This article is written by Suyash Karkare, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.

Introduction

Before we deal with the conundrum of arbitrability of IPR disputes, let me ask you a question. Which dispute resolution mechanism would you choose for your company? A} Arbitration or B} Settlement through the court of law. Most corporations would choose option A as it provides greater control over the process i.e. party autonomy and is faster when compared to the court process. A report suggests that 91% of companies who have a dispute resolution policy in India prefer Arbitration as their preferred mechanism. According to the ICC report of 2019, the number of Indian parties tripled in 2019 and reached 147. These statistics show that arbitration is growing as a preferred method to resolve commercial/contractual disputes especially when it comes to corporate bodies. But what about disputes in the field of intellectual property? Do our laws and courts accept the disputes under intellectual property to be resolved through arbitration? In this article, I will give you a complete overview of the arbitrability of IPR clashes.  

IPR regime in India

In India, the intellectual properties regime is governed under certain statutes like: 

• The Copyright Act, 1957; 
• The Patents Act, 1970;
• The Trade Marks Act, 1999;
• The Designs Act, 2000.

These acts grant the owner a right to enjoy a ‘Statutory monopoly’ in the market for a certain period during which only the owner of such intellectual property can exercise his/her control over it and get the monetary benefit. These acts also give a statutory right to the owner to go to a court of law in case his/her rights over such intellectual property are being infringed by any other person. For instance, in the Copyright Act, Chapter XII- Section 55 to Section 58 gives certain rights to the owner of the copyright to enforce his/her right over the creation in case any other person is infringing it. Similarly, in case of infringement of rights over the patent, the owner has a right under Chapter XVIII- Section 104 of the Patent Act and over trademark under Chapter XIII- Section 134 of the Trade Marks Act. What’s pertinent to note here is that the remedies regarding the protection of all the rights mentioned above are to be granted by District Courts. According to the Indian legal system and courts, these rights granted by the statutes above-mentioned are rights in rem instead of rights in personam.  

Rights in Rem are the rights that are exercisable against the world at large whereas Rights in Personam are the rights that are exercisable against a particular individual. Generally, Rights in Personam are the rights that arise from a contract as it corresponds or imposes a duty on one of the parties to the contract only. The question of arbitrability of IP disputes revolves around Rights in Rem vs Rights in Personam policy mainly.

Arbitration  in India

In India, arbitration is governed by the Arbitration and Conciliation Act, 1996. The act was amended substantially with time to bring it in harmony with the UNCITRAL model law so that it could amalgamate and define the law concerning domestic arbitration, international commercial arbitration and the enforcement of foreign arbitral awards. According to Section 34 (2)(b) of the Arbitration and Conciliation Act, 1996, the courts have the power to set aside an arbitral award where the subject matter of the dispute is not capable of being subjected to arbitration. But what’s peculiar to note here is that neither the Arbitration and Conciliation Act, 1996 nor any of the acts governing intellectual property in India define the scope of subject matter arbitrability. It’s been defined only by a series of judgements passed by our courts.  

Journey of arbitrability of IPR disputes through judgments of courts

Mundipharma Ag vs. Wockhardt Ltd

The question of arbitrability of IPR disputes was for the first time raised before the Hon’ble Delhi High Court in the case of Mundipharma Ag vs. Wockhardt Ltd ( ILR 1991 Delhi 606) in the year 1990. It was in this case where the question of ousting the jurisdiction of an arbitral tribunal by the provisions of the Copyright Act was discussed. 

Facts

Both the parties entered into an agreement for licensing of technology. The agreement contained an arbitration clause. A dispute arose and Mundipharam AG prayed to restrain Wockhardt from infringing their copyright over packaging, breach of confidentiality and breach of terms of the license agreement and wanted these disputes to be referred to arbitration.  

Issue

Whether civil remedies available under Chapter XII of the Copyright Act, 1957 excludes Arbitration in copyright infringement disputes?

Held

The Hon’ble Delhi High Court interpreted Chapter XII relating to civil remedies of the Copyright Act, 1957 and held that in cases of infringement of copyright where remedies by way of injunctions, damages and otherwise are prayed, such cases have to be instituted in District Court of competent jurisdiction and such infringements cannot be the subject-matter of arbitration. Though the court did not give any detailed reason for such a decision nor cited any precedent, this line of law continued for a very long time and Indian courts were not keen on adopting a pro-arbitration policy to settle IP disputes until 2011.

Booz Allen and Hamilton Inc. v SBI Home Finance Ltd

The biggest and most prominent judgment given by the Hon’ble Supreme Court which dealt with the question of arbitrability of IPR disputes was Booz Allen and Hamilton Inc. v SBI Home Finance Ltd. {(2011) 5 SCC 532} in the year 2011. 

Facts

In this case, Capstone Investment Co. Pvt. Ltd. and Real Value Appliance Pvt. Ltd. availed a loan from SBI Home Finance Ltd. The loan availed was secured by the two companies mortgaging the flats owned by them. Thereafter, the two companies entered into a leave and license agreement with Booz Allen and Hamilton Inc. A security deposit agreement was entered into by the above-mentioned 4 entities which contained an arbitration agreement. A dispute arose and SBI filed a suit for redemption of money through the sale of the suit premises.

Issue

Whether a suit for the enforcement of mortgage by the sale can be adjudicated by an arbitral tribunal and whether the subject matter of the suit fell within the scope of an arbitration agreement? 

Held

Thereafter, the Hon’ble Supreme Court dismissing the appeal recognised three conditions that need to be satisfied for a subject matter to come under the jurisdiction of arbitration. They were:

1. The disputes must be capable of adjudication and settlement by arbitration;
2. The disputes must be covered by the arbitration agreement; and 
3. The parties must have referred the disputes to arbitration.

The Hon’ble Apex Court also added a caveat to reserve arbitrability of certain categories of disputes. Such categories were rights in rem as opposed to rights in personam. Since rights in rem determined rights not only as between the parties to the action but also against the world itself, including any other person claiming an interest in the subject matter, the Supreme Court held that such actions could not be arbitrated and rights in personam were held to be arbitrable. Arbitrability of another species of rights i.e. rights in personam arising out of rights in rem was also discussed and it was held that such rights were also considered to be arbitrable.

Eros International Media Limited v. Telemax Links India Pvt. Ltd

In the year 2016, by rightly interpreting the judgment in Booz Allen, the Hon’ble Bombay High Court gave a pro-arbitration judgment for the first time while dealing with an issue regarding rights in personam arising out of rights in rem in the case of Eros International Media Limited v. Telemax Links India Pvt. Ltd.{ 2016 (6) ARBLR 121 (BOM)}. 

Facts

In this case, Eros and Telemax entered into a contract for giving an exclusive license to telemax the copyrighted material of Eros. Eros, later on, alleged that Telemax had infringed its copyright and as the contract had an arbitration clause, the dispute must be referred for arbitration. Telemax contested this claim by stating that rights under the Copyright Act are rights in rem and hence are not arbitrable. 

Issue

Whether disputes regarding infringement of copyright arising out of contractual agreement are arbitrable and whether Section 62 of the Copyright Act, 1957 oust the jurisdiction of Arbitral tribunal?

Held

Hon’ble Bombay High Court held that the dispute is arbitrable as the IP disputes in copyright or trademark arising out of commercial contracts regarding an infringement or passing off action, that action and that remedy can only be an action in personam. The court said that any finding of such infringement (or absence of) will be valid only against telemax and not against any third party or world at large. It was observed that section 62(1) of the Copyright Act should not be read down to mean the ousting of the jurisdiction of an arbitral panel.

Indian Performing Rights Society (IPRS) Ltd. vs. Entertainment Network

Soon after the judgement in the case of Eros, The Bombay High Court in the case of Indian Performing Rights Society (IPRS) Ltd. vs. Entertainment Network {2016 SCC OnLine Bom 5893}  interpreted Section 62(1) of the Copyright Act differently, relying upon the judgement of Delhi High Court in the case of Mundipharma Ag vs. Wockhardt Ltd. 

Facts

In this case, the dispute between both the parties arose out of the license agreement which gave Entertainment Network a right to broadcast works of IPRS’ repertoire through their FM Radio Channels. The breach in the said license agreement was alleged and an arbitral award was passed which was challenged in the said case. 

Issue

Whether disputes in respect of copyright infringement under a licence agreement were arbitrable?

Held

The Bombay High Court held that Section 62(1) mandates the institution of every suit in civil courts only and cases of infringement of copyright, passing off, remedies of an injunction are not arbitrable. This judgment again ousted the subject matter from the scope of arbitration. 

This judgment of the Bombay High Court is in stark contrast to its previous judgment in the case of Eros. Although the decision regarding the issue being non-arbitrable was a correct one as the issues involved in both the cases i.e. Eros and IPRS were different. Eros’ case mainly dealt with infringement of copyright while in the case of IPRS, a question regarding the right to claim royalties was involved. 

A. Ayyasamy vs A. Paramasivam & Ors

There has always remained confusion regarding the scope of arbitration in the field of IPR. Some judgments treat disputes regarding IPR to be arbitrable while some of them have not. Some also have even misinterpreted or ignored the law laid down in Booz Allen’s case. One such case is A. Ayyasamy vs A. Paramasivam & Ors {(2016) 10 SCC 386}.

Facts

The parties were brothers and had entered into a deed of partnership for carrying on hotel business. Some disputes arose out of the said partnership deed which contained an arbitration clause. But Respondent filed a civil suit in which an application under section 8 of the Arbitration and Conciliation Act, 1996 was filed by the appellants. The same was challenged by the respondent by levelling the allegations of fraud and claiming that such allegations cannot be adjudicated by an arbitral tribunal. The case reached the Supreme Court. 

Issue

Whether the plea of fraud could be adjudicated by the Arbitral Tribunal?

Held

The Supreme Court held that the disputes in the field of copyrights, trademarks and patents are non-arbitrable. Though this judgement of Hon’ble Apex Court is contestable as the matter before the Court was not even remotely related to IPR. The main issue before the Court was regarding the arbitrability of fraud. 

Lifestyle Equities Cv vs. Qdseatoman Designs Pvt

However, the Madras High Court in the case of Lifestyle Equities Cv vs Qdseatoman Designs Pvt. {2018 (1) CTC 450} has clearly dealt with the policy of rights in rem and action in personam while also emphasising the concept of Judgment in rem and Judgment in personam. A judgment in rem refers to a judgment against a thing, right or status or condition of the property which operates directly on the property itself while a judgment in personam refers to a judgment against a person as distinguishable from a judgment against a thing, right or status. To make this illustrative, it can be said that a patent license issue may be arbitrable, but the validity of the underlying patent may not be arbitrable. It has also been noted by the Hon’ble Court that the list of disputes mentioned in A. Ayyasamy’s case which are not arbitrable is just a scholarly opinion and there is no ratio or application of judicial mind.

Vidya Drolia vs. Durga Trading Corporation

But as the Hon’ble Supreme Court recently has and is actively trying to make the Indian legal system a pro-arbitration system. There are many judgments passed by the Supreme Court which clarifies the position of what kind of disputes are arbitrable. One such latest judgement passed by Hon’ble Apex Court is Vidya Drolia vs Durga Trading Corporation {2020 SCC OnLine  SC 1018} where the Supreme Court has taken a pro-arbitration stance. 

In this case, the three-judge bench of the Supreme Court answered a reference made by the Two-Judge bench of the Supreme Court regarding the arbitrability of landlord-tenant disputes governed by The Transfer of Property Act, 1882 and doubt over the ratio laid in the Himangini Enterprises case. The Court laid a four-fold test to check whether any dispute is arbitrable or not. It held that a dispute would be non-arbitrable  when the cause of action and/or subject matter of the dispute: 

1. Relates to actions in rem that do not pertain to subordinate rights in personam that arise from rights in rem;
2. Affects third party rights or has erga omnes effect; 
3. Relates to the inalienable sovereign and public interest functions of the state and 
4. Is expressly or by necessary implication non-arbitrable under a specific statute.  

Analysis of the stand taken by the judiciary

Even today, the position of arbitrability of IP disputes in India is not clear and there is no straight-jacket formula laid down by statutes or courts to determine which disputes in the intellectual property domain can be subjected to arbitration. There is no expressed bar on the arbitrability of IP disputes. In cases like Mundipharama and IPRS, the question of arbitration in IP disputes was answered negatively as the court held that the statutory claims of infringement of copyright/trademark and the remedies all fell under the public law domain. What is pertinent to note here is that all these cases involved such IP disputes which were purely born out of IP statutes. But recent trends show that IP disputes are starting to be contractual too and with an increase in commercial transactions, the arbitrability of IP disputes born out of purely contractual transactions are arising and the courts are now taking efforts to have a pro-arbitration approach which can be seen by having a look at judgments like Eros and Vidya Drolia. What can be said by looking at the judgments of courts in India is that the arbitrability of IP disputes largely depends upon the nature of claims raised.

Lessons from other countries

While arbitration of IP disputes in India is yet not fully permitted but using arbitration or other ADR methods to settle the IP disputes is getting popular and can be seen as the most desired choice of dispute settlement method in many parts of the world. It is clear that the use of ADR methods, especially arbitration, is rising in the global IP sphere and it is very evident from the rising number of cases filed in WIPO Arbitration and Mediation Centre. Today, arbitration is allowed in most economically advanced countries. Some of them are:

United Kingdom

The courts of the UK do recognise arbitrability of IP disputes especially in trademark and copyright-related disputes which are fully arbitrable.

Canada

In the case of Desputeaux vs. Éditions Chouette (1987) Inc., [2003] 1 SCR 178, the Supreme Court of Canada ruled that ‘The parties to an arbitration agreement have virtually unfettered autonomy in identifying the disputes that may be the subject of the arbitration proceeding’ which shows Canada’s pro-arbitration policy.

United States

Laws in the USA specifically state that parties can use arbitration as a disputes settlement method in patent disputes. Even though no statute in the US provides for arbitration in copyright disputes, the courts have held that copyright disputes are arbitrable.

Asia

If we look at Asia, the top three commercial hubs are Singapore, Hong Kong and India. India faces strong competition from these two countries when it comes to becoming the most favoured destination for MNCs to enter the market and conduct business. By carefully understanding and observing the rise in the use of ADR methods in IP disputes, Hong Kong recently in 2017 amended its Arbitration Law vide Arbitration (Amendment) Ordinance 2017 {Ord No. 5 of 2017}. According to Section 103C, disputes over enforceability, infringement, subsistence, validity, ownership, scope, duration or any other aspect of an IPR are now capable of settlement by way of arbitration. Another interesting provision i.e. Section 103D (4) states that recourse to arbitration would be possible even if the law of Hong Kong gives the jurisdiction to decide IPR dispute to any specific entity and even when the law does not expressly mention possible settlement of IPR dispute through arbitration. One more feature of this amendment is that the awards do not bind third parties (Including licensees) unless they are made a party to the arbitration proceedings. These features have made Hong Kong a favourable arbitration hub for China-related IP disputes. 

Following Hong Kong, Singapore also amended their Arbitration law in 2019 through the Intellectual Property (Dispute Resolution) Act, 2019 (‘IPDRA’ for short). This Act brings all IP disputes including enforceability, infringement, subsistence, validity, ownership, scope, duration or any other aspect of IP rights under the scope of arbitration. An important feature which both the arbitration laws (Hong Kong and Singapore) inherits is that the arbitral awards are not deemed to be contrary to public policy solely on the basis that the subject matter relates to an IP rights dispute. 

India is also trying out to be a commercial hub for many MNCs. Apple Inc. is planning on shifting its production base to India from China. Samsung is also planning to shift its production to India from Vietnam. In such a scenario, India needs to adopt a pro-arbitration policy in the field of IP disputes and could learn from other countries mentioned above. These countries have turned into a commercial hub for many MNCs and hence are climbing the charts to become more economically stronger. But as more and more companies enter the market of any country, they bring with them new Intellectual Property and disputes related to them. As these disputes are mostly cross-border, these countries have adopted a pro-arbitration policy in the field of IP disputes to provide such companies with speedy and efficient remedy, the confidentiality of disputes, technical and knowledgeable experts as arbitrators, all of which invites more and more companies to enter such countries which results in more economic growth. 

In India, settlement through courts invites a lack of confidentiality of the party information but this is done keeping in mind the public policy and public interest in ‘right in rem’. Though arbitration is the method that provides confidentiality, it is very difficult to balance both aspects of confidentiality and public interest unless certain changes are made in our laws. Just like in The United States and Switzerland, arbitration law allows arbitration of IP disputes like patent or trademark infringement, validity and other aspects but a copy of such award passed in such disputes have to be compulsorily registered with the patent and trademark office. Until and unless this requirement is fulfilled, the award passed is unenforceable. Such provisions can be welcomed in India which will ensure a balance between the public interest in ‘right in rem’ and confidentiality. 

Conclusion

Allowing arbitration in IP disputes will surely help the corporations as these IP disputes are generally cross-border disputes and mostly become international which requires speedy remedy. Today every economically strong country has allowed the use of arbitration in settling disputes regarding IP rights involving commercial interest. As India is growing into an economic powerhouse, Indian legislation needs to support the arbitrability of IP dispute schemes in India which will not only benefit the corporate to settle their disputes effectively but it will also be a step forward in making India an arbitration hub for many MNCs. By allowing arbitration in the dispute arising out of purely contractual matters while keeping the dispute regarding the validity or registration of IP non-arbitrable, the courts can maintain a fine balance between the rights of the inventor/owner and public interest. Thus it remains to be seen in which direction the Hon’ble Apex Court and other High Courts will lead the Indian arbitration-friendly regime.     

References

1. https://www.pwc.in/assets/pdfs/publications/2013/corporate-attributes-and-practices-towards-arbitration-in-india.pd
2. https://iccwbo.org/media-wall/news-speeches/icc-releases-2019-dispute-resolution-statistics/
3. https://www.indiacode.nic.in/
4. http://arbitrationblog.kluwerarbitration.com/2019/03/09/arbitrability-of-ip-disputes-in-india-a-blanket-bar/ 
5. https://www.mondaq.com/india/arbitration-dispute-resolution/691550/are-ip-disputes-arbitrable-in-india-and-to-what-extent
6. http://arbitrationblog.kluwerarbitration.com/2019/08/15/arbitrability-of-ipr-disputes-in-india-342b-or-not-to-be/  

7. https://indiacorplaw.in/2019/03/arbitrability-ip-disputes-india-lessons-hong-kong.html
8. https://indiacorplaw.in/2021/02/arbitrability-of-ipr-in-india-have-Courts-put-a-snooze-on-booz-allen.html 

9. https://www.lexology.com/library/detail.aspx?g=a5d7b724-bc0d-410b-88e1-3708bfab8998
10. https://www.wipo.int/amc/en/center/caseload.html
11. https://www.acerislaw.com/international-arbitration-and-intellectual-property-ip-disputes/

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