"I'll See You in Court"- Or Maybe Not!
Updated: May 1, 2021
Intellectual Property Rights is a common phrase we hear in recent times and most people are aware of what it means. Therefore we will refer to a definition provided by the Gujarat High Court in the case of GurukrupaMech Tech Pvt. Ltd. vs. State of Gujarat and Ors., which has defined Intellectual Property Rights ("IPR") as a negative right, "which means it is a right to exclude others from using the property generated by the registered owner. It is thus obvious that this law anticipates pre-emptive measures to prevent the misuse, as the property is intangible per se. Any reproduction in the tangible medium becomes susceptible to misappropriation therefore, the statutory rights ought to be protected."
The main feature of such IPRs is that the holder discloses it to the public for monopoly rights over the property for a specified duration. At the end of the monopoly period, the right ceases and the property is open to the public for use. Thus, it is but natural to conclude that IPR is a right in rem that is exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. This characteristic has a direct implication over the arbitrability of disputes pertaining to IPR and in the latter half of the post, we will see how the characteristic is not as simple as it seems.
Litigation or Arbitration?
Abraham Lincoln once said, “Discourage litigation, persuade your neighbors to compromise, whoever you can. Point out, the normal winner is often a real loser in fees, expenses, and waste of time.”
Human life is inter-twined as an assorted web of social relations. It is only natural for conflicts of interest to arise. In order to settle such disputes/conflicts, the dominant form taken by parties is the Courts through litigation. However, over time there has been an increase in the number of backlog cases with the Judiciary and delays have become synonymous with dispute resolution in India. The adversarial nature of the judicial process that is followed in India is time-consuming, expensive, and very procedure-oriented, thus, not aiming at “resolution” per se because the competing interests of the parties remain unsolved. It aims at upholding the one and rejecting the other, leaving the conflict between the parties unremedied.
Alternative Dispute Resolution ("ADR") refers to a "neutral mechanism” that allows “parties to solve their disputes outside of court in a private forum, with the assistance of a qualified neutral intermediary of their choice" and Arbitration nowadays has become the default dispute resolution mechanism.
At the very outset, it is imperative to clarify what arbitrability refers to. In Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., the Supreme Court laid down three facets of arbitrability namely,
(i) The ability of a dispute to be resolved through arbitration according to the laws of a state;
(ii) The ability of a dispute to be resolved through arbitration according to the agreement between the parties;
(iii) The ability of a dispute to be resolved through arbitration when the parties have referred to arbitration.
The nature of jurisdiction is intimately connected while differentiating between in rem and in personam actions. In rem cases the place where the property or the rem rests, the Courts have the requisite jurisdiction, whereas for in personam actions, the place where the defendant resides or where the cause of action arose, the jurisdiction lies with those Courts belonging to the place. In this context, the Booz Allen case gave recognition to a different kind of right i.e., subordinate rights in personam arising out of rights in rem. “38. Generally, and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable.”
In Vidya Drolia & Others v. Durga Trading Corporation, the SC propounded a new test in deciding when a cause of action or subject matter is not-arbitrable:
(i) Actions in rem, which do not relate to subordinate rights arising from rights in rem,
(ii) Where third party rights are affected, centralized adjudication and not mutualized adjudication is required, have ergo omnes effect;
(iii) Where the public interest and inalienable sovereign functions of the State are in question;
(iv) Where a specific statute, either expressly or impliedly categorizes them as non-arbitrable.
The jurisprudence revolving around the arbitrability of IP-related disputes has evolved explicitly through judicial decisions.
One of the earliest cases on arbitrability of IPR is Mundipharma AG v. Wockhardt Ltd., where the court held that infringement of copyright and the remedies therefore such as damages or injunction cannot be made a subject matter of the arbitration. However, no reasons or precedents were cited in support of their view in concluding on the non-arbitrability of IPR disputes. It was held that every suit arising under Chapter XII of the Copyright Act, 1957(civil remedies in case of infringement of copyright), shall be instituted in the district courts that have jurisdiction.
The case of E. Angath Arts (P.) Ltd. v. Century Communications Ltd., is important because even though the Bombay High Court did not deal with the issue of arbitrability of IP dispute the matter was referred to disputes. The assignor and assignee had entered into an agreement for joint ownership of the copyright in the negative of a film. The said agreement also contained an arbitration clause. A dispute arose and the petitioner approached the Bombay High Court for an injunction restraining the respondents from transferring, licensing, or sub-licensing any rights in the copyright of the film to any third party, pending constitution of the arbitral tribunal and reference to arbitration. An important point to be noted is that the petition was filed under Section of the Arbitration and Conciliation Act, 1996, and although the dispute was related to copyright the Court did not delve into the arbitrability of the dispute itself.
The Delhi High Court in the case of Ministry of Sound International v. M/S Indus Renaissance Partners, gave justification for the arbitrability of the dispute holding that the license agreement entered into for authorizing the use of trademarks/copyrights, etc. which provides for arbitration is a commercial contract and ought to be interpreted in a common-sense instead of a legalistic approach. The matter was referred to arbitration and it is to be noted that if a licensing agreement dispute is regarded as a contractual issue, they have been referred to arbitration.
In SAIL v. SKS Ispat and Power Ltd., the Bombay High Court dismissed the petition based on three grounds:
Trademark and the connected rights are in rem and are not open to private forum resolution chosen by the parties like arbitration,
Infringement and passing off disputes did not arise out of the contract,
Not all parties were party to the arbitration agreement, thus referring to Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531: AIR 2003 SC 2252, the entire subject matter was referred to court although a part of it was covered under the arbitration clause, as subject matters cannot be bifurcated.
In Euro Kids International (P) Ltd. v. Bhaskar Vidhyapeeth Shikshan Sanstha, the Court tried to disentangle disputes related to personal rights from the wide net of the non-arbitrability doctrine. The matter related to the using of copyrighted and trademarked material. The Court disagreed with the contention of the franchisee that since the dispute related to IPR, they were not arbitrable. The Court granted the petition for interim relief and held that the dispute was not pertaining to a right in rem as it was related neither to the ownership of the copyrighted material or the trademark. As it sought to enforce a negative agreement, the dispute was arbitrable and the Courts had the requisite authority to restrain the franchisee from violating the agreement, under Section 9 of the Arbitration and Conciliation Act, 1996.
In Eros International Media Ltd. v. Telemax Links India (P) Ltd., a suit was filed against Telemax for copyright infringement and Telemax had filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 stating that as the dispute was contractual and the parties had agreed to settle it via arbitration, the suit was not maintainable. The Bombay High Court in this case held that infringement actions of copyright are between two people and are only acts in personam and thus not actions in rem, as against mere registration which gives the holder a right against the whole world. Furthermore, the parties in a commercial dispute had made a conscious choice in opting for a particular form of dispute resolution i.e., arbitration, and such action cannot be characterized under actions in rem. Copyright assignment agreements containing arbitration clauses are not prohibited under any law thus no question can be raised as to whether they are arbitrable or non-arbitrable. With the increase of cross-border transactions, IPR disputes are no longer limited to the territorial limit of a nation, thus ousting the scope of arbitration as a form of dispute resolution can hamper national as well as international commerce and adds to the complexity of commercials IPR agreements.
In the case of Indian Performing Right Society Ltd. v. Entertainment Network (India) Ltd.,the Bombay High Court agreed with the order passed in SAIL v. SKS Ispat and Power Ltd.(supra) and held that since there was a statutory mandate requiring suits related to infringement be brought before the District Courts, the same cannot be referred to arbitration. It was observed that the copyright law confers on the holder a right in rem and cannot be subject to a private dispute resolution forum.
The Hyderabad High Court in Impact Metals Ltd. v. MSR India Ltd., made an interesting observation by rejecting the argument that copyright was a right in rem and held that the dispute was covered by the agreement between the parties thus could be referred to arbitration.
The Supreme Court in A. Ayyasamy v. A. Paramasivam set out categories of disputes as non-arbitrable disputes and disputes related to patents, trademarks, and copyrights were considered as one. The Hon’ble Court while deciding that allegations of fraud are simply not enough to detract from the obligation of parties to submit to arbitration, made the aforementioned classification. This observation was made in reference to a book authored by Mr. O.P. Malhotra and did not arise in lieu of any discussion on the arbitrability of IPR disputes. Furthermore, the use of the word “generally” in the paragraph quoted from the book supports the contention that the question of arbitrability of IPR disputes is an option on a case-to-case basis and that there is no curtain ban on them.
The Madras High Court in the recent case of Lifestyle Equities CV v. QD Seatoman Designs Pvt. Ltd., upheld the orders passed by the single judge that both parties were simply claiming for a better form of usage than the other, and thus the facts and the disputes fall under the realm of right in personam rather than a right in rem. It was observed, “That there is no quarrel with the proposition that the grant of registration of a copyright or design under the relevant statutes can be achieved through/only by statutory authorities constituted under the respective statutes.”
Recently the Delhi High Court was confronted with the issue of arbitrability of IPR disputes in the case of Hero Electric Vehicles Pvt. Ltd. v. Lectro E-Mobility Private Ltd., 2nd March 2021. The issue revolved around arbitrability of trademark infringements and passing off between two family groups. The Court held the matter to be an issue of contractual arrangements and did not delve into the IP angel. The Court held the matter to be arbitrable as it was not regarding trademark infringement or deceptively similar marks but rather about the right to use the mark.
From the above precedents, we understand that the perspective of arbitrability of disputes in India is somewhat ambiguous, fluid, and lacks definitive authoritative pronouncements from the Hon’ble SC. However, we witness a considerable bend towards the favorability of IPR disputes being arbitrable. Given the substantial increase in national and international commerce, licensing, assignment and other forms of transfer of IP are becoming a necessity, and most, if not all, such agreements contain an arbitration clause or some form of ADR method. Given the complexity of such cross-border transactions, disputes are most likely to arise hence resolving all such disputes through litigation before a Court does not benefit either party, neither does it help contribute to the development of any nation. It simply undermines the autonomy and choice of the parties who consciously entered into it and amounts to considerable delay in adjudicating disputes with the burden on Courts increasing ten-fold. The famous saying of "I'll see you in Court" is changing to "Let's settle it out of Court", due to the changing landscape of dispute resolution. The various precedents highlight the most important aspect of arbitrability of IPR dispute i.e., the nature of the dispute. Nature of disputes in terms of validity/registration of IPR or infringement matters or disputes arising out of an IPR contract etc. have to be safely categorized in order to ensure proportionality.
With India aspiring to be a hub of arbitration, she needs to have a liberalized approach in allowing for the arbitrability of IPR disputes. We have seen on numerous occasions how a ' one size fits all ' method does not work in determining which IPR dispute can be resolved by arbitration, hence the High Courts have dealt with each case differently. There was and is no blanket restriction on the arbitrability of IPR disputes. With the word adopting various forms of ADR and a pro-arbitration approach in deciding disputes of all kinds, India still awaits a judgment or some guideline that will lay all controversy, challenge, and complexity regarding IPR disputes to rest and bring about some clarity.
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