Worldwide Forum on the Arbitration of Intellectual Property Disputes

March 3 - 4, 1994, Geneva, Switzerland

I. Overview

Absent contract language to the contrary, all intellectual property issues appear to be the proper subject of binding arbitration in the United States.

a. Patent Issues

The United States Congress has expressly provided for the voluntary, binding arbitration of patent validity, enforceability and infringement issues (35 U.S.C. § 294).

Congress has also expressly provided for the voluntary, binding arbitration of "any aspect" of patent interference disputes (35 U.S.C. § 135(d)).

Thus, virtually all issues concerning United States patents are properly subject to binding arbitration in the United States, absent limiting language in an applicable contract or statute.

b. Copyright Issues

In the United States, there is no statutory authority for binding arbitration of copyright issues. United States courts have held that federal law does not prohibit binding arbitration of copyright validity or infringement where such issues arise out of a contract dispute. It is likely that United States courts will also hold that such issues are properly the subject of binding arbitration in the absence of an underlying contract dispute.

c. Trademark Issues

Like copyrights, there is no federal statutory authority in the United States for binding arbitration of trademark issues. Nor are we aware of any statutory authority in any of the 50 states.

Binding arbitration of trademark validity and infringement issues is likely to be held by federal courts to be proper, notwithstanding outdated opinions which hold otherwise.

d. Trade Secret Misappropriation

There is no federal statutory authority for binding arbitration of trade secret misappropriation issues. It appears that there is no such statutory authority in all of the 50 states. However, notwithstanding some older authority to the contrary, with the lowering of public policy barriers, there should be no compelling reason to foreclose binding arbitration of such issues.

e. Federal Antitrust and Securities Laws

Judicial decisions relating to antitrust issues and securities law issues favor the arbitrability of intellectual property issues. The United States Supreme Court has held that disputes regarding federal antitrust laws and securities laws are arbitrable. Lower courts have followed and extrapolated from the Supreme Court rulings.

II. Discussion

a. Patent Issues

1. Patent Validity, Enforceability and Infringement

Until 1983, United States courts generally refused to order binding arbitration of issues as to patent validity and enforceability. Such patent law issues were said to be "inappropriate for arbitration proceedings and should be decided by a court of law, given the great public interest in challenging invalid patents." Beckman Instruments, Inc. v. Technical Develop. Corp., 433 F.2d 55, 63 (7 Cir. 1970) (1). However, with the enactment of 35 U.S.C. § 294 (effective February 27, 1983), (2) the arbitrability of patent disputes under U.S. law is no longer in question on this ground. Voluntary, binding arbitration of patent validity, enforceability and infringement is expressly provided for in Section 294.

Similarly, with the addition of Subsection (d) to 35 U.S.C. § 135 in 1984, (3) parties to a patent interference may also "determine such contest or any aspect thereof by [binding] arbitration." Section 135(d) reserves to the Commissioner of Patents and Trademarks the right to determine patentability.

Section 294(b) provides inter alia that all patent defenses under 35 U.S.C. § 282 "shall be considered by the arbitrator if raised by any party to the proceeding."(4) Express inclusion of these defenses in Section 294 has foreclosed any serious question as to the scope of patent issues properly subject to binding arbitration. In short, virtually every defense to a claim under a United States patent may be the subject of binding arbitration under Section 294.

These defenses include issues as to title, as well as validity and enforceability - including unenforceability issues based on patent misuse or other antitrust grounds. As for title, in Scan-Graphics, Inc. v. Photomatrix Corporation, 1992 WL 2231 at *1 (E.D.Pa. January 2, 1992), the District Court noted, without reservation or other comment, that it was "likely that the California arbitrators, while addressing the validity and scope of the 1987 Agreement, will also address whether there has been a transfer of rights to one or more claims of the patent by virtue of the agreement."

Interestingly, Section 294 was invoked in Warner & Swasey Co. v. Salvagnini Transferica, 633 F.Supp. 1209 (W.D.N.Y. 1986), affirmed 806 F.2d 1045 (Fed.Cir. 1986). An exclusive licensing agreement provided that any action for breach of contract would be brought in Italy. The District Court cited Section 294 in rejecting plaintiff’s contention that patent infringement claims may be heard only by United States district courts. 633 F.Supp. at 1212.

The Court of Appeals for the Federal Circuit appears to favor arbitration, in general. In In re Medical Engineering Corporation, 976 F.2d 746 (Fed.Cir. 1992) (reported in full at 1992 WL 217763), the Court of Appeals upheld a district court order staying a patent infringement action in favor of arbitration. Earlier in Rhone-Poulenc Specialties Chimiques v. SCM Corp., 769 F.2d 1569 (Fed.Cir. 1985), the Court of Appeals construed an arbitration clause in a patent license agreement to include issues as to the scope of the claims of the licensed patent as well as infringement issues (5).

In Rhone-Poulenc, the Court of Appeals invoked Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614, 626 (1985), to the effect that the "‘intentions [of the parties] are generously construed as to issues of arbitrability.’" 769 F.2d at 1572.

2. Statutory Exceptions

However, the Court of Appeals for the Federal Circuit has refused to permit arbitration to supersede the jurisdiction of the United States International Trade Commission (ITC) over intellectual property issues arising in a 19 U.S.C. § 1337(a) proceeding. Farrel Corp. v. U.S. Intern. Trade Com’n, 949 F.2d 1147 (Fed.Cir. 1991). The ITC complaint was based on alleged misappropriation of trade secrets, trademark infringement and false representations as to source. An ITC Administrative Law Judge had terminated the proceeding on the grounds of (1) an arbitration clause (6), (2) a previous ITC decision terminating a proceeding in light of an arbitration agreement, and (3) a federal district court decision that Farrel must pursue its claims before an ICC arbitration panel. 949 F.2d at 1150. The Commission agreed with the ALJ and cited Mitsubishi Motors, supra, 473 U.S. at 628, in support of its view that:

"a party to an international transaction will be required to honor its agreement to arbitrate disputes involving statutory claims under U.S. law when the arbitration agreement reaches the statutory issues and when there are no legal constraints external to the agreement which foreclose arbitration of such claims." 949 F.2d at 1150-51.

The Court of Appeals for the Federal Circuit found such a "legal constraint[ ]...which foreclose[s] arbitration" and reversed on the grounds that (1) the directions of 19 U.S.C. § 1337(b)(1) and (c) are mandatory (i.e., the Commission "shall investigate" and "shall determine" whether or not there is a violation) and (2) the narrow exceptions of Section 337(c) to the statutory mandate do not embrace a private agreement to arbitrate. 949 F.2d at 1150-51, 1152-54. The court noted that Mitsubishi’s reasoning was confined to judicial proceedings, did not extend to administrative proceedings, and thus was consistent with the court of appeals’ ruling. The court invoked Mitsubishi’s statement that not "all controversies implicating statutory rights are suitable for arbitration.... [I]t is the congressional intention expressed in some other statute on which the courts must rely to identify any category of claims as to which agreements to arbitrate will be held unenforceable." 473 U.S. at 627. The court also cited Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 1653 (1991), where an arbitration agreement operated as a waiver of access only to a judicial forum and not an administrative forum.

It thus appears that, notwithstanding an otherwise binding and enforceable agreement to arbitrate, a party to such agreement may attempt to persuade the ITC to investigate and determine whether or not there is a violation of Section 337(a) and, if successful, may abort arbitration.

The Farrel decision is directed to the impact of a prior agreement to arbitrate after an ITC investigation has commenced. Query whether a party who wishes that the otherwise agreed to arbitration go forward may successfully enjoin the potential ITC complainant from requesting that the ITC initiate an investigation. Cf. 949 F.2d 1153, n. 6 ("We do not decide here ... whether the commission may refuse to initiate an investigation on the basis of the existence of a contractual arbitration agreement between the parties.") Also, the Court of Appeals acknowledged the possibility that the Commission can consider remedies ordered by an arbitral tribunal. 949 F.2d at 1154, n. 8.

A similar situation may obtain with the United States Federal Trade Commission (FTC), the domestic analog to the ITC. The FTC is empowered and directed by 15 U.S.C. § 45(a)(2) to prevent the use of "unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce." 15 U.S.C. § 45(b) requires an investigation by the FTC where "the Commission shall have reason to believe" there is a violation or where it "shall appear to the Commission that a proceeding by it ... would be to the interest of the public...." In the event the FTC does initiate an investigation, 15 U.S.C. § 45(a) provides that (1) the FTC shall issue and serve a complaint, and (2) the person charged shall have the right to appear and show cause why an order should not be entered against the person. Thus, once an FTC investigation commences, a party to an arbitration agreement may invoke such an event in line with Farrel to abort the arbitration.

We are unaware of any case like Farrel having arisen in the FTC context. If Farrel were urged in an FTC context, the differences between the sections enabling the FTC (15 U.S.C. § 45) and the ITC (19 U.S.C. § 1337) might afford a persuasive argument that binding arbitration may properly be used to prevent the use of unfair methods of competition over which the FTC would otherwise have jurisdiction.

The net of the foregoing is that an arbitration clause may permit resolution of patent (or other intellectual property) issues by way of binding arbitration in lieu of litigation in a United States court, but not always in lieu of a proceeding before a United States administrative agency, especially the ITC and perhaps the FTC.

3. Patent Interferences

Turning now to patent interferences, 3 Chisum, Patents § 10.09 at 10-219 (1978, revised 1993) expresses doubt as to the value of arbitration of an interference (as provided for in 35 U.S.C. § 135(d)) because the Patent and Trademark Office is not bound as to any issue of patentability. Nevertheless, arbitration of interference issues has been undertaken on more than one occasion - and has been reported in at least one case. In Utter v. Hiraga, 845 F.2d 993 (Fed.Cir. 1988), the parties to an interference entered into an arbitration agreement to:

The arbitrator decided the issue of priority but declined to decide matters of patentability which he submitted to the United States Patent & Trademark Office.

But the express language of Section 135(d) provides only that the Commissioner is not precluded from determining patentability. It does not preclude an arbitrator from making such a determination subject to the Commissioner’s review.

4. Arbitration De Hors Section 294

Arbitration of patent issues may be possible even apart from Section 294. If the arbitration arises out of a contract dispute (e.g., whether or not royalties are due under a patent license agreement), validity may not be in issue and Section 294 may play no role, especially if the contract limits the arbitrator’s powers in this regard. Ballard Medical Products v. Wright, 823 F.2d 527, 531 (Fed.Cir. 1987). In Ballard, the Court of Appeals for the Federal Circuit endorsed the district court’s characterization of the arbitrators’ powers:

Further, if a patent issue is amenable to resolution in a non-federal forum, such as a State court, then it should also be subject to resolution by arbitration wholly apart from Section 294. For example, in a dispute as to whether a State court was the proper forum to decide "rights" between the parties to a patent and how those rights relate to the parties’ financial rights and obligations under a purchase agreement, the Court of Appeals for the Federal Circuit affirmed a district court’s decision to dismiss for lack of subject matter jurisdiction under 28 U.S.C. § 1338(a). Speedco, Inc. v. Estes, 853 F.2d 909, 911, 913-14 (Fed.Cir. 1988). The Court of Appeals found that an evaluation of the validity or "true" value of the patent would be only an element of a defense to the contract action and cited Ballard for its holding that:

However, Additive Controls & Measurements Sys. v. Flowdata, 986 F.2d 476, 479 (Fed.Cir. 1993), held that, in the context of a State law business disparagement claim originally brought in State court, the dispute belonged in federal court because plaintiff’s right to relief necessarily depended on resolution of a substantial question of patent law, viz. the falsity of defendant’s accusations of patent infringement. In Additive Controls, the Court of Appeals for the Federal Circuit distinguished Speedco, Ballard and other opinions on the ground that in those cases plaintiff’s right to relief did not depend upon resolution of a substantial question of patent law.

The net of the Federal Circuit opinions discussed above is that in light of the recent trend encouraging arbitration in fields previously reserved for resolution in the courts, the lack of express pre-emptive language in the statute or legislative history of 35 U.S.C. § 294, and the Supreme Court’s willingness to allow parties to choose the law governing arbitration, and absent contractual or statutory limitations (e.g., Farrel, supra) to the contrary - issues of patent validity, enforceability and infringement may be subject to binding arbitration outside the scope of 35 U.S.C. § 294.

b. Copyright Issues

Although Congress has authorized arbitration for patent disputes, it has not done so for copyright disputes (7). Nevertheless, copyright license agreements may properly provide for binding arbitration of disputes arising out of the agreement. These agreements have been challenged under 28 U.S.C. § 1338(a), which gives federal district courts "original jurisdiction" of actions for copyright infringement as well as for patent infringement. In addition, as was the case in patent disputes before 1983, it has been argued that public policy prohibits the submission of copyright claims to arbitration - or at the least, precludes arbitrators from determining the validity of copyrights. These arguments have generally not been successful.

The Court of Appeals for the Second Circuit made it plain that the claim sent to arbitration was for copyright infringement, in "the circumstances of this case, the arbitrator had jurisdiction to make an award under the Copyright Act," and "the arbitration clause was broad enough to encompass Copyright Act claims which required interpretation of the contract." 684 F.2d at 230-31.

The Court of Appeals held that public policy does not prohibit the submission of copyright infringement claims to arbitration. "The only ‘public interest’ in a copyright claim concerns the monopoly [created by] a valid copyright." 684 F.2d at 231. However, the court did not have to face that issue, because the validity of the copyright was not at issue in the arbitration. (In fact, this issue was decided by a district court.) Without any such public policy concern, (8) the Court of Appeals found no reason to prohibit the arbitration of copyright infringement. Thus, Kamakazi left open the question of whether the validity of a copyright is arbitrable.

The Court of Appeals for the Seventh Circuit rejected this argument where validity is at issue in a contract dispute, noting that "a dispute over the terms of a copyright license is not deemed to arise under the Copyright Act" because it is "too remote from the federal grant (the copyright)." 816 F.2d at 1194. This court also invoked Mitsubishi:

The court stated that because the arbitration of a dispute involving an economic monopoly (i.e., antitrust) was not considered a threat to public policy by the Supreme Court, the arbitration of a dispute involving a considerably less dangerous legal monopoly (i.e., copyright) that could easily be circumvented by the creation of close substitutes presented even less of a threat to public policy. 816 F.2d at 1198-99. Also, the public policy danger was further lessened by the fact that the decisions of arbitrators are binding only on the parties involved and have no value as a precedent (9). 816 F.2d at 1199. Finally, and of special interest, the court noted that the danger of monopoly is "more acutely posed by patents," yet Congress had passed 35 U.S.C. § 294 expressly authorizing the arbitration of patent validity issues (10). Id.

Public policy is not likely to continue as the primary concern in copyright validity arbitration cases. It is more likely that future decisions regarding the arbitrability of copyright validity issues will depend upon the manner in which the courts choose to interpret the arbitration clause. Because federal courts now favor arbitration, they are likely to interpret such agreements benevolently, e.g., Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108 (2 Cir. 1993) (affirming arbitrators’ resolution of an issue as to ownership of copyrights).

c. Trademarks

In contrast to patent rights and copyrights, rights in a trademark in the United States arise primarily under the common law as the result of appropriate use of the mark. Such rights may be augmented by registration pursuant to the Federal Trademark (Lanham) Act of 1946 (15 U.S.C. §§ 1501 et seq.), or by registration pursuant to one or more State trademark acts, or both. We focus here on the views of federal courts (in contrast to State courts) regarding binding arbitration of trademark issues.

It appears that trademark issues are arbitrable, depending upon how generously the courts choose to interpret the arbitration agreement and related statutes. Given the courts’ current attitudes toward arbitration, and assuming a broad arbitration clause in effect at the time of the dispute, trademark claims based on or issues arising out of a license agreement, rather than federal trademark statute, would likely be arbitrable - notwithstanding older authority to the contrary. The same may be concluded with respect to all issues arising in a trademark dispute even without a pre-dispute arbitration provision.

One case in which arbitration was denied is Wyatt Earp Enterprises v. Sackman, Inc., 157 F.Supp. 621 (S.D.N.Y. 1958). In this case, Wyatt Earp claimed trademark infringement after the expiration of the license agreement between the two parties. Reflecting an inhospitable view toward arbitration, the district court interpreted the arbitration clause to apply only to contract disputes arising directly out of the licensing agreement prior to its expiration:

Consequently, the court decided that, because the claim was a tort cause of action rather than a contract dispute, it was not covered under the arbitration agreement.

Three years later, the same district court (but a different judge) distinguished Wyatt Earp. In Saucy Susan Products, Inc. v. Allied Old English, Inc., 200 F.Supp. 724 (S.D.N.Y. 1961), the court ruled that disputes involving trademarks and trade names were arbitrable. Allied had commenced arbitration proceedings against Saucy Susan. Promptly thereafter Saucy Susan commenced an action in the district court against Allied for trademark infringement and unfair competition. Allied moved to stay the district court action and to compel arbitration.

The district court ruled that the trademark and unfair competition issues were subject to an arbitration agreement. The court distinguished Wyatt Earp by noting that, in contrast to Saucy Susan, the Wyatt Earp licensing agreement containing the arbitration clause had expired, and the acts complained of by plaintiff had occurred after the expiration date. The court took into consideration decisions of the United States Court of Appeals for the Second Circuit favoring a more liberal construction of arbitration agreements, and on this basis, was not persuaded by the distinction between tort and contract law expounded in Wyatt Earp. 200 F.Supp. at 727-28. Significantly, the court noted that Saucy Susan did not argue that public policy weighed against arbitrating claims of trademark infringement and unfair competition. At the same time, the district court stated that "it does not appear that an agreement to arbitrate future disputes would thwart Congressional policy." 200 F.Supp. at 728. As a result, the district court decided that the trademark issues were arbitrable under federal law.

In Necchi Sewing Machine Sales Corp. v. Necchi, S.p.A., 369 F.2d 579 (2 Cir. 1966), a dispute between parties to a contract over the arbitrability of claims of unauthorized use of trademark, the Court of Appeals for the Second Circuit found that the issues arose out of or in connection with the agreement between the parties and, as a result, were arbitrable.

Subsequently, in Homewood Industries, Inc. v. Caldwell, 360 F.Supp. 1201 (N.D.Ill. 1973), a district court in Illinois embraced the older view and decided that trademark infringement claims were not arbitrable. Homewood sued Caldwell for trademark infringement, unfair competition and patent infringement, after Homewood had terminated a franchise agreement between the two parties, and Caldwell had continued to promote the trademarked and patented products. Caldwell moved to compel arbitration pursuant to the laws of Illinois under a provision in the franchise agreement. Homewood opposed, contending that the federal courts had original jurisdiction over federal trademark and patent issues.

Thus, ten years before Section 294 became effective, the court held that claims for infringement of a federally registered trademark (as well as patent claims) were not arbitrable because the jurisdiction of the district courts over a cause of action arising under the federal trademark (and patent) laws was exclusive pursuant to 28 U.S.C. § 1338. The Homewood court did recognize, however, that under some circumstances arbitration might be appropriate:

In U.S. Diversified Industries, Inc. v. Barrier Coatings Corporation, Civil No. 83-2124-T (D.Mass. October 18, 1982), an action for breach of contract and trademark infringement, defendant moved to stay proceedings in court pending arbitration. The arbitration clause was broad:

The district court found that the trademark infringement issue was within the scope of the broad arbitration agreement and granted defendant’s motion.

In B.V.D. Licensing Corp. v. Maro Hosiery Corp., 688 F.Supp. 961 (S.D.N.Y. 1988), a trademark owner asserted that its termination of the licensing agreement based on four alleged breaches warranted an action for trademark infringement and unfair competition. The district court, after determining that a valid arbitration agreement existed, found that the termination was within the scope of the agreement’s arbitration clause which stated that "[a]ll controversies arising under or in connection with or relating to any alleged breach of this Agreement shall be settled by arbitration...." 688 F.Supp. at 962.

The foregoing authorities center on the effect of an arbitration clause in a pre-dispute agreement and manifest the need for care in drafting such clauses to effect the parties’ intent. The issue not yet definitively resolved is whether or not a naked claim for trademark infringement under the Lanham Act is properly the subject of binding arbitration. In light of the recent judicial trend, the answer is likely to be in the affirmative.

d. Trade Secret Misappropriation

There is no federal statutory law relating broadly to trade secret misappropriation (or breach of a confidential agreement). When in federal court, such claims are resolved under the common law or statutory law of the relevant State. Some States have enacted a version of the Uniform Trade Secret Act.

Some earlier court decisions held that the binding arbitration of trade secret disputes was precluded because of antitrust concerns. Courts reasoned that trade secrets licensing agreements could result in the creation of illegitimate monopoly power if the agreements were used to control competition while circumventing antitrust law.

Thus, in A.& E. Plastik Pak Co. v. Monsanto Company, 396 F.2d 710 (9 Cir. 1968), the Court of Appeals for the Ninth Circuit held that a trade secrets dispute could not be arbitrated because of antitrust concerns. The court stated that "the existence and extent of technology within the knowledge of Evans which Monsanto can rightfully claim as privately controlled" was not arbitrable because "[p]ublic interest attaches to the ascertainment of the truth as to this issue." 396 F.2d at 716. Given the recent United States Supreme Court decisions endorsing the arbitrability of antitrust disputes, the weight to be accorded this authority is now questionable.

In Sam Reisfeld & Son Import Co. v. S.A. Eteco, 530 F.2d 679 (5 Cir. 1976), the Court of Appeals for the Fifth Circuit focused on antitrust implications and held that tort claims for alleged misuse of confidential customer information were subject to arbitration, because:

The antitrust claims not having arisen from the trade secrets agreement, this case is distinguishable from Plastik. Moreover, this case involved both a foreign corporation and a foreign situs for arbitration, so the Supreme Court’s reasoning in Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974), infra, page 27, influenced the court’s decision.

In Aerojet-General Corp. v. Machine Tool Works, 895 F.2d 736 (Fed.Cir. 1990), in an opinion focussed on the issue of the court’s appellate jurisdiction, the United States Court of Appeals for the Federal Circuit noted without comment that the district court had ordered arbitration of all claims including patent infringement, trade secret misappropriation and false representation.

State court decisions have also upheld the arbitrability of trade secrets disputes. Rather than dealing with the public policy issue, however, these courts have been more concerned with whether the arbitration agreement was meant to cover tort liability. For example, Litchfield Fabrics, Inc. v. Rosewood Fabrics, Inc., 79 App.Div. 910, 438 N.Y.S.2d 239, 239-40 (1st Dept. 1981), held in favor of the arbitrability of a trade secret misappropriation claim:

Another State court has also compelled arbitration of a trade secret misappropriation dispute. Geldermann, Inc. v. Mullins, 171 Ill.App.3d 255, 524 N.E.2d 1212 (1988).

Regardless of the State law controlling a trade secret misappropriation claim, it is becoming less likely that a court in the United States would find that such a dispute was permeated with the same public policy or exclusive jurisdiction issues as patent infringement, copyright infringement or trademark infringement claims. Thus, it is likely that courts in the United States would find that such a claim is eminently well suited to binding arbitration.

e. Federal Antitrust and Securities Laws

The more recent decisions concerning the arbitrability of issues under United States antitrust laws and securities laws are likely to weigh heavily in future decisions in favor of the arbitrability of intellectual property issues. As with intellectual property claims, United States courts once generally held that claims arising under the federal antitrust, securities, and RICO laws were not arbitrable for public policy reasons (12). Recent Supreme Court decisions, however, have rejected public policy as a justification for holding federal antitrust, securities, and RICO claims non-arbitrable (13).

In Mitsubishi, supra, page 6, the Supreme Court held that public policy did not preclude arbitration of a dispute arising under the United States antitrust laws, at least in the international context. The Mitsubishi Court did not address the arbitrability, in the United States, of domestic antitrust claims. This left at least three public policy based issues unresolved, viz.: (1) whether the availability of treble damages in domestic antitrust actions would preclude arbitration; (2) whether upholding pre-dispute agreements to arbitrate domestic disputes would violate public policy; and (3) whether "the pervasive public interest in enforcement of the antitrust laws," relied on by American Safety, 391 F.2d at 827-28 (14), supra, page 27n, and previously uniformly followed by the Courts of Appeals, would continue to preclude arbitration of domestic antitrust claims in general. Each of these questions has been addressed by United States courts.

1. Treble Damages

Mitsubishi ruled that, even with the availability of treble damages, international antitrust claims were arbitrable. The Supreme Court emphasized the compensatory function of treble damages in antitrust cases over the penalizing and deterrent function of such damages. 473 U.S. at 635-37. The Mitsubishi Court concluded that "so long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function." 473 U.S. at 637.

In later decisions, the Supreme Court and other courts have extended the reasoning of Mitsubishi to the domestic context. In McMahon, supra, page 27n, the Supreme Court addressed the arbitrability of a RICO claim, in light of the treble damages available under RICO. The Court found nothing in the RICO statute or legislative history excluding RICO claims from the Federal Arbitration Act (15). 482 U.S. at 238. The Court invoked Mitsubishi and rejected the contention that public policy precluded arbitrating RICO claims. 482 U.S. at 239-41. The Court noted that the RICO treble damages provisions were modeled on the antitrust statutes. 482 U.S. at 240-41. The Court saw no reason to preclude an arbitrator from awarding treble damages, or to allow the treble damages provision of RICO to preclude arbitration of RICO claims.

Treble damages appear to be arbitrable in domestic antitrust arbitrations as well. In Kerr-McGee Refining Corp. v. M/T Triumph, 924 F.2d 467, 470 (2 Cir. 1991), the Court of Appeals for the Second Circuit stated in the context of a RICO arbitration (16), that the arbitrators could treble their award if they found an antitrust violation. Indeed the court went further and stated that in an appropriate case arbitrators could enhance their award by punitive damages. Id.

2. Pre-dispute Agreements to Arbitrate

Prior to Mitsubishi, United States courts had enforced post-dispute agreements to arbitrate antitrust issues. The courts analogized these agreements to settlement agreements, finding they did not violate public policy (17). On the contrary, prior to Mitsubishi, United States courts had often refused to enforce pre-dispute agreements to arbitrate on the ground that they violated public policy (18).

Since Mitsubishi, United States courts have permitted arbitration of similar disputes under pre-dispute agreements. Thus, the Supreme Court has upheld the validity of pre-dispute agreements to arbitrate RICO claims (McMahon, 482 U.S. at 238), securities claims (Rodriguez, 490 U.S. at 483), and Age Discrimination Employment Act (ADEA) claims (Gilmer, 500 U.S. at ___, 111 S.Ct. at 1653). Appellate courts have upheld such agreements involving Employee Retirement Income Security Act (ERISA) claims. Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, 7 F.3d 1110, 1111-12 (3 Cir. 1993); Bird v. Shearson Lehman/American Exp., Inc., 926 F.2d 116, 121 (2 Cir. 1991).

Although the Supreme Court has not yet addressed this issue, district court and appellate court opinions have either upheld, or stated in dicta that they would uphold, pre-dispute agreements to arbitrate domestic antitrust actions. Some of these opinions are discussed in the ensuing section.

3. The Public Interest

In 1968, the Second Circuit in American Safety, 391 F.2d 821, supra, precluded arbitration of domestic antitrust issues. Since Mitsubishi, in 1985, both district and appellate courts in the United States have questioned the continued applicability of the American Safety doctrine with respect to the arbitrability of domestic antitrust disputes.

The courts in GKG Caribe, Inc. v. Nokia-Mobira, Inc., 725 F.Supp. 109, 110-13 (D.P.R. 1989), and Gemco Latinoamerica, Inc. v. Seiko Time Corp., 671 F.Supp. 972, 979 (S.D.N.Y. 1987), rejected the American Safety doctrine and allowed the arbitration of domestic antitrust issues after reviewing the Supreme Court’s decisions in Mitsubishi and McMahon, supra, page 27n. The GKG Caribe court stated that the Supreme Court "if confronted squarely with the issue of its [the American Safety doctrine’s] continued applicability, would most certainly discard said doctrine." 725 F.Supp. at 111. The Gemco opinion is to the same effect. 671 F.Supp. at 979. Other district courts have reached similar conclusions based on similar reasoning. Western Intern. Media Corp. v. Johnson, 754 F.Supp. 871 (S.D.Fla. 1991); Cindy’s Candle Co., Inc. v. WNS, Inc., 714 F.Supp. 973, 978-79 (N.D.Ill. 1989).

Dicta of United States Courts of Appeals are in accord. In Kowalski v. Chicago Tribune Co., 854 F.2d 168, 173 (7 Cir. 1988), the Court of Appeals for the Seventh Circuit stated that "it seems unlikely after McMahon that the principle of Mitsubishi can be confined to international transactions."(19) The Court of Appeals for Eighth Circuit has stated that Mitsubishi and McMahon "may indicate" that antitrust claims can be made the subject of arbitration between agreeing parties. Swensen’s Ice Cream Co. v. Corsair Corp, 942 F.2d 1307, 1310 (8 Cir. 1991). The dissent was more outspoken, stating that McMahon and Mitsubishi, buttressed by Gilmer, 500 U.S. 20, 111 S.Ct. 1647, supra, "dictate" that the antitrust claims of appellees are subject to arbitration. 942 F.2d at 1311.

Each of these opinions acknowledges the arbitrability of pre-dispute agreements to arbitrate, rendering public policy grounds for precluding arbitration of domestic antitrust issues moribund. Accordingly, it is likely that in the future, courts in the United States will find domestic antitrust claims arbitrable (20).

1. Equitable Relief

Judicial opinion has left little room to urge that equitable relief may not be awarded by an arbitrator in the United States, e.g., Gilmer, 111 S.Ct. at 1655, supra.

It is clear that both permanent and interim equitable relief may be awarded in an arbitration concerning United States intellectual property rights. Rule 42 of the AAA Patent Arbitration Rules and Rule 13.1 of CPR Rules for Non-administered Arbitration of Patent and Trade Secret Disputes provide for equitable relief such as specific performance and injunctions. Section 9 of the Federal Arbitration Act (9 U.S.C. § 9) provides for entry of judgment on an arbitrator’s award. Accordingly, it follows that a district court may award permanent injunctive relief, preliminary injunctive relief, interim specific performance and the like, based on an arbitral award in an intellectual property dispute.

At least one United States court has made it plain that language of the kind in the foregoing rules warrants an award of interim equitable relief. In Island Creek Coal Sales v. City of Gainsville, Fla., 729 F.2d 1046, 1049 (6 Cir. 1984), the Court of Appeals for the Sixth Circuit found authority for interim equitable relief in Rule 43 of the AAA Commercial Arbitration Rules which then stated:

The court held that the arbitrator’s interim award of specific performance was not outside the scope of the agreement even though the agreement was silent about equitable relief.

Indeed, in the Saturday Evening Post case, supra, the arbitrators granted injunctive relief and ordered the transfer to Post of copyrights. 816 F.2d at 1194. Also, in the Engis case, supra, page 22n, the district court affirmed an arbitrators’ award ordering defendant to assign patents to plaintiff. 800 F.Supp. at 630-31.

In addition, United States courts may grant interim relief in proceedings ancillary to an arbitration. Noting that "Supreme Court decisions over the course of several years indicate an increasingly favorable judicial attitude toward the arbitration of disputes," the Court of Appeals for the Seventh Circuit, in Merrill Lynch, Pierce, Fenner & Smith v. Salvano, 999 F.2d 211, 214 (7 Cir. 1993), an action for breach of contract and misappropriation of trade secrets, found that:

Although "once assembled, an arbitration panel can enter whatever temporary injunctive relief it deems necessary to maintain the status quo," a district court must be allowed to grant a temporary restraining order when necessary to "preserve the meaningfulness of the arbitration." 999 F.2d at 214-15. The court in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Grall, 836 F.Supp. 428 (W.D.Mich. 1993), also followed this reasoning and granted a preliminary injunction against Merrill Lynch’s former employee, for a maximum of 41 days, pending resolution by the arbitration panel as to whether the preliminary injunction would remain in effect.

In a trademark case, FRA S.p.A. v. SURG-O-FLEX of America, Inc., 415 F.Supp. 418 (S.D.N.Y. 1975), the district court held that it had power to grant a preliminary injunction against false designations of origin and false description of goods even assuming a timely demand for arbitration had been made.

2. Punitive Damages

In Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354, 356, 386 N.Y.S.2d 831, 832, 353 N.E.2d 793 (1976), the New York Court of Appeals, in a 4 to 3 decision, applied New York law as required by a choice of law provision, and declared in a copyright royalty dispute:

The issue of an arbitrator’s power to award punitive damages highlights the critical importance of drafting the arbitration clause or agreement. The Garrity court based this ruling on "strong public policy indeed" against the "evil" of allowing an arbitrator, whose selection might have been manipulated by one of the parties, to displace the court, jury, and State as "the engine for imposing a social sanction." 40 N.Y.2d at 358, 386 N.Y.S.2d at 833-34. Thus, where New York law applies, arbitrators cannot award punitive damages (21).

Although several courts have questioned this ruling or found that the Federal Arbitration Act preempts State law (22), Garrity remains the law in New York. For example, in Matter of Dreyfus Service Corp. (Kent), 183 App.Div.2d 446, 584 N.Y.S.2d 483, 484 (1st Dept. 1992), the New York Appellate Division stated that, notwithstanding the erosion of federal distrust of arbitration and the Federal Arbitration Act’s placement of arbitration agreements upon the same footing as other contracts, arbitration agreements in New York remain subject to "the overriding public policy against an award of punitive damages by an arbitrator."

The question thus remains as to whether under federal law and policy, as enunciated by the Supreme Court in Mitsubishi and McMahon, treble damages may be awarded by arbitrators in intellectual property cases (e.g., under 35 U.S.C. § 284) or in antitrust cases when the underlying agreement to arbitrate is governed by New York law. Mitsubishi and McMahon emphasize the remedial character of treble damages in antitrust and RICO contexts. That is the key under those authorities as well as Garrity.

In intellectual property contexts, enhanced damages have been characterized differently, depending on the intellectual property right in issue. For example, enhanced damages under 35 U.S.C. § 284 in patent infringement actions are regarded as punitive, not compensatory. Delta-X v. Baker Hughes Production Tools, 984 F.2d 410, 413 (Fed.Cir. 1993). On the other hand, United States Courts will award treble damages in trademark or unfair competition actions under Section 35(a) of the Lanham Act (15 U.S.C. § 1117(a)) only if trebling is not punitive. Jurgens vs. McKasy, 927 F.2d 1552, 1563-64 (Fed.Cir. 1991); Taco Cabana Intern., Inc. v. Two Pesos, Inc., 932 F.2d 1113, 1127 (5 Cir. 1991); Manildra Mill. Corp. v. Ogilvie Mills, Inc., 797 F.Supp. 874, 888 (D.K. 1992), affirmed in part, reversed in part and vacated in part without published opinion 1 F.3d 1253 (Fed. Cir. 1993) (reported in full at 1993 WL 217173); Smith Corona Corp. v. Pelikan, Inc., 784 F.Supp. 452, 418-82 (M.D. Tenn. 1992), affirmed without published opinion 1 F.3d 1252 (Fed. Cir. 1993) (reported in full at 1993 WL 192516). Finally, enhanced statutory damages in copyright infringement actions under 17 U.S.C. § 504(c) embody both components: compensatory and punitive. Fitzgerald Pub. Co., Inc. v. Baylor Pub. Co. Inc., 807 F.2d 1110, 1116-17 (2 Cir. 1986).

Accordingly, in light of the foregoing authority, with careful drafting (i.e., precise descriptions of the rights in issue and the basis (e.g., "remedial") for increasing damages), it may be possible for parties to empower the arbitrators to award treble damages in intellectual property disputes, notwithstanding that the agreement to arbitrate is governed by New York law.

Each arbitration proceeding should be tailored to fit the anticipated or present dispute. If this is not done and done well, authority that appears to favor arbitration in general may be undercut by specific and distinguishing circumstances and an apparently agreed upon arbitration proceeding may be aborted or its intended purposes otherwise frustrated.

ANNEX I

35 U.S.C. § 294. Voluntary arbitration

(a) 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. In the absence of such a provision, the parties to an existing patent validity or infringement dispute may agree in writing to settle such dispute by arbitration. Any such provision or agreement shall be valid, irrevocable, and enforceable, except for any grounds that exist at law or in equity for revocation of a contract.

(b) Arbitration of such disputes, awards by arbitrators and confirmation of awards shall be governed by Title 9, United States Code, to the extent such title is not inconsistent with this section. In any such arbitration proceeding, the defenses provided for under section 282 of this title shall be considered by the arbitrator if raised by any party to the proceeding.

(c) 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 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. Any such modification shall govern the rights and obligations between such parties from the date of such modification.

(d) When an award is made by an arbitrator, the patentee, his assignee or licensee shall give notice thereof in writing to the Commissioner. There shall be a separate notice prepared for each patent involved in such proceeding. Such notice shall set forth the names and addresses of the parties, the name of the inventor, and the name of the patent owner, shall designate the number of the patent, and shall contain a copy of the award. If an award is modified by a court, the party requesting such modification shall give notice of such modification to the Commissioner. The Commissioner shall, upon receipt of either notice, enter the same in the record of the prosecution of such patent. If the required notice is not filed with the Commissioner, any party to the proceeding may provide such notice to the Commissioner.

(e) The award shall be unenforceable until the notice required by subsection (d) is received by the Commissioner.

37 C.F.R. § 1.335 Filing of notice of arbitration awards

(a) Written notice of any award by an arbitrator pursuant to 35 U.S.C. 294 must be filed in the Patent and Trademark Office by the patentee, or the patentee’s assignee or licensee. If the award involves more than one patent a separate notice must be filed for placement in the file of each patent. The notice must set forth the patent number, the names of the inventor and patent owner, and the names and addresses of the parties to the arbitration. The notice must also include a copy of the award.

(b) If an award by an arbitrator pursuant to 35 U.S.C. 294 is modified by a court, the party requesting the modification must file in the Patent and Trademark Office, a notice of the modification for placement in the file of each patent to which the modification applies. The notice must set forth the patent number, the names of the inventor and patent owner, and the names and addresses of the parties to the arbitration. The notice must also include a copy of the court’s order modifying the award.

(c) Any award by an arbitrator pursuant to 35 U.S.C. 294 shall be unenforceable until any notices required by paragraph (a) or (b) of this section are filed in the Patent and Trademark Office. If any required notice is not filed by the party designated in paragraph (a) or (b) of this section, any party to the arbitration proceeding may file such a notice.

ANNEX II

(d) Parties to a patent interference, within such time as may be specified by the Commissioner by regulation, may determine such contest or any aspect thereof by arbitration. Such arbitration shall be governed by the provisions of Title 9 to the extent such title is not inconsistent with this section. The parties shall give notice of any arbitration award to the Commissioner, and such award shall, as between the parties to the arbitration, be dispositive of the issues to which it relates. The arbitration award shall be unenforceable until such notice is given. Nothing in this subsection shall preclude the Commissioner from determining patentability of the invention involved in the interference.

(a) Parties to a patent interference may determine the interference or any aspect thereof by arbitration. Such arbitration shall be governed by the provisions of Title 9, United States Code. The parties must notify the Board in writing of their intention to arbitrate. An agreement to arbitrate must be in writing, specify the issues to be arbitrated, the name of the arbitrator or a date not more than thirty (30) days after the execution of the agreement for the selection of the arbitrator, and provide that the arbitrator’s award shall be binding on the parties and that judgment thereon can be entered by the Board. A copy of the agreement must be filed within twenty (20) days after its execution. The parties shall be solely responsible for the selection of the arbitrator and the rules for conducting proceedings before the arbitrator. Issues not disposed of by arbitration will be resolved in accordance with the procedures established in 37 CFR, subpart E of part 1, as determined by the examiner-in-chief.

(b) An arbitration proceeding under this section shall be conducted within such time as may be authorized on a case-by-case basis by an examiner-in-chief.

(c) An arbitration award will be given no consideration unless it is binding on the parties, is in writing and states in a clear and definite manner (1) the issue or issues arbitrated and (2) the disposition of each issue. The award may also include a statement of the grounds and reasoning in support thereof. Unless otherwise ordered by an examiner-in-chief, the parties shall give notice to the Board of an arbitration award by filing within twenty (20) days from the date of the award a copy of the award signed by the arbitrator or arbitrators. When an award is timely filed, the award shall, as to the parties to the arbitration, be dispositive of the issue or issues to which it relates.

(d) An arbitration award shall not preclude the Office from determining patentability of any invention involved in the interference.

Notes

1. In contrast, disputes as to whether or not a product was within the scope of patent claims and thus subject to royalty pursuant to a license agreement had been regarded as the proper subject of binding arbitration under either federal law or state law.

2. Section 294 and U.S. Patent & Trademark Office Rule 335 (37 C.F.R. § 1.335) are reproduced in Annex I.

3. Section 135(d) and U.S. Patent & Trademark Office Rule 690 (37 C.F.R. § 1.690) are reproduced in Annex II.

4. Section 282 of the Patent Act provides expressly that inter alia non-infringement, absence of liability for infringement, unenforceability, and invalidity shall be defenses in any action concerning the validity or infringement of a patent.

5. The arbitration clause invoked the rules of the International Chamber of Commerce.

6. This clause also invoked the rules of the International Chamber of Commerce.

7. Chapter 9 of Title 17 of the U.S. Code provides for the protection of semiconductor chip designs. Of particular interest is § 907, which provides that an innocent purchaser of an infringing semiconductor chip is liable only for a reasonable royalty, the amount to be "determined by the court in a civil action for infringement unless the parties resolve the issue by voluntary negotiation, mediation, or binding arbitration." 17 U.S.C. § 907(b).

8. The Kamakazi court referred to now obsolete authority prohibiting submission of "some securities, patent and antitrust claims to arbitration." 684 F.2d at 231.

9. Compare 35 U.S.C. § 294(c) which provides that an arbitrator’s award as to patent validity, enforceability or infringement under Section 294 "shall have no force or effect on any other person." This forecloses any in rem or other precedental effect, but may not preclude res judicata or collateral estoppel effects of an enforceable award.

10. Query whether Congress’ failure to amend the Copyright Act to provide for arbitration reflects an intent not to authorize arbitration of copyright issues, or at least no intention either way. The Post decision is binding precedent only in the Seventh Circuit. However, given the growing judicial trend favoring arbitration, the Post decision is not likely to be an aberration.

11. Query whether Congress’ failure to amend the Copyright Act to provide for arbitration reflects an intent not to authorize arbitration of copyright issues, or at least no intention either way. The Post decision is binding precedent only in the Seventh Circuit. However, given the growing judicial trend favoring arbitration, the Post decision is not likely to be an aberration.

12. In 1992, the same district court affirmed an arbitrator’s ruling that the licensee under a terminated agreement must change its corporate name to minimize confusion. Federal trademark rights apparently were not in issue. Engis Corp. v. Engis Ltd., 800 F.Supp. 627, 629-30 (N.D.Ill. 1992).

13. Mitsubishi, 473 U.S. 614, supra, page 6 (public policy does not preclude arbitration of antitrust issues in international context); Rodriguez de Quijas v. Shearson/Am. Exp., 490 U.S. 477 (1989) (expressly overruling Wilko and finding claims under the Securities Act of 1933 arbitrable); Shearson/American Express Inc. v. McMahon (hereinafter McMahon), 482 U.S. 220 (1987) (finding claims under RICO and under the Securities Exchange Act of 1934 arbitrable).

14. This is commonly known as the American Safety doctrine.

15. 9 U.S.C. §§ 1 et seq.

16. The court declared: "There is no longer any doubt that a RICO claim is arbitrable." 924 F.2d at 469.

17. Coenen v. R. W. Pressprich & Co., 453 F.2d 1209, 1215 (2 Cir. 1972) ("as a claimant is not required to sue and is always free to settle a[n] . . . antitrust case, his [post-dispute] agreement to arbitrate is in effect an agreement to settle the dispute"); Moran v. Paine, Webber, Jackson & Curtis, 389 F.2d 242, 246 (3 Cir. 1968) (in reference to a securities claim, the "‘considerations which preclude the validity of an agreement to arbitrate future disputes are generally inapplicable to an agreement to arbitrate existing disputes,’" quoting Reader v. Hirsch & Co., 197 F.Supp. 111, 117 (S.D.N.Y. 1961)).

18. E.g., Cobb v. Lewis, 488 F.2d 41 (5 Cir. 1974) ("as a general matter, antitrust claims are not appropriate subjects of arbitration . . . [except] ‘when the agreement to arbitrate is made after the dispute arises.’ 339 F.Supp. at 99"), citing American Safety, 391 F.2d 821 supra, page 27n, and A. & E. Plastik Pak, 396 F.2d 710, supra, page 24 (barring arbitration of antitrust claims arising in connection with pre-dispute arbitration agreements).

19. Cindy’s Candle, 714 F.Supp. at 979, relied on Kowalski in finding domestic antitrust claims arbitrable.

20. Long before Mitsubishi, McMahon and their progeny, some State courts held that public policy precluded arbitration of antitrust claims arising under State laws. Aimcee Wholesale Corp. v. Tomar Products, 21 N.Y.2d 621, 624, 289 N.Y.S.2d 968, 969, 237 N.E.2d 223 (1968). However, it is arguably safe to conclude that State courts today would follow the modern view and jettison the Aimcee view.

21. It is significant, however, that the Garrity majority distinguished authority permitting an arbitral award of treble liquidated damages "amounting to a penalty, assessed however in accordance with the express terms of a trade association membership agreement." 40 N.Y.2d at 357, 386 N.Y.S.2d at 833.

22. Todd Shipyards Corp. v. Cunard Line, Ltd., 943 F.2d 1056, 1063 n.6 (9 Cir. 1991) (allowing punitive damages notwithstanding New York choice of law provision because, unlike Garrity, the contract called for application of the American Arbitration Association Rules); Willoughby Roofing & Supply v. Kajima Intern., 598 F.Supp. 353, 355-57 (N.D.Ala. 1984) (allowing punitive damages under Rule 43 of the Construction Industry Arbitration Rules of the American Arbitration Association, and subrogating state law and policy to the controlling federal law and policy), affirmed 776 F.2d 269 (11 Cir. 1985).

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