Arbitration In Hong Kong: The Arbitrability Of The Validity Of Chinese IP Rights.

2 November 2021
 

The arbitrability of the validity of IP Rights in Hong Kong
 

The Hong Kong Arbitration Ordinance was amended with effect from January 2018 to provide that all IP disputes are arbitrable in Hong Kong.  The Ordinance gives a very broad definition to both IP (to include all registered and unregistered rights) and the scope of a dispute (to include disputes that are incidental to the main dispute).
 

Most importantly for this note, S.103D(4) provides that an IPR dispute may be resolved by arbitration even if a specified entity in Hong Kong or elsewhere is given jurisdiction to deal with the dispute.  Thus, a Hong Kong seated tribunal may decide a dispute over the validity of IP rights even if the law of another country provides that another body (such as a patent office) has exclusive jurisdiction to deal with validity.
 

This creates an issue in disputes relating to the validity of Chinese IP rights.  For example, a license agreement may provide for royalties to be paid based on licensed patent rights.  If those rights are invalid, there will often be no need to pay royalties.
 

The arbitrability of the validity of IP Rights in China
 

Article 3(2) of the PRC Arbitration Law provides that parties may not arbitrate issues that are to be determined by administrative bodies. The validity of trademark and patent rights are both determined by administrative bodies in the Mainland of China. The Trademark Review and Adjudication Department (“TRAD”) and Re-Examination and Invalidity Department (“RID”) of the China National Intellectual Property Administration (“CNIPA”) are both administrative bodies that are given the sole right to determine the validity of patents and trademarks in the Mainland of China.
 

While under S.103D(4) a Hong Kong seated tribunal can determine if IP rights are valid or infringed, the award may not be enforceable in Mainland China. For example, if a Tribunal found certain patents to be invalid but still made an award on certain other patents, a PRC court may refuse enforcement on the basis that the Tribunal’s decision on validity was contrary to public policy. There are several possible ways to avoid these problems. These include:
 

• If the dispute is over damages or royalties, the parties may draft a clause that allows the arbitrator to determine the amount to be paid, taking into account her views of infringement and validity, but not making a final determination as to infringement or validity.

• Alternatively, the parties may simply ask the arbitrator to decide on an amount to be paid. The parties, in such a case, could also agree a cap/floor number in advance to ensure some minimal award is made and limit the maximum amount to be paid.

 

Many Mainland Chinese companies now have assets outside the Mainland of China and even if an award is not enforceable in Mainland of China, it may be enforceable against assets in Hong Kong or other jurisdictions.