This article is written by Siddhant Jai pursuing Diploma in Intellectual Property, Media and Entertainment Laws and edited by Nishka Kamath, team LawSikho. 

This article has been published by Sneha Mahawar.​​ 

Introduction

Intellectual property ownership rights are more prevalent in international and commercial environments, which makes it difficult for the parties to move to court due to various reasons, which may include:

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  • Difference of jurisdiction as different courts apply different rules which may lead to a conflict of law;
  • Due to tedious, time-consuming process;
  • To avoid communication of privileged communication, secret information from entering the public domain;
  • And with recognition of the theory of intention of the parties to select the best place to govern the contract or to select the seat of arbitration, it becomes furthermore convenient for the parties to go for arbitration in redressing their ownership dispute between the parties.

However, it is easy to say the arbitration of Intellectual Property ownership disputes is better than moving forward with traditional courts, but this contention has some inherent problems associated with it.

  • There may be a situation that the infringing party do not accept the arbitration
  • There may be a situation that the aggrieved party does not know about the infringing party thus it becomes necessary for the party to go to court to plead to court to pass an John Doe/ Ashok Kumar order.

The scope and limitations of arbitrability of certain IP rights have become widely talked about due to the existence of inherent conflict in the issue. Thus, arbitrating Intellectual Property disputes is in its own way to be regarded as one of the most disputed issues of IP arbitration.

Courts have increasingly expanded the use of ADR procedures in order to lessen the heavy burden on the judiciary and the courts. Arbitration is a new legal strategy in India, and because it has been a contentious subject regarding intellectual property rights, it has brought up numerous issues for the court to consider. Any disputing party prefers to reach a resolution through discussion as opposed to drawn-out legal proceedings. Thus, it was also possible to witness the parties to the IP dispute advancing toward arbitration. An overview towards the arbitrability of IP disputes has been provided in this article.

Relation between arbitration and IPR

The resolution of disputes pertaining to ownership in Intellectual Property through arbitration is developing in nature and it is a process of dispute resolution specially adopted by the parties. Now this makes institutional arbitration especially important in the context of opening up the economy. And having rights under Intellectual Property leads to the establishment of strong enforcement mechanisms, as arbitration is a private and confidential process, making it appropriate for the parties to choose an ADR mechanism for the resolution of their dispute, especially in those cases where parties come from distinct jurisdictions.

In institutional arbitration, the arbitrators are appointed by a panel of institutions based on their in-depth expertise in many subjects, rather than being picked “ad hoc,” by the courts or by the parties to a dispute by entering into a dispute resolution agreement or mutual agreement for arbitration. These arbitrators are required to abide by institutional-set norms, including those relating to fees. In cases of international transactions, where the applicable law differs from country to country and entails a high degree of specialisation in the relevant field, this is increasingly a feature of all three sectors. Another common aspect is the urgency of the situation. Because patent periods are finite and technology is susceptible to rapid obsolescence, it takes courts a long time to resolve disputes, which is detrimental to the interests of the parties involved. Arbitration, therefore, provides these industries with benefits that are especially beneficial to them. The main problem in implementing an ADR mechanism or arbitration is resolving disputes involving intellectual property rights, which is the question of its subject matter arbitrability.

Intellectual property rights being territorial in nature, thus derives its power from the legal protection granted to it by the local laws of the land or sovereign power of the local land, which creates and guarantees certain exclusive rights to use and exploit the use of the said intellectual property. Many parties have argued that since the dispute is territorial in nature, it should only be decided by the authority that has granted such rights or, in some circumstances, by the courts of that country.  

 As a result, an arbitration tribunal was unable to assess or refer to the rights and entitlements to intellectual property or the legal challenges that arose from such rights. However, if the parties enter into commercial agreements relating to the creation, use, marketing, or transfer of granted intellectual property rights, conflicts resulting from those agreements could be arbitrated without any disagreement emerging over the arbitrability of the matter. These disputes are typically seen as commercial disputes between inner parties and are resolved by tribunals.

The Supreme Court of the U.S. in a plethora of cases reviewed the question as to “why arbitration is used as a mechanism to solve the dispute in Intellectual Property Rights conflicts?” and the answers depended on certain circumstances.

The U.S. Supreme Court, in the case of AT&T Technologies, Inc. v. Communication Workers of America (1986), gave an answer to the question mentioned above. It stated that “unless the parties expressly and obviously provided otherwise, the competent court, and not the arbitrator, shall decide whether the parties have contractually agreed to arbitrate a dispute.”

There are similar cases that reached similar results, like Granite Rock Co. v. International Brotherhood of Teamsters (2008). In this case, it was stated that only when the court is convinced that the parties formed an agreement to arbitrate and consented to having the case arbitrated, may it order arbitration of a specific dispute.

However, the U.S. Supreme Court in the case of Rent A Centre West v. Jackson (2010), held that it is up to the arbitrator to decide whether an issue is subject to arbitration depending on whether the parties explicitly and unambiguously specify that it would be subject to arbitration and that the validity of an agreement to arbitrate such threshold issues is not specifically challenged.

Arbitration in IP matters are rare because these disputes do not involve a pre-existing contractual relationship with another party or the infringing party. However, for a matter to be arbitrated, it is necessary for the existence of a contractual relationship between the parties. Furthermore, there are few countries that have prohibited the arbitral tribunals to make an award on the issue of patent invalidity; which is frequently used as a defence when an action is brought under a licence agreement, thus these disputes tend to be litigated in a court of law of the country having territorial jurisdiction over the subject matter to the dispute. Even if some limitations under public policy-based limits the arbitration of IP issues in particular nations, the use of arbitration as a tool to settle such conflicts is generally consistent with public policy in most jurisdictions. Because of this, the reasons for not arbitrating intellectual property issues are relatively limited and should not prevent the parties from thinking through and arranging in advance how arbitration in Intellectual Property should be constituted and what elements should be taken into account in this framework.

Essential concepts on IPR in matters that may or may not be resolved under IPR 

Rights in rem

A right in rem is a right that is exercisable against the world at large. The courts in India have passed judgments on the non-arbitrability of IPR disputes. Further,  in the case of A. Ayyasamy vs. A. Paramasivam and Ors. (2016), the Supreme Court opined that some kinds of disputes may not be capable of adjudication via arbitration as a means to resolve disputes, and the same will include: 

  1. Parents, 
  2. Trademarks, and 
  3. Copyrights, inter alia. 

Further, in the case of  Indian Performing Right Society Ltd. v. Entertainment Network (2016), the Bombay High Court examined the entire obiter dicta on the point of arbitrability of rights in rem and reached a decision that IPR copyright is a right in rem. The arbitral award that was awarded in this case was also set aside by the High Court. 

Subordinate rights in personam

A right in personam can be defined as a right that is exercisable against one person or a party to a contract. The disputes relating to subordinate rights in personam have been said to be arbitrable; this was held in the case of Booz-Allen & Hamilton Inc v. SBI  Home Finance Ltd. & Ors. (2011).  

The courts from time to time, in multiple judgments, reached the decision that disputes relating to IPR can be resolved by arbitration when they only involve rights in personam, one of those cases was Ministry of Sound International v. M/S. Indus Renaissance Partners (2009). 

The arbitrability of contractual disputes arising out of IP agreements 

The Indian courts have, from time to time, in cases like the Ministry of Sound International, the Impact Metals case, and the Deepak Thorat case, stated that the disputes arising out of contractual relations in matters relating to IP are arbitrable. The courts in these cases classified such issues to be purely IP related and thus arbitrable. 

In the case of M/S. Golden Tobie Private Limited v. M/S. Golden Tobacco Limited (2021), the Delhi High Court evaluated the decision of the trial court on this point and has included the reasoning given in the Vidya Drolia case (2020). It was held that when the dispute is agreement centric or based on an agreement between the parties, then it is arbitrable. This can be seen in the judgment in the line, “when the dispute is centred around the agreement and is in respect of the agreement of the parties only, it is arbitrable.”

Landmark judgments 

The Bombay High Court observed in one of the leading cases of EuroKids International Private Limited vs. Bhaskar Vidhyapeeth Shikshan Sanstha (2015) that the petitioner’s proceedings cannot be considered as proceeding in rem because there was no dispute regarding the petitioner’s ownership of the copyright and trademark at issue in the present case. Further, in the case of Hero Electric Vehicles Private Limited and Ors. vs. ELectro E-mobility Private Limited and Ors. (2021), which stated that when disputes pertaining to Intellectual Property Rights arise between the parties who have validly formed a contract, then it is arbitrable.

Most disputes related to Intellectual Property Rights are based on a contractual basis; it can be considered that there is no reason for the state to interfere between the parties and litigate the dispute or exclude the dispute from the domain of arbitration. Even if these disputes arise from a contract concerning a registered Intellectual Property Right they are arbitrable.

Further, the Bombay High Court in the case of Angath Arts (P) Ltd. v. Century Communications Ltd. (2008) held that since the dispute in hand is not regarding the ownership of copyrighted or trademarked material, there was no disagreement over a right in rem. The dispute is arbitrable because the current petition is for the execution of a negative clause in a franchise agreement.

Analysis 

From the aforementioned case laws, it can be inferred that the main question is whether the subject matter of the dispute of IP can be resolved by means of arbitration or not. While resolving the issues or disputes related to Intellectual Property, a point should be made that these issues must also be resolved via arbitration, just like any private right, with no difference in the methods of resolving the disputes. In other words, any dispute that can be resolved via settlement must be considered for arbitration. Further, considering the ‘consensual nature of the arbitration,’ the award thus given will be applicable only to the parties in dispute or the parties involved. The award will have no effect on third parties whatsoever. 

The High Courts as well as the Supreme Court along with other trial courts faced the question of arbitrability in IP disputes, one of the questions being- whether the “passing off of the copyright” comes under the ambit of arbitration or not? It is observed that the issues of IP in matters relating to the ‘rights in persona’ would be resolved under arbitration, whereas, the issues in matters relating to ‘right in rem’ would be resolved under public tribunals. 

It is not easy to resolve issues relating to IP quickly, even with the help of an alternative dispute resolution mechanism like arbitration; also, getting injunctive or punitive reliefs can be difficult considering how tough it is to implement arbitration in IPR. Further, the IP holders want quicker resolution of disputes, which is possible only in public courts, as there are no pre-existing contractual relations between the parties to IP disputes, and when these parties opt for arbitration, the court has to deal with a plethora of questions. 

The issue of whether arbitration can be used as a dispute resolution tool does not have a straight jacket answer, yet, and there is still a lot of uncertainty about which areas can be covered under arbitration, if it is used as an ADR mechanism. Taking this issue into consideration, the Indian courts have opined that the issues arising from IP disputes are not arbitrable, because, there is an angle of public policy in IPR, meaning resolving an issue via arbitration will be against the public interest. Further, Section 89 of the Code of Civil Procedure, 1908, makes it clear that ““if the court deems fit, it can allow arbitration, mediation or conciliation for settlement of disputes between parties outside the court.”

Irrespective of the issue of resolving disputes through arbitration in IPR matters, arbitration is and will always remain one of the most efficacious methods of dispute resolution under IPR as the IP disputes have parties coming from different jurisdictions, as well. Moreover, considering the technical nature of Intellectual Property, there are some cases where technical knowledge is quite necessary, and if the arbitrators have it, the issue can be resolved quite swiftly; also, the parties have the liberty to choose their own arbitrator, so they can choose whoever they think deems fit or someone who they think has proper knowledge on the matter. Another main reason why arbitration is effective is the confidentiality provision; here, there will be no issue of IP infringement which is of pivotal importance considering the sensitive matter of infringement. 

Conclusion

Using arbitration as an ADR mechanism is surely going to be quite fruitful. India, having a goal of becoming a hub of international commercial arbitration, the scope of arbitration appears to have broadened too, and the scheme of arbitrability of IP disputes must be 

implemented in an efficient manner. Arbitration can be said to be one of the most appropriate forums for solving disputes between the parties, and reaching an inference that will benefit both parties to the dispute will be the cherry on top. 

Initially, the courts were hesitant toward arbitration, and many a time before the Vidya Drolia Judgement, the scope had been widened. Now, the ambit of arbitration needs to be expanded, and the framework for the efficient implementation of the arbitrability of IPR disputes needs to be put in place.

Even though the status of using ADR in resolving IPR disputes is still not clear even after multiple attempts at having a definite answer, using ADR will surely be beneficial.  

A model similar to that of WIPO can also be adopted for a globalised ADR process in the field of IPR. With the ever-growing demand for intellectual property, conflicts, too, have risen, and arbitration can be expected to have been one of the best solutions to solving IPR disputes, and this trend will continue for a long time. 

References 

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