Luis Martinez and Michelle Skipper share their experience and insights into the international arbitration landscape, as well as best practices and resources for writing writing arbitration clauses.
DISCLAIMER: The opinions and views expressed by Ms. Skipper and Mr. Martinez are not necessarily attributable to the AAA or ICDR
CCBJ: Let’s start off with how you got into arbitration.
Michelle Skipper: Prior to joining the American Arbitration Association, I spent over 20 years in healthcare administration. I held various leadership positions at hospital networks and physician provider groups. The last position I held was executive director for a private physician group in Charlotte, NC, consisting of 25 providers, 10 offices and a several hundred employees. I knew I was interested in remaining in healthcare when, 15 years ago, an opportunity to join the AAA came my way. It allowed me to leverage my professional expertise in the healthcare and life sciences space, as well as my undergraduate degree in finance and my MBA.
Luis Martinez: I was actually the first attorney hired by the AAA for its international division, the ICDR when it was created in 1996. I have been focused on the ICDR’s international arbitration and mediation services ever since. I also work with one of our Director’s based at our Miami office on a number international cases and I am responsible for business development in South and Central America, the Caribbean, the East Coast of the United States, and Europe. It’s a very interesting geographical spread that keeps me occupied.
Why do life sciences disputes in particular lend themselves to arbitration or mediation?
Martinez: These cases can be highly complex and involve huge multinationals with global contracts and disputes based on large monetary claims and may include IP issues. One of our often made recommendations is the idea that you should really give some forethought to your exit strategy should a deal not go as planned. We understand that this is not the thinking as business users are usually anticipating that the venture will be successful and do not want to derail their spirit of cooperation. Given that, any dispute resolution provision tends to be briefly discussed near the end of the negotiation phase and sometimes a clause or an arbitration agreement might be brought in and pasted from an old contract or book without thorough analysis. However, particularly in an international setting, you really need to consider some of the real-life implications of how you are going to handle a dispute should it in fact arise.
First, you are looking at a neutral forum and you may be hoping to avoid the local courts where the other side is located and unfamiliar legal systems and practice. The companies involved in these cases could be large multinationals that are very powerful in their respective countries and jurisdictions. You want to have an exit strategy that provides for arbitration where no party has a home court advantage thereby having the dispute placed in neutral forum. Other factors to consider that are very important for life sciences disputes is the need for independent and experienced arbitrators. One of the ICDR’s core components of its international arbitration and mediation services is the idea that global expertise matters and you need experienced alternative dispute resolution (ADR) professionals available to be selected for these cases.
We have panels of international and domestic arbitrators and mediators in place that have been vetted and we’ve identified and have reviewed members’ qualifications to make sure that they are in fact indeed subject matter experts in the particular cases to which they’re going to be assigned. That expertise really translates and impacts the process very positively, since they know the types of disputes and have industry backgrounds. When a dispute is brought before them, they can drill down and understand where the process may have broken down. They can use their experience to move the matter forward quickly, asking the parties to focus on particular aspects of the case that they know are going to be important in determining their eventual award. We know this because when we receive their awards we see their experience through and the quality of their analysis of the case and application of the law.
An arbitration or mediation does not happen in a vacuum. It starts with the arbitration clause that was included in the contract, negotiated and agreed to by the parties. We apply the terms of that clause to the letter as any failure to do so could result in an attack on any award issued later on. There is an element of predictability here if the parties have considered in advance how they wish to proceed if a dispute arises. They are uniquely positioned to negotiate the clause considering the types of disputes they have seen in the past and can draft accordingly. By selecting the ICDR’s arbitration rules and administration, they also know the consistent policies and procedures that will be followed by the administrator should a dispute arise. Then there are no surprises and everyone knows how their international dispute will proceed.
In addition, pursuant to the ICDR’s international arbitration rules the proceedings are private and confidential and both the ICDR and the arbitrators are required to abide by those requirements. The confidentiality provisions are listed in the rules. Arbitration or mediation can also be very expeditious with a number of mechanisms available pursuant to the rules to save time and costs. The rules allow for procedural flexibility and they can be customized by the agreement of the parties. For examples, the parties can agree to proceed under the ICDR’s expedited procedures, they can agree to a sole arbitrator, they can agree to holding any hearings virtually or can agree to waiving all hearings and proceeding based on the submission of documents only.
Also, and this can’t be overstated, international arbitration awards, unlike judgements that you receive from courts, are backed by a global network of international treaties for recognizing and enforcing them, such as the New York and Panama Conventions where, let’s say an award that’s issued in New York against a party that has assets in New York, France and Brazil, that can award be enforced in those three jurisdictions simultaneously because all three countries have agreed to respect and enforce international arbitration awards issued in other jurisdictions via a rapid confirmation proceeding.
Skipper: In addition to highlighting the importance from an international perspective, when we look at the issues from a domestic perspective and why you might arbitrate and/or mediate life science disputes, we have found clients are really look for subject matter expertise, as opposed to going to a judge that has general knowledge, because these are very, very complex disputes, such as a royalty issue relating to research-and-development funding, or an issue arising from development of some new drug or product where it’s important to have an arbitrator that has spent time in the field. Ours are not just lawyers. Some are scientists. Some are PhDs. And some also have a legal background. But it’s important that if these individuals are going to be making binding decisions, they bring the expertise to provide a fair, efficient, cost-effective resolution.
Martinez: One more point on the enforceability in the international context. With many countries becoming parties to these international treaties, which provide for the relative ease to enforce these awards and how difficult they are to challenge, this contributes to a high rate of voluntary compliance. In over 80 to 85 percent of cases, the parties voluntarily comply because they know how difficult they are to challenge in them in the courts.
Do you have any specific observations/suggestions regarding arbitration clauses?
Skipper: Speaking domestically, when you’re going to request binding arbitration, use the standard language. The AAA has made available a free clause builder tool that any person can use to develop a very specific clause. Available through www.clausebuilder.org, this free wizard allows you to choose the type of clause that you want, customize it to meet your needs, review it and then you save it. This clause builder is available 24/7 and can be used as often as one wishes. Whenever counsel ask us what’s the best language, we refer them to this free tool, which can be used in both domestic and international settings, depending on the wording you choose. Want to incorporate mediation? It gives you that option as well. It’s a very comprehensive tool and we really try to encourage clients and counsel to utilize it.
Martinez: Specifically regarding international disputes, ClauseBuilder starts you off with short model clause you can find in the international rules. We recommend that you specify the number of arbitrators, whether you want a sole arbitrator or a tripartite panel; the place of arbitration, which is important in the international arena for procedural and enforcement implications; and the language. From there, you can decide what other options are appropriate for you, such as whether you want to proceed under the expedited procedures, or a specific set of credentials for the arbitrator, such as industry expertise or international experience, there are q number of options available. After going through ClauseBuilder you really understand all the parameters and issues that go into drafting and fashioning your international arbitration agreement for your particular dispute.
What are you seeing in terms of technology and virtual hearings?
Skipper: It’s been an interesting time no doubt. The pandemic required everyone, including the AAA, to pivot. But the beauty of arbitration and mediation is the pivot didn’t require a whole lot of work. Unlike the courts, which had to physically shut down because all of the work they do is in person, on the mediation side pivoting to a Zoom type platform was relatively simple. We quickly created model orders and guidelines for utilizing a Zoom platform. On the arbitration side, we quickly converted in-person hearings to hybrid or fully virtual ones.
Through last year we had almost 15,000 total events and, of those, just under 8,000 were virtual. Early on in 2020, the parties and counsel were somewhat skittish. But now, even with offices and states having formally reopened, virtual events remain attractive to counsel and to parties because of the efficiencies and cost effectiveness. Many domestic arbitration hearings are moving forward with some form of a hybrid arrangement; maybe counsel are together but arbitrators or witnesses are in different places.
I don’t think virtual hearings are going away. Instead, they are going to be an option; an alternative to having everything in person. Virtual hearings also mean you can choose mediators and arbitrators from across the country (or globe) without incurring the travel expenses that might have made them cost-prohibitive.
Martinez: We are hearing from our in-house clients that they like the opportunity to be able to attend these hearings virtually, as before the in-person option was limited due to the travel expenses. They certainly appreciate the minimizing of costs and the time needed for travel along with the related expenses of an international arbitration. They are more amenable to joining in status conferences and taking advantage of the other procedural efficiencies made possible by remote technology. Certainly for an international case and with parties all over the world, the increase and use of the virtual hearings has had a significant positive impact. I think virtual hearings are here to stay. That said, I also think that in larger cases, the hearing on the merits will probably take place in person or in some hybrid form and we are seeing that return already.
What is the importance of your advisory committees and client feedback?
Skipper: These are really a critical aspect for AAA, both domestically and internationally. Back in 2009, the Association created a healthcare advisory committee, and about three years ago the committee created a subcommittee focused on life sciences with the goal of identifying experts in the pharmaceutical, medical device and biotechnology sectors who could advise us on their industries’ needs.
An area of focus early on was the need to really have subject matter experts on the life sciences national panel, and not people who maybe mediated or arbitrated one life science case but legal professionals who have spent at least 10 years devoting at least 50 percent of their time to the life science space, or life science professionals with a PhD and a background in academia, industry or government. These are the criteria that individuals should hold to provide fair, efficient, effective resolution. We even have a supplemental form that an arbitrator can complete so their resume highlights this expertise.
We also take client feedback very much to heart. At the end of every mediation or arbitration case, we survey the end users about their experience, their case administrator and their arbitrator or panel. Did they utilize technology efficiently? Did they have the experience the parties were looking for? Did they apply the rules appropriately? Did they arrive at the right decision?
In addition to surveying clients, we also ask case administrators how arbitrators managed their cases (because we know what’s needed/expected from a managerial arbitrator’s perspective), and use that feedback to manage and review arbitrators on an ongoing basis. As we tell all our arbitrators and mediators, “Just because you’re appointed to a panel does not mean this is a lifetime appointment.” While we take all client feedback seriously, we also recognize that there may be some sour grapes, which is why we don’t just survey clients, but also survey the case administrator, who is neutral as well as knowledgeable about arbitration management.
When you couple an advisory committee with client feedback, we think the result has been fair, cost-efficient resolution of domestic and international life sciences disputes.
CCBJ: How do you appoint your arbitrators and select your seat for the arbitration?
Martinez: As far as being added to the international or the life sciences panel, you’ve already heard some of the description. Our international panel application can be found on our website at icdr.org. As to how these arbitrators are appointed for a particular case, it depends on whether a method of appointment was included in the arbitration agreement. For example, a party can decide to use the party-appointed method, where each side appoints their own arbitrator, who still has to be impartial and independent; and those two can then appoint a presiding arbitrator.
Alternatively, you can use the list method. If your clause is silent, the ICDR’s international rules’ default mechanism is the list method. We will have an administrative conference with the parties early on, at which time we would note that their clause is silent and that we are using our list method. We ask each side to give us their views as to the qualifications we should consider for any prospective arbitrator included in the list. If there are to be three arbitrators, we look at our international and life sciences panels and begin to prepare a list of 15 names, which we send to the parties along with their CVs. The parties can then object and remove anyone from the list without the need to provide any reasons. They then number the remaining arbitrators in their order of preference and send their respective lists back to the ICDR without exchanging them. The ICDR combines the lists and invites the arbitrators with the lowest combined numbers (which reflect the highest preference of both parties) to serve. We tell them a little bit about the identities of the parties so they can conduct an initial conflicts check. If they get through that, we will go through an official appointment process, which involves their answering questions regarding disclosures. After clearing that, we officially confirm them to the case.
We also look at diversity when preparing the international list. We make sure that we have diverse members in our international panel and life science panel as our users have told us that is an important consideration for them. The ICDR has signed the Equal Representation Pledge in Arbitration.
What’s your criteria for determining a life sciences panel for the arbitrators?
Martinez: First, I want to invite your readers to look at our life sciences banner on adr.org or icdr.org. It shows the work that the AAA-ICDR has done to focus on the ADR needs of the Life Sciences business sector. There you can find information on the cases, the rules the specialized panel where we look for legal practitioners or industry professionals with a minimum of 10 years of significant experience, which we define as devoting more than 50 percent one’s time to pharmaceuticals, biotechnology, biomedical technologies or medical devices. Additional criteria is for the applicant to have one or more of the following qualifications: experience with related mergers and acquisitions, joint ventures, partnerships, licensing, research and development. We also consider experience in the areas of intellectual property rights, regulatory, preclinical, and clinical development, as well as supplementary information brought to our attention. We talk to our advisors about each applicant and make sure that their qualifications meet our criteria and are arbitrators that we think would meet our user’s expectations for a list that the AAA-ICDR would prepare for a particular life sciences dispute.
What are some of the attractive features of the ICDR’s rules for international cases?
Martinez: Before addressing that, let me say that, in the international context, we find mediation to be a really great tool to incorporate in your alternative dispute resolution process. You see it in escalation clauses, where the parties may decide to negotiate for a period first, then they go to mediation for a set period and then go to arbitration. We would like to see an increase in the use of mediation because it really is a win-win.
At the end of the day in mediation, the parties have to agree to a settlement. You don’t have to risk an arbitration award going against you. You are actually participating and have control over the eventual settlement. I have found that in the international context, where parties may be really far apart and angry at each other and not seeing past their own interests, that mediation offers them an opportunity to hear the other side’s particular views on the case. With experienced mediators, whether they take an evaluative or a facilitative approach, they can have the parties now talking to each other, exploring the strengths and weaknesses of each of their respective cases.
If they don’t reach a full settlement, they may settle some of the elements of the dispute, leaving less for the arbitration. It’s always been a win-win. And if they do reach a settlement, they just saved a tremendous amount of time and costs and perhaps preserved a valuable business relationship. That’s why when we did our last revision of the term rules that went into effect March of last year, we started off with revising the mediation rules and we changed the presumption. It used to be we offered mediation in all cases. Now the presumption is that mediation will take place concurrently with the arbitration. Once an arbitration is filed, we point to the rule that says the mediation will in fact take place. If the parties are not interested, they have to opt out of the mediation. We think that making it an obligatory part of the process has really helped. No side has to fear, “If I offer mediation, perhaps the other side will think my case is weak; that it’ll put me in a negative position,” because everybody’s going into the mediation.
To your question about the international rules, we revised the international mediation procedures to make mediation more attractive, such as new language to help with enforcement of mediation awards. International arbitration rules follow international practice, which is different from commercial practice and the courts. For example, you don’t have discovery per se. Remember, these are cases that could involve parties from common law and civil law countries. The exchange of information through discovery as used in US courts is not considered appropriate for cases pursuant to the international rules. Requests for documents must be narrowly tailored and limited to documents you believe to exist. There are no phishing expeditions and the exchange of documents must be conducted in the most economical manner.
The international rules preclude an award of punitive damages unless the parties agree otherwise. In other words, when you draft an arbitration clause that specifies the international rules, you will not be getting punitive damages unless you actually opt into them. Another important tool available under the international rules include a new article on early disposition to narrow the matters before the tribunal. You may take a position that there’s something that you think hasn’t been properly proved up and you want to have an early disposition regarding that particular component of the dispute. Under existing rules, you also have access to an emergency arbitrator mechanism. We were the first institution to introduce that, back in 2006. Prior to that, if you needed some emergency relief, a provisional or conservatory measure, you had to wait for the arbitrators to be appointed, which could a couple months or more or turn to the courts which was inconsistent with your desire to use international arbitration and stay out of each other’s courts. Now, if you need some emergency relief at the time of filing, the process is all laid out there for having an emergency arbitrator appointed, and it’s been used quite often in the life sciences context. Other ways we expedite the process are through firm deadlines and a sensitivity to time and costs.
Under our expedited rules, once the hearing is closed, you should have your award in 30 days if you must or 60 days under the commercial rules. In sum, the ICDR Rules are reflective of the current best practices in international arbitration.
I’d also like to add that in international arbitration, the seat or place of arbitrations is important because while the parties and the arbitrators can hold hearings in other places for convenience, etc., the award must be issued in the seat that was selected by the parties. In fact, we include such language in the award because in the New York Convention, for example, the US has taken a reservation to that treaty that it will enforce the awards based on reciprocity. So it has to be in a New York Convention country. In addition the seat dictates the procedural law of the arbitration and can be called into play when an issue arises that may not be covered in the arbitration rules and which national courts will have jurisdiction to deal with issues related to the arbitration process. For example, New York is a seat that is frequently selected by the parties for international arbitrations because it has a developed arbitration culture. The judiciary is supportive of international arbitration. They enforce international arbitration awards regularly and are supportive of the process. At the end of the day, the seat is part of the negotiation. You may have two multinationals from very powerful jurisdictions and they are each going to negotiate. They may wish to have the case placed in their own country for various reasons. Although again, with virtual hearings, we are also finding that with these hearings occurring virtually it is not as important as it once was before for procedural implications.