Patent and knowhow licence agreement for the sale of Technology / Law applicable to the alleged breach of the agreement / Cumulative application of the rules of conflict of the countries having a relation to the dispute (U.S., Italy, Switzerland) including EEC Convention of June 19, 1980 on the Law Applicable to Contractual Obligations / The presumption of application of Article 4 (2) of the EEC Convention concerning the application of the law of the country where the party who has to perform the characteristic obligation has his habitual residence is disregarded in application of Art. 4(5) of the EEC Convention / Application of the law of the place of performance and location of the subject matter of the contract, supplemented by the lex mercatoria

'Whereas on/or about June 22, 1979, the parties entered into an exclusive licence Agreement pursuant to which Claimant [a U.S. Company] was granted the exclusive right to manufacture and sell equipment based upon Defendant's [an Italian Company] patents and proprietary technology.

Whereas Claimant alleged that Defendant failed to deliver in a timely fashion the construction drawings, specification plans, blue prints, etc..., as well as the equipments and components which had been ordered by the Claimant.

Whereas Claimant alleges that as a result of such breaches of the exclusive licence Agreement, it had suffered damages amounting to U.S.$ 3 million.

Whereas Defendant denies being in breach of the exclusive licence Agreement and alleges that the Agreement was lawfully terminated by it as a result of Claimant's failure to pay royalties due under the Agreement.

Whereas Defendant alleges that Claimant, during the period of Agreement, failed to make any sales of Defendant's machinery, was unwilling or unable to manufacture a prototype machinery for inspection in the United States, and was unwilling or unable to devote sufficient amounts of capital, time and efforts to create customers or market approval for Defendant's technology.

Whereas Defendant alleges that as a result of such breaches of the exclusive licence Agreement, it had suffered damages amounting to U.S.$ 3 million.

Whereas the Terms of Reference provide that the Arbitral Tribunal shall decide on the substantive law applicable to the dispute through an interim award, within the meaning of article 32 of the Swiss Intercantonal Arbitration Convention.

Whereas the Defendant/CounterClaimant requested the application of the lex mercatoria, including the general principles of law and equity, as substantive law applicable to the dispute.

Whereas the Claimant/CounterDefendant requested the application of American law generally and Massachusetts law in particular, as substantive law applicable to the dispute, with reference if needed to the lex mercatoria, as such law finds its sources in trade usages within the meaning of Article 13(5) of the ICC Rules of Conciliation and Arbitration.

Whereas by telex addressed to the Chairman, the counsel of Defendant/CounterClaimant informed the Arbitral Tribunal that he considered that the lex mercatoria should be the law applicable to the litigation, although he had no objection to the application of Massachusetts law, if the arbitrators deem such law appropriate.

Whereas such telex cannot be interpreted as an agreement of the Defendant/CounterClaimant to accept Massachusetts law as the law applicable to the dispute.

Whereas it thus appears necessary for the Arbitral Tribunal, to resolve this issue through an interim award.

Whereas Article 13 of the ICC Rules provides at (3) that:

"In the absence of any indication by the parties as to the applicable law, the arbitrator shall apply the laws designated as the proper law by the rule of conflict which he deems appropriate."

and at (5):

"In all cases the arbitrator shall take account of the provisions of the contract and the relevant trade usages."

Whereas the ICC Rules do not oblige an arbitrator to follow the choice of law rules of the seat of the arbitration, in the present case, the Swiss Rules of Conflict.

Whereas according to current ICC arbitration practice, an ICC arbitration board may, in order to decide on the law applicable to the dispute, recourse to the socalled method of the cumulative application of the different rules of conflict of the countries having a relation to the dispute (see Craig, Park and Paulsson, International Chamber of Commerce Arbitration, Part III, § 17.02, p. 79 and the cases cited).

Whereas in the present case, the States having a relation to the dispute are the following:

Switzerland as the country of the seat of the arbitration proceedings;

United States of America generally and Massachusetts in particular, as the state of incorporation of the Claimant/CounterDefendant;

Italy as the state of incorporation of the Defendant/ CounterClaimant.

Whereas the United States Rules of Conflict would apply, to determine the applicable law, the "most significant relationship" test (see Conflict of Laws, Eugene F. Scoles, Dean and Professor of Law Emeritus of the University of Oregon and also Dean and Professor of Law at the University of Illinois 1982, p. 631 to 711; American Conflicts of Law, 3rd Edition Robert A. Leflar Distinguished Professor of Law at the University of Arkansas and Professor of Law at New York University 1977, p. 295 to 332; Restatement of the Law Second; Conflict of Laws 2d 1971 published and promulgated by the American Law Institute, § 188, p. 575 to 586) which takes into account a number of contacts, such as:

the place of contracting the place of negotiation the place of performance the location of the subjectmatter of the contract the domicile, residence, nationality, place of incorporation and place of business of the parties.

Whereas under Italian Rules of Conflict, the applicable law failing any choice by the parties having different nationality is the law of the place where the contract was concluded (see article 25, first paragraph, of the Provisions on the Law in general included in the Italian Civil Code, and Morelli: Elementi di diritto internazionale privato italiano, 12th Edition, Naples 1986, 162 ff.).

Whereas however, Italy has ratified and implemented the EEC Convention of June 19, 1980, on the law applicable to contractual obligations.

Whereas such Convention gives effect to the principle of the law of the "closest connection", and presumes that such "closest connection" exists with the country where the party, who has to perform "the characteristic obligation", has his habitual residence (see Article 4(2) of the Convention).

Whereas Article 4(5) of the EEC Convention provides that the presumption contemplated in (2) does not apply whenever it results from all the circumstances that the contract has its closest connection with another country which is not the place of habitual residence of the party who has to perform the characteristic obligation.

Whereas Swiss rules of conflict give also effect to the application of the law of the closest connection.

Whereas the Tribunal fédéral has considered that in principle, such law is the law of the domicile or the residence of the debtor who has to perform the characteristic obligation, being understood that in case of a bilateral contract, the obligation of the party which does not tend to the payment of a sum of money is, in principle, considered as the characteristic obligation (cf. ATF 100 II 450, 101 II 83; Dutoit, Knoepfler, Lalive, Mercier, Répertoire de droit international privé suisse, vol. 1, p. 34 & foll.).

Whereas the Agreement must be viewed as a patent and knowhow license Agreement giving right to the Claimant/CounterDefendant to make use in the United States and Canada of the US patent No . .... belonging to the Defendant/CounterClaimant, and the knowhow associated with the patented invention.

Whereas, despite the fact that the debtor of the characteristic obligation has its place of residence in Italy, it appears that such Agreement has its closest connection with the United States, and in particular with the State of Massachusetts, considering in particular, that the place of performance and the location of the subject matter of the contract, i.e. the patent, are in the United States.

Whereas the Arbitral Tribunal finds that, applying United States Rules of Conflict, the applicable law to the dispute would be American law generally, and the law of the State of Massachusetts in particular.

Whereas, on the basis of the EEC Convention, and thus according to Italian Rules of Conflict, a similar solution could be envisaged.

Whereas under Swiss Rules of Conflict, the Tribunal fédéral, although the question is a controversial one, has applied to a license Agreement the law of the domicile of the licensor, as this party is considered to perform the characteristic obligation (ATF 101 II 293).

Whereas this solution has also been adopted by the new Federal law on private international law (sec article 122 § 1) not yet in force.

Whereas however, such solution has been criticized, in particular on the basis that the law of the domicile of the licensee may contain mandatory rules which in any case, have to be observed (sec E. Ulmer, Die Immaterialgüterrechte im internationalen Privatrecht, Cologne 1975; P.H. Neuhaus Freiheit und Gleichheit im internationalen Immaterialgüterrecht, in RabelsZ 1976, p. 191; J. Schapira, Les contrats internationaux de transfert technologique, Clunet 1978, p. 5; see also Message du Conseil fédéral concernant une loi fédérale sur le droit international privé du 10 novembre 1982, p. 149).

Whereas in previous cases, the Tribunal fédéral has applied the law of the place of performance of the characteristic obligation (ATF 72 11405,78 11145,77 II 83).

Whereas, in the present case, considering all the circumstances of the facts, a solution which would apply American law and Massachusetts law, as the law governing this dispute, would certainly be admissible under Swiss Rules of Conflict.

Whereas, therefore, the Arbitral Tribunal, relying on Article 13 (3) of the ICC Rules, shall decide the dispute by application of American law and the law of the State of Massachusetts.

Whereas, on the other hand, article 13(5) of the ICC Rules obliges the arbitrators to take account of the relevant trade usages.

Whereas the lex mercatoria takes its source in the trade usages and in the principles generally applicable in international trade (see Craig, Park and Paulsson, op. cit., part III, § 17.03, p. 81 & foll.).

Now, therefore, based on the foregoing,

The Arbitral Tribunal decides:

The American law generally and the law of the State of Massachusetts in particular, supplemented if needed by the lex mercatoria, is the law applicable to the dispute.

The costs, including attorney fees related to this interim award, shall be decided with the final award.'