Arbitrability Of The Patent Validity Disputes

In view of the frequent economic and trade connections involving high technology between nations, arbitration chosen as a means of objective and final adjudication of commercial disputes brings out its advantage to the best in the field of protection of patent rights. Compared with litigation, arbitration brings out its advantages in resolving disputes of patent rights. Arbitration is flexible, quick and less expensive. It can maintain the corporate goodwill between the parties and meet the requirement of confidentiality. Furthermore, the arbitral award is more favorable for overseas recognition and enforcement.With the development of economy and technology, the commercial disputes involving patent rights increase consequently. In this situation, in order to resolve the disputes effectively, many countries extend the arbitration scope and gradually accept the arbitrability of patent disputes by modifying their arbitration law successively. However, on account of public policy and the exclusive state rights, patent validity issues are excluded from arbitration for a long time. Through the discussion on the legislation and practices of the arbitrability of patent validity disputes in the United States and other western countries, this paper illustrates that an arbitrator is required to consider patent invalidity defense to a claim of patent infringement when raised by a party to the arbitration. Where supporting measures are made to safeguard the public policy, arbitration as a means of resolution to patent validity disputes under that circumstance is fairly feasible and preferable.Chapter One is about the nature of patent right and of patent validity disputes. Patent right is universally recognized as a private right worldwide. Patent right is a nature right derived from technology and inventions, not from the state grant. It is in nature a private right with elements of state power because of two reasons. One reason is that state power need to participate in the generation and existence process of a patent right to ensure that the owner could control his own technique during particular period of time and within particular territory. Patent law is the equitable mechanism of consideration for the openness of certain technique. The consideration needs to be supervised by administrative authority, which calls for their involvement in the examination stage. The other is that the patent right, acting as one of the industrial properties, embodies the state's will to control the economic activities of the whole society, which means to limit the patentee's monopoly power on account of the interests of the general public. Therefore, patent right is granted by state power because of its distinct verification and protection method, not that it has anything more than its attribution of private right. The factor of public power in the patent right acts no obstacle to free disposition by the right owner. Since the owner could dispose substantive patent right, it is the owner's right to submit the disputes arising therefrom to a binding arbitration through the agreement, including patent validity disputes.Next the paper discusses about the nature of declaration procedure of patent invalidity in China. The goal is to make clear that patent validity disputes is not administrative dispute which is exclusively handled by administrative organs, and it is civil matters which can be reconciled by the parties. The dispute resolution procedure by administrative authority is civil proceeding, not specific administrative act in the sense of administrative law. The Patent Reexamination Board, acting as the judge of patent validity disputes, could be replaced by the qualified arbitral tribunal.Chapter Two discusses about the feasibility and superiority to take arbitration as the resolution to patent validity disputes. Arbitration of patent validity issue is an exercise of a contractual waiver of legal rights, and it is an economic choice made by rational parties. The new trend indicates that the impact of public policy on the issue of arbitrability has been weakened, and the issue of public policy gradually gets detached from arbitrability. Furthermore, arbitrability of patent validity disputes does not necessarily encroach on public interests as long as combined with reasonable legal systems. Moreover, patent arbitration has its own advantage such as efficiency, expertness and confidentiality, and it causes least damage to the prospective long-term cooperative relationship between the parties.Chapter Three discusses about the legislation and practice on the arbitration of patent validity disputes of foreign countries. First the arbitration system of patent validity disputes in the United States is discussed. Centered on the enactment of 35 U.S.C.A.§294 of Voluntary arbitration, complete measures are made in the United States to safeguard the public policy of patent disputes. The statute stipulates that an arbitrator is required to consider patent invalidity defense to a claim of patent infringement when raised by a party to the arbitration; when an award is made by an arbitrator, the patentee, his assignee or licensee shall give notice thereof in writing to the Director. The award shall be unenforceable until the notice required is received by the Director. The parties to an arbitration may agree that in the event a patent which is the subject matter of an award is subsequently determined to be invalid or unenforceable in a judgment rendered by a court of competent jurisdiction from which no appeal can or has been taken, such award may be modified by any court of competent jurisdiction upon application by any party to the arbitration.The US case analysis concludes that the arbitral tribunal could rule on a defense of patent invalidity. An evaluation of the validity or "true" value of the patent would be only an element of a defense to the contract action. If the validity of the patent right is raised as a defense, the significance of the validity issue for the arbitrator lies only as a factor in determining who holds which right under the contract. Therefore, there is no legal obstacle that bars an arbitral tribunal, thus empowered by the parties, to rule, as a preliminary matter, on the material validity of a patent.Next the paper concentrates on the comparative study on arbitrability of patent validity disputes worldwide. The broad analysis of the legislation and practices of ICC arbitral tribunal, France, Switzerland, Canada, England, Belgium and Germany indicates that most countries are inclined to recognize the arbitrability of patent validity disputes between parties. However, restriction still exists, to take France as an example, the February 2008 Paris Court of Appeal decision addressed only whether the arbitral tribunal could rule on a defense of patent invalidity, not whether the tribunal had the authority to decide claims seeking an affirmative declaration that a patent is valid or invalid.In Chapter Four some legislative proposals are made based on current situation of arbitrability of patent validity disputes. In China, if the issue of patent validity is raised as a sole claim to be arbitrated, the arbitral tribunal should deny jurisdiction to avoid conflicts with public tribunals. The arbitral tribunal could only rule on the patent validity issue in a particular situation: Where a contract involving a patent or any right under a patent may contain a provision requiring arbitration of any dispute relating to patent validity or infringement arising under the contract, or in the absence of such a provision, the parties to an existing patent infringement dispute may agree in writing to settle by arbitration the patent validity issue arising therefrom, the patent invalidity defense is raised by the accused infringer or breaching party in arbitration proceeding, an arbitrator may consider such defense.In terms of the conflicts between public power and private power, the function of public scrutiny into patent rights shall remains intact in the administrative organs. An award by an arbitrator shall be final and binding between the parties to the arbitration but shall have no force or effect on any other person. The award which affirms the patent's validity is duly enforceable. Concerning enforceability of the award that invalidates a patent, jurisdiction shall be conferred to the Patent Reexamination Board to initiate the declaration procedure of patent invalidity. The award of patent invalidity could serve as the basis for the Patent Reexamination Board to make the invalidation and publication thereof. However, the award of patent invalidation made by a foreign arbitral tribunal might be recognized and enforced under considerations of international comity.