International Arbitration – the Best Practice for Resolving Global Licensing Issues
Yesterday we announced that we have agreed to renew our patent license agreement with Samsung Electronics, continuing a long business relationship that goes back more than 20 years. The final terms of the license will be determined in binding arbitration. We announced the arbitration in an SEC filing and a press release – which can be found here and here – but I wanted to take the opportunity to provide a little more color on why we believe this course of action is beneficial for us, and the industry at large.
Our most recent agreement with Samsung was signed in 2014 and expired at the end of 2022. We worked diligently towards closing a renewal prior to expiration, but we did not reach agreement on all terms before the expiry date. Both parties embraced arbitration, which provides a defined path towards resolution of the final terms of our license.
While I always prefer to sign license agreements through amicable, good-faith negotiations, without having to resort to any form of enforcement, arbitration, as a rule, offers a far more preferable option for resolving differences than multi-jurisdictional litigation. I look at binding arbitration as an extended negotiation between two willing parties who are committed to resolving their issues and finalizing a patent license agreement. This is the best practice for resolving issues in relation to fair, reasonable, and non-discriminatory (FRAND) terms in global standard essential patent (SEP) licensing.
Patents are not self-enforcing and litigation is sometimes needed and may even have advantages (in particular where issues relate to infringement and validity of individual patents). I tend to consider litigation as the last resort, and while it is a perfectly normal course of action in any patent licensing business, it is not the most efficient dispute resolution mechanism for a global portfolio licensing dispute that turns on commercial matters. The reason is simple, patents are territorial property rights and, hence, litigation will, as a rule, need to take place in multiple jurisdictions. Pursuing cases country by country is often complex, extremely expensive, inefficient, and time consuming – and takes the focus away from the need of the parties to engage in a constructive dialogue and move closer to resolving their licensing issues.
Unfortunately, this sort of litigation strategy is quite often used as a holdout tactic to avoid any commitment to take a license. Holdout is, in my view, the biggest driver of inefficiencies in our industry. It undermines the cycle of innovation and undermines the ability of innovators, such as InterDigital, to invest in the foundational research that underpins so much of our connected world. It also puts those who are willing licensees at a competitive disadvantage with those who deploy holdout tactics, exhausting their remedies in an effort to refuse to pay for a license.
To borrow a well-known saying; justice delayed is justice denied. So, I am convinced that we must encourage a better, more efficient way to settle disputes over standardized technologies.
While it is by no means a perfect system, arbitration offers a neutral and independent forum to determine the terms of a global license and the opportunity to settle a dispute relatively quickly and cost-efficiently compared with pursuing a broad litigation campaign in many countries, particularly where a professional party, like Samsung, does not ultimately dispute that taking a license is necessary. Arbitration offers a perfect setting for exchanging information, for instance on comparable license agreements, in a manner that preserves third party confidentiality. Arbitration also provides a supranational solution avoiding a race to court and tensions between various national jurisdictions. There is also another benefit which is often overlooked by critics of arbitration – the parties are able to dispose of their dispute and design the process to suit their needs to a degree which is often not possible in litigation.
Finally, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the "New York Convention", one of the key instruments in international arbitration, ensures that arbitration awards are enforceable globally – which makes arbitration the preferable option for global licensing disputes. Samsung’s willingness to arbitrate is something I believe should set a standard for other SEP implementers to follow - it is far better for the industry at large than delaying and dragging out negotiations and holding out on taking a license to patented innovations that are implemented in devices every day. Given the certainty it provides and its many benefits over litigation, it’s difficult to understand why implementers would not want to use arbitration as a mechanism for dispute resolution, unless, of course, they have no intention of entering into an agreement at all.
More should be done to not only promote the use of international arbitration in global SEP disputes but to also penalize implementers who opt not to commit and instead - in the hopes of getting an opportunistic reward - force FRAND negotiations into the kind of litigation that only those companies with the deepest pockets can afford.
I hope that our recent announcement is one that others will note and follow.