The Importance of Arbitration Clauses in Tech Contracts

Odds are, you've agreed to dozens of arbitration clauses. There is a myriad of reasons why big business love them, and some of those are likely benefits for you as well. 

What Is Arbitration?

Arbitration is a private way to settle disputes. You and the other party pick a neutral arbitrator, often someone with industry knowledge, to hear both sides. After a short process, that arbitrator makes a binding decision. It’s not a trial, and the sessions happen outside a public courthouse.

Why Include an Arbitration Clause?

1. Saves Time
   Lawsuits can stretch on for months or even years. Arbitration often wraps up faster and spares you the slog of court hearings.

2. Reduces Costs
   Legal fees grow when disputes drag on. Arbitration can keep costs in check by streamlining the process.

3. Protects Privacy
   Courtrooms are open to the public, which can expose details about your code, finances, or trade secrets. Arbitration keeps information behind closed doors.

4. Industry Insight
   You can choose an arbitrator who knows your tech field. This lowers the risk of having to explain complex jargon to a judge with little technical background.

Common Concerns

• “What if I don’t trust a single arbitarator?”
  You can specify that each side picks one arbitrator, and those arbitrators pick a third. This creates balance.

• “Won’t arbitration mean I lose my right to appeal?”
  Appeals in arbitration are rare, but that can be good news if you value certainty. Once you get a result, you can move on.

• “Does it look unfriendly to add this clause?”
  Not usually. Many tech companies prefer arbitration because it’s a straightforward way to solve conflicts. Adding it shows you plan ahead.

Tips for Drafting

• Be Clear and Direct
  State in your contract that “any dispute will be settled by arbitration” and name the rules or organization you plan to use.

• Mention Location
  Pick where the arbitration will happen, especially if the other party is in another state or country.

• Set the Process
  Outline the steps for choosing an arbitrator and paying fees. This reduces surprises if a dispute pops up.

Arbitration clauses might feel like extra paperwork at first. Yet they can save you from the stress and expense of a full-scale legal battle. If you include a clear arbitration clause in your tech contracts, you’ll have a safer path to resolve disputes—one that keeps you out of a courtroom and focused on growing your business.

One of the most important things to remember is that arbitration is still a last resort. You do not actually want to end up in arbitration. You want to build your business, your policies, your contracts in a way that prevents disputes and protects your business. 

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