India: Are IP Disputes Arbitrable In India? And To What Extent?

Last Updated: 12 April 2018
Article by Umang Kapoor
Most Read Contributor in India, January 2019

The Alternative methods of dispute resolution have eventually acquired a huge popularity and utility in the commercial and business- commerce sector. One of the most utilised methods is the arbitration, most of the parties associated with the commercial transaction nowadays prefer to opt for arbitration for the settlement of any kind of dispute. Arbitration in particular works especially well in the areas of commercial and international disputes as a quasi-judicial system developed to counter the snags of litigation and an over burdened judiciary.1

Over the years, the law of arbitration in India from the 1940 Act to 2015 Amendment Act has developed a lot thereby lessening the involvement of courts and providing friendly and effective rules for better and independent arbitration. Though 'arbitration' is nascent, still evolving, and yet to gain a foothold in India.

Intellectual Property Disputes are principally commercial in nature and often have international dimensions because of people protecting their Intellectual Properties or licensing them in multiple jurisdictions. The question which this paper target is whether arbitration is possible in IP disputes? If yes, then in what kind of disputes is it possible? In the past, many legal systems did not allow the arbitration of IP disputes, simply because the rights had been granted by a sovereign power. It was argued that the nature of the rights was such that questions as to validity should only be decided by the authority which issued the right. However, it is now broadly accepted that disputes relating to IP rights are arbitrable, just like disputes relating to any other type of privately held rights like transfer of granted IP rights as in licensing or any other such commercial arrangements. The WIPO has also promoted ADR in IPR matters by setting up the WIPO Arbitration and Mediation Center, a neutral, international and non-profit dispute resolution provider that offers time- and cost-efficient alternative dispute resolution (ADR) options and enable private parties to efficiently settle their domestic or cross-border IP and technology disputes out of court.

The stand of India towards arbitrability of IP disputes is a little complicated but logical. The policy debate arises because of the distinction between rights in rem and right in personem, also between judgement in rem and judgement in personem. The scope of remedies that should be available to parties in intellectual property arbitration is a source of controversy.

The judgement in personem is in form, as well as substance, between the parties claiming the right; and that it is so inter partes appears by the record itself.2 A judgment in rem is an adjudication, pronounced upon the status of some particular subject-matter, by a tribunal having competent authority for that purpose.3 Disputes seeking judgement in rem are thus generally considered to be unsuitable for private arbitration, although this is not a rigid rule. The Apex Court in Booz Allen Case4 has stated that subject matter of arbitration that involves only rights in personem are arbitrable in nature, but no matter involving right in rem, for example, with validity proceedings, where the effect of the award could potentially be to discontinue the existence or enforceability of the monopoly5, can be put before any private arbitral tribunal for decisions.

However, the Supreme Court also recognized that this rule isn't infallible and that subordinate rights in personem that arise from rights in rem might be subject to arbitration6, for example, if the IP disputes arise from commercial arrangements for the use of Intellectual Property, they are arbitrable disputes. While dealing with the similar issue the bench of the Hon'ble High Court of Bombay headed by Justice G.S. Patel in the case of Eros International Media Limited v. Telemax Links India Pvt. Ltd. and Ors7 held that IP Dispute arising out of a commercial contract, like between two claimants to a copyright or a trademark in either an infringement or passing off action, that action and that remedy can only ever be an action in personem and hence such IP disputes are arbitrable in nature. It was observed that the section 62(1) of The Copyright Act should not be read down to mean the ousting of the jurisdiction of an arbitral panel. But in the case of Indian Performing Right Society Limited (IPRS) v. Entertainment Network, the bench chaired by Justice Dhanuka of the Hon'ble High Court of Bombay has taken a different stand. Justice Dhanuka differentiated the IPRS case from Telemax on the basis of IPRS' right to claim royalties while later dealing with a case of infringement. Relying on the judgement in the case of Mundipharma AG v. Wockhardt Limited8 and interpreting Section 62(1) he held that in a case of infringement of copyright, the remedies of injunctions, damages and otherwise may only be conferred by a Court, and are hence not arbitrable.

In case of patents, arbitration is available as a means to resolve disputes but is not widely used. However, arbitration is not available to determine matters of invalidity, as the Patent Office does not recognise arbitral awards in this respect. Only the disputes arising out of contracts between parties, like patent licensing disputes, can be subject to arbitration.

Arbitration in a way is beneficial for more creative remedies in comparison to a court action if the arbitration agreement so specifies, but such remedies will be subject to the public policy concerns. Parties may nonetheless choose to give the arbitrator jurisdiction to award any remedy, but the enforceability of the award would be affected

The most selling point for arbitration in IP disputes is the ensured confidentiality of subject matter of dispute among the parties. But in a country like India, the difficulty arises in balancing the interests of the parties in maintaining confidentiality, and the interests of the public, thereby, preventing the arbitration of disputes involving rights in rem or third-party interests. The confidentiality conflicts with the public interest especially, in having the outcome of revocation proceedings be published. The answer to this criticism is that any award which is against the public policy of India can be challenged before the appropriate court of law, arbitral awards relating to patent infringement or validity could be denied as being against public policy or patently in violation of statutory provisions.9 Challenges with respect to confidentiality of IP disputes which affect public at large can be addressed through legislation requiring that some or all of the proceeding be publicly disclosed. For example, USA laws explicitly allow arbitration of patent validity and infringement issues and arbitration of "any aspect" of patent interference disputes but a copy of any arbitral award must be given to the United States Patent and Trademark Office. The award is unenforceable until this notice is given.10 Similarly, Switzerland practices the registration of an arbitral award with the authority which issues and maintains patents. Also, awards rendered in connection with the validity of intellectual property rights are recognized as the basis for entries in the register, provided these awards are accompanied by a certificate of enforceability issued by the Swiss court at the seat of the arbitral tribunal in accordance with Article 193 para. 2 [Swiss Private International Law Act] 11 Such examples suggest that India can also increase and promote arbitration in IP disputes also ensuring balance between confidentiality and public interest with the help of effective legislation.

Though there are various benefits of using arbitration as a method for resolving IP disputes there are also many criticisms against it. One of the biggest criticisms against arbitration in IP is that it is binding only between the parties and does not set a public precedent as regards its use as a deterrent to infringement and establishing a culture of integrity. Parties also do not actually resort to arbitration primarily on account of finding suitable arbitrators or because of jurisdictional issues in case of international contracts. One also needs to ponder on the effect of the counterclaim or defence of revocation in cases of infringement. As these remedies or reliefs are in rem, henceforth, the parties would have to turn to the relevant forum for resolution of that claim. So, whether such action would render the entire dispute non-arbitrable or the tribunal may stay its proceedings until the appropriate forum decides on the validity of the copyright/ trademark/ patent? This is, however, far from ideal as it would delay the arbitration and substantially increase costs.

The conclusion which can be drawn in relation to the arbitrability of IP disputes in India is that it is a budding scheme which needs legislative support and a proper mechanism for better implementation. Though court rulings are quite unclear in the present scenario still it can be inferred that IP disputes are arbiterable, but still there is a long way ahead.

Footnotes

[1] http://www.lexmantis.com/pdf/May-2013-LexMantis-Arbitration-And-IP.pdf

[2] https://thelawdictionary.org/judgment-in-rem/

[3] https://thelawdictionary.org/judgment-in-rem/

[4] AIR 2011 SC 2507

[5] https://www.lawteacher.net/free-law-essays/commercial-law/the-arbitrability-of-intellectual-property-disputes-commercial-law-essay.php#ftn5

[6] Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. &Ors, AIR 2011 SC 2507

[7] 2016 (6) ARBLR 121 (BOM)

[8] ILR 1991 Delhi 606

[9] ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705

[10] https://www.lawteacher.net/free-law-essays/commercial-law/the-arbitrability-of-intellectual-property-disputes-commercial-law-essay.php#ftn58

[11] https://www.lawteacher.net/free-law-essays/commercial-law/the-arbitrability-of-intellectual-property-disputes-commercial-law-essay.php#ftn67

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