Why alternative dispute resolution’s long history of effectively resolving business disputes may be ideal for the needs of technology companies.
Anyone who has been involved in any kind of litigation knows that it can be extremely expensive and time-consuming. But for companies in technology fields, there is often another major concern: There is no guarantee that the judge assigned to your case will be knowledgeable about your particular product or industry. Fortunately, arbitration, also known as alternative dispute resolution, provides a highly appealing solution in these situations. Not only is it more efficient and cost-effective than litigation – it also gives the companies involved in the dispute a chance to select an arbitrator with a keen understanding of the specific technology at hand, giving all parties confidence that an equitable solution will be reached.
A Bit of History: Arbitration Over the Centuries
Arbitration’s origins trace all the way back to the Middle Ages. Italian merchants were looking for a way to settle their differences without getting bogged down in litigation and the court system. As a remedy, they set up merchant courts to handle their various business- related disputes. These were not just legal disputes; they also included conflicts involving industry standards and practices. Even then, the arbitrator’s goal was to award equity. They weighed standard business practices and procedures, which factored into their decision-making when rendering an award.
Those merchants in the Middle Ages also said, “We don’t want judges who are just learned in the law. We want people who truly understand how business is conducted in different industries.” That approach was appealing to businessmen of the day, and it has remained appealing to like-minded people for centuries afterward. From that point on, arbitration has been used in a variety of ways – by the court systems, by private parties, by for-profit and nonprofit organizations. And people continue to use arbitration to this day; it is less costly than litigation, and many participants view the process as more fair in a fundamental way too.
Companies that are seeking arbitration often look for decision-makers who have specialized knowledge or expertise. Judges understand the law, of course, and are fantastic in many scenarios, but when it comes to complex disputes involving new fields of technology, understanding the nitty-gritty details of the underlying technology is paramount. Maybe the dispute involves a patent, or a business process, or a licensing agreement, and the companies involved want to ensure that the decision is rendered by someone who not only understands the law but also has in-depth knowledge of the underlying technology itself.
Disputes involving cutting-edge technology like blockchain are good example. Blockchain is a very fast, seamless way of processing transactions, designed to eliminate any third-party involvement. One of its key features is that the parties are not identified by name, but instead by a hash number or an IP address. In addition, blockchain operates via a decentralized network of computers that can be located anywhere in the world. When dealing with disputes involving a powerful new technology like this, it is imperative that the person making the decision be extremely knowledgeable about the technology itself. In an arbitration setting, the parties can specify exactly what level of technical expertise they want the decision-maker to have. This fact alone makes arbitration extremely desirable in disputes involving new technologies that are not yet widely understood.
If companies are looking for privacy during a business to business dispute, it is much easier to accomplish in an arbitration setting.
Many times, business disputes – especially those involving technology – involve some kind of proprietary or confidential information, in which case the companies want to protect those details from public exposure. If you go into litigation, the court proceedings are public, meaning anybody can sit in and view them. Arbitration, on the other hand, is private. If a third-party administrator is involved, its Rules may also provide that arbitrators maintain the privacy of the arbitration.
Unless required by law, arbitration organizations will not reveal that they are conducting an arbitration. They will not reveal the names of the parties. And they will not reveal the outcome of any arbitration. That confidentiality extends beyond the arbitrators themselves to the staff as well. In addition to that basic level of privacy, for business to business disputes, confidentiality agreements can be agreed upon that bind the parties to the arbitration. For companies that are wary of confidential information getting dragged into the public sphere, an arbitration process (with a mutually agreed upon confidentially agreement) is an easy way of avoiding that.
The Global Nature of Business Disputes
The world economy has become more global in scope than ever before. These days, disputes can arise between parties residing just about anywhere, and companies are looking for easy but effective ways to resolve them. Arbitration provides that. And once an award has been issued or a decision has been made, companies want an efficient way to enforce that decision. That’s where arbitration has another advantage. More than 150 countries have signed the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. That means that if a country is a signatory to that treaty, its courts will review an arbitration award rendered in that country and once upheld, will enforce the award. That’s a significant benefit to businesses that are conducting worldwide business transactions.
In an arbitration setting, the parties can specify exactly what level of technical expertise they want the decision-maker to have.
Why Choose AAA or ICDR?
The American Arbitration Association (AAA) was founded 1926, giving it 90-plus years of experience. The International Centre for Dispute Resolution (ICDR) was founded by the AAA in 1996 specifically to administer international arbitration proceedings.
The AAA is proud to be a nonprofit that has been drafting arbitration rules for nearly a century. Those rules have been tested by time and reviewed by innumerable courts. They are consistently viewed as fair and equitable, and both organizations have implemented numerous internal controls to protect the integrity of the arbitration process. The roster of arbitrators itself is extremely knowledgeable, and ongoing efforts are made to continually upgrade the expertise of the technology roster. (For instance, the AAA roster includes arbitrators with deep knowledge of cloud computing, blockchain, smart contracts and other new and emerging technologies).
In disputes involving technology, especially those in which the parties want privacy, the participants also want to ensure that the proceeding itself doesn’t get hacked. The AAA and ICDR have taken a number of steps to protect its internal administration of its cases and secure it against any type of digital incursion or data breach.
Choosing an arbitral institution like AAA or ICDR also allows the parties involved to specify an applicable set of arbitration rules. This includes, for example, commercial arbitration rules, international arbitration rules, construction rules, employment rules, etc. The parties can also customize the procedures. For instance, in business to business disputes they can include a confidentiality requirement that specifies that the parties participating in the arbitration must be bound by confidentiality.
Whether it’s through the AAA or ICDR, the parties involved in the dispute can draft their own arbitration agreement, which will specify the governing procedure, the governing rules and substantive law, and where the arbitration is going to be conducted (this is especially important in international arbitrations).
The parties also have to identify the legal seat of the arbitration. They can specify that a non-national neutral dispute resolution forum such as the AAA or the ICDR administer the proceeding, to ensure that it is administered in a neutral way.