Name of the Author: Jahnavi Gopaluni

Qualification: B.A. LL.B. (Hons.) IV Year, Batch of 2020-2025.

Institution: Damodaram Sanjivayya National Law University, Visakhapatnam, Andhra

Pradesh – 531035.

Ph No. 8985192070

Title: Arbitration in M&A Tech Deals: Key Trends and Challenges for 2024
 Arbitration in M&A Tech Deals: Key Trends and Challenges for 2024

Introduction

In the dynamic area of technology related mergers and acquisitions (M&A), adept
management of these transactions remains crucial. As we transition into 2024, the
prominence of arbitration in M&A tech deals is increasingly evident. The scope of disputes
extends not only to the transactional matters of the deals but also affect mass number of tech
consumers. Given the integral role of artificial intelligence, due considerations for consumer
protection and compliance with data protection regulations emerge as critical components in
the resolution framework.

One might wonder how tech giants settle disputes when forging multimillion-dollar deals.
The answer lies in the concept of arbitration, a nuanced and strategic approach to dispute
resolution that has become increasingly integral to the process of M&A transactions within
the tech sector. Arbitration serves as a critical linchpin in M&A tech deals, offering a
confidential and efficient alternative to traditional litigation. The speed at which deals are
executed is matched only by the velocity at which disputes can arise. The importance of
arbitration becomes even more pronounced when considering the need for a swift and private
resolution mechanism in order to tackle unique challenges presented by technology-driven
businesses.

In the context of Tech M&A Deals, while attention often gravitates towards headline-worthy
megadeals involving publicly listed players, the vast majority involves privately negotiated
transactions. In M&A transactional practices, two types of mechanisms stand out for
addressing disputes: Typical arbitration clauses and detailed customary claims handling
provisions that are usually incorporated within Share or Asset Purchase Agreements (SPAs). 1

Typical Arbitration clause

Share or asset purchase agreements typically incorporate an array of representations and

warranties, particularly concerning the acquired business. Over the past few decades, disputes

1
Tim Samples & Atman Shukla, ‘Arbitration of M&A Transactions: A Practical Global Guide’, (2020) 2 ITA
Rev. 95.
arising from breaches of these representations and warranties have seen a significant uptick.
Arbitration clauses in SPAs commonly reference leading arbitration institutions such as the
American Arbitration Association/International Centre for Dispute Resolution (AAA/ICDR)
or Singapore International Arbitration Centre (SIAC) etc. 2 These clauses adhere closely to
model clauses recommended by these institutions. Generally, negotiations on arbitration
clauses tend to be binary – a straightforward decision on arbitration, with subsequent
discussions primarily focusing on the arbitration institution and the seat of arbitration.
Limited negotiations may occur concerning issues like discovery and the application of fast-
track arbitration rules or emergency arbitrators, particularly in cross-border transactions
involving U.S. and non-U.S. parties. While a three-member arbitration panel is customary,
language rarely becomes a point of contention. 3

Customary Claims Handling Provisions

The majority of SPAs include provisions for handling claims brought by third parties against
the target or its subsidiaries. These provisions aim to manage conflicting interests,
considering the target's desire for swift settlements, the seller's interest in robust defence, and
the buyer's strategic positioning to safeguard recourse claims against the seller under the SPA.
4

Projecting to 2024 and beyond, when technology related transactions are in the picture,
involvement of AI introduces complexities in M&A deals, giving rise to disputes related to
technology integration, intellectual property rights, and contractual obligations. Ambiguities
in AI capabilities, ethical concerns, and data governance can contribute to disagreements
between parties. 5 The EU's ambitious tech regulations may lead to disputes over compliance,
data protection, and antitrust issues in M&A transactions. Navigating the intricate regulatory
landscape becomes a potential source of contention, particularly if parties interpret and
implement regulations differently. As technology continues to shape the future of business,
understanding the intricacies of alternative dispute resolution mechanisms, key trends and
challenges becomes not only a strategic advantage but a necessity.
2
Iván Szász, ‘Introduction to the Model Law of UNCITRAL on International Commercial Arbitration’, in Pieter
Sanders (ed), ICCA Congress Series No. 2 (Lausanne 1984): UNCITRAL’s Project for a Model Law on
International Commercial Arbitration, ICCA Congress Series, Volume 2 (Kluwer Law International & ICCA
1984) 31-47.
3
Aditi Singh, ‘Dispute Resolution in Complex M&A Disputes’, (2021) 2 Law Essentials Journal 71-79.
4
Michael Hwang & Rajesh C. Muttath, ‘Arbitration in Company Matters’, (2001) 5 International Business Law
Journal 555-570.
5
Gary L. Benton & Steven K. Andersen, ‘Technology Arbitration Revisited’, in Gregory Kochansky
(ed), Dispute Resolution Journal, (Kluwer Law International & AAA-ICDR 2019, Volume 74, Issue 4) 1-26.
Key trends that are shaping the future of arbitration in M&A tech deal

Regulatory shift in international cross-border disputes

The regulatory framework for international cross-border dispute settlement in arbitration is

primarily governed by the New York Convention, also known as the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards. 6 Adopted by the United Nations in
1958, the New York Convention is often described as the cornerstone of international
arbitration. It requires courts of the contracting states to give effect to an agreement to
arbitrate and to recognize and enforce awards made in other states, subject to specific limited
exceptions. The New York Convention has been instrumental in promoting arbitration as a
preferred method for the resolution of international commercial disputes. It provides a
harmonized legal framework that facilitates the enforcement of arbitral awards across
borders, thereby enhancing the predictability and certainty of international commercial
transactions. 7

In addition to this, in recent, there have been ongoing efforts towards global harmonization
especially in the context of cross-border transactions that companies engage in. One notable
regulatory shift is the Singapore Convention on Mediation also known as the United Nations
Convention on International Settlement Agreements Resulting from Mediation which is a
new multilateral treaty developed by the United Nations Commission on International Trade
Law (UNCITRAL). The lack of a cross-border mechanism for giving legal effect to mediated
settlement agreements is said to be a significant barrier to the willingness of some companies
to use mediation. This has made some companies hesitant to use mediation because, without
clear rules, they might end up back in court or arbitration if things don't go as planned.

The Convention sets up a clear and standardized process for making sure that both parties
stick to what they agreed on in mediation, especially in international business disagreements.
It works similarly to a well-known set of rules from 1958 called the New York Convention,
but for mediated agreements instead of arbitral awards. The main objective is to make it
easier to resolve disputes by mediation and effective enforcement of mediated settlements.

6
United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10
June 1958) 21 UST 2517, 330 UNTS 3.
7
Timothy Schnabel, ‘The Singapore Convention on Mediation: A Framework for the Cross-Border Recognition
and Enforcement of Mediated Settlements’ (18 September 2018) <https://ssrn.com/abstract=3239527> accessed
30 September 2020.
There was a recognized need for a fresh approach to address the common conception that
even though when a company successfully resolves a contract dispute through mediation, it
might still end up restarting the process in court or arbitration to enforce the settlement
agreed upon. This concern is especially relevant for disputes arising from breaches of
contract. If, after a successful mediation, the outcome merely leads to another contract that
needs to be enforced through regular legal proceedings, the attractiveness of mediation
diminishes. 8

The international business community emphasized the critical importance of developing the
Convention to tackle this issue. The success of the Singapore Convention on Mediation in
promoting and expanding the use of mediation, much like how the New York Convention
facilitated the growth of arbitration depends entirely on its widespread adoption by numerous
countries. 9

The Interplay of Digital Regulations and Arbitration in Tech M&A Transactions

The recent surge in digital regulations, particularly in the context of the European Union’s
(EU) regulatory ambitions, is significantly impacting tech companies, impacting their
strategies and legal considerations. The EU’s robust regulatory agenda in the digital space is
reshaping the way tech companies operate. The European Union’s (EU) digital data privacy
regulations, particularly the General Data Protection Regulation (GDPR), have significantly
10
impacted tech companies and their transactions. They address concerns related to
competition, consumer protection, and platform responsibilities.

In the light of plethora of data privacy and digital regulations, new complexities arise for tech
companies engaged in M&A transactions must navigate the regulatory requirements
applicable to digital assets, data protection, and antitrust considerations. Disputes may arise
over compliance issues, valuation disputes, or contractual disagreements, necessitating
arbitration as a preferred means of resolution to maintain confidentiality and efficiency. 11

8
Jean-Claude Najar, ‘The Inside View: Companies’ Needs in Arbitration’, in William W. Park (ed), Arbitration
International, (Oxford University Press & The Author(s) 1996, Volume 12, Issue 3) 359-372.
9
United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10
June 1958) 21 UST 2517, 330 UNTS 3 (hereinafter ‘NYC’).
10
General Data Protection Regulation (EU) 2016/679.
11
Ananya Bajpai and Shambhavi Kala, ‘Data Protection, Cybersecurity and International Arbitration: Can They
Reconcile?’ (2020) 8(2) Indian Journal of Arbitration Law 1-8.
The changing regulatory framework has implications for Investor-State Dispute Settlement
(ISDS) claims involving tech companies. As regulatory measures become more stringent,
companies may find themselves in disputes with states over the application and interpretation
of digital regulations.

Tech companies and arbitration practitioners alike must stay abreast of regulatory
developments, anticipate potential disputes, and leverage arbitration as a strategic tool to
address the opportunities and risks presented by the evolving regulations. 12

Technological advancement

Different stakeholders such as parties, counsel, tribunals, secretaries, and arbitral institutions
share the goal of procedural efficiency, it may seem natural for all of them to adopt
technological developments that can make arbitration faster, more reliable, and more cost-
effective. Recent years, digital technologies have been playing an increasingly significant role
in the practice of arbitration, and further technological acceleration is likely in the future. A
veritable paradigm shift has taken place as a result of the COVID-19 pandemic, with a
sudden large-scale adoption of videoconferencing for the conduct of oral hearings. Whilst, for
decades, long-distance communication has been deemed mostly adequate for case-
management conferences and organizational communications among tribunals, institutions
and parties, the pandemic has forced the arbitration community to conduct oral hearings
digitally, including the taking of oral evidence. 13

From online case management platforms to the application of data mining techniques to
arbitral awards and to the electronic processing of mass arbitration claims, shift to Online
14
Dispute Resolution (ODR) has become seamless and emergent. With the acceleration of
remote work and international collaborations, companies are increasingly opting for ODR

12
United Nations Convention on International Settlement Agreements Resulting from Mediation (Singapore, 7
August 2019) UN Doc A/RES/73/198 (entered into force 12 September 2020).
13
Maxi Scherer, ‘The Legal Framework of Remote Hearings’ in Maxi Scherer, Niuscha Bassiri and Mohamed S
Abdel Wahab (eds), International Arbitration and the COVID-19 Revolution (Wolters Kluwer 2020) 65; Maxi
Scherer, ‘Remote Hearings in International Arbitration: An Analytical Framework’ (2020) 37(4) Journal of
International Arbitration 407.
14
Karen Stewart and Joseph Matthews, ‘Online Arbitration of Cross-Border, Business to Consumer Disputes’
(2002) 56 U. Miami L. Rev. 1111.
platforms, enabling efficient and cost-effective resolution while overcoming geographical
barriers.

According to a report by Deloitte (2023), the integration of smart contracts facilitated by

blockchain technology is streamlining contractual processes, potentially reducing the number
of disputes arising from contractual ambiguities. Moreover, AI-powered analytics are being
increasingly utilized to predict potential points of contention in M&A negotiations, enabling
proactive dispute resolution strategies. 15

Key challenges

Need for regulatory compliance and effective drafting of arbitral clauses

The fast-paced digital transformation in the tech industry introduces regulatory changes
regularly. Ensuring that arbitration procedures remain compliant with these shifts, especially
in cross-border scenarios, can be challenging. Failure to comply may jeopardize the
enforceability of arbitral awards. Parties involved in M&A tech deals should stay vigilant
about regulatory changes, and arbitral institutions must incorporate mechanisms for swift
adaptation. Parties involved need to invest time and resources in the early stages of
negotiations to carefully draft arbitration clauses that not only align with current technology-
related regulations but also anticipate potential future changes.

High costs of Arbitration

Arbitration, while considered a robust dispute resolution mechanism, can be financially

burdensome. In M&A tech deals, where the stakes are high and the complexity of disputes
often increases, the cost factor becomes a significant challenge. Arbitral institutions must
recognize the challenge presented by the issue of costs, understanding that this factor alone
could undermine the very foundations of arbitration. The solution goes beyond merely
offering top-notch services to justify high fees. Instead, institutions should actively seek
opportunities to reduce costs by implementing effective management techniques in their day-
to-day operations. Streamlining costs is crucial to ensuring the sustainability of arbitration as
a preferred dispute resolution method.

15
Deloitte, ‘15th Annual Tech Trends Report’ (2024) <https://www2.deloitte.com/us/en/insights/focus/tech-
trends.html/#introduction> accessed 21 January 2024.
If the challenge of costs remains unresolved, parties may eventually, and perhaps wisely or
not, turn to alternative dispute resolution mechanisms. This mirrors the development of ADR
methods in the United States, which emerged partially in response to dissatisfaction with the
costs and duration of proceedings in US courts. Ironically, the alternative to expensive
arbitration could end up being the national courts themselves, completing a full circle.

Arbitration should be more firmly grounded in the practical realities of the business world.
Failing to do so risks making arbitration overly complex, excessively sophisticated,
intellectually captivating but impractical, and ultimately cost-prohibitive. It is crucial for
arbitration to align with the needs and expectations of the business community to maintain its
relevance and effectiveness.

Conclusion

Arbitration's significance is growing, extending beyond deal specifics to encompass diverse

challenges faced by tech companies. This is marked by AI integration, regulatory shifts,
digital regulations and global harmonization for cross-border dispute resolution. The
interplay of EU digital regulations and technological advancements like blockchain and AI
introduces complexities demanding careful consideration in arbitration strategies.

Despite arbitration's efficiency and confidentiality advantages, challenges persist. Proactive

approaches to regulatory compliance and cost-effective management techniques are crucial.
Looking ahead to 2024, the tech industry's trajectory suggests a continued evolution of
challenges and opportunities. Thus, A strategic and adaptable approach will be crucial for
arbitration's success in the tech sector.