Resolution of Disputes involving IPR through Arbitration in India – An Analysis of the Legal Position

Chinmoy Pradip Sharma

Intellectual Property Rights (IPR) are classified under the category of rights in rem and it is no longer res integra that a right in rem is not arbitrable. In India, with arbitration becoming a norm for resolution of commercial disputes, the contempary debate is – whether disputes involving IPR can be referred to and resolved by arbitration?

In order to understand the narrative of the debate, it is essential to look at the opinions expressed in judicial pronuncements. The three major High Courts in India viz., Delhi, Bombay and Madras have dealt with this very issue and taken a divergence of view. To add to the conundrum, different Benches of the same High Court have also taken diametrically opposite views. The Supeme Court on the other hand has touched upon this issue though its view cannot be treated as a binding precedent. A Court-wise account will illustrate the position of law as it stands today.

Delhi High Court

Delhi High Court in the case of Mundipharma AG v. Wockhardt Ltd. was dealing with the provisions of Chapter XII of the Copyright Act, 1957 relating to civil remedies in case of infringement of copyright. It was held that every suit or other civil proceedings arising under that Chapter in respect of infringement of copyright in any work or the infringement of any other right conferred by the Copyright Act shall be instituted in the district Court having jurisdiction.

It was specifically emphasized that in case where copyright in any work is infringed, the remedies by way of injunction, damages, account and otherwise as are or may be conferred by law for the infringement of such a right, cannot be subject-matter of arbitration.

In a later ruling, the Delhi High Court in the case of Ministry of Sound International v. M/S Indus Renaissance Partners held that disputes pertaining to IPR can be arbitrated upon on premise that there is no absolute bar  on arbitration involving questions relating to IPR.

As such, the Bench came to the conclusion that though the agreement in question-related to authorizing use of the mark, names etc. (which were essentially IPR matters), a contract providing for arbitration is a commercial document that must be interpreted with a common sense approach rather than with pedantic or legalistic interpretation.

Bombay High Court

In the case of Steel Authority of India Ltd. v. SKS Ispat and Power Ltd., the Bombay High Court considered an application of the defendants in an infringement suit filed by the plaintiff who had claimed a permanent injunction against the defendants from infringing the registered trade-marks of the plaintiff. The plaintiff also claimed for damages against the defendants. The defendants filed a notice of motion under Section 8 of the Arbitration Act relying upon the arbitration agreement admittedly entered into between the parties in that matter. 

The Bombay High Court dismissed the Application under Section 8 on the ground that the suit was for the infringement and passing off and arise out of rights to a trademark and the remedies in connection therewith which are matters in rem. These rights and remedies by their very nature not amenable to the jurisdiction of a private forum chosen by the parties such as arbitration.

In Eros International Media v. Telemax Links, the Bombay High Court was dealing with a case where Eros filed a suit for copyright infringement against Telemax. Telemax filed an Application under Section 8 of the Arbitration and Conciliation Act, 1996 that owing to the disputes being purely contractual and the parties having agreed to settle them by arbitration, the suit was not maintainable.

In Eros Media’s Case, the Bench took a different view from that taken in the Steel Authority’s Case and agreed with the contention of Telemax by concluding that where there are matters of commercial disputes and parties have consciously decided to refer these disputes arising from that contract to a private forum, no question arises of those disputes being non-arbitrable. Such actions are always actions in personam, one party seeking a specific particularized relief against a particular defined party, not against the world at large.

In a subsequent case of IPS v. Entertainment Network, the Bombay High Court had the occasion to deal with the views taken in both the above-mentioned decisions. The Bench distinguished the judgment in Eros’s Case on the reliefs claimed in the two cases. It was decided that the relief sought was for license/ royalty in relation to broadcasting of a sound recording and seeking an injunction on it.

The Bench noted that the learned arbitrator in the Award in question had held that the respondent did not enjoy the copyright in the underlying works in view of the same having been subsumed in the sound recording and thus the claimant was not liable to obtain any license from the respondent for broadcasting the sound recording. This decision of the learned arbitrator would bind not only the respondent but would be a declaration of the status of the respondent to the world at large. The Award was set aside on the ground that the relief of such nature viz., involving right in rem could not be granted through arbitration.

Madras High Court

The Madras High Court in the case of RK Production Pvt. Ltd. v. M/s. NK Theatres Pvt. Ltd. was dealing with a case arising out of an agreement between the parties for assignment of copyright which contained an arbitration clause. Several issues including non-payment of consideration and applicability of arbitration clause on parties outside the agreement. The Bench took the view that all these issues cannot be bifurcated and the disputes cannot be referred to arbitration. The Bench did not elaborate on the reasons. Therefore, it is not certain whether the reason was because the dispute involved the persons who were not parties to the agreement or because the dispute also involved copyright.

In a recent judgment of Lifestyle Equities CV v. QD Seatoman Designs Pvt. Ltd., the Madras High Court had the occasion to deal with the issue in detail. The Bench has noted the judgments of the Delhi High Court and Bombay High Court referred to above and the several other judgments including judgments of the Supreme Court in great detail.

The Bench noted that the Single Judge had concluded that dispute pertained to ‘better usage of copyright’ arising out of a contract between the parties (in other words disputed claims of ownership of copyright for products manufactured in the execution of the contract) and validity or registrability of a copyright (which would rest within the domain of the statutory authority under the Copyright Act or the Court).

It was also noted that the Single Judge had indicated that this finding is purely prima facie and is subject to final adjudication by the arbitral tribunal. Based on this premise, the Bench concluded that the disputes can be referred to arbitration but the issue of arbitrability of the disputes would be open for adjudication before the arbitral tribunal. 

A Special Leave Petition before the Supreme Court was preferred against this judgment. The Supreme Court while disposing of the SLP proceeded to appoint an arbitrator was pleased to re-iterate that it would be open for the parties to agitate the issue of maintainability before the arbitral tribunal. It was also recorded that the observations of the Division Bench (regarding arbitrability of the disputes) would not come in the way of such exercise. 

Supreme Court of India

The Supreme Court has not dealt with the issue of arbitrability of IPR specifically.  In the case of Vikas Sales Corporation v. Commissioner of Commercial Tax, the Supreme Court considered the question as to whether transfer of an import license would amount to transfer of ‘goods’ and consequently applicability of sales.

In order to ascertain this, the Supreme Court dwelled on the issue whether an import license came within the purview of ‘goods’. Definition of the term ‘property’ and its different attributes was extensively discussed. The Supreme Court while categorising property into movable and immovable and illustrating their facets made a reference to patents and copyrights as being rights in rem. 

In the case of Common Cause v. Union of India, while elaborating on tortious liability, the Supreme Court referred to the definition of ‘tort’ and indicated that a tort qua copyright was an infringement of a right in rem.

In its judgment in the case of Booz Allen Hamilton v. SBI Home Finance Ltd., though the Supreme Court laid down that generally rights in rem have to be decided by the courts of law and not by arbitral tribunals, this has been highlighted to be ‘not however a rigid or inflexible rule.’. It was specifically noted that ‘Disputes relating to sub-ordinate rights in personam arising from rights in rem have always been considered to be arbitrable.’ Interestingly, in the various illustrative disputes which are cannot be arbitrated upon owing to involvement of right in rem, disputes relating to IPR do not find mention.

It is noteworthy that the Supreme Court in the case of A Ayyasamy v. A Paramasivam  while setting out a categories of disputes which are non-arbitrable and disputes relating to patents, trademark and copyright is one of them.

At this stage, It is important to explain that the above-mentioned categories set out in the judgment have been incorporated from the book Indu Malhotra, “O.P. Malhotra on The Law & Practice of Arbitration and Conciliation”, 3rd Ed, Thomson Reuters, 2014 and is not based upon any discussion or reasoning. Consequently, this categorisation can at best be treated as the author’s views and not that of the Supreme Court. 

Analysis of the Legal Position

A glance at the judgments of the discussed above leads to the irrefutable conclusion that the issue whether IPR disputes are arbitrable is still fluid. There is lack of an authoritative pronouncement by the Supreme Court pointedly covering the issue. The judgments of the Supreme Court have merely dealt with broad categorisation of IPR being rights in rem and have generically concluded that rights in rem are not arbitrable in two separate line of judgments. 

At this stage, a clarification is necesaary on the categorisation of IPR disputes as non-arbitrable disputes in Ayyasamy’s case. As stated above, this was a result of relying upon the views of the author without any discussion in the judgment for such categorisation. In the absence of any reasoning, this by itself cannot be treated to be the ratio of the decision and a binding precedent on the issue. As such, the exception judgment carved out in Booz Allen’s case operates in full measure to enable disputes pertaining to rights of parties involving IPR to be referred to arbitration. 

A wide range of disputes where IPR is directly or indirectly involved can be contemplated. There may be disputes arising out of agreements involving licensing of IPR akin to Eros International’s case. Another plausible case, similar to the facts in Lifestyle Equities case decided by the Madras High Court, is one where a contract involves creation of IPR and there is a dispute regarding its ownership. Another set of disputes can be ones which do not pertain to ownership of IPR but arises from its use. 

In Eros International’s case, the Bombay High Court bifurcated IPR as having an element of right in rem which are enforced by and before the statutory authorities and the right in personam element viz., a private dispute between two parties arising out of commercial contacts where IP is involved which could be decided through arbitration. In a similar manner, the Madras High Court drew a distinction between cases relating to validity of IPR and those involving rights under the IPR. 

In fact, after the enforcement of the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Court Acts, 2015 (the “Commercial Act”), a conceivable view is that every dispute pertaining to IPR can be arbitrated upon. The above argument draws its force from conjoint reading of Section 2 (1) (f) of the Arbitration and Conciliation Act, 1996 (the “Arbitration Act”) read with Section 2 (c) (xvii) of the Commercial Act.

The Arbitration Act defines ‘international commercial arbitration’ to mean and include any dispute of commercial nature arising between the Indian party and International party. Though the term ‘commercial’ is not defined in the Arbitration Act, the definition of the term ‘commercial dispute’ finds its place in the Commercial Act.

This definition includes IPR disputes and therefore, IPR disputes can be said to arbitral in nature. In addition, Section 10 of the Commercial Act provides for arbitration of commercial dispute of specified value without specifically ousting arbitration of IPR disputes from its purview.

Mustil and Boyd have highlighted that there is distinction between rights in personam arising out of rights in rem which are arbitrable and the rights in rem per se which are not. To elucidate this distinction, the authors have put forth the example of a dispute relating to rights under a patent license in contrast to one which involves validity of a patent. The first type of dispute being arbitrable and the other not arbitrable.

On the other hand, some of the International scholars on this subject have taken a strong view that IPR disputes are actually arbitrable and there is no hindrance. Marc Blessing  has reasoned  that the limit of arbitrability is not set by the interference of foreign mandatory rules of law, but only by the limits imposed on the basis of public policy in international affairs. In other words, the author view is that the limits are self-imposed rather than an express prohibition in the law.

The analysis above leads to the conclusion that the significant aspect to be borne in mind is the nature of dispute. If the nature of the dispute relates to validity or registration of IPR, the dispute is not arbitrable. For dispute involving infringement of IPR de hors a contract or where contract exists, question of arbitrability does not arise. However, in all other IPR disputes involving contractual rights or IPR rights arising out of a contract, the disputes have to be said to be arbitrable. One rule of thumb that can be formulated is that when validity of the IPR is not in dispute and the dispute is restricted to enforcement of IPR, the dispute can be safely categorised arbitrable.

It is equally true that there are several challenges along the way. Traditionally, IPR disputes predominantly pertained to infringement/ enforcement actions against parties with no contractual obligations. In the absence of a contract which would provide for arbitration, civil courts was the customary forum for dispute resolution. Gradually, IPR disputes arising out of contracts are become increasingly common. In many cases, complex and myriad other issues along with issue of enforcement of IP also arise for consideration which can be inextricably linked with validity of IPR. To add to these challenges, the defence of validity of IPR is almost always taken in IPR disputes. 

Interestingly, the legal position on this issue in different countries is different. The most liberal approach taken has been by Switzerland. In 1975, the Swiss Federal Office of Intellectual Property released a statement that arbitral tribunals had the power to decide on the validity of intellectual property rights. On the other hand, some countries such as South Africa, bars any arbitration that involves IPR issues entirely. Other countries like France, Italy and Japan take a more restrictive approach allowing for arbitration of IPR infringement but not the arbitration of IPR validity.

However, it is an accepted position globally that the phenomenon of arbitration of IPR disputes has developed worldwide where parties are increasingly moving towards ADR, in including arbitration, for resolving their disputes including IPR disputes. The number of IPR arbitrations being administered by WIPO is growing exponentially and WIPO has framed special rule for arbitration of IPR disputes. Some of the jurisdictions, like USA, Hong Kong, Switzerland and Israel have taken a step further and framed a special legislation for arbitrability of IPR disputes in order to set the controversy of arbitrability of IPR disputes to rest.

The upshot of the discussion is that there cannot be a ‘one size that fits all’ formula for ascertaining whether a particular IPR can be resolved by arbitration. Each case has to be decided on its peculiar facts and keeping in mind the issues arising for consideration. As different High Courts have dealt with different fact situations and different interlinked nuances, a judgment that could have conclusively laid the controversy to rest is still awaited.

Arbitration clauses in contracts in India are now drafted with an all-inclusive approach and such clauses are given extremely wide interpretation by Arbitral Tribunals and Courts alike. The growing trend of judgments and the position of law bears testimony to the change from a conservative straightjacket approach to a more pragmatic and holistic approach in cases involving the arbitrability of IPR disputes. As such, the way forward should be to allow arbitration of IPR disputes which extends to deciding the validity of IPR though restricting the scope of its adjudication by making it binding upon the parties to the contract.There is enough force in the form of precedent and legal framework to bolster this growing trend.

The author is a lawyer practising in the Supreme Court and is a keen observer of law, polity, and judicial process.

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