E-briefing: Emerging trends in technology disputes and how to effectively manage risks

Emerging trends in technology disputes and how to effectively manage risks 

The world is seeing a rapid increase in technology disputes and it is crucial that Corporate Counsel is aware of the ways to manage such disputes in efficient ways that could minimise the attendant risks at play, while at the same time make full use of the tactical advantages that could be found in international dispute resolution frameworks. This article complements the speaking session of our International Arbitration Of Counsel Shaun Leong at the recent Echelon Asia Summit 2019, where he shared perspectives on the emerging trends in technology disputes and how to effectively mitigate risks. Shaun will also be speaking at the Litigation Gorilla, an International Technology Law Conference, where Shaun will be sharing perspectives on how to effectively project-manage technology disputes. This conference will be held on 25 June at Le Meridien Singapore, Sentosa. 

Emerging Trends in Technology Disputes

Emerging technologies such as blockchain, machine learning and artificial intelligence are rapidly growing, and are poised to become synonymous with innovation and the future.

As the use of such technologies gain traction, the world will also see an unprecedented rise in technology disputes. Such disputes are likely to be arbitrated or litigated from a cross-border perspective. For instance, it is envisaged that the 2018 cryptocurrency crash will trigger several high value defaults on cryptocurrency obligations. At the same time, social media and tech giants are facing potentially massive liability from class action suits for breaches of obligations due to lax cyber-security and data protection frameworks.

In other words, the undercurrent of flourishing technology businesses contains underlying risks, including the risk of legal liability. It is thus more important than ever for technology businesses to be aware of the attendant legal implications behind each of their transactions.

There are two slightly overlapping categories of technology businesses, which give rise to slightly different trends in relation to disputes.

The first category would be where the new technology is the heart of the business. In other words, the value of the business would lie in services which are ingrained in new technology, rather than in physical products or personnel. Examples of this would be businesses which rely on artificial intelligence or blockchain technologies, or businesses which commoditise existing services with a new twist, such as ride-sharing apps or e-sports. We anticipate three big dispute areas for businesses in this category:

1. Questions of liability arising from characteristics or failure of technology. With new technology, there will be new disputes over the effects of new technology working or failing. For example, who should be liable if errors are made, or code “breaks”, and to what extent? This is especially important as some errors can cause domino effects which causes entire foundations of a business to fail. An example of this would be a recent Singapore blockchain exchange platform case where an automated programme stopped working after an update, which eventually led to abnormal trades and liability on the part of the platform. Other examples would be restitution when secure cryptocurrency accounts are inaccessible because the only person who knew the password died, or smart contracts being triggered for completion despite more nuanced parts of the agreement not having been met.
2. Questions of privacy and confidentiality. With the rise of new technologies, there is a greater emphasis on protection of information belonging to the business and its users. There is also a greater risk of the technology being compromised by third parties. In this vein, an area of interest would be the legal obligations and standards that would be applicable for safeguards and precautions against hackers and systems testing. An area of interest would be the implications for liability in failing to meet these standards.
3. Dealing with international disputes. The nature of technology disputes tends to be international, as a business with the same or similar models operates across different jurisdictions. The user base would also likely span various countries, or travel frequently. This gives rise to issues such as compliance with laws which purport to have extraterritorial effect. Businesses also need to be aware of the possibility of conflicting laws, as well as the possibility of different jurisdictions having different available grounds of action or remedies available.

The second category would be businesses which implement new technology. These businesses typically would be more traditional industries which obtain the technology they need from external providers. In other words, these businesses would have a modular approach in the way they implement new technologies. They may do so for a variety of reasons, such as not having the expertise themselves or for cost efficiency. While this category may also raise some of the issues mentioned above, it also gives rise to the possibility of other questions.

1. Questions of complying with the obligations of the industry. Various industries have laws and regulations specific to that industry. There is a question as to whether using new technology would impact a business fulfilling its legal obligations. Examples would be confidentiality or a certain standard of checks. Relying on third party technology bring a business’ ability to fulfil those requirements into question.
2. Questions of liability complicated by understanding of the limitations of technology.  As technology becomes increasingly complex, knowledge and understanding of the technology may impact the question of liability between technology providers and their customers. For instance, inherent limitations of the technology may seem obvious to the technology provider but not to the customer. Likewise, due to knowledge specialised to the customer’s business, the technology provider may not know that the impacts of the limitations could affect the customer. Such a situation would raise questions of liability or mistake, and whether it is reasonable for the average person without expertise to understand another industry in the required depth.

Key Characteristics of Technology Disputes

Based on the trends above, it follows that technology-related disputes would possess certain key characteristics:

1. The disputes relate to highly confidential information. The interests which parties seek to protect tend to be knowledge-based. This includes market-sensitive information such as trade secrets and intellectual property. Parties would not want to disclose such disputes to rivals or to the public, for fear of compromising their interests to keep the information confidential. For instance, disputes relating to smart contracts are likely to involve evidence about proprietary software or hardware. Making such information public would yield adverse commercial ramifications on their businesses. Hence, parties would prefer such disputes to be resolved in a confidential manner to limit disclosure of such information.
2. The nature of the disputes is highly technical. Given the specialized nature of technology disputes, it is important for decision-makers of such disputes to be well-versed with the technologies involved. This is so that the decision-makers can accurately determine issues of liability.
3. Stakeholders employing guerrilla tactics to obstruct proceedings. The companies which are involved in technology-related disputes are typically large international cross-border companies, with interests in different jurisdictions. In Asia, the diversity of legal traditions and divergence of stages of development in the international arbitration scene present fertile ground for guerrilla tactics to be employed to derail a legitimate choice of dispute resolution. The employment of such guerrilla tactics emphasizes the importance of selecting a safe seat such as Singapore.

Arbitration – Why it is ideal in resolving technology-related disputes

A possible option to resolve technology-related disputes would be litigation. However, this is not the preferred dispute resolution forum as litigation is costly, takes a long time for the dispute to be resolved, is held in open court and hence is not a confidential process, and may not have judges who are equipped with the necessary tech expertise.

In contrast, arbitration would be a more viable dispute resolution forum to resolve technology-related disputes.

1. Arbitration is flexible. Arbitration rules, such as those in the Singapore International Arbitration Centre (“SIAC”), are designed to allow flexibility within the arbitration procedure. These rules can then be adapted to cater to the needs of the parties, as well as the nature of the dispute.
2. Parties can select arbitrators with requisite expertise in the technology sector. Arbitration allows the appointment of arbitrators specialised in the area of technology to resolve technology-related disputes. Parties can appoint the tribunal, which would comprise either a sole arbitrator or three members. The tribunal may also be selected by the chosen arbitral institution, which is likely to have developed a specialist pool of arbitrators with the relevant expertise and know-how. By selecting a specialised tribunal who understands the technology and its characteristics, parties will save time and costs, and avoid an outcome that is based on misconceptions or misunderstandings. Arbitration also allows parties some room to detach from the traditional framework of contract law whose doctrines of contract validity, formation and interpretation may not be readily applicable to contracts that adopt, for instance, smart contracts on blockchain platforms.

Arbitration also facilitates a process called ‘hot-tubbing’, which is the practice of expert witnesses providing evidence concurrently, so that they might engage in discussion and address questions in parallel, instead of being cross-examined individually by counsel as is the case in litigation.

3. Arbitration is confidential. Arbitration is a confidential process between the parties. Arbitration hearings are not held in open court, and are not reported. As such, arbitration is often recognised as the ideal dispute resolution mechanism which would protect parties’ commercial interests, and which would prevent rival companies from having access to such confidential information.
4. Choice of forum. Arbitration is perfectly suited for certain technology-related disputes, such as those involving blockchain schemes, which are created with no regard to the nationality of the participants, or to particular legal jurisdictions. Given that arbitration is a neutral forum, parties have the autonomy to choose where the arbitration is to be held, or what rules are to be applied to resolve problems that may arise. Parties can also consider choosing an arbitral seat which is not connected jurisdictionally to the technology companies in dispute, and where the local law and judiciary is supportive of the process. Such options provide parties with a greater security of a fair and robust process.
5. Arbitration is speedy. Arbitration which cater for emergency arbitrators and accelerated tribunal formation may benefit technology-related disputes which have time-sensitive elements. Some of the leading arbitral institutions, such as the SIAC, provide for expedited arbitration procedures. The expedited procedure can be achieved in various ways, such as a documents-only procedure, or a full-arbitration procedure within an expedited timescale.
6. Enforcement of arbitral awards. Arbitral awards can be enforced through the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) in 157 countries worldwide. This is especially useful for an industry which is globalized. Such arbitral awards can only be challenged on very strict grounds.

In contrast, the enforcement of national judgments in other countries would face various difficulties. While court judgments have reciprocal enforcement regimes, they can be difficult and may take longer to process.

Drafting an arbitration agreement for technology-related contracts

In order to effectively mitigate the attendant risks of technology disputes, it is important for technology-related contracts to be drafted robustly. Some important clauses which technology companies can consider inserting into their contracts are as follows:

1. Consent to arbitrate. Parties should ensure that they can establish consent to the arbitration agreement.
2. Seat. It is important for parties to agree an arbitral seat, so as to avoid disputes about the applicable seat and/or procedural law. Parties should check that (i) the law of the chosen seat does not render the technology-related contract illegal or unenforceable, (ii) that the disputes likely to arise are arbitrable, and (iii) that the arbitration agreement in question will be upheld and enforced by the supervisory courts.
3. Formality requirements. Parties should ensure that the arbitration agreement meets formality requirements under the governing law of the arbitration agreement and the contract, the law of the seat, and wherever the award is likely to be enforced.
4. Confidentiality. Although arbitration is a confidential process between the parties, parties should still express in the arbitration agreement that they will keep the arbitration, together with all materials created and all documents produced in the proceedings, confidential except to the extent required for enforcement. This will ensure that the integrity of the sensitivity and confidentiality of the technologies involved, such that it will not be stolen by rivals.