ACCORDING TO THE WORLD INTELLECTUAL PROPERTY ORGANIZATION (WIPO), mediation and arbitration are increasingly being used internationally as successful methods of out-of-court dispute resolution.

These routes afford many advantages as opposed to taking disputes through the courts, not least because of cost, with mediation being the cheapest—although it should be noted that arbitration can be more expensive than litigation.

But for trade secrets in particular, mediation and arbitration convey specific benefits, the most crucial, perhaps, being confidentiality.

As Claire Morel de Westgaver—partner at Bryan Cave Leighton Paisner (BCLP) in the firm’s international arbitration group—points out, not only the existence of the dispute may be kept confidential under arbitration, but its subject matter, including the involvement of trade secrets.

“Confidentiality is not automatic. Confidentiality duties may arise from the underlying contract and it’s certainly something that parties can agree on as part of the dispute resolution forum selection,” she explains. “They can do that in different ways by agreeing to certain arbitration rules or by agreeing to a certain seat—the legal place of the arbitration.”

She adds: “If your arbitration is seated in London, the English common law position is that an arbitration agreement gives rise to an implied duty of confidentiality. In some other jurisdictions, confidentiality is embedded in the arbitration statute and in others there is no such implied duty at all.”

Sarah Reynolds, managing partner at Chicago firm Goldman Ismail, agrees. “In addition to the comparatively limited disclosure obligations, arbitrations pose less risk that what is turned over will be publicly disclosed.

“The parties in arbitrations can agree to stronger protections for sensitive information, and because arbitration hearings are not open to the public, parties do not need to worry about a media presence or outsiders listening to proceedings.”

DECISION-MAKING CONTROL

Arbitration also offers the parties the flexibility to influence the choice of the decision maker—a sole arbitrator or sometimes three arbitrators on a panel. That can be a distinct benefit in trade secrets disputes.

As Reynolds points out, this advantage is particularly useful in the technology space, since trade secrets disputes often involve highly technical concepts.

Serving as arbitrator and as counsel representing technology and pharmaceutical companies, Reynolds handles often-complex commercial supply agreements and IP-licensing and technology-development agreements. She says trade secrets-related claims feature prominently in these technology-contract disputes, especially claims involving collaborative agreements for the parties’ joint enterprises.

“Rather than being in front of a generalist judge, clients may be more comfortable handing over decision-making control to an arbitrator who specialises in the industry or has expertise in the underlying technology,” she says, adding this can streamline the dispute-resolution process.

“Counsel can assume a baseline understanding of the technology, allowing them to address the merits of the claims more efficiently. In highly technical disputes, clients frequently prioritise arbitrator candidates with relevant technical expertise over other types of expertise, including legal expertise.”

Morel de Westgaver, who also practises as counsel and arbitrator in the technology and pharma spaces, adds: “The ability to have a say in who the [decision-maker] will be—even if it’s just one out of three arbitrators—carries significant weight for clients and arbitration users generally. Particularly when the subject matter is highly technical and a good understanding of the industry is required.”

She continues: “It makes litigants more engaged and helps with trust in the process. Clients take comfort in knowing that at least one person on the tribunal will ensure that all the points are understood and considered by the arbitrators.

“It also makes a difference for counsel, for the purpose of presentation of evidence and technical arguments to the tribunal as well as advising clients on options, settlement strategy, and so on.”

Other advantages, she adds, are neutrality and enforceability. In a globalised commercial world, disputes are increasingly cross-border in nature and therefore international arbitration is the obvious choice. Arbitration enables parties to choose a neutral venue as opposed to either of their respective home jurisdictions—where one of the two would inevitably benefit from the ‘home advantage’—or the relevant domestic court may favour one party over the other.

Added to this, it is generally easier to enforce an arbitral award than it is to enforce a judgment, Morel de Westgaver points out. Citing the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, or the New York Convention, which has been ratified by more than 165 jurisdictions in the world, she explains: “That on its own is sometimes the reason parties go to arbitration.”

CHALLENGES WITH TRADE SECRETS DISPUTES

While there are distinct advantages to taking your trade secrets dispute to arbitration, there are nonetheless certain challenges to bear in mind generally in the resolution of trade secret disputes.

The most obvious is keeping a secret secret, while knowing how much confidential information to reveal during a tribunal.

Morel de Westgaver explains. “If the resolution of the dispute requires the disclosure of confidential information, the parties are conscious they both need to disclose some information for the purpose of explaining what their confidential information is and ultimately presenting their case.

“But they’re also aware that to preserve a trade secret, one needs to keep it confidential.” This, she adds, can create situations where special ad hoc procedures need to be put in place so that the trade secret can be disclosed without the risk of it being jeopardised.

“There are often issues in disputes in arbitration about what is truly relevant, what is truly material to the outcome of the claims—and what is not. So the party who is requesting the disclosure needs to establish relevance and materiality, and the party who wants to oppose the disclosure of the trade secret will say, ‘this is not material, the tribunal doesn’t need to see this to resolve the dispute‘.”

At this point, she continues, the tribunal needs to decide whether the information actually amounts to a trade secret and whether it should be disclosed.

“The tribunal might take the position that it can’t actually decide on materiality and relevance without seeing that piece of confidential information. Yet, in arbitration, a party may not submit information to the tribunal that the other side cannot see. Tribunals increasingly appoint third-party confidentiality advisors to assist with the resolution of disclosure controversies.”

Reynolds points out that without certain information, one party can be at a disadvantage.

“It can be difficult to obtain third-party discovery and even extensive party discovery in an arbitration,” she explains. “If there are unknown facts needed to establish or defend against a trade secret claim, a party can be left fighting in the dark.”

That said, such hurdles can be overcome. “Experienced counsel can leverage procedural mechanisms in arbitration to obtain the information their clients need,” she says, adding resolution is much more accessible via arbitration than litigation.

“One of the best aspects of arbitration is that it tends to be more of a white-gloved practice than litigation. Parties are often able to resolve a dispute through arbitration and work together again going forward, sometimes on the same project.

“Disputes between businesses collaborating on a project are common, and arbitration procedures are strategically designed to allow parties to resolve disputes without blowing up an entire effort or deal.

“Some of my favourite arbitration outcomes have involved disputes over technology and pharmaceutical-development agreements where the arbitration helped the parties resolve their differences and come back together to achieve their collective goal.”

IT’S NOT ALL ABOUT TRADE SECRETS

As with any IP dispute, cases often centre on more than one aspect of an IP portfolio, and this is no less relevant to trade secrets.

Ignacio de Castro, director of IP disputes and external relations at the WIPO Arbitration and Mediation Center, explains how disputes that the WIPO Center administers are never solely concerned with trade secrets.

“The reason we don’t categorise cases as trade secrets is that you cannot register trade secrets, whereas you can register patents or trademarks,” he explains.

He points to the examples of fair, reasonable and non-discriminatory licensing (FRAND) disputes, which relate to standard essential patents (SEPs) and often involve commercially sensitive information such as comparable licences.

“In the case of franchising disputes, which relate mostly to trademarks, you may also have trade secrets because you may have some know-how,” he adds.

Another interesting aspect of trade secrets disputes is that they may not have started out as such, points out Morel de Westgaver. Rather, the issue arises as part of the dispute.

“In my experience, those disputes don’t necessarily arise from trade secret transactions, they can arise as soon as there’s a transfer of confidential information from one party to another.”

By way of example, she cites a case she worked on regarding a breach of a non-disclosure agreement (NDA). “There was no trade secret mentioned as such, just that it was an NDA that concerned some technology.”

She explains that before the licence was granted, the potential licensor had transferred some confidential information. The negotiations did not lead to a licence and the potential licensee used that confidential information for a purpose other than the purpose for which it was disclosed, namely the negotiation of the potential licences.

“The parties may not realise that the transaction they are entering into might give rise to a trade secret dispute,” she continues. “But it can just happen, given the circumstances, and given the type of confidential information that’s being shared as part of a contract and the context in which it is shared.

“It could be a contract that’s not about trade secrets or IP. It could be a joint venture contract where lots of confidential information is shared for the purpose of the joint venture, but one of the joint venture partners goes ahead and uses that for another purpose.”

ARBITRATION V MEDIATION

While arbitration is deemed preferable to litigation for trade secrets cases given its confidential nature, mediation is considered even more favourable, and is positively encouraged by the WIPO Arbitration and Mediation Center.

In fact, the Center—one of several mediation providers around the world—has seen a sharp spike in the trend towards mediation as a favoured method of dispute resolution.

So far this year (2022) approximately 25% of its IP cases went to arbitration, and 75% to mediation.

The Center is also witnessing a marked increase in the number of disputes generally, with an estimated 70% increase this year compared with last year. The number of disputes dealt with by the Center has already exceeded 400 this year.

Arbitration and mediation are two very different procedures, explains de Castro, and they serve different purposes depending on the type of dispute.

“For instance, FRAND disputes tend to go to mediation because the parties are trying to negotiate a licence,” explains de Castro, who adds that the Center sees trade secrets issues regularly in this area.

Another difference is that arbitration needs the agreement of both parties to decide that, rather than going to court, they move their case to arbitration, adds de Castro.

He goes on to say since the result of an arbitration is final and binding, parties are sometimes hesitant to take this route.

A big advantage in mediation, says de Castro, is that it is ex parte. Once appointed, the mediator normally meets with both parties in a plenary meeting, but he or she can also meet separately with each of the parties in what is called a caucus meeting.

“So that is very advantageous,” he says. “In those separate meetings between the mediator and one party only—for instance in a FRAND case—the licensor will be able to disclose some very confidential information, say a comparable licence, only to the mediator. He or she doesn’t share that sensitive commercial information to the other party.”

One party has contact ex parte with a mediator, not with the other party, he continues. “That’s something quite unique to mediation—you cannot do that in arbitration [where] everything that the parties do is inter partes, so the arbitrator always has to be in contact with both parties.

“However, in arbitration a party can request the arbitral tribunal to restrict access to its trade secrets through protective orders.”

Finally, mediation is much less expensive than arbitration, de Castro points out. In mediation, the average cost could be anything between €4,000 and €40,000, and most of these costs relate to the mediator's fee.

Arbitration, meanwhile, typically costs between €20,000 and €300,000 or more. “Of course, if you have three arbitrators, the cost is going to be much higher than if you just have one,” he adds.

In comparison, in the US, Reynolds explains in traditional litigation parties can elect mediation or a court can order the parties to go through a process (though it cannot order the parties to reach an agreement).

“In arbitration, nobody can order mediation,” she explains, “but the parties can and frequently do.”

In fact, they are often encouraged to do so, and engage in the process before filing an arbitration demand, during the arbitration process, and even post final evidentiary hearing.

“In most cases it makes sense to try mediation along with arbitration because settlements are often a more efficient path to resolution,” she continues.

“And even where ultimately unsuccessful, the process of mediation can often have benefits in terms of reality testing for the parties, clarifying claims and defences and forcing parties to better understand the interests underlying [their] positions.”

Finally, Reynolds explains that in some instances, the arbitrator can serve in a dual role of acting as decision-maker and mediator.

“I, however, generally advise clients to select an alternative neutral to serve as mediator. Parties tend to be more frank when the ultimate decision-maker isn’t involved.”