Arbitration Clauses in License Agreements (Part 2)

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Many intellectual property license agreements refer disputes to arbitration under an arbitration clause. After the arbitrator renders a decision, can that decision be appealed to court? Or is it final and binding on the parties?

This issue was addressed in Affymax, Inc. v. Ortho-McNeil-Janssen Pharmaceuticals, Inc. , 660 F.3d 281, 285 (7th Cir. 2011) a decision of the Seventh Circuit Court of Appeals in the US. In that case, the court dealt with an appeal from an arbitrator’s decision under a license agreement. The court was clear that it had no interest in vacating or overturning the arbitrator’s award, unless the award is reviewable under one of the 4 circumstances in Section 10 of the Federal Arbitration Act (US):

  1. if the award was procured by “corruption, fraud, or undue means”;
  2. in the case of “partiality or corruption in the arbitrators”;
  3. where the arbitrators were “guilty of misconduct” or misbehavior by which the rights of any party have been prejudiced; or
  4. where the arbitrators exceeded the scope of their powers, or so imperfectly executed them that “a mutual, final, and definite award upon the subject matter submitted was not made.”

According to this decision, if it doesn’t fall into one of these 4 categories, then the court will not interfere with the arbitrator’s decision.

Other appeal-level courts in the US are split on this issue, and some have reviewed arbitration decisions based on an independent category, known as “manifest disregard of the law.” Since that is not a specified ground for appeal in Section 10, it was not accepted by the Seventh Circuit in the Affymax decision. The lessons for business? In the US, arbitrator’s decisions will not be subject to review by the courts unless the review falls into one of these 4 narrow grounds.

What about the law in Alberta? Watch for Part 3.