International Arbitration in 2022
The future of arbitration in the tech space
Tech companies are innovators and disruptors. But they have largely been traditionalists in the disputes space: habitual users of litigation and underrepresented in methods of alternative dispute resolution like arbitration. That is changing.
Tech companies are becoming more aware of investment treaty protection and are also turning to arbitration for disputes involving cryptocurrency, blockchain and artificial intelligence (AI).
The rise of tech-related investor-State disputes
The energy and industrial sectors have long relied on the power of investment treaties to protect investments against interference by foreign governments. The tech sector is now increasingly making use of investment treaties to protect them from or push back against adverse government action, including in response to concession cancellations, unfair and discriminatory data laws, and the protectionist use of tax, antitrust and foreign investment regulation.
A high-profile example is Uber’s January 2020 threat to bring a claim against Colombia under the US-Colombia Trade Promotion Agreement. In response to a complaint filed by a local competitor, the Colombian competition authority imposed a nationwide ban on Uber’s ride-hailing app. The ban was overturned shortly after Uber threatened to commence investment treaty arbitration against Colombia. Even more recently, Canadian and US investors filed claims against Mexico under NAFTA and USMCA following Mexico City’s cancellation of a concession to replace all analogue taximeters with digital ones and develop an accompanying ride-hailing app.
A number of recent investment treaty cases also implicate countries’ attempts to regulate data, security and cyber security. For instance, a Chinese company filed an arbitration against Ukraine following the blocking of a takeover of an aerospace company that allegedly owns sensitive technology, and Huawei notified a dispute against Sweden under the Sweden-China BIT after being banned from the country’s 5G rollout amid allegations of spying. Investment treaty protections are also being considered in relation to new rules around the world concerning the localisation of data.
We expect more of these disputes in the coming years, as tech companies increasingly become aware of the availability and power of investment treaties, and governments expand the regulation of the tech sector. These cases are also set to raise interesting questions relating to how investment treaties protect purely digital or delocalised platform investments, since treaties typically protect investments 'in the territory' of the host State, a question we explored in a recent podcast. And as we discussed in our Freshfields blog, with regulation poised to continue to ramp up, tech companies can and should structure their foreign investments to make sure that they are protected by investment treaties.
Commercial arbitration in the tech space—moving beyond M&A disputes
M&A and financing disputes involving tech companies have been on the rise, as the pandemic has unleashed a flurry of deal-making activity in the sector. But beyond instances of deals gone sour, other types of technology disputes are emerging.
Recent years have seen a proliferation of new products and services based on blockchain, complex AI (such as machine learning and neural networks) and augmented reality technologies, with many contracts for the development, sale or licensing of these novel technologies containing arbitration clauses. This is hardly surprising, as the benefits of arbitration for these increasingly borderless technologies are obvious: they allow the parties to select subject matter experts with relevant technical expertise to resolve their dispute in a confidential setting and obtain a readily enforceable award in any of the almost 170 countries that have ratified the New York Convention. We expect to see an increase in international arbitrations involving blockchain, AI and augmented or virtual reality as these technologies become more mainstream.
International arbitration often makes good sense in this sector: disputes can be resolved by expert decision makers, the confidentiality of the process means that proprietary or sensitive information can be kept out of the public eye, and the resulting award can be enforced easily around the world.
Cryptocurrency disputes are already in the spotlight, driven by the meteoric popularity of crypto exchanges that trade billions of dollars a day. One noteworthy example is the impending 'class action' arbitration reportedly involving thousands of individual claimants against Binance, the world’s largest crypto exchange, before the HKIAC. The dispute arose out of an hour-long shutdown of parts of the Binance online trading platform on 19 May 2021, a day that saw one of the largest historical drops in the value of bitcoin, which is said to have caused huge losses to users who were unable to access their accounts and trade. In a second ICC arbitration against Binance, a European investor is reportedly seeking US$140m in damages on the basis that his funds were allegedly unjustly liquidated by the exchange’s automated liquidation system.
The continued growth and popularity of crypto exchanges sets the stage for future arbitrations brought by traders under the platforms’ terms of service, many of which include arbitration clauses. Crypto exchanges would be well advised to review their arbitration clauses, and in particular their treatment of mass claims.