • If yes, Chinese courts would stay the patent infringement proceedings. • If no, Chinese courts would proceed with the infringement litigation. • Filing of any defence on the merits would amount to a voluntary submission to the jurisdiction of the Chinese Courts but not any other response for the purpose of challenging jurisdiction. The existence of an arbitration agreement would not assist as the Chinese Court would have agreed to resolve the infringement dispute through an alternative forum by voluntarily submitting to the jurisdiction of the Chinese Courts.

38. 9. On what grounds could the losing party try to invalidate the arbitration award?

39. GERMANY • Q.9 • On what grounds could the losing party try to invalidate the arbitration award? • Under German law, the arbitral award could only invalidated on the following grounds: • That the arbitral tribunal has rendered its decision in the absence of an arbitration agreement or on the basis of an arbitration agreement that is not valid or has expired; • That the arbitral tribunal violated the parties’ right of be heard; • That the arbitral tribunal was irregularly composed or violated procedural provisions, but only if this irregularity presumably affected the award; • That the arbitral tribunal exceeded its authority under the terms of the arbitration agreement (NOT: that it ruled ultra/infra petita); • That the subject-matter of the dispute is not arbitrable (rare); • That the enforcement of the award would be contrary to the German ordre public international. → Subject to the above, a decision by default would be considered as enforceable against the German company

40. FRANCE • Q.9 • On what grounds could the losing party try to invalidate the arbitration award? • Under French law, the enforceability of an arbitral award may only be challenged on the following grounds: • That the arbitral tribunal has rendered its decision in the absence of an arbitration agreement or on the basis of an arbitration agreement that is not valid or has expired; • That the arbitral tribunal was irregularly constituted; • That the arbitral tribunal has not rendered its decision in accordance with the mission conferred upon it; • That due process has not been respected; and/or • That the enforcement of the award would be contrary to French public policy as applicable in international matters (ordre public international). → Subject to the above, a decision by default would be considered as enforceable against the French company.

41. SPAIN • Q.9 • On what grounds could the losing party try to invalidate the arbitration award? • Under Spanish law the arbitration award could only be invalidated on the following grounds: • If the arbitration compromise does not exist or it is not valid. • If the appointment of the arbitrator(s) or other acts was not duly notified. • If the arbitrators resolved issues not submitted to their decision. • If the appointment of the arbitrators or the process was not conducted in accordance with the parties’ agreement. • If the arbitrators resolved issues that may not be submitted to arbitration. • If the arbitration award is contrary to ordre publique. • The deadline to seek the anulment of an arbitration award is 2 months.

42. CHINA • Q.9 • On what grounds could the losing party try to invalidate the arbitration award? • Refusal to enforce an arbitral award. • Foreign-related (domestic) award. → Awards issued by Chinese arbitration institution that involve a foreign element. → The parties have neither included an arbitration clause in their contract nor subsequently arrived at a written arbitration agreement. → The respondent did not receive notification to appoint an arbitrator or to take part in the arbitration proceedings, or the respondent could not state his opinions due to reasons for which he is not responsible. → The formation of the arbitration tribunal or the arbitration proceedings were not in conformity with the arbitration rules. → The matters decided in the award extend beyond the scope of the arbitration agreement or are beyond the arbitral authority of the arbitration institution.

43. CHINA • Q.9 • On what grounds could the losing party try to invalidate the arbitration award? → The award is contrary to the social public interest (Article 260 of the CPL). • Foreign award. → Award made in a contracting state of New York Convention. → Based on a ground stipulated under the New York Convention. • Invalidity of arbitration agreement under governing law, or parties in capacity.

44. CHINA • Q.9 • On what grounds could the losing party try to invalidate the arbitration award? • Party against whom award is invoked was not given proper notice of the appointment of the arbitrator or arbitration proceedings or otherwise unable to present his case. • Award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration etc… • If the Chinese Courts finds: • the subject matter of the difference is not capable of settlement by arbitration under Chinese laws; or • the recognition or enforcement of the award would be contrary to the public policy of China. • setting aside an arbitration award.

45. CHINA • Q.9 • On what grounds could the losing party try to invalidate the arbitration award? • Setting aside an arbitral award. • Domestic and Foreign-related awards. → Jurisdiction If a party is not satisfied with the arbitral award, he may seek to set aside such award before an Intermediate People’s Court of the place where the relevant arbitration commission is located. → Limitation period 6 months from receipt of the award. → Grounds - No arbitration agreement. - Matters decided extend beyond the scope of the arbitration agreement or authority of the arbitral authority of the arbitration institution. • Formation of tribunal or proceedings did not conform to the statutory procedures. • Forged evidence.

46. CHINA • Q.9 • On what grounds could the losing party try to invalidate the arbitration award? • Concealment of evidence. • Bribery etc.. • Contrary to social public interest. → Time Line • Decision to set aside within 2 months from when it accepts the application for setting aside. • Approval of the SPC is required for a foreign-related award to be set aside. • SPC must within 2 months from the acceptance by the Intermediate People’s Court of the application, issue its opinion as to whether or not the foreign-related award in question should be set aside. • Foreign Awards → There is no mechanism under the PRC Arbitration Law under which a PRC Court could set aside a foreign arbitral award.

47. 10. Assuming that the Chinese company were to prevail, how would such decision be enforced and how long would it take?

48. FRANCE • Q.10 • Assuming that the Chinese company were to prevail, how would such decision be enforced and how long would it take? • Proceedings to obtain enforcement of the award are as follows: • An ex-parte application is filed with the first instance court – enforcement is granted if the award does not obviously infringe French international public policy • The enforcement order may then be challenged before the Court of appeal within 1 month (+2 if defendant domiciled abroad) - proceedings may take a 18-24 months depending on the workload of the Court. • If nullity action is filed against the arbitration award (in the country where the seat is located) • it would not necessarily suspend the French enforcement proceedings: French courts accept to enforce an award, even if declared void in its country of origin.

49. GERMANY • Q.10 • Assuming that the Chinese company were to prevail, how would such decision be enforced and how long would it take? • Proceedings to obtain a declaration of enforceability of the award is as follows: • An ex-parte application is filed with the first instance court – declaration of enforceability is granted if no grounds for setting the award aside (in invalidity proceedings) exist. • The enforcement order may then be challenged before the Federal Supreme Court within 1 month - proceedings may take a 12 - 24 months depending on the complexity of the case and workload of the Court. • The existence of setting aside proceedings does not affect the admissibility of proceedings to have an award declared enforceable. • Need for a declaration of enforceability: • Not with respect to declaratory awards and awards that ipso jure change the legal situation. • Disputed whether an award that forms the basis for official acts, such as entry in the public register, requires declaration of enforceability.

50. SPAIN • Q.10 • Assuming that the Chinese company were to prevail, how would such decision be enforced and how long would it take? • It would depend on whether or not a nullity action is filed against the arbitration award. • In this case the losing party would be able to request the suspension of the enforcement proceedings, although it would have to deposit a bond to guarantee the amount due plus damages and interests derived from the suspension. • If no nullity action is filed, enforcement proceedings may take 4-8 months depending on the workload of the Court.