By Amisha Mittal

Abstract

This piece is Part 2 of a two-part post on the arbitrability of Intellectual property disputes. This piece discusses the statutory provisions related to the arbitrability of matters in India and continues to provide a chronological analysis of the current judicial stance on the arbitrability of Intellectual property disputes in India. It then offers a brief conclusion to finally comment on where we are headed with our current precedents and what it means for IP innovation and India as a platform for increasing international commercial arbitration.

I.               The Statutory Scenario

In India, the judiciary and legislature have made conscious efforts to facilitate a pro-arbitration regime and to integrate Intellectual property rights into this ambit. The UNCITRAL Model Law on International Commercial Arbitration, 1985, is the foundation for the 1996 Arbitration and Conciliation Act, which administers arbitration in India. Section 34 (2) (b) of the Act, which is modelled after Article 34 (b) of the UNCITRAL Model Law, lays out the procedure for annulling arbitral verdicts when the dispute’s subject matter is either unsuitable for arbitration or goes against Indian public policy. The criteria for annulling being public policy, here, it is crucial to emphasize that the ability to settle a dispute through arbitration depends on the interpretation of the term of public policy, which on its own is very broad and ambiguous.

The Act does not exhaustively specify what subject matters are arbitrable; as a result, in a common law nation like India, judicial precedents determine the range of arbitrability in various types of conflicts. Arbitrability of a dispute in India traces itself to the difference between Rights in personam which essentially are rights against a particular person and rights in rem which are rights against the general public or world as a whole. For instance, when one seeks registration of an IP, such a right would be against the whole world and thus, a right in rem, as opposed to infringement which would be a right against a particular party and thus, a right, is personam. The larger discourse surrounding arbitrability holds the disputes in personam to be fit for arbitration, albeit, this too is subject to certain restrictions. With India being a primary location to attract foreign investments, clarity surrounding the arbitrability of matters becomes increasingly important, especially as IPR gains relevance. Parties would not want to name India as the arbitral venue if a restricted rule is implemented. Thus, in order to increase the amount of international commercial arbitration in India, it is necessary to establish clarity regarding the arbitrability of different disputes.

II.            Current Judicial Stance

In India, the range of arbitrability of matters involving intellectual property disputes in India can be traced with reference to two landmark judicial precedents of that of Booz Allen and Vidya Drolia. The initial stance regarding the arbitrability of IPR disputes has been deeply restrictive with cases like Mundipharma Ag vs Wockhardt Ltd and A. Ayyasamy vs A. Paramasivam & Ors regarding IPR disputes to be non-arbitrable.

Up until 2020, in the Booz Allen v. SBI Home Finance case, the court opined that, the scope of arbitration does not include rights in rem and that a more suitable judicial body should assess the suitability of arbitration in intellectual property disputes. However, the court acknowledged that rights in rem and personam are not entirely separate, and thus, arbitration may be applicable to rights in personam that ascend from rights in rem, although this point was only vaguely discussed. The Supreme Court opined that every matter that is deemed to be fit to be adjudicated upon by the civil courts may be fit to be subject to arbitration with certain exceptions regarding disputes that are deemed non-arbitrable. Such restrictions regarding non-arbitrability exist with respect to disputes that are concerned with rights in rem. The court in this case held that “Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration since they are concerned with parties’ rights and interests against each other; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration since they are concerned with the world at large.” It was decided that issues affecting society at large, such as insolvency and winding up, criminal matters, marriage, etc., cannot be arbitrated. The case also resulted in another paramount finding where the SC opined that secondary rights in personam ascending from rights in rem must be regarded as arbitrable although this finding was only vaguely discussed in the decision.

The Court’s perspective in Booz Allen has helped make IPR-related arbitration conflicts easier to resolve, and it stands in sharp contrast to the Copyright Act of 1957‘s relatively rigid definition. For instance, “section 62 of the Copyright Act stipulates that infringement matters cannot be brought before a court lower than the competent District Court”. This provision leaves room for confusion as a straightforward reading of it would suggest that intellectual property disputes cannot be arbitrated.

The Bombay High Court’s ruling in Eros International Media Ltd. v. Telemax Links India (P) Ltd. clarified that disputes related to copyright or trademark infringement arising from commercial contracts can be arbitrated. The key points of the ruling are:

·   Arbitration is permitted for disputes relating to IP infringement arising from commercial contracts that involve passing-off actions because the finding of infringement is only valid against the parties involved in the dispute, and not against third parties or anyone else in the world.

·   Section 62(1) of the Copyright Act should not be interpreted to exclude the jurisdiction of an arbitral panel.

·   Copyright and trademark registration grants rights against the public as a whole, but infringement or passing-off actions only affect the parties involved.

However, a contradictory ruling was made in the Indian Performing Right Society case (IPRS Case), which relied on previous decisions such as Booz Allen, and Mundipharma AG v. Wockhardt Ltd. The court in the IPRS case held that Section 62(1) permits the filing of a lawsuit for infringement only in a competent court because such rights are a right in rem. However, what the decision in this case failed to consider a substantial point. While previous cases have tested the arbitrability of intellectual property disputes, they only applied to disputes arising out of disputes which were purely statutory. However, commercial transactions have become more complex with the advent of time. The recent EROS case dealt with a contractual IP dispute.  Therefore, previous cases like IPRS, etc, that held purely statutory intellectual property claims as non-arbitrable, should not apply to contractual intellectual property claims.

The confusion surrounding the arbitrability of disputes also arises from the dual nature of the right involved. For instance, in a case where a licensee violates the agreement involving a licensing agreement of a patent for a limited period, the right of the owner would be a right in rem, but, subsequently, the right of the licensor against the licensee would be that of a right in personam, if, the owner had agreed to resort to arbitration in case of any dispute. Thus, a right in rem might also result in a right in personam and vice versa, and clarifications regarding the same would enable a pro-arbitration regime in India.

The plethora of confusion was finally cleared upon by the SC through the decision in Vidya Drolia v. Durga Trading Corporation wherein to determine whether a dispute can be subject to arbitration, the SC provided a four-pronged test. The court determined that a dispute would not be subject to arbitration if either of the below conditions are met:

1.     If the dispute relates to actions in rem. An exception to the same would be when the rights in rem give rise to adjuvant rights in personam.

2.     Have a larger effect toward third parties or towards all, in such a situation private adjudication would be unjust.

3.     Relate to public interest or sovereignty

4.     Are deemed to be non-arbitrable under some specific statute

With this four-pronged test, the SC also reiterated that the aforementioned requisites were to be flexible and analysed on a case-to-case basis on the subject matter of a dispute and not be water-tight or be strictly applicable. It also included the possibility that a right is rem might also give rise to a right in personam making a dispute arbitrable. It is important to keep in mind that an IP’s registration is a right in rem that can be enforced against anyone in the world, whereas, passing off in trademarks and copyright infringement do not affect third parties and are thus in personam. The decision in Vidya Drolia was also reiterated in the 2021 case of Golden Tobie (P) Ltd. v. Golden Tobacco Ltd, further strengthening the rationale.

Thus, up to this point, the reasoning behind previous judgments has been that when intellectual property rights confer monopoly rights against the public, disputes related to such rights are non-arbitrable and when these rights only affect parties to the dispute, they are arbitrable. The Courts have not completely excluded the resolution of IP disputes through arbitration, leading to confusion. However, the pro-arbitration regime in India with respect to IPR disputes is still in its nascent stages with some recent developments being made. The courts still differ in their opinions due to the lack of a policy clarifying the ambiguity.

III.          Where are we headed now?

India has consistently endeavoured to establish its presence in international commercial arbitration by enacting arbitration laws that are favourable to the process and by delivering judgments that support arbitration and intellectual property (IP) related provisions. Recent cases, including Eros International and Vidya Drolia, have provided clarification that disputes related to IP infringement can be arbitrated and those of registration intellectual property rights are not arbitrable. This approach ensures that the rights of inventors and authors are balanced against the public’s right to use artistic works and inventions under patent which is nothing but a mechanism to foster growth, innovation, and development amidst balancing everyone’s rights. The possibility of resolving disputes through arbitration encourages inventors while retaining the court’s jurisdiction over matters affecting the general public and safeguards the public interest. However, it is important for courts to exercise caution so as not to conflate actions in rem with rights in rem, as was clarified in the Vidya Drolia case. This position on arbitrability promotes the effective operation of the IP regime. It reinforces India’s progressive stance on global arbitration in line with the internationally recognized norm on the arbitrability of IP matters.

About the Author

The piece is authored by Amisha Mittal. Amisha is a penultimate-year student at Jindal Global Law School. Her interest areas lie in Intellectual property and Technology, Media, and Telecommunications.