ARBITRATION OF IP DISPUTES : A STEP AHEAD

Introduction

?

Industrialization and technology expansion has crossed national frontiers, reaching millions just at the click of a button. As it is rightly said that every invention or discovery has both a bright as well as a dark side, the same holds true for intangible assets, especially intellectual property (hereinafter referred to as “IP”). IP more widely known as copyright, patent, trademarks[1]?etc. are no less valuable than physical assets, yet cannot be precisely defined. Since its inception, it has grown and developed leaps and bounds, creating a necessity to evolve a regulatory framework for complex IP disputes both at domestic and international level.

?

Arbitration on the other hand has been successful at both domestic and global front when nearly all major countries signed the New York Convention, in furtherance of establishing a uniform, robust international arbitration mechanism as intended by UNCITRAL Model Law. In wake of an unprecedented Covid-19 pandemic, the need for arbitration has intensified, since no reasonable person would like to engage in expensive and time consuming litigation and that too in a cross border dispute. The question that arises is what kind of disputes is capable of being settled by arbitration? The Indian law has been amended time and again, in order to keep pace with the novel requirements, yet has clearly excluded certain kinds of disputes to be brought within the purview of arbitration. However if another foreign country permits dispute resolution which are excluded from arbitration within Indian territory, can such an award be recognized and enforced within the Indian territory? Similar questions arise while determining the arbitrability of IP disputes.

?

IP is an ever expanding, diversified legal discipline which as per need of the hour requires an efficient additional redressal mechanism, in addition to conventional litigation. It is notable that IP is a “negative right”[2] which qualifies it to be “right in rem”. However, is international arbitration well equipped in order to tackle emerging challenges posed by IP?

?

However, arbitrability of any subject-matter is dictated by a country’s public policy. In India, what forms part of arbitrable subject-matter is determined as per the test laid down in the?Booz Allen Case[3], expanded upon by the?Ayyasami Case[4] and confirmed in Vidya Drolia v. Durga Trading Corporation[5]. The following two categories of disputes are thereby inarbitrable in nature:

1. Disputes involving the adjudication of actions?in rem?as opposed to actions?in personem, such as, disputes relating to criminal offences, guardianship matters etc. (hereinafter, the first test of arbitrability);

?

1. Disputes arising out of a special statute, which are reserved for exclusive jurisdiction of special courts, such as, matters reserved for small causes courts[6]?(hereinafter, the second test of arbitrability). ?

?

These tests evince that arbitrability is dependent upon the nature of the claim made in a dispute, i.e., whether the claim is?in rem?or statutory in nature. This principle should guide the arbitrability of IP disputes too.

?

The IP Regime in India: A Primer

?

Before understanding the arbitrability of IP disputes, it is essential to understand the functioning of IP regime in India. WE analyse the arbitrability of patent[7], copyright[8] and trademark[9] regimes. These regimes allow a “statutory monopoly” to be given to the creator of an intangible asset, conferring an exclusive right to exploit it. There are corresponding statutory remedies to enforce this right. For instance, there exist statutory remedies for infringement of copyright, trademark and patent.2)?As per the statute, these remedies must be granted by civil courts. The statutory mention of courts, as a forum to grant these remedies, creates the first hurdle in arbitrating IP disputes.

?

Analysis of Cases

?

Indian Judiciary efficiency is marred by increasing backlog of cases and slow disposal rates. Employing arbitration in sharing the workload by increasing scope of arbitrability would solve the persisting issue to a great extent. It is pertinent to note that arbitrability depends crucially on the concept of “Public Policy”.?Public Policy prima facie seems too broad and open ended, yet precedents do clarify the situation on arbitrability to a great extent. The underlying purpose is to distinguish between rights emanating “in rem” from rights “in personam” being decided by an arbitral tribunal.?The landmark case of Booz Allen[10] and Hamilton Inc. v. SBI Home Finance Ltd. &Ors[11],?absolutely excluded domain of rights “in rem” from sweep of arbitration[12],stressing on the need of a competent judicial body to rule on the same[13].?However, it did mention that rights in rem and personam cannot be wholly bifurcated and thus in instances where rights in personam originating from right in rem are predominant[14],?might be subject to arbitration[15].

?

This was followed by A Ayyasamy v. A. Paramasivam and Ors[16]?in which arbitrability of fraud was the centre issue, yet O.P. Malhotra’s book was cited, holding patent, trademarks and copyright, one of those subjects which are usually “non arbitrable”[17]. These rulings were followed in subsequent important cases which elucidated upon the closely related yet different concepts of IPR, thus delimiting the scope of arbitration. In Eros International Media Limited?v.?Telemax Links India Pvt. Ltd. and Ors[18], it was held that Section 62[19] of The Copyright Act doesn’t outrightly reject the jurisdiction of an arbitral tribunal in IP disputes which are of commercial[20] nature?and hence categorized as rights “in personam”. However, a contrasting view was presented by Dhanuka J. in IPRS v. Entertainment Network.[21] Relying on Booz Allen[22], Vikas Sales Corporation and. v. Commissioner of Commercial Taxes[23] and Mundipharma AG v. Wockhardt Limited[24], it declared that Section 62[25] of the Copyright Act mandates every?suit or proceeding?for infringement of copyright to be taken up and resolved only by a competent court, since it deals with right in rem.

?

?Similar dissent was found in Steel Authority of India Ltd. v. SKS Ispat and Power Ltd[26]?taking disputes pertaining to trademarks and passing off aren’t arbitrable.?It can be observed that in some cases, initiation of arbitration in IPR disputes was either denied or allowed[27],?yet no clear reasons were provided for such refusal or acceptance[28].?In Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya[29], the court stated that a single cause of action cannot be divided into parts if the main issue at hand is partly arbitrable[30].?The recent landmark case of Vidya Drolia[31]?which primarily dealt with arbitrability of landlord-tenant dispute, did touch upon that validity of patent and rights accruing from patent are different, making the former non arbitrable while the latter may be arbitrable depending upon the facts and circumstances of the case[32].While propounding the 4 fold test, it reiterated that in certain matters, the State or a person enjoys sovereignty or privilege which cannot be arbitrated upon as it would be contrary to public policy, unless governing statute permits arbitration. Else, such disputes shall be adjudicated upon by a competent court or a centralized forum established under the statute[33].

?

Upon analyzing the precedents pronounced by the Supreme Court and various High Courts on the arbitrability of IP disputes, it can be said that each precedent has attempted to maintain the fragile balance between rights in rem and personam. Given the prominence arbitration has attained, parties themselves opted for it, though in certain cases the court might refuse to acknowledge the arbitration agreement. However, position is not the same[34]?as that was expounded by Booz Allen[35] and that IP disputes have been referred to arbitration[36] and provided adequate interim reliefs[37]?or any other aid as required. With Vidya Drolia, pronged test in force henceforth, it can be said that the tide would turn in favour of arbitrating IP disputes.

?

Arbitration has been widely accepted as an alternate speedy and efficient resolution mechanism, yet more is to be done. The establishment of special tribunals or that creating monopoly in favour of an individual or a body prima facie take it out of the domain of arbitration, since it impacts the society at large. Even Booz Allen[38] advocated for a total exclusion of rights in rem, it did pinpoint that a rigid application is not possible. Contractual and commercial distinctions do clear the ambiguities to a great extent, decentralized and contradicting opinions causes damage which cannot be easily remedied. The need of the hour is a comprehensive policy or guidelines which may put the conflicting view to rest. Probably examining the relationship between IPR and Arbitration in other foreign countries might succeed in settling certain questions that are put forth time and again.

?

Conclusion

?

In earlier cases of Munidpharma[39] and SAIL[40], where arbitrability of IP disputes was tested, the petitioners raised statutory claims of infringement of copyright/trademark, 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 increase in quantum and complexity in commercial transactions, the arbitrability of purely contractual IP disputes arose very recently in recently in the EROS[41] and Eurokids[42] cases. These cases have rightly not applied SAIL’s[43] holding about the inarbitrability of purely statutory I.P. claims to contractual IP claims.

?

Thus, as per the current position in India, there is no blanket bar on arbitrability of IP disputes. Instead, arbitrability is determined on the basis of nature of claims raised. Disputes of royalty, geographical area,?and other terms of the license agreements, which are purely contractual, would be arbitrable. Parties in India can and should freely arbitrate such disputes. However, a dispute of validity/ownership of an IP right should be decided by the court/assigned public administration, for the dispute would result in a judgement affecting the general public’s right to use the respective asset.

?

The position of infringement claims is dependent upon each case. Statutory infringement simpliciter would not be arbitrable in accordance with the?Mundipharma[44]?and?SAIL[45]?cases; while infringement arising purely out of contract will be arbitrable in accordance with EROS[46], Eurokids[47] cases. However, often as is the case, if a counter-claim about the validity of IP right is raised against an infringement claim, the counter-claim needs to be resolved by the court for it would then be an action in rem. Pending such resolution, the arbitration may be stayed.

?

This position on arbitrability will ensure a balance of rights between inventor/author and the general public, with inventor/author retaining the right to arbitrate contractual rights and courts retaining 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 robust public domain and safeguard public interest.

?

Law is a dynamic tool which has to be amended as per societal needs. Yet an insulated approach which doesn’t keep pace with novel techniques and methods aren’t helpful in the long run. India has always strived to make its mark in the sphere of international commercial arbitration, perhaps making amends in favour of arbitration in its domestic IP statutes shall be an impetus towards building India’s positive image at global arbitration platform.

[1] The Institute of Chartered Accountants of India vs. Shaunak H. Satyaand Ors: (AIR2011SC 3336)

[2] GurukrupaMech Tech Pvt. Ltd. vs. State of Gujarat and Ors:?(2018) 4 GLR 3324

[3](2011) 5 SCC 532???????????????

[4] AIR2016SC 4675

[5] 2020 SCC OnLine SC 1018, decided on 14.12.2020

[6] Natraj Studios Private Ltd v. Navrang Studios & Another, 1981 AIR 537

[7]Chapter XVIII, Patents Act, 1970

[8] Chapter XII, Copyright Act, 1957

[9] Relief in suits for infringement or for passing off

(1)??????????The relief which a court may grant in any suit for infringement or for passing off referred to in section 134 includes injunction (subject to such terms, if any, as the court thinks fit) and at the option of the plaintiff, either damages or an account of profits, together with or without any order for the delivery-up of the infringing labels and marks for destruction or erasure.

(2)??????????The order of injunction under sub-section?(1)?may include an?ex parte?injunction or any interlocutory order for any of the following matters, namely:--

(a)??????????for discovery of documents;

(b)?????????preserving of infringing goods, documents or other evidence which are related to the subject-matter of the suit;

(c)??????????restraining the defendant from disposing of or dealing with his assets in a manner which may adversely affect plaintiff's ability to recover damages, costs or other pecuniary remedies which may be finally awarded to the plaintiff.

(3)??????????Notwithstanding anything contained in sub-section?(1), the court shall not grant relief by way of damages (other than nominal damages) or on account of profits in any case--

(a)??????????where in a suit for infringement of a trade mark, the infringement complained of is in relation to a certification trade mark or collective mark; or

(b)?????????where in a suit for infringement the defendant satisfies the court--

(ix)????????that at the time he commenced to use the trade mark complained of in the suit, he was unaware and had no reasonable ground for believing that the trade mark of the plaintiff was on the register or that the plaintiff was a registered user using by way of permitted use; and

(ii)??????????that when he became aware of the existence and nature of the plaintiff's right in the trade mark, he forthwith ceased to use the trade mark in relation to goods or services in respect of which it was registered; or

(c)??????????where in a suit for passing off, the defendant satisfies the court--

(i)????????????that at the time he commenced to use the trade mark complained of in the suit, he was unaware and had no reasonable ground for believing that the trade mark for the plaintiff was in use; and

(ii)??????????that when he became aware of the existence and nature of the plaintiff's trade mark he forthwith ceased to use the trade mark complained of.

[10] (2011) 5 SCC 532

[11] AIR 2011 SC 2507

[12]HDFC Bank v. Satpal Singh Bakshi: 193 ( 2012 ) DLT 203

[13] HDFC Bank v. Satpal Singh Bakshi: 193 ( 2012 ) DLT 203

[14] Ministry of Sound International Ltd. vs. Indus Renaissance Partners Entertainment Pvt. Ltd.:?156(2009)DLT406

[15] Ministry of Sound International Ltd. vs. Indus Renaissance Partners Entertainment Pvt. Ltd.:?156(2009)DLT406

[16] AIR2016SC 4675

[17] AIR2016SC 4675

[18] 2016 (6) ARBLR 121 (BOM)

[19] Jurisdiction of court over matters arising under this Chapter.—

(1)??????????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.

(2)??????????For the purpose of sub-section (1), a “district court having jurisdiction” shall, notwithstanding anything contained in the Code of Civil Procedure, 1908 (5 of 1908), or any other law for the time being in force, include a district court within the local limits of whose jurisdiction, at the time of the institution of the suit or other proceeding, the person instituting the suit or other proceeding or, where there are more than one such persons, any of them actually and voluntarily resides or carries on business or personally works for gain.

[20]Ministry of Sound International Ltd. V Indus Renaissance Partners Entertainment (P)Ltd: 2009 SCC OnLine Del 11:(2009) 156 DLT 406

[21] IN THE HIGH COURT OF DELHI AT NEW DELHI, CS(OS) 666/2006, IAs No.4558/2006 (u/S 10 CPC), 19921/2011, (u/O VI R-17 CPC), 9128/2012 (u/S 151 CPC) and 5953/2017, ?(u/O XI R12 CPC).        

[22] (2011) 5 SCC 532

[23] 1996 4 SCC 433

[24] (1991)ILR 1Delhi606

[25] Jurisdiction of court over matters arising under this Chapter.—

(1)??????????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.

(2)??????????For the purpose of sub-section (1), a “district court having jurisdiction” shall, notwithstanding anything contained in the Code of Civil Procedure, 1908 (5 of 1908), or any other law for the time being in force, include a district court within the local limits of whose jurisdiction, at the time of the institution of the suit or other proceeding, the person instituting the suit or other proceeding or, where there are more than one such persons, any of them actually and voluntarily resides or carries on business or personally works for gain.

[26] Notice of Motion (L) No. 2097 of 2014 in Suit No. 673 of 2014, decided on 21st November 2014

[27] Angath Arts (P) Ltd. v Century Communications Ltd: 2008 SCC OnLine Bom 475: (2008) 3 Arb LR 197

[28] RK Production Pvt. Ltd. v. M/s. NK Theatres Pvt. Ltd O.S.A. No. 307 of 2012

[29] (2003) 5 SCC 531: AIR 2003 SC 2252

[30] (2003) 5 SCC 531: AIR 2003 SC 2252

[31] 2020 SCC OnLine SC 1018, decided on 14.12.2020

[32] 2020 SCC OnLine SC 1018, decided on 14.12.2020

[33] 2020 SCC OnLine SC 1018, decided on 14.12.2020

[34]Deepak Thorat v Vidli Restaurant Ltd: 2017 SCC OnLine Bom 7704

[35] (2011) 5 SCC 532

[36] Suresh Dhanuka v. Sunita Mohapatra:?AIR 2012 SC 892

[37] Euro Kids International (P) Ltd. v Bhaskar Vidhyapeeth Shikshan Sanstha: 2015 SCC OnLine Bom 3492

[38] (2011) 5 SCC 532

[39] (1991)ILR 1Delhi606

[40] Notice of Motion (L) No. 2097 of 2014 in Suit No. 673 of 2014, decided on 21st November 2014

[41] 2016 (6) ARBLR 121 (BOM)

[42] 2015 SCC OnLine Bom 3492

[43] Notice of Motion (L) No. 2097 of 2014 in Suit No. 673 of 2014, decided on 21st November 2014

[44] (1991)ILR 1Delhi606???????????????????????

[45] Notice of Motion (L) No. 2097 of 2014 in Suit No. 673 of 2014, decided on 21st November 2014???????

[46] 2016 (6) ARBLR 121 (BOM)

[47] 2015 SCC OnLine Bom 3492