The Essential Role of Courts for Supporting Innovation

Abstract

Commercial parties commonly resolve their disputes in arbitration rather than courts. In fact, some estimate that as many as 90 percent of international commercial contracts opt for arbitration of future disputes, and others claim that some industries never resort to courts. However, a study of arbitration clauses in a wide variety of contracts, including franchise agreements, CEO employment contracts, technology contracts, joint venture agreements and consumer cell phone contracts, reveals that parties very often carve out a right to resort to courts for the resolution of claims designed to protect information, innovation, and reputation. Studies of international and cross-border contracts indicate that the preference for courts requires that parties are comfortable with available court systems, but when courts are thought to adequately protect information and innovation, they appear to be superior to arbitration. The data suggests that nations wishing to compete effectively for technologically-sophisticated investments must do more than credibly commit to enforcing arbitration clauses and awards. Court reforms are likely essential.