Intangible assets, such as intellectual property (IP) rights are only as strong as the means to enforce them. In a jurisdiction like South Africa where court process, especially opposed proceedings, can be tediously slow, arbitration makes for a feasible and cost-effective dispute resolution option. Arbitration has become an increasingly popular option in the modern commercial world where disputes involve multinational companies who trade in multiple jurisdictions and where the territoriality concept requires them to register their IP rights in the jurisdictions of commercial interest to them.
This article aims to explore the arbitrability of disputes involving IP rights based in South Africa and/or where one of the parties to the dispute is South African. Hence, this article will explore international arbitration from the South African jurisdiction.
Arbitration friendly jurisdiction
South African courts recognise that parties may choose arbitration as a permissible form of dispute resolution. South African courts are willing to enforce any valid arbitral award on the same basis as they would a judgment of a High Court of South Africa unless there is exceptional reason not to do so. In recent years, South African courts have become increasingly supportive of arbitration and there are judgments of the Supreme Court of Appeal and the Constitutional Court which recognises the principle of party autonomy and confirms that court interference in arbitration proceedings should be restricted.
Where the validity of an arbitration clause is in issue, the likely approach followed by a South African court is found on the contractual principle that a contract should be upheld if it was entered into fairly and its terms are not illegal, immoral or contrary to the public interest.
The International Arbitration Act, 2017 (“the Act”) governs South African law on international commercial arbitration. It applies to any international commercial dispute that the parties have agreed to under an arbitration agreement and which relates to a matter which the parties are entitled to resolve by way of arbitration. The Act incorporates the UNCITRAL Model Law on International Commercial Arbitration and also provides for the recognition and enforcement of arbitral awards.
Predominant issues concerning the arbitrability of IP disputes
First, a core element of many IP disputes is the negative nature of the IP owner’s right to prevent or restrict others from using their IP. As such, it can be quite difficult for a party to enforce their IP rights where there is no contract in place between a rights holder and an alleged infringer. Even if there is an agreement in place between the parties, for instance, a licence agreement, technology agreement, trademark co-existence agreement or a transaction agreement containing IP-related clauses such agreements usually do not contain IP-specific arbitration clauses or arbitration clauses at all. One of, if not, the biggest impediment to arbitrating on an IP dispute is getting rival parties to agree to resolve their dispute by way of arbitration.
Second, it is important to consider whether the subject matter of an IP dispute is arbitrable. In IP disputes the existence, validity, ownership and/or scope of the holder’s IP rights are often contended and must be determined before a conclusion can be reached on the merits of a case. This rings especially true for registered IP rights such as patents, trademarks or designs. The local IP office or tribunals are usually tasked with deciding on issues regarding local IP registers and considers themselves bound to court orders, as opposed to private arbitral awards.
Advantages of choosing arbitration over litigation
Expertise – Parties can select an arbitrator with expertise in the subject matter. Many judges, with respect, do not have the necessary understanding of the technology at issue or of the nuances commonly found in IP legislation. In appointing arbitrators, there are no legal requirements under the Act relating to the number, qualifications and characteristics of arbitrators and an arbitrator is not required to be a national of, or licensed to practice in, South Africa.
Enforceability – Enforcement under the New York Convention is greatly enhanced if the arbitration has been administered by a recognised third party administrative body following well-established rules and procedures. In terms of the Act, an arbitration agreement and a foreign arbitral award must be recognised and enforced in South Africa as required by the New York Convention, to which South Africa is party. The Act provides that an arbitral award will be recognised as binding and, on application in writing to the competent court, will be enforced irrespective of the country in which it was made. These provisions apply irrespective of the country in which the arbitral award was made and applies to international arbitration awards made in South Africa.
Single procedure – Parties can agree to resolve a dispute involving IP that is protected in several different countries in a single procedure. In doing so, it avoids the expense and complexity of multi-jurisdictional litigation and the risk of inconsistent results.
Autonomy – Arbitration allows parties to exercise greater control over the way their dispute is resolved than would be the case in court litigation. In contrast to court litigation, the parties themselves may select the most appropriate adjudicators for their dispute. They are also free to choose the applicable law, place and language of the proceedings. Parties are free to devise the most efficient procedures for their dispute. This can result in material cost savings.
Confidentiality – Trade secrets, patents and developmental work are mostly kept confidential in arbitration proceedings as opposed to the public nature of most trials. If the arbitration is held in private, the award and all documents created for the arbitration that are not otherwise in the public domain must be kept confidential by the parties and tribunal, except to the extent that the disclosure of those documents is required by a legal duty or to protect or enforce a legal right.
Finality – Unlike court decisions, which can generally be contested through one or more rounds of litigation, arbitral awards are not normally subject to appeal.
Other important considerations making South Africa a favourable arbitration destination
Competent – kompetenz: The Act recognises the concept of kompetenz-kompetenz and provides that an arbitral tribunal can rule on its own jurisdiction, including on any objections concerning the existence or validity of the arbitration agreement. Even before the enactment of the Act in 2017, the Supreme Court of Appeal recognised the principle of kompetenz-kompetenz.
Joinder of South African IP office: When resolving disputes involving a registered IP right, it would be of considerable value if the local IP office, not being a party to the arbitration agreement, can be joined to the arbitration proceedings. Generally in South Africa, the principle is that there can be a joinder of an additional party with the agreement of all the parties, including the additional party.
Available remedies: An arbitral tribunal can grant interim measures on request of a party, unless otherwise agreed by the parties. Interim measures may include any temporary measure where the arbitral tribunal orders a party to maintain or restore the status quote pending determination of the dispute; take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself; provide a means of preserving assets out of which a subsequent award may be satisfied; preserve evidence that may be relevant and material to the resolution of the dispute; and/or to provide security for costs.
The Act does not prescribe or limit the final remedies available from the tribunal. The final remedies are determined with reference to the arbitration agreement, nature of the dispute and relief sought by the parties. With this being said, final relief can include an award for damages; final interdicts (injunctions); ordering specific performance; declaratory orders; and/or costs.
In practice, South African courts are currently overwhelmed with matters. Recently published practice directives, which will remain in force for the duration of the declared State of Disaster, require litigating parties to have a pre-trial conference before their matter is heard by the High Court. During this conference the parties should discuss inter alia possible settlement terms and the submissions that will be made by each party in court. The minutes of this pre-trial conference must then be lodged with the High Court prior to the hearing. In essence, parties are obligated to discuss, and possibly arbitrate, a matter before being heard in court. Failure to comply or to act unreasonably can result in a cost order against that party.
There are, of course, circumstances in which court litigation is preferable to alternative dispute resolution. For example, the contractual nature of arbitration makes it less appropriate if one of the parties is extremely uncooperative which is often the case in an infringement dispute. In addition, a court judgment may also be preferable if, a party seeks to clarify its rights or would like to establish a public legal precedent rather than a private arbitral award which is limited to the relationship between the arbitrating parties.
In any event, when drafting IP and technology agreements or even when being confronted with a dispute scenario, parties should consider specialised IP arbitration as a viable alternative to court litigation in South Africa. The biggest consideration for parties and their legal advisors should be whether arbitration can be agreed upon and whether it is the most feasible option to resolve a dispute between rival parties.
In conclusion, arbitration as a form of alternative dispute resolution is currently a viable option to resolve IP disputes in South Africa and there is no reason why it should not continue to be a viable option going forward considering the advantages of arbitration against the rapid pace at which technologies continue to develop and companies increase their global commercial presence and IP portfolios.