International Arbitration: Apex and PartsCo
You are an associate at a large law firm. Your client, Apex Tech (“Apex”) is a sophisticated electronics and tech company located in the Pacific Northwest region of the United States. Apex recently developed a new computer system that increases speed and computing power, while reducing the size of the computing hardware and cost to the consumer. To facilitate production of this system, Apex is negotiating a long-term supply agreement with a European parts manufacturer named PartsCo S.A. (“PartsCo”), a company incorporated under the laws of France. Under the terms of the agreement, PartsCo. will supply, on a take-or-pay basis, a fixed number of parts per month. Most of the parts that will be supplied are based on Apex’s proprietary designs. All of these designs are considered as trade secrets and many are subject to various US and European patent and copyright protections. In order for the parts to be manufactured, Apex will be required to provide PartsCo with these designs. The contract has a 10-year term, with the option to renew it after the period expires. While negotiating the agreement, Apex’s General Counsel – Evelyn Stockmore – met with various officials from PartsCo, including the General Manager (Carlton Sherrett) and Production Manager (Jesse Mosley) from PartsCo-China LLC (“PartsCo-China”), a wholly-owned subsidiary of PartsCo. Ms. Stockmore also learned that, while PartsCo will be Apex’s counterparty in the agreement, and will be principally responsible for coordinating the logistical and economic aspects of the relationship, a large percentage of the parts that are to be delivered will be manufactured by PartsCo-China. As such, the overall arrangement will include two contracts: (a) the Fixed-Term, Take-or-Pay Supply Agreement; (b) the Non-Disclosure and Protection of Intellectual Property Agreement. Both contracts will be signed by your representatives from your client (Ms. Stockmore) and by PartsCo (Mr. Sherrett).
1. Stockmore is considering whether to include a choice of venue clause or an arbitration clause in the agreement with PartsCo. What are the pros and cons of arbitration versus litigation under the circumstances described above? Which form of dispute resolution do you recommend?
2. Would it be beneficial to include options for non-binding resolution into the dispute resolution process. What options would be available and what are the pros and cons of including them?
3. Would Apex have any recourse against PartsCo-China under the arrangement described above if it is determined that PartsCo-China has done something inconsistent with the contractual requirements.
4. Based on your advice above: (a) draft an arbitration clause appropriate for this matter; and (b) explain the choices that you have made with respect to the terms and details of the clause.
5. Assume that a dispute arises and an arbitration award is issued in Apex’s favor. Can Apex seek to enforce the award if PartsCo moves to set the award aside in the seat of arbitration? What should Apex do if the court sets the award aside.
Prepare a memo to the client addressing each of the issues referenced above v Rule that apply to the questions:
- the International Chamber of Commerce Rules of Arbitration,
- the International Bar Association Rules on the Taking of Evidence;
- the International Bar Association Rules on Conflict of Interests;
- the Convention on the Recognition and Enforcement of Foreign Arbitral Awards; and – the Federal Arbitration Act.