Arbitrating Technology Disputes: Current situation and outlook from Madrid

Arbitration is increasingly being used as a method of resolving technology disputes, in particular those involving software development and implementation projects, IT services and outsourcing agreements. Tech disputes lend themselves to creative dispute resolution as they may involve trying to keep the project on track even though key milestones have been missed. In addition, using a dispute resolution method such as arbitration can guarantee confidentiality between the parties is respected, ensure that the arbitrators chosen by the parties have the correct knowledge to understand the technicalities of the dispute, and also give the parties the comfort that any award made by the arbitrator can be enforced in another jurisdiction, if this is relevant.

Technology itself is also being used to make arbitration proceedings more effective and efficient and therefore cheaper and quicker for users. In this article we consider why arbitration is a suitable dispute resolution method for tech disputes; and how it is being used in the process itself.

The content of this article is based on an-person seminar hosted by our Madrid office in October 2023 on this topic.  International Dispute Resolution partners Pablo Berenguer (Madrid) and Jalal (Jil) El Ahdab (Paris), together with Marta Lalaguna, General Secretary of the Madrid International Arbitration Centre and Óscar Suárez, member of the Arbitration and Mediation Centre of the WIPO shared their knowledge and experience with the audience.

Resolving Tech Disputes using arbitration

Arbitration is a suitable dispute resolution method for an increasingly large proportion of tech related disputes including, but not limited to those relating to software development and implementation projects, IT services and outsourcing agreements.

It is important to consider at the pre-contractual stage the dispute resolution method that will be used between the parties. The contracts which lie at the heart of these disputes are often complex, deadlines for implementation can be missed and mechanisms put in place for contract stocktaking may not work. Arbitration can be more useful than litigation to resolve any resulting disputes as the appointed arbitrators can have both technical and sector expertise, something hard to find within the judiciary.  In addition, parties may be drawn to the fact that the proceedings will be confidential (for protection of both sensitive commercial information and also the reputation of the business itself) and the relative ease of enforcement of arbitration awards in the case of cross border disputes compared to court judgments. Unlike litigation, these positives  apply whether the arbitration is taking place in Spain or another jurisdiction.

Emerging technologies and their impact on arbitration

Emerging technology, specifically artificial intelligence, is starting to impact arbitration. A variety of new tools using AI are starting to be used on a day-to-day basis by both lawyers – sometimes with adverse consequences, like in the US federal matter of Mata v. Avianca in 2023 [1]– and arbitrators to automate tasks such as legal research, drafting documents, producing transcripts, making translations, and predicting the outcome of cases.  These tools will increasingly make resolving disputes quicker and hopefully less costly, with a recent Harvard Business Review study finding that companies that incorporated AI into their sales and marketing saw an increase in lead generation by more than 50% and a resulting reduction in their call times of 60% to 70%.

Similarly, AI companies’ valuation is skyrocketing (for example, the capital value of the company owning ChatGPT , Open AI, has surged from $20 billion last year to $30 billion today). In the legal / judicial field, AI is already here and a reality in many jurisdictions: in Brazil, an AI tool is used to conduct preliminary case analysis to reduce the burden; in Argentina, a prediction tool has recorded a 96% success rate and is able to identify urgent cases within large volumes of files in under 2 minutes where it would normally take a human being an average of 96 days; in Austria, AI is being used for document management such as anonymization of court documents and as a digitization assistant for analogue files; in Singapore, some courts have adopted simultaneous speech translation systems which utilize neural networks trained with language models to transcribe court hearings in real time. Furthermore, several law firms have introduced their own chatbots allowing their lawyers to plug their own tech into OpenAI’s generative AI model without data being sent back to OpenAI. 

It is also important to understand the difference between the use of generative AI in case-management and decision-making AI, although the distinction can sometimes be blurred. In this sense, it is unlikely that AI robot arbitrators will become a reality in the near future, although there are pros (for correct findings on quantum) and cons (a dehumanized, but not necessarily unbiased, justice).

Disputes involving digital assets

There have also been a large number of recent disputes regarding other new tech in the form of digital assests, such as NFT’s or the metaverse, before state courts or arbitral tribunals. Beyond the famous Binance arbitration, there has been the Hermès v. MetaBirkin NFT case, the Nike v. StockX NFT case, both heard by U.S. courts, and the Golfzon case heard by the South Korean Supreme Court regarding a golf-course and metaverse related copyright infringement dispute.   

For further information on arbitrating disputes in the tech sector and/or to discuss whether arbitration may be suitable for your tech related dispute please contact the authors.