Contract Interpretation In The Absence Of Choice Of Law And Comparison Between Arbitration And Civil Proceedings In Trade Secret Disputes

Interpreting contracts in the absence of choice of law

1.In the absence of choice of law critically analyse and explain the options that are available for the interpretation of the Contract.

2.The rules of arbitration help Companies to hold their trade secrets to their chest. Critically examine this statement by accentuating the divergence in procedures,merits in application of the state judiciary structure and that of arbitral institutions in times of dispute.

1.With the increasing globalization, it is quite often that the contract tends to contain certain foreign elements. This gives rise to a pertinent question so as to determine the applicable law which applies to the given situation. This problem arises due to interplay between a plethora of interconnected factors which include the performance place, payment place, business place, underlying payment current coupled with nationality of the underlying parties involved. In order to manage this problem, Rome convention through the enabling provisions tends to provide the contracting parties the choice of law through which they can determine either implicitly or explicitly the applicable law in case of any contractual dispute. The importance of this can be adjudged from the fact that the presence of this has become a lynchpin of international contracts (Fawcett and Torremans, 2011).

However, there are certain contracts where the choice of law is absent and thus interpretation of such contracts poses a significant challenge. One way for contractual interpretation in the absence of choice of law is obtained from common law. In accordance with the common law, in such a situation the applicable law for contractual interpretation would be one which tends to have “closest and most real connection” with the given transaction (Marshall, 2012). The common law approach has been criticised by academicians, lawyers and practitioners alike due to underlying ambiguity in the language which makes it quite difficult to apply. When there is even balance in terms of the physical factors, the common law solution of applicable law leads to high degree of uncertainty for the contracting parties. Considering the nature of solution, the judge tends to have high amount of discretion which invariably leads to dissatisfaction over the decision by either party (Tang, 2008).

A radically different but more certain approach to interpret contractual clauses is provided by Rome I Regulations. The first step under this exists in the form of art4(1), which outlines the fixed governing rules that exist for eight different form of contracts. In the event of the underlying contract to be interpreted lying outside the ambit of the defined eight categories of art4(1) or lying in more than one category, then art4(2) would be applicable. As per this article, for determination of applicable law, presumption of characteristic performance needs to be applied (Marshall, 2012). The presumption tends to highlight that the applicable law would essentially be the same as the underlying contractual law existing in the nation/country which hosts the habitual residence of the party which needs to ensure the contractual characteristic performance (Tang, 2008).

Comparison between arbitration and civil proceedings in trade secret disputes

Even though this provides larger clarity when compared to the corresponding commentary offered by common law, but considering the complex nature of cross=border legal transactions, this concept is also difficult to apply. In case of failure to ascertain the applicable law under both art4(1) and art4(2), art4(4) needs to be applied. In accordance with art4(4), an escape clause is provided in the form of closest connection test (Marshall, 2012). This clause provides a higher degree of clarity and certainty in comparison to a similar test prescribed by the common law and hence curbs the wide flexibility currently being extended to the judges. Also, it is noteworthy that while deploying the escape clause under art4(4), a significant emphasis is given on the underlying context and facts related to each case which tend to alter the decision given (Tang, 2008).

While the Rome 1 Regulations tend to a superior choice for contractual interpretation in contrast to common law, but it also has immense set of criticisms. To begin with, the eight fixed categories of contract are way too less considering the contractual scope in the present day business. There is an urgent need to build on these pre-existing contract categories and based on common commercial transactions, it is required to expand this list (Marshall, 2012). Further, refinements in usage of art4(2) are required so as to simplify the overall application. Besides, the escape clause also has two major shortcomings namely the phrasing of the clause in geographical terms and also in the current form, separate issue based evaluation is not possible. This makes the escape clause vulnerable to mechanical application and also stalemate in case of balancing factors (Dickinson, 2010).

In the wake of the above shortcomings in the present regulations, it makes sense that a national law must be framed on the lines of Rome I Regulations but attempts must be made to overcome the various shortcomings that have been identified above. However, at the same time, the basic architecture needs to be retained while fine tuning the provisions so as to enhance easy of application, predictability and satisfaction of contractual parties (Marshall, 2012).

2.In the modern business era, financial resources are available in abundant but the key requirement for business success is knowledge which is apparent from the rise of patents and the use of patented technology. In a communication revolution where information can be transmitted globally within minutes, it has become of critical essence to the businesses to preserve the confidentiality of their trade secrets so as to maintain their competitive edge. As the importance of these trade secrets have surged so have the disputes involving the same particularly with regards to ownership claims. With the existence of these disputes, it is imperative that a suitable mechanism be available so as to resolve these issues in a just manner while ensuring speed (Fawcett and Torremans, 2011). Two of the most common measures available in this regard are arbitration and civil proceedings using the state judiciary. It is imperative to critically analyse the procedure and the utility of each of these measures particularly with regards to maintaining the confidentiality of their respective trade secrets.

The utility of arbitration in trade secret disputes

Arbitration on account of the private hearings are thought to be a better choice with regards to confidentiality and protection of trade secrets. Even though in international rules related to arbitration outlined by ICC, UNICTRAL and CPR but private arbitration may also be governed by national laws related to arbitration. This is especially the case when the two disputing parties are based in a particular country and hence private arbitration is usually governed by applicable national law on the subject especially in the developed world. However, recently, there has been variation in the legal stance especially with regards to implied confidentiality in case of arbitration which leads to unpredictability. There are countries such as Sweden, Australia and USA which through judicial cases at different levels has denounced the implicit assumption of confidentiality while UK has preserved the same (Sarles, nd).. Additionally, it has been found that with regards to emergencies situations, the arbitration does little to prevent damage by way of providing injunction which is better served by the state judiciary. Arbitration normally focuses on providing damages in the form of arbitral awards which are usually binding in nature. One of the advantages of the arbitration is the existence of flexibility in terms of judicial procedures and evidence mechanism which can enable speedy disposal of cases particularly in case of non-administered arbitration (Samuel, 2017). Further, arbitral awards usually cannot be challenged unless there is some glaring discrepancy which violated the natural justice principle and hence ensures limited litigation. The process of arbitration typically involves the appointment of an arbitrator, sharing of material documents between parties, discovery of evidence before the proceedings actually commence. After the commencement of proceedings, the tribunal or the arbitrator announces the arbitral award (Marsh, 2011)

On the other hand, civil proceedings can also be initiated in cases involving trade secrets. In majority of the developed countries unlike in the past, there has been a realization of the need to keep information confidential especially which can materially impact the legitimate interest of the involved parties. Further, the courts in these countries have increasingly warmed to the idea of in camera and private proceedings and withholding information from the public domain. Also, the under seal filing provision has increasingly becoming common coupled with passage of protective order such as injunction so as to ensure that intellectual rights and trade secrets are not compromised. Further, a pro-confidentiality approach taken by the courts especially in the US is apparent from the verdicts pronounced in cases like Gates Rubber v. Bando Chemical Industries, 9 F.3d 823 (October 19, 1993) and In re Iowa Freedom of Information Council, 724 F.2d 658 (8th Cir. 1983). However, the critical aspect is that the court does not act on the advice of the concerned party with regards to terming a document as trade secret and makes an independent evaluation of the same. While, in the earlier times, this may have been problematic considering the limited technical knowledge about the same but the existence of specialised courts and tribunals to decide on specific matters, this ensures that the protection provided is not abused (Legal Intelligencer, 2014).

Based on the above discussion, it would be fair to conclude that where in nations where state judiciary is developed with regards to deciding on cases related to patent law and trade secrets, it must be preferred over arbitration with regards to matters of confidentiality. However, in jurisdictions where the law has not developed, it is better to deploy arbitration considering the existence of global rules fostering confidentiality.

References

Dickinson, A. (2010) ‘Rebuttable Assumptions’, Lloyd’s Maritime and Commercial Law Quarterly Vol.27 No.2,pp. 32-37

Fawcett J.J. and Torremans, P. (2011), Intellectual Property and Private International Law, 2nd edn. New York: Oxford University Press

Legal Intelligencer (2014), MINIMIZING DISCLOSURE OF TRADE SECRETS IN CIVIL LITIGATION, Blank Rome Website, [Online] Available at https://www.blankrome.com/index.cfm?contentID=37&itemID=3275 [Accessed August 5, 2017]

Marsh, J. (2011), Arbitration and Trade Secrets: Avoiding the Trap,Trade Secrets Litigator Website, [Online] Available at https://www.tradesecretlitigator.com/2011/05/agreements-requiring-the-arbitration-of-disputes-are-generally-perceived-as-being-pro-business-but-do-they-really-help-a-business-in-the-trade-secret-context/ [Accessed August 5, 2017]

Marshall, B.A. (2012) ‘Reconsidering the Proper Law of the Contract’, Melbourne Journal of International Law, Vol.13 No.2, pp. 9-44

Samuel, M. (2017), Confidentiality in International Commercial Arbitration: Bedrock or Window-Dressing?, Kluwer Arbitration Blog, [Online] Available at https://kluwerarbitrationblog.com/2017/02/21/confidentiality-international-commercial-arbitration-bedrock-window-dressing/?print=print [Accessed August 5, 2017]

Sarles, J.W. (n.d.), SOLVING THE ARBITRAL CONFIDENTIALITY CONUNDRUM IN INTERNATIONAL ARBITRATION, Mayer Brown Website, [Online] Available at https://m.mayerbrown.com/Files/Publication/cc689d95-b8ba-4179-b72f-08b83ec47ad1/Presentation/PublicationAttachment/917049de-2412-4695-894d-09fc7f42c303/Confidentiality.pdf [Accessed August 5, 2017]

Tang, Z. (2008) ‘Law Applicable in the Absence of Choice — The New Article 4 of the Rome I Regulation’, Modern Law Review, Vol. 71 No. 5, pp. 785-800