International Arbitrations in a Time of Global Disarray
Yekutiel Sherman spent a year designing a smartphone case that unfolded into a stick. After creating prototypes, Sherman launched a crowdfunding campaign on Kickstarter. This “selfie stick” allowed users to capture self-portraits with ease. One week after the launch of his Kickstarter campaign, Sherman was shocked; Chinese vendors on the website AliExpress were selling identical smartphone selfie sticks, and many were selling them significantly below his planned price. Sherman fell victim to a theft of intellectual property [1]. If someone had stolen Sherman’s product idea in the United States, he would have consulted a lawyer and filed a lawsuit. In this case, there was no offender to sue. All Sherman could do was watch his invention copied and sold by someone behind a computer screen over 7,000 miles away.
While Sherman was unable to sue, some are able to seek restitution. In 2013, the Dow Chemical Company, a multinational corporation based in the U.S., signed a deal with the Petrochemical Industries Company (PIC) of Kuwait to operate a plant in Kuwait. However, the project was canceled, leading to a disagreement over the termination and its impact on intellectual property rights. Dow and PIC reached a settlement [2], however the different outcomes in Sherman and Dow’s intellectual property disputes create a pressing legal question: Why are only some people or companies able to reach settlements and closure in international disputes, while others are left without recourse?
Our system of international arbitrations is inherently flawed when it comes to disputes between competing nations. With no enforcement mechanisms and a judicial system skewed by international politics and agendas, there are limited ways for the common man to seek reparations, but there exist economic and diplomatic solutions to this growing problem.
Solving international issues currently relies on a few existing mechanisms. Disputing entities can select from three mechanisms to solve conflicts: bilateral negotiations, third-party mediation, or international arbitration. Bilateral negotiation is the process of making offers and counter offers with the goal of reaching an agreement [3]. Third-party mediation is when an impartial mediator helps two parties communicate and reach an agreement [4]. International arbitration, chosen for the most contentious issues, is a method of resolving disputes between parties from different countries, in which parties submit their dispute to a tribunal or a collective of several arbitrators. The tribunal acts as a judge and arbitrators are selected by their expertise on the subject matter [5]. The legal process is usually a hybrid of common and civil legal systems, and disputes range on a variety of topics including commerce, investment, and intellectual property.
In the twentieth century amid increasing globalization, IP disputes became more common. From the 1920s to the 1950s, following the creation of the International Criminal Court (ICC) and the American Arbitration Foundation, idealist lawyers and specialists worked to make international commercial arbitration a specialist discipline. The foundation of the United Nations in 1945 also served as a way to help moderate the actions of countries. Its supporters predicted the future necessity of international diplomacy and agreements.
Starting in the late 1950s, The Age of Autonomy was characterized by the New York Convention. The New York Convention, otherwise known as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, required courts of contracting states to acknowledge private agreements to arbitrate and recognize foreign arbitration judgments. The convention introduced rules on the recognition and enforcement of a ruling, established a broad scope for commercial arbitration rules, and ensured limited grounds for non-enforcement of judgments. It stated that once a dispute between parties was settled, the losing party would be required to pay the judgment. However, if the loser did not pay, then the winning party needed to obtain a court judgment in the jurisdiction where the other party resides [6].
Early advocates of arbitration believed that arbitrations ”represented an essential means to achieving the lofty goal of peace through law in a complex and divided world" [7]. Unfortunately, they erroneously assumed that countries would voluntarily sacrifice their national interests in the pursuit of peace. Instead, global disaccord and competition have stifled the effectiveness of international arbitrations [8].
Since 1945, the U.S. has encountered several rivalries. Recently, the United States has rivaled the People’s Republic of China in a battle to be the world economic superpower. This rivalry has been rife with espionage and deceitful grasps of intellectual property. In 2020, the FBI reported more than 1,000 cases of intellectual property theft involving Chinese nationals [9]. William Evanina, director of the National Counterintelligence and Security Center, estimated that Chinese theft of US trade secrets costs “anywhere from 300 billion to 600 billion” a year [10].
Unfortunately, international arbitrations lack proper enforcement. If there were to be an arbitration between American and Chinese companies, then the loser would have no incentive to pay the restitution. A review of disputed cases in China from 2000 to 2011 found that the Supreme People’s Court of China upheld the refusal to enforce arbitration agreements in 17 cases [11]. With increasing economic rivalry between the U.S. and China, it would impede each country’s chances for economic domination if they were to respect international arbitrations.
In general, countries might view international arbitrations as threats to their sovereignty. Decisions made by an international tribunal could undermine national interests, interfere with domestic policies, and limit autonomy. As Sir Philip Chetwood aptly said: “The safety, honour and welfare of your country come first, always and every time…"[12]. Because the average cost of international arbitration is approximately $2.6 million and even then there is no guarantee of restitution, it is an inauspicious use of resources to pursue an international arbitration with a hostile country [13]. In the case of China, there is little hope, especially with trade espionage. However, in the case that a foreign company has a vested interest in the country in which it is being sued, it makes more sense to pay restitution than be entirely forced out of foreign business. Two solutions to this problem exist, one economic and one diplomatic.
Firstly, countries, including the U.S., should set up a system by which citizens can be reimbursed for stolen goods. In the case of the selfie stick, Yekutiel Sherman should be reimbursed at least a modest sum for the loss of his invention. By setting up a specific agency oriented at reimbursement for stolen intellectual property, countries can stimulate more entrepreneurship given that even if someone’s idea were to be taken, they would still be guaranteed break even or a modest profit. Included in this would be preventing any companies that sell “stolen” IP goods from selling those goods in countries from which the ideas for the goods and services were taken. This would become even stronger if the U.S. were to collectively agree with its allies to require companies selling these goods with stolen IP to either cease the sale of the goods or cease operations entirely. In the case of the selfie stick, the U.S. would provide AliExpress, the company selling the stolen product, with an ultimatum: “stop selling selfie sticks or cease operations in our countries.”
The diplomatic solution is more auspicious but less likely to happen. International agreements such as the New York Convention need to have more stringent requirements for member states with clear ramifications for non-compliance. The World Trade Organization and other international organizations need to be strengthened and hold more power. If the World Trade Organization were to have a legal body specifically focused on IP disputes between ill-disposed countries and be willing to recommend and enforce sanctions on countries (or place countries in a “bad standing”), then this could possibly solve the issue of a lack of enforcement for IP arbitrations.
At the end of the day, international tribunals face challenges similar to other international agencies. With limited power and influence over sovereign countries, international agreements frequently fail to coerce foreign companies into paying compensatory awards. While there is no immediate fix to this problem, prioritizing peace over national interests can create a safe and effective global economy that respects intellectual property.
Bibliography
[1] Liu, Louise. n.d. “A Product Designer’s Yearlong Battle with China’s Copycats Shows How Hard It Can Be to Protect Startup Ideas.” Business Insider. Accessed November 14, 2023. https://www.businessinsider.com/china-copycat-culture-selfie-stick-yekutiel-sherman-2016-10.
[2]Staff. 2013. “Dow Chemical Receives $2.2 Billion in Legal Settlement.” Processing Magazine. Endeavor Business Media. May 8, 2013. https://www.processingmagazine.com/news-notes/article/15580501/dow-chemical-receives-22-billion-in-legal-settlement [3] “What Is Bilateral Negotiation | IGI Global.” n.d. Www.igi-Global.com. Accessed November 29, 2023. https://www.igi-global.com/dictionary/bilateral-negotiation/2433#:~:text=Bilateral%20negotiation%20is%20a%20process.
[4]“The Program on Negotiation.” n.d. Harvard Law School. Accessed November 29, 2023. https://www.pon.harvard.edu/tag/neutral-third-party/.
[5] Gent, Stephen E., and Megan Shannon. 2009. “The Effectiveness of International Arbitration and Adjudication: Getting into a Bind.” The Journal of Politics 72 (2): 366–80. https://doi.org/10.1017/s0022381609990788.
[6] Ibid. [7] B. Oppetit, Théorie de l’arbitrage (Presses Universitaires de France, 1998) at 10. [8] Ibid. [9] Gates, Megan (1 July 2020). "An Unfair Advantage: Confronting Organized Intellectual Property Theft". asisonline. Retrieved 26 May 2022. [10] Sganga, Nicole. 2022. “Chinese Hackers Took Trillions in Intellectual Property from about 30 Multinational Companies.” CBS News, May 4, 2022, https://www.cbsnews.com/news/chinese-hackers-took-trillions-in-intellectual-property-from-about-30-multinational-companies/.
[11] “Convention on the Recognition and Enforcement of Foreign Arbitral Awards.” 2021. Wikipedia. Wikimedia Foundation. December 4, 2021. https://en.wikipedia.org/wiki/Convention_on_the_Recognition_and_Enforcement_of_Foreign_Arbitral_Awards.
[12] Sharma , Sudhir. 2019. “‘THE CHETWODE MOTTO’ | Salute.” Salute to the Indian Soldier. August 29, 2019. https://salute.co.in/the-chetwode-motto/.
[13] Arbitration, International. n.d. “Cost of International Arbitration | Arbitration.” International Arbitration. Accessed November 14, 2023. https://www.international-arbitration-attorney.com/cost-of-international-arbitration/.