OVERVIEW: ARBITRABILITY OF INTELLECTUAL PROPERTY DISPUTES IN INDIA
Arbitration as a mode of alternative dispute resolution is an efficient and effective means to resolve disputes, especially commercial disputes. However, the arbitrability of some disputes due to their subject matter is questionable and in fact, it may even be argued that certain matters are incapable of resolution via arbitration and therefore, litigation may be the only remedy available for them. Intellectual property (“IP”) law is a rapidly evolving field in India and there is a growing need for efficacious adjudication of disputes arising out of such rights.Since no statutory provision clearly lists disputes or subject matters which are or are not arbitrable, judicial interpretation on the matter is widely relied upon. The ambiguity around this issue has been the result of confusing interpretations, lack of a set precedent, as well as differing opinions by different Indian High Courts.
BLANKET BAR ON RIGHTS IN REM?
In the case of Ayyasamy v. Paramasivam & Ors., the Supreme Court, in its obiter dictum stated that all disputes arising out of trademarks, copyrights and patents are in-arbitrable per se. However, since this categorization was limited to the Court’s obiter dictum, it cannot be conclusively followed as precedential authority. There are varying schools of thoughts on the matter and essentially, from various decisions, it can be observed that there is no such absolute bar on the arbitrability of IP disputes.
The concerns and arguments in favour of a bar on arbitrability of IP disputes stem from the objective of not binding non-parties to an agreement. The Supreme Court clarified the position on the subject matter of disputes that may fall within the scope of arbitration in the case of Booz-Allen & Hamilton Inc v. SBI Home Finance Ltd. & Ors.. The Court explained the difference between a right in rem and a right in personam and stated that, “A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals...” The Court explained that all disputes relating to rights in personam are “amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals”. The Court, however, also explained that this is not a rigid or inflexible rule and disputes relating to subordinate rights in personam arising from rights in rem are arbitrable as well.
Therefore, the Supreme Court in the aforesaid case laid down the foundation of the principles on arbitrability of a matter and perhaps the intention of the Court was to clarify that the decision of an arbitrator cannot bind non-signatories or the public at large. It shall only bind the parties in the contract whereby arbitration has been agreed upon. Hence, it can be concluded that matters which are related to actions in rem i.e., rights exercisable against the world at large, are not arbitrable per se and cannot be resolved through arbitration, whereas rights in personam may be arbitrable.
IP rights are generally described as negative rights, which means that they give the right holders the exclusive right to exclude others from using their intellectual property such as trademarks, copyrights, patents and industrial design. In the case of Vikas Sales Corporation v. Commissioner of Commercial Taxes, the Supreme Court held that copyrights, patents and trademarks are rights in rem. Further, the Court also stated that though they are not rights in land, but they are “included within the meaning of movable property”.
Furthermore, in the case of Emaar MGF Land Ltd. v. Aftab Singh, the Court held that disputes related to copyrights, patents and trademarks are not arbitrable because they fall within the category of rights in rem. The Court, in this case, reiterated the position taken by the Supreme Court in the case of Booz-Allen and clearly stated that disputes related to rights in personam are in fact arbitrable however, matters related to rights in rem shall be adjudicated by the courts. Thus, according to this case, disputes related to patents, copyrights and trademarks are generally treated as non-arbitrable and only civil courts can rightfully exercise jurisdiction over such matters. However, it should be noted that the Courts also generally uphold the arbitrability of rights in personam arising out of rights in rem.
Some clarity on the matter was provided by the Supreme Court in the case of Vidya Drolia and Ors. v. Durga Trading Corporation, wherein four principles on non-arbitrability were established to determine arbitrability of a subject matter. Accordingly, first it must be determined whether the dispute relates to actions in rem, not pertaining to subordinate rights in personam; second, the subject-matter of the dispute is not arbitrable if it affects third-party rights and is likely to have implications on the public; third, the matter is not arbitrable if it relates to the inalienable sovereign and public interest functions of the State; and fourth, the matter is not arbitrable if it is expressly or by necessary implication non-arbitrable as per mandatory statutes. The Court stated that, “Contractual and consensual nature of arbitration underpins its ambit and scope. Authority and power being derived from an agreement cannot bind and is non-effective against non-signatories. Prime objective of arbitration...is crippled and mutilated when the rights and liabilities of persons who have not consented to arbitration are affected”. Thus, the Court explained that “Arbitration agreement as an alternative to public fora should not be enforced when it is futile, ineffective, and would be a no result exercise.” The Court also clarified that certain sovereign functions extend to the executive power, such as the grant of patents which are non-arbitrable decisions unless “statute in relation to a regulatory or adjudicatory mechanism either expressly or by clear implication permits arbitration. In these matters the State enjoys monopoly in dispute resolution.” With regards to implicit non-arbitrability, the Court also stated, “Implicit non-arbitrability is established when by mandatory law the parties are quintessentially barred from contracting out and waiving the adjudication by the designated court or the specified public forum. There is no choice. The person who insists on the remedy must seek his remedy before the forum stated in the statute and before no other forum.” The case of Vidya Drolia at least laid to rest one issue governing the arbitrability of IP disputes – that matters pertaining to granting a patent or registering a trademark are inherently non-arbitrable and only to be decided in a court of law, as they pertain to grant of monopolistic rights that involves sovereign functions of the State.
THE CONTRACTUAL POINT OF VIEW
In the case of Eros International Media Limited v. Telemax Links India Pvt. Ltd. & Ors., the Bombay High Court stated 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.” This case involved a copyright infringement claim and the Defendant argued that the dispute should be referred to arbitration in view of the arbitration clause which formed part of their long-standing agreement. However, the Plaintiff argued that their claim rested on statutory action under the Copyright Act and not on any breach of contract. The Plaintiff also argued that disputes involving intellectual property are inherently non-arbitrable.
However, the Court found in favour of the Defendant and held that the matter was arbitrable. It was also observed that the Plaintiff’s action was in personam since it was specifically seeking relief against the Defendant, a defined party. The Court went on further to state that the Plaintiff’s argument in favour of a blanket bar on arbitrability of intellectual property disputes would defeat the entire mechanism for contracts and the law surrounding them. The Court also explained that if the Plaintiff’s argument was to be followed, in any case where intellectual property rights are transferred or dealt with, no dispute arising out of such agreement could be referred to arbitration and every arbitration clause in any such document would be void ab initio. The Hon’ble Justice explained that “I do not think the world of domestic and international commerce is prepared for the apocalyptic legal thermonuclear devastation that will follow” if the Plaintiff’s submissions were to be accepted.
Similarly, in the case of Eurokids International Pvt. Ltd. v. Bhaskar Vidyapeeth Shikshan Sanstha, the Bombay High Court held in favour of arbitrating a matter related to the restrictions on using intellectual property rights arising out of a franchise agreement.
Furthermore, recently in the case of Hero Electric Vehicles Pvt. Ltd. & Anr. v. Lectro E-Mobility Pvt. Ltd. & Anr., the Delhi High Court dealt with the issue of arbitrability in a trademark infringement and passing off dispute between family groups. Keeping the precedents and decisions made in the above-mentioned cases in mind, the Court chose to take a different approach to the case by addressing the issue from a contractual point of view without touching upon the question of rights in rem or personam. It is also worth noting that the Court in this case failed to consider the fact that a mere contractual relationship between two parties doesn’t automatically create a right in personam and sometimes, even despite arbitration clauses, matters may involve rights in rem issues as well.
In the Hero Electric case, it was held that the IP dispute at hand was arbitrable because, as per the Delhi High Court, the right that was being asserted by the Plaintiff i.e., F1, was only against the Defendant i.e., F4, and not against the whole world. As per the Delhi High Court, this was not a “normal” infringement suit, as it pertained to a dispute between two family groups and rights that arose from the ‘Family Settlement Agreement’ (FSA) and the ‘Trade Mark and Name Agreement’ (TMNA) – and not the provisions of the statute i.e., Trade Marks Act, 1999. Any right that arose from the Trade Marks Act, 1999, as per the Court, was only incidental. Hence, on account of all these factors, the Delhi High Court held that the right being asserted by F1 was not a right in rem, and hence, the same was arbitrable.
While the aforesaid is the essential ratio of the judgement, the essence of the Delhi High Court’s understanding of the arbitrability of IP disputes comes from its following reasoning to support its decision: “the infringement is alleged, not on the ground that the defendants are using deceptively similar trademarks, but on the ground that the right to use the trademarks, on electric cycles was conferred, by the FSA and TMNA, not on the F-4 group, but on the F-1 group”. From one perspective, this reasoning of the Delhi High Court may give abundant clarity to what constitutes a right in personam and right in rem in IP disputes. The interpretation of the judgement is that the right that arose in the present dispute was a right in personam because it was an effect of the provisions of certain contracts between the parties, namely the FSA and TMNA, and not the direct result of statutory rights conferred by the Trade Marks Act, 1999. As the Delhi High Court held, the controversy in this case “did not relate to grant or registration of trademarks. The trademarks already stood granted, and registered, prior to the FSA and TMNA”. Rather, the dispute pertained to contractual rights that arose from the FSA and TMNA, and hence, the issue being contractual in nature, was inherently arbitrable.
While this judgement marks a clear distinction between contractual and statutory IP rights, the former being arbitrable and the latter being non-arbitrable, it still leaves certain doubts in mind. One of the questions that comes to mind is that disputes pertaining to the ownership of IP, as in this case, cannot inherently be termed rights in personam, as the exclusive ownership of a right is essentially a right enforced against the whole world, which would make it a right in rem. In other words, should the fact that a right in rem is being enforced against a particular person, automatically render it a right in personam and therefore, arbitrable? Another issue that did not receive attention by the Delhi High Court was the issue of F1 using the trademark for electric bikes vs F4 using it for electric bicycles. Whether or not the same constitutes infringement is a question to be determined in accordance with the statutory trademark law, which would put a doubt on the issue in the case of Hero Electric being entirely contractual and/or arbitrable, as held by the Delhi High Court.
Similarly and more recently, in the case of Golden Tobie Private Limited v. Golden Tobacco Limited, the Delhi High Court considered a dispute over a trademark license agreement to be a matter fit for arbitration and referred the case to an arbitrator. The Court found that since the dispute was between family groups regarding use of the trademark, “The dispute does not, therefore, fall under any of the categories of disputes excepted, by the Supreme Court, from the arbitral umbrella.” The Court stated, “The right that is asserted by the plaintiff is not a right that emanates from the Trademark Act but a right that emanates from the Agreement...The assignment of trademark is by a contract and not by a statutory act. It does not involve any exercise of sovereign functions of the State. It cannot be said that the disputes are not arbitrable.”
The Delhi High Court reaffirmed its earlier position in Hero Electric (supra) that IP disputes that essentially emanate from a contract are arbitrable, while those that arise directly from the statute are not. The Delhi High Court’s stance on the clear distinction between contractual and statutory IP rights is clear from its holding in the present case i.e., that since the right asserted by the Plaintiff arose from the contractual agreements between the parties, and not from the Trade Marks Act, 1999, the dispute between the parties was arbitrable. Since the assignment of the trademark of the Defendant in the present case was on account of the license and amendment agreement, and did not involve any sovereign functions of the State, the dispute could not be said to be non-arbitrable.
CURRENT STATUTORY PROVISIONS
It is also pertinent to mention that certain disputes may not be arbitrable as a matter of statutory provisions. Express statutory provisions ensure protection against infringement of intellectual property rights and as a result there are statutory remedies available. For instance, as per Section 135 of The Trade Marks Act 1999, a trademark holder can seek judicial recourse and remedies against an infringer in civil courts. Similarly, Section 62(1) of The Copyright Act 1957 states that, “Every suit or other civil proceeding arising under this Chapter in respect of the infringement of copyright in any work or the infringement of any other right conferred by this Act shall be instituted in the district court having jurisdiction.” Since the statutes mention only civil courts, it is presumed that remedy can only be sought through the courts and not through arbitration. Thus, such provisions could be the cause for some confusion in this area. However, it should also be noted that these provisions do not expressly prohibit arbitration and matters related to rights in personam are indeed arbitrable.
Section 34(2)(b)(i) of the Arbitration and Conciliation Act 1996 states that an award related to non-arbitrable subject matter may be set aside. Further, Section 2(c)(xvii) of the The Commercial Courts, Commercial Division, and Commercial Appellate Division of the High Court Acts, 2015 defines “commercial disputes” as disputes arising out of “intellectual property rights relating to registered and unregistered trademarks, copyright, patent, design, domain names, geographical indications and semiconductor integrated circuits”. Section 10 also states that matters of specified value may fall under arbitration but, intellectual property disputes are not specifically excluded under Section 10. Therefore, there is some confusion here and perhaps some form of statutory reform and amendment to the Arbitration and Conciliation Act 1996 could help bring more clarity on the subject.
To conclude, it can be observed that there has been some uncertainty in this area of the law in India and perhaps the lack of a statutory clarification has caused this confusion. The Delhi High Court’s approach to the arbitrability of IP disputes rests on the formula of assessing whether a dispute pertaining to IP rights directly arises from the statute or a contract. While this offers much respite and long-awaited clarity to the issue, it is of concern that such a straitjacket formula might overlook the complexities of certain disputes where rights in rem may be disguised as rights in personam, and it might be in the interest of public to determine IP disputes arising from contracts through litigation instead of arbitration. While the Delhi High Court’s recent judgements are commendable for being a step forward in the resolution of the ambiguity surrounding the arbitrability of IP disputes, it is hoped that the Supreme Court may be able to soon adjudicate upon the issue and build upon the Delhi High Court’s judgements to give them their best effect.
Disputes arising out of rights in personam shall generally be open to arbitration and this seems only fair given the fact that it would defeat contractual machinery if agreements involving arbitration clauses were not upheld due to any sort of blanket bar on arbitrability of disputes related to intellectual property rights. Matters related to license agreements, marketing and royalties, for instance, are all matters which are arbitrable disputes. With the increase in commercial transactions and the need for an efficient and speedy dispute resolution mechanism, Indian legislators should consider repositioning and codifying the matter of arbitrability of intellectual property disputes. Matters related to intellectual property rights often transcend national boundaries and arbitration of such disputes shall provide an opportunity for more streamlined commercial operations.
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