Resolution of Intellectual Property Disputes through Arbitration in India

By Tanya Shishir 12 Minutes Read

Novel innovation is the foundation for any successful business in the current scenario. With the rise of the popularity and relevance of intellectual property, protection of intellectual property has become an issue of utmost importance. Patents, copyrights and trademarks are duly protected under the law governing intellectual property in India, which provides the creators of such intangible assets with a statutory monopoly which confers an exclusive right of the exploitation of the asset to the innovator. Likewise, there are statutory remedies to enforce the said statutory monopoly, thereby preventing any infringement of the copyright, trademark or patent in question.

The concept of arbitration in cases of disputes centered on intellectual property raises a plethora of advantages. It is time and cost-effective. It also ensures confidentiality. Subsequently, it can also serve the purpose by helping with the colossal amount of pending judicial cases. However, there is an ongoing debate on whether the disputes involving intellectual property can actually be resolved by arbitration. The juxtaposition of laws operating in separate domains poses an ongoing challenge to arbitration in the form of arbitrability of disputes. This article is an attempt to throw some light on the current status of arbitrability of intellectual property disputes in India.

Objective Arbitrability of Disputes

In order to understand the subject of arbitrability of disputes, it is essential to understand the different nuances of arbitrability, that is, objective and subjective arbitrability. For the purpose of intellectual property disputes, this article shall be dealing with the objective connotation of arbitrability, which fundamentally refers to the nature of a dispute by which it is capable of going beyond a public framework and proceed via a private tribunal chosen by the parties. Section 34(b)(i) of the Arbitration and Conciliation Act, 1996 focuses on the relevance of objective arbitrability.

The classification of subject matter as arbitrable and non-arbitrable is judged as per the test set forth in the Booz Allen Case[1], wherein it was highlighted that

“arbitration is a private procedure which means that all matters cannot be readily resolved by a private forum for that would defeat certain objectives of the procedural law. Even if there exists an arbitration agreement between the parties and the dispute which arises is fairly covered by the arbitration agreement, it does not mean that the matter is ‘arbitrable’. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, can also be resolved by arbitration unless the jurisdiction of arbitral tribunals is excluded either expressly or by necessary implication through legislation or judicial precedent.”

A significant emphasis was made saying that the scope of arbitrable disputes must be limited to the rights classified as in personam[2]. Intellectual property rights are essentially categorized as rights in rem[3], that is, the rights of intellectual property are availed against the rest of the world. However, along with providing the basis for categorizing a dispute as arbitrable or not, the Court also emphasized that this rule is flexible and should not have a strict application.

The classification was further broadened by the Ayyasami Case[4], wherein it was held that

“mere allegation of fraud does not render the case to be incapable of being settled by arbitration. Only when the allegations are serious in nature and capable of taking the form of criminal offences, they should be decided by the Courts. Thus, a distinction needs to be made on a case-to-case basis to decide whether disputes relating to fraud can be referred to arbitration. The present case could be adjudicated upon by an arbitrator because nature was not so serious and the lower courts fell in the error of judgment.”  

Patents, trademarks and copyrights were categorized as inarbitrable disputes in the Ayyasami Case. However, the central issue before the court was whether the case of fraud is arbitrable or not and therefore, the categorization of intellectual property disputes in the said case cannot act as the basis to bar their arbitrability.

The two tests for the determination of inarbitrable disputes are- they should be a) the category of disputes that involve the adjudication of actions in rem or b) the ones arising out of a special statute and are reserved for the exclusive jurisdiction of special courts. It can be inferred that the arbitrability of the subject matter depends upon the nature of the claim made in the dispute.

IP Disputes: Arbitrable or Not?

In the case of Mundhipharma AG v Wockhardt Ltd.[5], wherein a copyright infringement claim was in question, the Court held that the dispute is inarbitrable given that copyright is a statutory claim and has statutory remedies that are to be granted exclusively by civil courts. A substantial weight was put on the fact that if a copyright is infringed, the remedies in any form are to be conferred by the law and can’t be the subject matter of arbitration.

Subsequently, in a later judgment referred to as the SAIL Case[6], trademark infringement was held to be inarbitrable by the Bombay High Court on the basis that

“the rights to a trademark and remedies in connection therewith are matters in rem and by their very nature not amenable to the jurisdiction of a private forum chosen by the parties.“

The matter of arbitrability of disputes concerning intellectual property was addressed by the Bombay High Court directly in the case of Eros International v. Telemax Links India Pvt. Ltd.[7] The issue in the case was concerned with Section 62(1)[8] of the Indian Copyright Act, 1957. It was held by the Court that the Section isn’t intended to oust the jurisdiction of arbitral tribunals and that classifying the entire sphere of intellectual property disputes as inarbitrable would be impractical in nature. Likewise, it was also noted that the intellectual property disputes arising out of contracts are, in fact, actions in personam and therefore, arbitrable.

Both the tests of arbitrability were acknowledged in order to come to a conclusion. In the context of the first test, it was highlighted that an infringement claim could be settled by arbitration in case of a contractual breach. Applying the second test which is specifically concerned with disputes arising out of special statutes, the Court held that it has nowhere been mentioned in the statute in question that courts are exclusive, and therefore, arbitration must be an alternative.

Conclusion

Although there is no bar on the arbitrability of IP disputes, an extensive analysis of these judgments brings us to the conclusion that their status is still pretty vague. There is a lack of judgments by the Supreme Court addressing this issue in depth. The Court has only broadly dealt with the categorization in question and has marginally pronounced the whole realm of intellectual property rights as rights in rem which prevents the said domain from being arbitrable. 

Arbitrability, in general, is determined on the basis of the nature of the claim.  While statutory infringement has been said to be non-arbitrable, the disputes that are purely contractual in nature, for instance, disputes in royalty, geographical area, marketing and license have been pronounced as arbitrable.

With a solid framework in the context of IP disputes, arbitration can thrive; it has the potential to acknowledge complex issues with intricate details. It is apparent that arbitration is also a cost-effective alternative to litigation and can even protect business relations from being tampered. Although it goes without saying that a solid framework cannot be a ‘one size fits all’ situation since every dispute deal with its own distinctive facts and issues, a Supreme Court judgment that could potentially end the ongoing controversy over the arbitrability of IP disputes is awaited.

[1] Booz Allen and Hamilton Inc. v SBI Home Finance Ltd. and Ors. (CIVIL APPEAL NO. 5440 OF 2002).
[2] Refers to personal rights enforceable against certain individuals.
[3] Refers to the rights exercisable against the world at large.
[4] A. Ayyasamy v A. Paramasivam and Ors. (CIVIL APPEAL NUMBER 8245-8246 OF 2016).
[5] ILR 1991 Delhi 606.
[6] Steel Authority of India Ltd. v SKS Ispat and Power Ltd. (INTELLECTUAL PROPERTY RIGHTS SUITS NO. 117 OF 2014).
[7] 2016 (6) BomCR 321.
[8]“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.”

Tanya Shishir

Tanya Shishir is a fourth-year law student from Symbiosis Law School, Hyderabad. She has previously interned with Wadhwa Law Chambers, New Delhi and Shardul Amarchand Mangaldas, Kolkata. Her keen interest lies in art, science and literature and she is majorly interested in the laws that protect them. She is also an advocate for human rights. In between collecting dried flowers and painting abstract faces, she is found reading and developing new perspectives on human rights. Her goal is to pen down those perspectives to make an impact on the society.