[Gnso-igo-ingo-crp] Arbitration costs would be HIGHER than court costs

[George Kirikos]

Hi folks,

I believe that the backers of Option #3 are incorrect to claim that
arbitration would be less expensive than the courts.

I provided some preliminary discussion of this imporant point at the
end of a prior email at:

http://mm.icann.org/pipermail/gnso-igo-ingo-crp/2017-October/000884.html

"Costs -- it's naive to believe that costs would be lower in
arbitration than in a judicial case, while trying to emulate the due
process protections of a court. One need only look at a recent IRP
that ICANN lost:

http://domainincite.com/21481-icann-loses-another-irp-sport-gtld-fight-reopens-as-panel-finds-apparent-bias

where the costs of the IRP itself (*not* counting lawyers fees of each
party) amounted to $152,673. In real courts, the actual disbursement
costs and filing fees are relatively low (hundreds of dollars, maybe
thousands in a complex case), because the most substantial cost,
namely the labour cost for the judge (their salary) is paid for by
TAXPAYERS! Not so in an arbitration, where the parties themselves have
to pay for the costs of the panelists (3 panelists, multiplied by
hundreds of dollars per hour, multiplied by many hours adds up
quickly)."

but wanted to have a focused discussion just on this point.

Here are some additional references to consider (I saved the best for
last, since like the above it directly involved ICANN, so jump to the
bottom if you'd like):

(1) http://www.lawmemo.com/arb/res/cost.htm

"Here, Public Citizen presents the first comprehensive collection of
information on arbitration costs. We find:

The cost to a plaintiff of initiating an arbitration is almost always
higher than the cost of instituting a lawsuit. Our comparison of court
fees to the fees charged by the three primary arbitration provider
organizations demonstrates that forum costs- the costs charged by the
tribunal that will decide the dispute- can be up to five thousand
percent higher in arbitration than in court litigation. These costs
have a deterrent effect, often preventing a claimant from even filing
a case.

Public Citizen's survey of costs finds that, for example, the forum
fee for a $60,000 employment discrimination claim in the Circuit Court
of Cook County, Illinois is $221. The forum fees for the same claim
before the National Arbitration Forum (NAF) would be $10,925, 4,943%
higher. An $80,000 consumer claim brought in Cook County would cost
$221, versus $11,625 at NAF, a 5,260% difference. These high costs are
not restricted to NAF; for the same $80,000 claim, the American
Arbitration Association (AAA) would charge the plaintiff up to $6,650,
and Judicial Arbitration and Mediation Services (JAMS) would charge up
to $7,950, amounting to a 3,009% and 3,597% difference in cost,
respectively."

(2) https://m.mayerbrown.com/Files/News/04165fd5-5165-41ea-bb6f-19d9235c171d/Presentation/NewsAttachment/7e531e5e-4040-4251-b1a8-1d4b6168c99b/Practice%20Note_Duncan_Pros-Cons-Arbitration_oct12.pdf

"It is often said that arbitration is quicker and cheaper than
litigation. However, arbitrations may in certain cases actually be
more protracted and more expensive than litigation. There are numerous
reasons for this, including: - the additional costs payable in
arbitration which are not applicable in court proceedings. For
example, the requirement to pay the arbitrators’ fees, any
institutional administrative fees and to pay to hire the hearing venue
- poorly drafted contracts with arbitration agreements which fail to
provide an adequate and practical framework for the conduct of the
arbitration proceedings - tribunals being unwilling to control the
timetable and the parties’ conduct for fear of challenges to the
subsequent award on the grounds of unfairness Disputed enforcement
proceedings (although this is an area which various arbitral
institutions are working hard to address, for example with the new ICC
Rules)"

(3) https://www.attorneygeneral.jus.gov.on.ca/english/family/arbitration/cost.php

"It is often thought that arbitrations are cheaper than court-based
litigation, because people may agree on a streamlined procedure and
avoid delays that may occur in the formal court process.

However, an arbitration that is contested may turn out to be longer
and more expensive than going directly to court. The parties may end
up in court fighting about the arbitration as well as their original
dispute."

[George's note: Note, it's clear that for the case of an IGO dispute involving a
domain name owner, where it already went to UDRP, already fought a
battle re: "immunity", that it is a heavily contested case, so would
very likely end up being more costly than court due to the payment of
the arbitrators' fees (which are going to be triple in total due to
the 3 person panel).]

(4) http://thefirmdubai.com/new/publicationdetails/114

"It is submitted that one of the first things to consider should be the
value of the contract and, more precisely, the amount that would be
the subject of a claim if a potential dispute arises. This is
important because arbitration costs and attorney fees for the same are
usually much higher than court fees and attorney fees for litigating
the case. Dubai courts (mainland courts) have a cap on their fees
equivalent to AED 40,000 regardless of the value of the claim, while
there is no cap for arbitration cases. By way of example, a claim with
a value of AED 3 million before Dubai courts (mainland courts) would
not involve more than AED 40,000 of court fees. However, the
same-value arbitration would cost AED 130,000 before a single
arbitrator, and three times this amount (roughly AED 350,000) if the
contract provided for a three-arbitrator panel. Moreover, if you
successfully obtained the award, you would have to pay an additional
AED 40,000 by way of court fees to enforce the award.

Furthermore, the number of panel arbitrators should be carefully
considered because the fees of an arbitration panel of three
arbitrators will be three times that of a sole arbitrator. Recently, a
client, an international supplier of building materials instructed our
firm to commence proceedings against a main contractor to claim an
outstanding balance. Upon review of the supply contract, we discovered
the presence of a UNCITRAL arbitration clause whereby any dispute was
to be resolved through a panel of three arbitrators. When informed of
the estimate of arbitration and attorney fees, the client’s
representative refused vehemently to proceed down that route for
economic reasons. In the words of the client’s representative, the
fees were “exorbitant”. However, luckily, after the client submitted
to us additional documents, we detected a loophole in the contract,
which we used to avoid the arbitration agreement. Hence, the decision
was taken to bring proceedings before the Dubai mainland court."

[George's note: Of note, UNCITRAL rules have been brought up several
times in this PDP as potential rules to follow, and the above is a
clear example of parties to a dispute wanting to avoid their use
because the costs would be "exorbitant".]

(5)(a) http://domainincite.com/4580-icann-tries-to-dodge-jobs-legal-fees

"ICANN is still smarting from the last time it headed to arbitration,
for its Independent Review Panel over ICM Registry’s .xxx top-level
domain.

ICANN lost that case in February 2010, and had to cover the panel’s
almost $500,000 in costs, as well as its own legal fees. The overall
price tag is believed to have comfortably made it into seven figures."

(5)(b) https://www.thedomains.com/2010/02/20/report-finds-against-icann-in-denying-the-xxx-extension-charges-them-the-475k-cost/

"Yesterday an independent panel, the International Centre For Dispute
Resolution (pdf) found in a 80 page decision, in favor of the ICM
Registry against ICANN for its decision to eventually reject the .xxx
extension and ruled that ICANN had to pick up all the costs of the
independent panel to the tune of $475K and reimburse ICM the fees it
paid for the application to the tune of another $241K. (ICM is stuck
for its own attorney fees)."

(5)(c) https://www.icann.org/en/system/files/files/-panel-declaration-19feb10-en.pdf

"Therefore, the administrative fees and expenses of the International
Centre for Dispute Resolution, totaling
$4,500.00, shall be borne entirely by ICANN, and the compensation and
expenses of the Independent Review Panel, totaling $473,744.91, shall be
borne entirely by ICANN. ICANN shall accordingly reimburse ICM Registry
with the sum of $241,372.46, representing that portion of said fees and
expenses in excess of the apportioned costs previously incurred by ICM
Registry."

(from the full ICDR decision, costs on page 70)

[George's note:] ICANN paid nearly $500,000 just to cover the IRP
panel fees in the .xxx arbitration (not counting its own legal fees)!
There's no court in the world where the court fees would ever amount
to such a high level for such a case (because, as I've noted earlier,
it's the taxpayers who pay the salaries of judges in court, whereas in
arbitration it's the parties who pay those steep costs).

Thus, while arbitration is presented as a solution to improve access
to justice, it'd actually have the exact opposite effect, *increasing*
the barriers to justice due to the prohibitive costs involved.
Contested intellectual property disputes are by their very nature
complex compared to other litigation, and the costs would accordingly
be high for an arbitration where the parties have to pay the hourly
fees of panelists.

Sincerely,

George Kirikos
416-588-0269
http://www.leap.com/