This article has been written by Misbah Salman Fazalbhoy, pursuing the Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.
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Arbitration has become a popular means of alternate dispute resolution in the business world. The most common types of disputes resolved by arbitration are those falling in the construction, energy, oil, and gas sector. Technology disputes arbitration is mostly unheard of in the Indian landscape and that is mostly because of the unclear position of Indian Courts on the arbitrability of intellectual property disputes. Technology disputes can be divided into two major types – contractual and pure intellectual property disputes. Contractual disputes are those which may or may not involve a determination of IP rights or some aspect of copyrights, patents, or trademarks. These are mainly to do with the contractual terms and breach of those by one of the parties. Pure IP disputes would involve infringement, non-licensed use, etc. where there is no relation/connection with the underlying contract between the parties. These disputes focus solely on the intellectual property involved and a decision needs to be made on some right associated with it. In a world where businesses and organisations are ever more reliant on technology for their operations, technology disputes can be disastrous as it is often possible that the solutions to such disputes can often turn out to be more expensive than anticipated. Parties to the dispute while trying to avoid acrimonious litigation and possibly long-drawn court trials may consider two primary alternative dispute resolution (ADR) mechanisms – namely, mediation and arbitration.
Arbitrability of disputes in India
Arbitrability of disputes in India is primarily governed by the jurisprudence laid down in Booz Allen and A Ayyasamy decision. The judgment in Booz Allen Hamilton states that if the subject matter of a dispute comes exclusively within the domain of courts – general or specialized then the dispute is not capable of being settled by arbitration. The judgment also states that if the dispute deals with a right in rem i.e., a right, the adjudication of which would affect the entire world (like the registration of a trademark) as opposed to a right in personam i.e a right, the adjudication of which affects only the other party (like infringement of an IP by some person) then the dispute is not capable of being settled by arbitration and needs to be adjudicated via the court system.
The Supreme Court also listed certain types of disputes that would not be arbitrable:
a. disputes relating to rights and liabilities which would arise out of or give rise to a criminal offence,
b. matrimonial disputes,
c. guardianship matters,
d. insolvency and winding up,
e. testamentary matters,
f. eviction or tenancy disputes (which fall under specific laws like the transfer of property act or within the jurisdiction of special courts that deal with such tenancy matters – a distinction made out by the Supreme Court in the Vidya Drolia case of 2021),
g. disputes falling under trust laws.
The judgment in A Ayyasamy clarifies the scope of arbitration when there is an allegation of fraud. The Supreme Court held that unless the alleged fraud is of a serious, complex, or complicated nature the arbitrator would have jurisdiction over the dispute. Mere allegations of simple fraud will not oust the jurisdiction of the arbitrator and the dispute can be arbitrated.
These two judgments (Booz Allen & Aayyasamy) advocate a two-fold test to judge, whether a dispute can be arbitrated or not. In Eros India, the Bombay High Court held applying the first test that infringement mixed with a contractual dispute can be arbitrated as infringement is a right in personam and the arbitrator has the capacity to adjudge whether infringement has occurred or not. A similar decision was made in Eurokids. Hon’ble Bombay High Court adopted a different approach to the case and while entertaining a petition under Section 9 of the Arbitration Act, restrained the respondents from using the trademark and copyright of the petitioner. In the said case, the Hon’ble Court observed that since there is no dispute about the petitioner’s ownership of the trademark and copyright involved in the present case, therefore, the proceedings filed by the petitioner cannot be considered as proceeding in rem. Thus, the Hon’ble Court allowed the petition filed by the petitioner to restrict the respondent from breaching the terms of the franchise agreement entered between them.
Advantages of using arbitration as a mode of dispute resolution for technology disputes
1. The confidential nature of arbitration is a big advantage in favor of corporations choosing arbitration. Most IP and tech disputes involve sensitive, confidential, and proprietary information which companies guard with their “life”. With litigation, all proceedings are matters of public record and anyone can have access to the transcript of the proceeding. Though some countries have a process to seal these records, it is an additional step that may or may not come through.
2. Arbitration allows parties to choose their arbitrators which gives corporations the scope to choose experienced persons to settle these highly technical and complex disputes. IP laws are no doubt the same across industries but their practical application differs with each sector and so having the choice of choosing an arbitrator experienced in handling those specific disputes assures quality and expert adjudication.
3. Being less formal the process becomes faster and more in control of the parties. They can choose the how what and when giving them full control over the dispute resolution, making them more confident in the final award. This also reduces the costs and time spent in resolving the dispute, significantly.
4. In arbitration, the parties can select a particular law to govern the dispute irrespective of their jurisdiction and conflict of law provisions. They can even select a law different from the one governing the underlying contract. This allows large corporations to select friendly jurisdictions in which they already have a presence and past experience. This also gives a good advantage to those companies in jurisdictions where tech and IP laws may be evolving to select more mature jurisdictions. This not only provides stability but also helps parties rightly anticipate the potential outcome of an issue.
5. The low scope of appeal against the final award plays both as an advantage and disadvantage. It provides the parties with an incentive to participate in the process fairly as the final award is less likely to get overturned in appeal. This also provides the award holder some peace of mind and lends finality to the dispute. The potential drawbacks are discussed in the next section.
Disadvantages that arbitration could pose
1. One major disadvantage, especially in International Commercial Arbitration, could be the enforceability of the final award. All countries across the globe have their own legal system and each arbitration regime has evolved at its own pace. On one hand, some countries allow all types of commercial disputes to be arbitrated and would enforce a broad range of awards whereas some countries like India, where the regime is still in the nascent stage, could pose challenges of enforceability. In the case of an award on a subject adjudged not arbitrable in India, the award cannot be enforced. Even the NY Convention leaves enforcement decisions to the national courts. This can cause unnecessary hurdles for the award holder with huge costs in terms of time, money, and effort to resolve the dispute in a more acceptable way.
2. Another potential drawback could be the lack of a formal evidence process. In litigation proceedings, there is a stage for discovery and evidence which is an integral part of the dispute resolution process. For information-heavy disputes, like those in the intellectual property and technology domain, having a proper evidence process is crucial.
3. The lack of a formal appeal process or rather the scope to set aside the arbitration award by a court of law can be a setback dissuading many corporates from choosing arbitration as a dispute resolution mechanism.
4. The standards used by an arbitrator are not clear, although generally the arbitrator is required to follow the law. However, sometimes arbitrators may consider the “apparent fairness” of the respective parties’ positions instead of strictly following the law, which would result in a less favorable outcome for the party who is favored by a strict reading of the law. Although this issue has been present since antiquity (Aristotle said ” an arbitrator goes by the equity of a case, a judge by the law), and arbitration was invented with the express purpose of securing full power for equity,” this consideration is often overlooked in evaluating the applicability of arbitration.
ADR : international scenario
IP litigation costs tens of millions of dollars, pounds, or yen and that cost is enough to bankrupt even a financially strong company, thus ADR offers a great potential alternative. According to a 2016 Queen Mary University survey on resolving TMT (Technology, Media and Telecoms) disputes, 75% of the respondents followed a dispute resolution policy favoring mediation and arbitration over court litigation. The survey also stated that 92 percent of respondents viewed international arbitration as a well-suited option for resolving such disputes.
Then why is there hesitation to use ADR? Given that the most common type of TMT dispute is IP-related, the reasons enumerated above act as barriers. Resolving the disputes through expert determination proves a more viable option for many tech sector companies as it eliminates any risk of an unqualified judge dealing with the dispute. It is also more cost-effective and safer for high volume, data, and fact-driven disputes.
However, even this bias towards ADR is more so in theory than in practice. The same Queen Mary University survey found that in the last five years (i.e. 2011-2016) the most preferred mode of dispute resolution was litigation in courts. Many traditional lawyers and law firms still believe in and value the court system as the highest form of dispute resolution and this could act as a barrier towards accessing newer mechanisms like arbitration and mediation. It could also be that long-term contracts spanning decades do not have an arbitration provision and re-negotiating a contract is not only a hassle but also a costly affair. Arbitration cannot also be used in infringement and other related disputes that arise between one contracting and one non-contracting party as obtaining post-contractual consent to arbitrate often proves to be difficult.
Nevertheless, not all hope is lost yet. In 2018 Queen Mary University and White & Chase together conducted a survey titled, “The Evolution of International Arbitration” and 81% of the respondents believed that the use of international arbitration for resolving TMT disputes will arise in the future.
Another form of alternative dispute resolution is mediation. Mediation is a process of conciliation wherein both parties appoint a neutral third party to assist them in reaching a resolution. Unlike arbitration the mediator does not adjudicate the dispute nor does he/she pass any award. They only assist the parties to talk, negotiate and settle the dispute in an amicable manner. Here the process is more friendly and informal than in arbitration and therefore has a more positive impact on the relationship between the disputants. Mediation is about reaching a middle ground to establish a win-win solution rather than a culture of win-lose where one party is always left unsatisfied.
When dealing with intangible assets in the tech space, like intellectual property rights, codes and other technical data which can have a huge impact, disputes are more likely to arise due to miscommunication, dominance, superiority or any other form of negative human trait. What helps in such situations is if the parties communicate their needs and try to come to a solution where both parties receive a piece of the pie.
Mediation offers all the advantages of arbitration like confidentiality, expert personnel, etc. and even more like preserving the business relationship, keeping the dispute and the parties from getting adversarial and aggressive rather than providing a safe space to “talk it out”. Having experienced mediators allows the parties to focus on what is important and not get lost in the details. Being an industry expert, the mediator can help the parties examine the problem from a different angle and arrive at a solution.
There are many centers that promote ADR mechanisms like mediation, arbitration, expert determination, etc. in technology disputes. Some of the well-known ones are:
It is the author’s understanding that the use of ADR techniques for resolving disputes has pervaded across industries and sectors. Gone are the times when arbitration was only prevalent in the construction and oil and gas sector. Now arbitration is used in cases from family disputes to technology disputes making it a lucrative, cost-effective alternative that companies should explore. Corporate lawyers should appraise their clients of the benefits of ADR mechanisms and educate them in selecting the best option. ADR centres should conduct more broad-based and jargon-free seminars, training, boot camps, etc. for the legal and non-legal fraternity. Using such alternative forms for resolving disputes will not only benefit the parties but will also help the Indian court system come to terms with the mammoth piles of cases already in the works. Alternate Dispute resolution has something for everybody!
- What are the Advantages and Disadvantages of Arbitration? | Allen, Allen, Allen & Allen (allenandallen.com)
- Technology disputes | India | Global law firm | Norton Rose Fulbright
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