New Hague Convention Alarms IT Firms

by Robin Pilgrim, LawAndTax-News.com, London

16 May 2005

The Hague Convention on Exclusive Choice of Court Provisions is due to be agreed at a 'diplomatic' conference in June, but many IT firms are unhappy about the inclusion of 'non-negotiated' business contracts in the remit of the Convention.

Last week, a number of US firms, including A T & T, MCI, SBC and Verizon, wrote to the State Department asking for the exclusion of such contracts, but it is far from clear that this will be achieved.

The Hague Conference on Private International Law is an intergovernmental organization, with 64 Member countries, which was established over a hundred years ago to negotiate and draft multilateral treaties or Conventions in the different fields of private international law. The Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Cases, later renamed as the Hague Convention on Exclusive Choice of Court Provisions ('the Convention') has been under negotiation for more than 10 years.

The Convention will create jurisdictional rules governing international lawsuits and provide for recognition and enforcement of judgments by the courts of Member States. Member States, of which the US is one, would be required to recognize and enforce judgments covered by the Convention. The scope of the Convention has been narrowed considerably from the original proposals, and now covers only certain business-to-business (B2B) contracts in which the parties have chosen which court will have jurisdiction. The current draft requires signatory states to enforce rulings from this exclusively chosen court, subject to an exception for judgments that are "manifestly incompatible with public policy," or to specific treaty exceptions, such as one for certain antitrust claims.

The ISPs and telcos who have written to the US State Department fear that, unless non-negotiated contracts are excluded, US companies could find themselves bound to accept foreign court rulings although they had no choice over the selection of the forum for dispute resolution. Their concerns have a major IP dimension, partly because of the EU Directive on the Enforcement of Intellectual Property Rights, which goes far beyond the equivalent US legislation.

The International Chamber of Commerce (ICC) is backing the current draft. ICC Secretary General Maria Livanos Cattaui said: "The document that is now going forward for final negotiations is on the right lines." A recent ICC survey, submitted to government representatives negotiating the draft convention in The Hague, asked 100 leading companies whether any significant decision had ever been determined by uncertainty regarding the court that would resolve disputes or the law that would apply to the contract. Forty-one percent of respondents said ‘yes’.

Some key terms of the current draft of the Convention are as follows:

• The convention is intended to provide certainty that courts have jurisdiction to hear disputes between business and commercial parties who have entered into a contract ("B2B contracts") and that the courts of other countries will recognize and enforce the judgments issued by those courts.
• The convention applies to commercial contracts that specify that if there is a dispute between the parties to the contract, the proceedings will be heard and decided by a particular court (or the courts of one particular country).
• Commercial contracts for copyrighted materials are covered by the convention. The convention does not apply to proceedings that mainly concern a dozen other specified matters including the validity of other intellectual property rights.
• The general rule, with exceptions, is that the court chosen in the parties' agreement should hear the dispute brought before it, and that if the dispute is brought before another court (other than the one designated in the agreement), that court will decline to hear the case. Again, there are exceptions, including that "the agreement is null and void" and that "giving effect to the agreement would lead to a very serious injustice or would be manifestly contrary to fundamental principles of public policy."

ISPs have expressed concern that the current draft treaty could accelerate a trend of foreign countries claiming jurisdiction over US web sites, such as in the recent controversial case involving Yahoo! In that case, a French court ordered Yahoo! to prevent web users in France from accessing a site containing racist materials. Under the draft treaty, a US court could refuse to enforce the French judgment only if the American court found that enforcement would violate public policy (such as embodied in the First Amendment). Other countries that were signatories of the treaty, however, might well enforce the French court judgment.

Some changes were made to the draft at a meeting in April, 2005, to tighten up the wording of the Convention as regards IP, clarifying that the Convention does not cover:

• validity of intellectual property rights other than copyright or related rights;
• infringement of intellectual property rights other than copyright or related rights[, except where infringement proceedings are or could have been brought pursuant to a contract for the transfer or use of such rights].

This drafting would make clear that only the validity of IP rights (other than copyright or related rights) and – if the second sub-paragraph is adopted – infringement of such rights are excluded from the scope. So IP as such, and in particular IP-related contract litigation, is within the scope of the Convention. Moreover, the wording within square brackets avoids narrowing too much the types of IP-related contracts covered: although in general, infringement of IP rights other than copyright or related rights is outside the scope of the Convention, contract-related infringement proceedings would be included in the scope. The exception for infringement proceedings would thus be narrowed to mere piracy cases where there is no contractual link between the right-holder and the infringer.

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