- Arbitral Award
- ICC International Court of Arbitration 9875
LONG-TERM CONTRACTS - LICENSING AGREEMENT - BETWEEN A FRENCH COMPANY AND A JAPANESE COMPANY - SILENT AS TO APPLICABLE LAW – EXCLUSION BY ARBITRAL TRIBUNAL OF DOMESTIC LAW OF BOTH PARTIES – APPLICATION OF LEX MERCATORIA (ARTICLE 17 OF ICC ARBITRATION RULES) – REFERENCE TO THE UNIDROIT PRINCIPLES AS ONE OF THE POSSIBLE SOURCES OF THE LEX MERCATORIA
Claimant, a French company, and Defendant, a Japanese company, entered into a license agreement according to which Claimant was given an exclusive license to manufacture, sell and distribute Defendant’s products in Europe. Subsequently Defendant entered into an agreement with an American company granting it an exclusive license for the North American market and a non-exclusive license for other countries. According to Claimant Defendant, by not expressly excluding Europe from those other countries, had violated its agreement with Claimant.
The license agreement between Claimant and Defendant did not contain a choice of law clause. While Claimant argued in favour of the application of French law, Defendant invoked the application of Japanese law.
In a Partial Award the Arbitral Tribunal rejected both claims, arguing that “a contract […] concerning a license to manufacture products and to sell them in various parts of the world is not appropriately governed by the national law of one of the parties, failing agreement on such a choice”. Basing itself on Article 17 of the ICC Arbitration Rules, according to which “[…] the Arbitral Tribunal shall apply the rules of law it determines to be appropriate” (paragraph 1) and “[i]n all cases the Arbitral Tribunal shall take into account the provisions of the contract and the relevant trade usages” (paragraph 2), the Arbitral Tribunal concluded that “[t]he most appropriate ‘rules of law’ to be applied to the merits of this case are those of the ‘lex mercatoria’, defined as “the rules of law and usages of international trade which have been gradually elaborated by different sources such as the operators of international trade themselves, their associations, the decisions of international arbitral tribunals and some institutions like UNIDROIT and its recently published Principles of International Commercial Contracts”.
The Agreements between the parties do not include provisions concerning the rules of law applicable to their contractual relationship.
Claimant argues French law should be applicable. The choice of Brussels, a place with no substantial link with the dispute, cannot lead to the application of Belgian law The most appropriate law should be determined through the “méthode de la voie directe”, involving the examination of different factors. The place of the characteristic performance, in a license agreement, is often considered as that of the licensor; however, the issues submitted to this tribunal are wider than questions related to the Defendant’s industrial property rights. The “proper law of the contract” can only be French law, for several reasons. France is the country from which all operations included in the territorial exclusivity were conducted; it is the country where the formulas and know-how allegedly misappropriated by Defendant were developed; it is in France that the consequences of the breach of the license contracts were felt and the ensuing prejudice must be compensated.
While agreeing with Claimant that Belgian law should not govern the issue, Defendant considers Japanese law should apply, not French law.
In the absence of a common intent of the parties, Japanese international private law applies the law of the place where the contract was executed, that is Japan in this case. Under French international private law, the 1980 Rome Convention would apply. Article 4 of that Convention provides that in the absence of an express choice, the agreement “shall be governed by the law of the country with which it is most closely connected”, it being “presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of this contract, his ... central administration”. The characteristic performance, in a license contract, is that of the licensor, i.e. [Defendant] ,which would also lead to the application of Japanese law. Refuting some of Claimants’ arguments, Defendant points out that the territory of the license agreements was not limited to France, that the choice of the law of the place where the alleged prejudice was suffered might be relevant in a tort case, but not in a contractual dispute and that the alleged breaches (conclusion of the second [X] agreement, registration of patents in Japan and the United States) have no link to France.
According to article 17(1) of the ICC Rules, in the absence of an agreement between the parties upon the rules to be applied to the merits of the case,”... the Arbitral Tribunal shall apply the rules of law which it determines to be appropriate”. Article 17(2) adds: “In all cases the Arbitral Tribunal shall take into account the provisions of the contract and the relevant trade usage's.”
The provisions of the contract are not decisive. It contains references to France and other European and non-European countries as well as to Japan. The Sales Territory described in Exhibit II covers ‘All countries of the world, other than Canada, USA, Mexico and Asian countries east of Iran, except French Territories”. The license is granted for patents held by Japanese companies (Exhibit III). Technical assistance will be provided by the Defendant at the Claimant’s factory in France (art. 4) or at the Defendant’s offices and production facilities in Japan (art, 5). The Claimant has agreed to pay royalties in Japanese currency (art. 6). An important provision, much at the centre of this dispute, deals with improvements invented by the Claimant, normally in its premises in France (art. 9).
The tribunal does not consider the neutral choice of Brussels as the seat of the arbitration to imply a choice of Belgian law as the law applicable to the contract.
In license agreements, the appropriate law is sometimes considered to be that of the country where the licensor is located (in this case, Japan), assuming the most characteristic performance of such contracts would be that of the licensor. However this is not an absolute rule. For example, the law of the licensee is sometimes preferred. The Rome Convention of 1980 also provides that the link to the characteristic performance can be discarded when such characteristic performance cannot be determined or when circumstances indicate that the contract is more closely connected with another country (art. 4) (cf.J. M. Mousseron, J. Raynard, R. Fabre andJ. L. Pierre, Droit du commerce international, 1997, no. 136 et seq.).
In this case, part of the issues deal with the way the Defendant handled technical improvements invented and transferred to the former by the Claimant, casting doubts on a solution that would exclusively consider the licensor’s transfer of technology to the licensee as the most characteristic performance of the contract. In so far as the licensee’s own performance can be considered as characteristic of the contract, this would lead to the application of French law. Another significant factor consists in the geographical scope of the rights licensed to the Claimant, which do not exclusively lead to French law, but would eliminate Japanese law.
The arbitral tribunal considers that the difficulties to find decisive factors qualifying either Japanese or French law as applicable to the contract reveal the inadequacy of the choice of a domestic legal system to govern a case like this. A contract concluded between Japanese and French companies concerning a license to manufacture products and to sell them in various parts of the world is not appropriately governed by the national law of one of the parties, failing agreement on such a choice.
The most appropriate “rules of law” to be applied to the merits of this case are those of the lex mercatoria, that is the rules of law and usage's of international trade which have been gradually elaborated by different sources such as the operators of international trade themselves, their associations, the decisions of international arbitral tribunals and some institutions like Unidroit and its recently published Principles of International Commercial Contracts. Nevertheless the tribunal will take into account any relevant national laws concerning intellectual property rights issues raised during this procedure.’}}
Excerpts of the award published in ICC International Court of Arbitration Bulletin, Vol. 12, No. 2 (Fall 2001), 95-97.}}