When a patent dispute goes to arbitration, there is the possibility that an outside party could try to influence the outcome by going to court. This may come as a surprise, given that Section 294 of the Patent Act specifies that any arbitrator’s award in a patent validity or infringement dispute is “final and binding between the parties … but shall have no force or effect on any other person.” Courts have not ruled, however, on whether an arbitrator’s ruling in such cases precludes future claims of invalidity or infringement by third parties against the patent holder.

Because Section 294 does not bind the patentee, it is still possible for nonparties to an arbitration to raise collateral estoppel in subsequent litigation over the same patent, but the outcome of such an argument is far from certain. If third parties cannot assert collateral estoppel of findings of invalidity, however, inconsistent rules about the use of a patented invention could apply to parties to an arbitration instead. By including language in an agreement’s arbitration provision extending to third parties the preclusive effect of an arbitrator’s ruling in patent disputes, parties may be able to alleviate this uncertainty.

Originally published in InsideCounsel on April 30, 2013.