Arbitration or Litigation?? A Highlight on Technology Transfer Contracts

By: Dr. Nida’ N. Goussous
Talal Abu Ghazaleh Legal


Technology Transfer Contracts became one of the most vital controlling economic tools used by developed countries - owners of technology- over developing countries in a new Economic Global Order which relies on the technological gap between developed and developing countries to control the economy worldwide, while developing countries look up to these contracts are the only tool for satisfying their requirements of development on all levels.

Technology is defined from an economic perspective as the group of new knowledge, skills and expertise which can be inverted to production processes or can be used for the production of goods and the rendering of services, whereas Technology is not the science itself though it is the applicable science.

Dispute resolution method is one of the controversial issues when a technology transfer contract is concluded between a developed and developing countries, the dilemma with developing countries is always whether to insist on choosing their national litigation system to resolve such disputes or to follow the usual trend of developed countries which go towards arbitration. 

Arbitration or Litigation?

Technology Transfer Contracts have a certain specialty which must be taken into account while choosing the dispute resolution method, particularly the non-stop development of the technology-subject matter of these contracts- which inclines to favor arbitration method rather than national litigation, due to the several attributes of arbitration which suit the special nature of these contracts.

Selection of arbitrators, confidentiality, the speed and flexibility of procedures, the maintenance of good relations between parties, the irrevocability of the arbitration award, are crucial attributes of Arbitration. On top of that the choice of the applicable law in this context is one of the most important attributes of arbitration which must be taken into account by developing countries.

Choosing the national litigation system by a developing country to handle a dispute arising from a technology transfer contract means the application of the national laws to the dispute in question.

The question is: Are these Laws Updated to that extend to handle technological matters in an international context? 

Arbitration provides its parties with the option to choose the applicable law to their respective dispute. On the contrary of the laws of developing countries, local laws of developed countries reflect in their essence the Lex Mercatoria.

Lex Mercatoria is originally a body of rules and principles laid down by merchants to regulate their dealings. It consisted of rules and customs common to merchants and traders in Europe, with some local variation. International commercial law today owes some of its fundamental principles to the lex Mercatoria. 

In this context, the applicable law to a dispute arising from a technology transfer contract must conform to the best practices of dealings related to these contracts.

International contracting on technology in the last decades has concluded certain principles and customs which constitute the Lex Mercatoria for international technology transfer practices, for instance granting the parties of these contracts the right to review the conditions of the a technology transfer contract, especially the long term contracts, after a certain period of time, taking in consideration the updates on the technology –subject matter of the contract along with the updates on the economic circumstances. Moreover, the scope of Force Majeure in a technology transfer contract is viewed in a different manner than the other common contracts.

These principles are usually reflected in the local laws of developed countries –the exporting party of technology-to keep their legislations up-to-date and avoid the legal loopholes therein while this is not the case with developing countries.

Accordingly, the option of choosing the applicable law in arbitration enhances the opportunity of the developing countries to attract foreign investors to bring their technology for development purposes as long as they will be satisfied with the legal protection of their rights on one hand. On the other hand, applying updated laws on such contracts will keep the developing country in a better legal position regarding the rights and obligations arising from technology transfer contracts. 

Another attribute arbitration provides, i.e. legislative fixation, which means that parties of a dispute can agree that the selected law to be applied on a certain dispute shall be applied as of the date of agreement. Accordingly, any further amendments to the selected law will not be applicable to the dispute and this will guarantee to the parties of arbitrated parties to apply the selected law with all its advantages apart from any amendments, and this option is not available if a national litigation system was chosen to resolve a dispute arising from a technology transfer contract.

Reaching a point in the near future where developing countries are able to develop their own technologies where technology transfer becomes a mutual process between developed and developing countries and not only a one-way process, is a desire for all economists and law practitioners in the developing countries in an attempt to abandon the expression “Transfer”, since accomplishing this desire means in turn the independency of their countries from one of the most common type of economic imperialism. 

Though, reaching a technological independency by developing countries needs to establish a sufficient legal infrastructure in order to be able to provide investors as well as innovators with a safe environment on both technological and economic levels.