Arbitrability of Intellectual Property Rights’ Disputes: An Affirmative Step

Introduction

Since the 1990s and since early 2000 in the Indian context, ADR (alternative dispute resolution) developments are no more given the significance of supplementing mechanisms. Arbitration, reconciliation, etc. are older than even litigation. Over time our zest with strict procedure and recognition of the adversarial system replaced them. When the difficulties of adversarial systems were recognised globally, it was the time when the renaissance of ADR happened. Arbitration remains of high preference. Litigation remains of very low inclination. Domestic courts give more obsequiousness to the arbitral awards compared to foreign court judgments; arbitration is often seen as the preferred method of litigation. In arbitration, many countries have ratified the New York Convention, 1958.¹ Hence the process of recognition of arbitral awards is universally recognised.

In layman’s language, the process of arbitration involves negotiation, mediation, conciliation, and arbitration which are known by laymen as out-of-court settlement but in fact are non-judicial processes for settlement of disputes. Now, the meaning of dispute is as something contentious then questioned. A dispute is not just something that arises when some wrong has been done by one party and you want to win the dispute. In ADR, a dispute can also refer to situations where the antagonistic aspect does not arise, parties may just have a disagreement, etc. and want to resolve it and continue with their relationship amicably. Not all disputes are acquiescent to being determined by any method. There will be some disputes which cannot be resolved by mediation and require arbitration. Some will only be determined by litigation and so on. Therefore, all the disputes are required to be solved accordingly keeping in mind what remedy suits best.

The Arbitration and Conciliation Act, 1996² (the Act, 1996) does not specifically mention all disputes which are arbitrable although Sections 2(3)³, 34(2)(b)⁴, 48(2)⁵ of the Act, 1996 indirectly deals with the non-arbitrability of disputes. Thus, the general idea is whatever is affecting rights in personam can be settled through arbitration and the rights in rem matters cannot be settled. In this article, we have discussed and analysed whether the dispute arising from intellectual property rights (IPR) are arbitrable or not.

Background

Intellectual property rights are like any other property right such as rights to land, buildings, gold, etc. They basically agree to creators, or owners, of patents, trade marks, or copyrighted works to benefit from their own work or investment in a creation. These IPRs are negative rights which qualifies them to be right in rem since they affect the right of third parties and do affect monopolistic rights. For instance, I have registered a trade mark which I created by investing my time and money in shaping my idea into that mark, now I can prevent other people to use the same trade mark without my will through assignment or transfer of its right.

It is significant to note here that the arbitrability of the dispute depends crucially on the concept of “public policy” which prima facie seems too broad and extinguished. The basic objective is simply to distinguish between rights in rem and rights in personam. From the judicial pronouncement, the standing till the year 2020, in Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd.⁶ which absolutely excluded the domain of rights in rem from the sweep of arbitration and stated that a more competent judicial body pertinent to the case at hand is needed to judge the applicability of arbitration to IP disputes. However, the Supreme Court does vaguely consider the fact that rights in rem and personam cannot be wholly bifurcated and thus rights in personam originating from rights in rem might be subject to arbitration.

A clause pertinent to jurisdiction for resolution of dispute provided under Section 62⁷ of the Copyright Act, 1957⁸, which states that infringement matters could not be filed before any court lower than the jurisdictionally competent District Court which led to bewilderment as the bare reading of the provision leads to the interpretation that the IP disputes cannot be arbitrated. The same was challenged in Eros International Media Ltd. v. Telemax Links India (P) Ltd.⁹, where the Bombay High Court held that the dispute is arbitrable as the IP disputes in copyright or trade mark arising out of commercial contracts regarding an infringement or passing-off action, that action and that remedy can only be an action in personam. The Court stated that any finding of such infringement (or absence of) will be valid only against Telemax and not against any third party or world at large. It was observed that Section 62(1) of the Copyright Act should not be read down to mean the ousting of the jurisdiction of an arbitral panel. This judgment makes it profusely clear that nevertheless under trade mark and copyright law, registration grants the registrant a right against the world at large and it is possible that an opposition to such an application (before the Registrar) would be an action in rem, however, an infringement or passing off action binds only the parties to it.

However, totally an opposite and contradictory judgment in Indian Performing Right Society (IPRS) Ltd. v. Entertainment Network (India) Ltd.¹⁰ was passed on the basis of relying on cases like, Booz Allen¹¹, Vikas Sales Corpn. v. CCT¹² and Mundipharma AG v. Wockhardt Ltd.¹³ and held that Section 62(1) provides scope for filing suit or proceeding for infringement of copyright which can be resolved only by a competent court due to the fact that it deals with right in rem.

In earlier cases of Munidpharma¹⁴ and Vikas Sales Corpn.¹⁵, where arbitrability of IP disputes was tested, the petitioners raised statutory claims of infringement of copyright/trade mark, and expected statutory or public law-based remedies in return. Thus, the only gamut of IP disputes whose arbitrability had been tested hitherto were those that were purely born out of IP statutes. However, IP disputes are not merely statutory but can be contractual as well. With an increase in quantum and complexity in commercial transactions, the arbitrability of purely contractual IP disputes arose very lately recently in EROS case¹⁶. These cases have rightly not applied IPRS¹⁷ case holding about the inarbitrability of purely statutory IP claims to contractual IP claims.

The judicial system with the aim at making the Indian legal system a pro-arbitration system has pronounced in the judgment by the Supreme Court in Vidya Drolia v. Durga Trading Corpn.¹⁸, which dealt with the position arbitrability of IP disputes. In this case, the Supreme Court has answered a reference made by a two-Judge Bench of the Supreme Court pertinent to the arbitrability of a landlord- tenant dispute governed by the Transfer of Property Act, 1882¹⁹ and doubt over the ratio laid in Himangni Enterprises v. Kamaljeet Singh Ahluwalia.²⁰ The Court laid down a four-fold test to check the essentiality for arbitration of IP disputes and answered whether any dispute is arbitrable or not. It held that a dispute would be non-arbitrable when the cause of action and/or subject-matter of the dispute:

1. relates to actions in rem that do not pertain to subordinate rights in personam that arise from rights in rem;

2. affects third-party rights or has erga omnes effect;

3. relates to the inalienable sovereign and public interest functions of the State; and

4. is expressly or by necessary implication non-arbitrable under a specific statute.

The judgment clarifies the position of arbitrability of IP disputes and stated that what is barred by statutes cannot be arbitrated since it involves the rights of third parties. With Vidya Drolia²¹, pronged test in force henceforth, it can be said that the tide would turn in favour of arbitrating IP disputes.

A decisive judgment towards affirmative road

In catena of judgments till this stage had rationale that since the grant of such rights conferred monopoly rights, they were non-arbitrable; although the Court has not imposed any unmitigated exclusion on the resolution of IP dispute through arbitration, thus the obiter creates room for confusion. Fortuitously, the Delhi High Court in Hero Electric Vehicles (P) Ltd. v. Lectro E-Mobility (P) Ltd.²², where the dispute involved pertained to trade mark, and therefore it would have erga omnes implications concerning sovereign functions of the State. The judgment although does not answer the question in the affirmative with reference to the issues which are directly arising from IPR, but the Court distinguished between earlier judgments where the issue was directly concerning IPR with that to this case where the issue indirectly IPR concerned and is actually concerning the agreement terms on a contractual basis between the parties and not trade mark for parties.

The counsel contended that the dispute pertained to the scope of trade mark registration and thus any decision on the same would operate in rem as it would confer an absolute right on the winning party. However, the Court held that firstly, the dispute was addressed, more or less exclusively, around two contractual arrangements, the family settlement agreement and the trade mark and name agreement. Secondly, the remedy is sought not on the ground that the defendants are using deceptively similar trade marks, but rather that the right to use the trade mark was deliberated on a different family group. Thirdly, even if there was any reliance on provisions of the Trade Marks Act, 1999²³, the “essential infraction” as alleged was not of provisions of the Trade Marks Act, 1999 but of the provisions of the agreements. The Court observed that any effective adjudication of the disputes would be dreadful without reference to the two agreements.

On the question of arbitrability of IP disputes, the Court held that the dispute in the present case does not be in connection with the grant or registration of trade marks, and was therefore not affected by the concern identified in Vidya Drolia.²⁴ Further, there was no connection of sovereign functions, and as it did not fall under any of the categories of disputes excepted by the Supreme Court of India in Vidya Drolia.²⁵

Comparative study

The courts of the United Kingdom do recognise arbitrability of IP disputes specifically in trade mark and copyright related disputes which are effusively arbitrable. Whereas laws in the United States of America especially state that parties can opt for arbitration mechanism as a disputes settlement method in patent disputes. Even though no statute in the US provides for arbitration in copyright disputes, the courts have held that copyright disputes are arbitrable.

Observing various judicial pronouncements in USA in which the courts have enunciated conditions in which arbitration cannot be resorted to for solving IP matters. In Farrel Corpn. v. United States International Trade Commission²⁶, the Court denied arbitration in consequence of the statutory mandates which did not allow arbitration for resolution of certain kinds of trade mark and trade secret issues. In Wyatt Earp Enterprises Inc. v. Sackman Inc.²⁷, 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 Plastik Pak Co. v. Monsanto Co.²⁸, it was observed that technological knowledge of the parties could raise anti-trust concerns and hence such issues could not be arbitrated upon.

Conclusion

India has always endeavoured to make its streak in the domain of international commercial arbitration, conceivably making amendments and pronouncing judgments in favour of arbitration, IP related statutes and provisions which shall be an impetus on the road to building India's progressive appearance at global arbitration platform. Thus, cases like Eros International²⁹ and Hero Electric³⁰, where parties to an agreement merely dispute the assignment of IP rights and are contending about the other party that h/she has violated the first party's rights under an agreement, there is no issue with sovereign governmental functions. Even in Eros International³¹, the Court ruled that an infringement action, unlike an action against registration, would only bind the parties to the dispute and was thus arbitrable. Therefore, Vidya Drolia³² should be read in line to mean that only those disputes which relate to the registration of IP rights are not arbitrable and disputes pertaining to infringement of, or assignment of IP rights are arbitrable.

This position on arbitrability will make sure that a balance of rights between inventor/author and the general public will be maintained, with inventor/author retaining the right to arbitrate contractual rights and courts keeping in mind jurisdiction over claims that affect the general public. Such a balance is desirable for effective functioning of the IP regime as well. The possibility of easy dispute resolution would encourage inventors. Retaining the courts' jurisdiction over matters where the public's right to use copyrighted works and patented inventions is affected, would also ensure a vigorous public domain, and safeguard the public interest.

On the subject of the argument that the dispute was in the nature of an action in rem, one must keep in mind that post Vidya Drolia³³, courts must be cautioned to avoid the inducement to cross the threshold into such jurisprudential woods of the dissimilarity between actions in rem and rights in rem.