Recent Improvements to ICC Transparency make Arbitration a more Attractive Option for Technology and Telecom Disputes
Jan 18, 2017 - Steven Pong
A recent annual survey of dispute resolution by Queen Mary University's School of International Arbitration shows that among telecommunications and technology companies, the International Court of Arbitration (ICC) is the most commonly used forum for arbitration disputes. The Survey also found that although telecom and tech companies generally prefer arbitrating, in practice, they more commonly resolve disputes through litigation and expert determination. By contrast, energy and construction companies both prefer arbitration over litigation and expert resolution, and arbitrate more in practice. This gap between preference and practice is unique to the telecom and technology sectors, and it's worth examining why.
In practice, one point where the gap between preference and practice might surface is at the contracting stage of a telecom infrastructure or IT system development project. For example, which dispute resolution method will be agreed to in a contract between a telecom company and construction contractor to develop communications infrastructure? Although the telecom company might generally prefer to arbitrate, the company might not want to do so with a developer that has more experience picking the right arbitrator, arbitration forum, and counsel. Therefore, faced with a counterparty with more arbitration experience, the telecom company might choose to litigate even though it would generally prefer to arbitrate.
A recent development in the International Chamber of Commerce might help bridge that gap between preference and practice by making arbitration a more attractive choice for telecom and technology disputes. But first, we should take a look at the nature of disputes that telecom and technology companies commonly encounter, which will further explain this gap between preference and practice.
Telecom and technology companies frequently encounter high-value disputes for sums in excess of $100 million. The most commonly encountered disputes are those over intellectual property, collaborations and joint ventures, IT systems, and competition or antitrust matters. Of these oft-encountered disputes, some are better addressed through litigation and others through arbitration. Here, we see that the gap between preference and practice can partly be explained by the nature of the disputes in the telecom and tech sectors.
One group of oft-encountered disputes—over intellectual property and unfair competition—do not arise from contracts between parties. Moreover, such disputes often demand binding legal precedent to discourage others from infringing one's IP, or engaging in unfair competition. Arbitration, which requires a prior agreement between parties, is not well-suited to resolve such disputes—and disputing parties therefore resort to litigation—even if they might generally prefer the flexibility of arbitration.
However, the other group of common telecom and technology disputes—those over IT investments and joint ventures—tend to be disputes over business-sensitive service or supply agreements between parties. Arbitration, with its flexible procedures, the possibility of confidential proceedings, and broad enforceability in different jurisdictions, is particularly well-suited to resolving disputes between contracting parties—and in those types of disputes, a general preference for arbitration matches actual practice.
Therefore, we see a gap between preference for arbitration and actual practice in part because many commonly encountered telecom and tech disputes are simply better resolved through courts rather than through arbitration.
But why might telecom and tech companies decide not to arbitrate when they'd like to, even where the nature of the disputes—namely IT investments and joint development ventures—are well-suited for arbitration? For that question, we can look at what decisions a company must make when choosing to arbitrate, and consider whether those decisions discourage the company from arbitrating.
Companies that want to arbitrate must decide where to do so, which counsel represents them, and who arbitrates their dispute. As to choosing the right counsel, companies value those: with past arbitral experience in the disputed issue, with specialized sector expertise, whom they personally know, and who are cost effective. Most companies also pick counsel among those who are located in the same jurisdiction as the law governing the contractual dispute. As to picking the right arbitrator, telecom and tech companies most value people who know about their industry sector, know the law governing the contract, and have experience arbitrating.
The first criterion for picking an arbitrator—sector-specific knowledge—proves to be a significant hurdle when telecom and tech companies want to arbitrate disputes with project development and investment partners. Because the construction sector has long favored arbitration, there is simply a larger and better established pool of arbitrators with technical construction sector experience to pick from. By contrast, the pool of arbitrators with technology knowledge is both smaller and less experienced.
But the size and depth of the pool of attractive arbitrators still only partly explains why telecom and technology companies choose not to arbitrate. The historical secrecy of the most commonly used arbitral institution, the ICC, also plays a role.
Historically, unlike certain other institutions, the ICC did not maintain a panel of arbitrators from which companies could choose from. This secrecy disfavored companies in emerging technology sectors, and favored those with strong personal ties to arbitrators who they could appoint repeatedly—namely those in more traditional industry sectors. But this year, the ICC started publishing more information about the arbitrators who preside over disputes. The ICC now publishes the names of sitting arbitrators, their nationality, whether the arbitrator is court or party-appointed, and who chairs the tribunal. This transparency will give telecom and tech companies access to more information to decide who to choose as an arbitrator, based on factors they care about. As trends from that data emerge, telecom and tech companies who'd like to arbitrate but have been discouraged by the opaque process of picking counsel and arbitrators may be encouraged to actually do so.
By Steven PONG