This article is written by Kanika Upadhyaya, pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from Lawsikho.
Industrialization and technology expansion has crossed national frontiers, reaching millions just at the click of a button. As it is rightly said that every invention or discovery has both a bright as well as a dark side, the same holds true for intangible assets, especially intellectual property (hereinafter referred to as “IP”). IP more widely known as copyright, patent, trademarks etc. are no less valuable than physical assets, yet cannot be precisely defined. Since its inception, it has grown and developed leaps and bounds, creating a necessity to evolve a regulatory framework for complex IP disputes both at domestic and international level.
Arbitration on the other hand has been successful at both domestic and global front when nearly all major countries signed the New York Convention, in furtherance of establishing a uniform, robust international arbitration mechanism as intended by UNCITRAL Model Law. In wake of an unprecedented Covid-19 pandemic, the need for arbitration has intensified, since no reasonable person would like to engage in expensive and time consuming litigation and that too in a cross border dispute. The question that arises is what kind of disputes is capable of being settled by arbitration? The Indian law has been amended time and again, in order to keep pace with the novel requirements, yet has clearly excluded certain kinds of disputes to be brought within the purview of arbitration. However if another foreign country permits dispute resolution which are excluded from arbitration within Indian territory, can such an award be recognized and enforced within the Indian territory? Similar questions arise while determining the arbitrability of IP disputes.
IP is an ever expanding, diversified legal discipline which as per need of the hour requires an efficient additional redressal mechanism, in addition to conventional litigation. It is notable that IP is a “negative right” which qualifies it to be “right in rem”. However, is international arbitration well equipped in order to tackle emerging challenges posed by IP? This Article examines the arbitrability of IP disputes in India in light of landmark judgment Vidya Drolia v. Durga Trading Corporation.
Indian Judiciary efficiency is marred by increasing backlog of cases and slow disposal rates. Employing arbitration in sharing the workload by increasing scope of arbitrability would solve the persisting issue to a great extent. It is pertinent to note that arbitrability depends crucially on the concept of “Public Policy”. Public Policy prima facie seems too broad and open ended, yet precedents do clarify the situation on arbitrability to a great extent. The underlying purpose is to distinguish between rights emanating “in rem” from rights “in personam” being decided by an arbitral tribunal. The landmark case of Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. &Ors, absolutely excluded domain of rights “in rem” from sweep of arbitration, stressing on the need of a competent judicial body to rule on the same. However, it did mention that rights in rem and personam cannot be wholly bifurcated and thus in instances where rights in personam originating from right in rem are predominant, might be subject to arbitration.
This was followed by A Ayyasamy v. A. Paramasivam and Ors in which arbitrability of fraud was the centre issue, yet O.P. Malhotra’s book was cited, holding patent, trademarks and copyright, one of those subjects which are usually “non arbitrable”. These rulings were followed in subsequent important cases which elucidated upon the closely related yet different concepts of IPR, thus delimiting the scope of arbitration. In Eros International Media Limited v. Telemax Links India Pvt. Ltd. and Ors, it was held that Section 62(1) of The Copyright Act doesn’t outrightly reject the jurisdiction of an arbitral tribunal in IP disputes which are of commercial nature and hence categorized as rights “in personam”. However, a contrasting view was presented by Dhanuka J. in IPRS v. Entertainment Network. Relying on Booz Allen, Vikas Sales Corporation and Mundipharma AG case, it declared that Section 62(1) mandates every suit or proceeding for infringement of copyright to be taken up and resolved only by a competent court, since it deals with right in rem.
Similar dissent was found in Steel Authority of India Ltd. v. SKS Ispat and Power Ltd taking disputes pertaining to trademarks and passing off aren’t arbitrable. It can be observed that in some cases, initiation of arbitration in IPR disputes was either denied or allowed, yet no clear reasons were provided for such refusal or acceptance. In Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya, the court stated that a single cause of action cannot be divided into parts if the main issue at hand is partly arbitrable. The recent landmark case of Vidya Drolia which primarily dealt with arbitrability of landlord-tenant dispute, did touch upon that validity of patent and rights accruing from patent are different, making the former non arbitrable while the latter may be arbitrable depending upon the facts and circumstances of the case. While propounding the 4 fold test, it reiterated that in certain matters, the State or a person enjoys sovereignty or privilege which cannot be arbitrated upon as it would be contrary to public policy, unless governing statute permits arbitration. Else, such disputes shall be adjudicated upon by a competent court or a centralized forum established under the statute.
Upon analyzing the precedents pronounced by the Supreme Court and various High Courts on the arbitrability of IP disputes, it can be said that each precedent has attempted to maintain the fragile balance between rights in rem and personam. Given the prominence arbitration has attained, parties themselves opted for it, though in certain cases the court might refuse to acknowledge the arbitration agreement. However, position is not the same as that was expounded by Booz Allen and that IP disputes have been referred to arbitration and provided adequate interim reliefs or any other aid as required. With Vidya Drolia, pronged test in force henceforth, it can be said that the tide would turn in favour of arbitrating IP disputes.
Arbitration has been widely accepted as an alternate speedy and efficient resolution mechanism, yet more is to be done. The establishment of special tribunals or that creating monopoly in favour of an individual or a body prima facie take it out of the domain of arbitration, since it impacts the society at large. Even Booz Allen advocated for a total exclusion of rights in rem, it did pinpoint that a rigid application is not possible. Contractual and commercial distinctions do clear the ambiguities to a great extent, decentralized and contradicting opinions causes damage which cannot be easily remedied. National Intellectual Property Rights Policy 2016, vaguely referring to undertaking ADR modes for redressal is of no practical use. The need of the hour is a comprehensive policy or guidelines which may put the conflicting view to rest. Probably examining the relationship between IPR and Arbitration in other foreign countries might succeed in settling certain questions that are put forth time and again.
Position in United States
The monopolistic right of IP so conferred and the public interest involved was a concern in the US which made their courts taking cognizance of such disputes exclusively. Recently in Henry Schein, Inc., et al. v. Archer & White Sales, Inc., an attempt to answer the question of what kind of IP issues to be heard before courts and arbitral tribunals was made. However, US in present times have adopted a refined, unambiguous approach by incorporating arbitration and in what circumstances to be used, in their respective federal statutes. Patent litigation, in particular went downhill which made belief of arbitration as a better alternative stronger. US Patent Act, for instance provides for binding arbitration, if parties agree to it, with regard to validity, enforcement, interference or infringement issues. Confidentiality, a crucial aspect of IP rights is maintained during arbitration proceedings in addition to procedural flexibility upto a certain degree. In Scan-Graphics, Inc. v. Photomatrix Corporation, the court held that the defences in patent disputes regarding validity or enforceability are to be heard by the arbitral tribunal itself. However, the award shall have effect restricted to the parties and not bind any 3rd person. Apart from Patent, express permission for arbitrating IP disputes cannot be found in US Copyright, Trademark, Trade Secrets statute.
Nevertheless, the courts have supported a pro arbitration stance when parties elected arbitration for dispute resolution in copyright and trademark matters. Mitsubishi case unequivocally stated that antitrust disputes aren’t prima facie in arbitrable and duly recognized pre arbitration agreements. In Honeywell, Inc. v Minolta Camera Co, Court highlighted the significance of arbitration in international IP disputes, for the sake of parties’ convenience and sense of justice. In Kamakazi Music Corp. v. Robbins Music Corp., the validity of copyright was pronounced to be arbitrable as it didn’t conflict with the public interests at large. In Summer Rain v. Donning Company/Publishers, Inc., arbitrable issues were separated from non arbitrable ones and litigation was stayed till arbitration continued on the relevant issues.
Courts have also enunciated conditions in which arbitration cannot be resorted to for solving IP matters. In Verinata Health, Inc. v. Ariosa Diagnostics Inc, the courts accepted the party’s autonomy of not arbitrating their IP disputes. In Ballard Medical Prods. v H. Earl Wright, Court of Appeal reiterated the point that a private arbitral tribunal does not obtain inherent statutory authority to determine the validity of a patent and if it exceeds its authority, the said order may be nullified by the court. In Farrel Corp. v. U.S. Intern. Trade Com the Court denied arbitration owing to the statutory mandates which didn’t permit arbitration for resolution of certain kinds of trademark and trade secret issues. In Wyatt Earp Enterprises v. Sackman, Inc. the court held that the cause of action is one of tort and not wholly has contractual essence, thus out of purview of arbitration. In A.& E. Plastik Pak Co. v. Monsanto Company, it was observed that technological knowledge of the parties could raise antitrust concerns and hence such issues could not be arbitrated upon.
Position in United Kingdom
The UK includes 3 separate jurisdictions of Northern Ireland, England and Scotland. Arbitration is governed by Acts of 1975 in consonance with domestic arbitration act of 1950 and 1979. Similarly, IP statutes are the same for all 3 jurisdictions, though the application may vary. Unlike USA, UK doesn’t have any express provision except in its patent law, for referring the IP disputes to arbitration. Section 53(2) UK Patents Act, a patent license application may be presented to an arbitrator, if the parties consent or that the litigation is likely to be too prolonged, rendering the proceedings before Patent Comptroller inefficacious. A Judge of Court having jurisdiction may act as an arbitrator if patent dispute relates to the Crown. However, the positive element is that Judiciary has proactively recognized awards and reliefs granted by arbitral tribunal in IP disputes. Broad interpretation of terms of arbitration agreement and intra parties effect has been observed in the judicial decisions.
Upon detailed examination of the IP- Arbitration relationship of USA, UK and India, it is obvious that India lags behind the US and UK in terms of introducing express provision in its domestic IP laws, a provision of arbitration for dispute resolution. In Monsanto v. Nuziveedu, Supreme Court refrained from handing over the matter to arbitration, when patent validity was challenged. It rightly observed that the division bench ought not give its verdict of revoking the patent without examining evidence from the other side and that the Single Judge was right to impose an obligation on Monsanto to be bound by licensing agreement. Yet this one of the toughest patent suit poses major questions, which were left unanswered.
Had Supreme Court referred the dispute to arbitration, a new benchmark would have been established, which would have upgraded the IP- Arbitration interface from that of Booz Allen to Scan Graphics case. Apart from this India may also ponder upon giving effect to an award related to IP dispute limited to the parties only. The USA leads the development with bifurcating issues, delineating clear statutory limitations and expanding the limits of arbitration in deciding crucial disputes of validity and enforcement of the patents. UK’s limited approach of arbitrating patent licensing disputes is supplemented by judicial precedents taking a pro arbitration approach, yet introducing specific legislation to the effect would be beneficial.
Law is a dynamic tool which has to be amended as per societal needs. All 3 nations have made a commendable effort in maintaining the fine balance between public interest and realizing the need of introducing arbitration as an alternate dispute resolution mode in complex IP disputes. Yet an insulated approach which doesn’t keep pace with novel techniques and methods aren’t helpful in the long run. India has always strived to make its mark in the sphere of international commercial arbitration, perhaps making amends in favour of arbitration in its domestic IP statutes shall be an impetus towards building India’s positive image at global arbitration platform. Cases like Eros v. Telemax are one of those few well written judgments which has unknotted convulsed queries, yet opportunities like the Monsanto case shouldn’t be missed in order to remove archaic legal hindrances.
 The Institute of Chartered Accountants of India vs. Shaunak H. Satyaand Ors: (AIR2011SC 3336)
 Arbitrating Intellectual Property Disputes in India: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2942684
 GurukrupaMech Tech Pvt. Ltd. vs. State of Gujarat and Ors: (2018)4GLR3324
 Arbitrability of IP disputes in India—A blanket bar?: bitrationblog.kluwerarbitration.com/2019/03/09/arbitrability-of-ip-disputes-in-india-a-blanket-bar/
 India: Are IP Disputes Arbitrable In India? And To What Extent?: https://www.mondaq.com/india/arbitration-dispute-resolution/691550/are-ip-disputes-arbitrable-in-india-and-to-what-extent
 AIR 2011 SC 2507
 HDFC Bank v. Satpal Singh Bakshi: 193 ( 2012 ) DLT 203: Arbitration And Intellectual Property Rights: http://www.legalserviceindia.com/legal/article-360-arbitration-and-intellectual-property-rights.html
 Ministry of Sound International Ltd. vs. Indus Renaissance Partners Entertainment Pvt. Ltd.: 156(2009)DLT406
 AIR2016SC 4675
 2016 (6) ARBLR 121 (BOM)
 Ministry of Sound International Ltd. V Indus Renaissance Partners Entertainment (P)Ltd: 2009 SCC OnLine Del 11:(2009) 156 DLT 406
 India: Arbitrability Of IPR Disputes – A Harmonious Approach: https://www.mondaq.com/india/arbitration-dispute-resolution/977762/arbitrability-of-ipr-disputes–a-harmonious-approach
 On the ‘apocalyptic‘ arbitrability of copyright disputes: IPRS v Entertainment Network: https://spicyip.com/2016/09/on-the-apocalyptic-arbitrability-of-copyright-disputes-iprs-v-entertainment-network.html
 Ibid: Vikas Sales Corporation and. v. Commissioner of Commercial Taxes
 Ibid: Mundipharma AG v. Wockhardt Limited: (1991)ILR 1Delhi606
 Notice of Motion (L) No. 2097 of 2014 in Suit No. 673 of 2014, decided on 21st November 2014.
 Resolution of Disputes involving IPR through Arbitration in India – An Analysis of the Legal Position: https://www.barandbench.com/columns/resolution-of-disputes-involving-ipr-through-arbitration-in-india
 Angath Arts (P) Ltd. v Century Communications Ltd: 2008 SCC OnLine Bom 475: (2008) 3 Arb LR 197
 RK Production Pvt. Ltd. v. M/s. NK Theatres Pvt. Ltd: Arbitrability of Intellectual Property Disputes in India: A Critique: https://nlsblr.com/wp-content/uploads/2020/09/Article-2.pdf
 (2003) 5 SCC 531: AIR 2003 SC 2252
 Civil Appeal No. 2402 Of 2019
 Deepak Thorat v Vidli Restaurant Ltd: 2017 SCC OnLine Bom 7704
 Suresh Dhanuka v. Sunita Mohapatra: AIR 2012 SC 892
 Euro Kids International (P) Ltd. v Bhaskar Vidhyapeeth Shikshan Sanstha: 2015 SCC OnLine Bom 3492
 Beckman Instruments, Inc. v. Technical Develop. Corp., 433 F.2d 55, 63 (7 Cir. 1970)
 586 U.S. (2019)
 IP Arbitration on the Rise: http://arbitrationblog.kluwerarbitration.com/2019/07/16/ip-arbitration-on-the-rise/
 Arbitrability of IP Disputes: https://www.worldtrademarkreview.com/arbitrability-of-ip-disputes
 ADR of Intellectual Property Disputes: http://euro.ecom.cmu.edu/program/law/08-732/Courts/ADRPMcCon.pdf
 Octane Fitness v. ICON Health & Fitness and Highmark v. Allcare HealthMgmt. Sys:(2014) : https://www.adr.org/sites/default/files/document_repository/AAA192_Intellectual_Property_Disputes.pdf
 Patrick M. Arenz and William E. Manske, “The Halo Effect: More Jury Trials on Willfulness,” www.law360.com
 Amended in 1982: Arbitration Of Patent Disputes In The United States: https://www.oblon.com/publications/arbitration-of-patent-disputes-in-the-united-states
 Sub-section (a) of 35 U.S.C. § 294
 Subsection (d) to 35 U.S.C. § 135
 Rhone-Poulenc Specialties Chimiques v. SCM Corp., 769 F.2d 1569 (Fed.Cir. 1985)
 Arbitrability Of Intellectual Property Issues In The United States: https://www.wipo.int/amc/en/events/conferences/1994/plant.html#:~:text=The%20United%20States%20Congress%20has,%C2%A7%20135(d)).
Trevor Cook, Alejandro I. Garcia, International Intellectual Property Arbitration (Kluwer Law International, 2010) 230.
 1992 WL 2231
 Section 294(b)
 sub-section (c) of 35 U.S.C. § 294
 Mitsubishi Motors v. Soler Chrysler-Plymouth, 473 U.S. 614, 626 (1985)
 Re Medical Engineering Corporation, 976 F.2d 746 (Fed.Cir. 1992)
 Saturday Evening Post Co. v. Rumbleseat Press, Inc., 816 F.2d 1191, 1199
 Packeteer, Inc. v. Valencia Systems, Inc., 2007 WL 70750
 No. CIV.A.87-4847, 1991 WL 50063 r(D.N.J. Apr. 5, 1991)
 Arbitrability of Patent Disputes: American and Indian Perspective: https://www.latestlaws.com/articles/arbitrability-of-patent-disputes-american-and-indian-perspective-by-divyansh-h-rathi/#_ftnref31
 684 F.2d 228 (2 Cir. 1982)
 964 F.2d 1455, 1460-61 (4 Cir. 1992)
 830 F.3d 1335, 1337 (Fed. Cir. 2016)
 823 F.2d 527 (Fed. Cir. 1987).
 n, 949 F.2d 1147 (Fed.Cir. 1991)
 Violation of section 337(a)
 157 F.Supp. 621 (S.D.N.Y. 1958)
 396 F.2d 710 (9 Cir. 1968)
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 Civil Appeal Nos.46164617 Of 2018
 India: Supreme Court Sets Aside Delhi High Court Judgment, Restores Monsanto’s Patent: https://www.mondaq.com/india/patent/777688/supreme-court-sets-aside-delhi-high-court-judgment-restores-monsanto39s-patent From trial court to Supreme Court and back, the Monsanto patent battle is far from over: https://theprint.in/opinion/from-trial-court-to-supreme-court-and-back-the-monsanto-patent-battle-is-far-from-over/176160/
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