Arbitrator Impartiality in IP Licensing Deals: A Checklist

Arbitrator impartiality in an IP licensing agreement is not a courtesy you hope for later. It is a set of terms a small business can write into the contract now, before any dispute exists and while you still hold leverage. Most owners never ask. They sign a boilerplate arbitration clause and assume the neutral will be neutral. The disclosure rules only surface after an award has already gone against them.

The law gives you a strong starting point. An arbitrator must disclose anything that could create an impression of bias, and that duty runs for the whole proceeding, not merely the first day. But the standard clause rarely says how disclosure works or what happens when a conflict surfaces mid-case. That gap is yours to close at the drafting table.

Why Arbitrator Impartiality in an IP Licensing Agreement Is a Contract Term

In Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145 (1968), the Supreme Court vacated an award. The arbitrator had failed to disclose a business relationship with one of the parties. The Court set a demanding rule. Arbitrators must “disclose to the parties any dealings that might create an impression of possible bias,” and nondisclosure can sink an award even without proof of actual bias.

Under the Federal Arbitration Act, 9 U.S.C. § 10(a)(2), a court may vacate an award for “evident partiality.” That sounds protective. In practice it is a narrow, after-the-fact remedy, and courts still split on how strong the showing must be, as the Penn State Law Review has documented. You do not want to be litigating that standard after you have already lost. The cheaper protection sits upstream, in the clause language, a point we set out in our guide to the true cost of arbitration clauses in small business contracts.

The Ongoing Disclosure Duty You Can Point To

The single most useful fact for a licensor is simple. Disclosure is a continuing obligation, not a one-time form. Under Canon II of the AAA/ABA Code of Ethics for Arbitrators in Commercial Disputes, a person asked to serve must disclose any known financial or personal interest in the outcome, plus any past or present business, professional, or personal relationship that might reasonably affect impartiality. The duty then continues at every stage of the case.

This matters in IP licensing, where the pool of qualified arbitrators is small. A neutral who understands patent claim construction or software royalty audits may also consult for firms in your sector. Relationships form. When one forms mid-case, the arbitrator must speak up. A 2023 federal decision reported by Global Arbitration News vacated an award after the arbitrator began a new business relationship during the proceeding without adequate disclosure.

The Checklist: What to Demand Before Signing

Work through these before the licensing agreement is executed. Each is a term you can request. Put it in writing. Most drafting parties accept the reasonable ones, because refusing looks like they want a tilted process.

1. Name the disclosure standard by reference. State that the arbitrator must comply with the AAA/ABA Code of Ethics and make disclosures “as a continuing obligation throughout the proceeding.” This converts an ethical norm into a contractual promise you can enforce.
2. Require a written conflicts questionnaire before appointment. Ask for prior engagements with either party, their counsel, their affiliates, and any competitor in the same technology field over a defined lookback, such as five years.
3. Set the number of arbitrators deliberately. A sole arbitrator is cheaper and faster. A three-member panel gives a mid-size or high-value license more insulation against one bad neutral. Pick based on the royalty stakes, not the template default.
4. Control the selection method. Specify a strike-and-rank process from an administered list, so neither side unilaterally picks the decision-maker. For cross-border licenses, name a specialized forum such as the WIPO Arbitration and Mediation Center, which keeps a roster of arbitrators with genuine IP expertise.
5. Add a mid-case challenge procedure. Define how a party raises a conflict discovered after the hearing starts, and give the administering institution authority to rule on it. Without this, your only remedy is a post-award court fight under Section 10.
6. Require reasoned awards. A “reasoned award” forces the arbitrator to explain the decision. That transparency makes hidden partiality harder to bury and gives you something concrete to test on review.
7. Include a clean severability clause. If a court later finds one term unenforceable, you want the rest of the clause to survive. That is the blue-pencil safeguard below, and it belongs in every dispute-resolution provision.

The Blue-Pencil Doctrine and Your Severability Clause

Courts sometimes repair a flawed arbitration clause instead of tossing it out. Under the blue-pencil approach, a judge can strike an offending term and enforce the rest, provided the core agreement to arbitrate still stands, as surveyed in this SSRN analysis of unconscionable arbitration agreements. It cuts both ways here.

Say your clause quietly favored the licensee, and a court blue-penciled the worst term. You could still be stuck arbitrating under a lopsided remainder. So draft the clause you actually want. Then add a severability provision that states your intent if any single sentence fails: the parties intend the agreement to arbitrate to survive the removal of any unenforceable term.

Arbitration Versus Litigation for an IP License

Owners often ask whether to arbitrate at all. Two factors settle it for most IP licenses. Arbitration keeps trade secrets and royalty terms out of the public record, and an arbitral award crosses borders more easily than a court judgment under international treaties. Litigation buys appeal rights and public precedent. If your revenue rides on a secret formula or a codebase, arbitration usually wins. Our fuller comparison sits in alternative dispute resolution for small business contract disputes.

The One Thing to Do Before You Sign

Read the dispute-resolution clause as carefully as you read the royalty rate. The neutrality of the person who will one day decide a dispute is set by language you can still edit today. If the clause is silent on disclosure or mid-case challenges, that silence favors whoever drafted it. A second set of eyes on the arbitration provisions costs far less than contesting an award after the fact.