Are Intellectual Property Disputes Arbitrable in India?
[Abhinav is a student at National Law University, Delhi.]
The Indian jurisprudence on arbitrability of disputes has been conflicting. Recently, the Supreme Court of India (SCI) in, Vidya Drolia, attempted to settle this issue. Nonetheless, a concern that persists despite Vidya Drolia is whether intellectual property (IP) disputes are arbitrable in India. This judgment seems to indicate that as IP confers monopolistic rights, they are perhaps non-arbitrable. This concern has been addressed by a recent decision of the Delhi High Court in Hero Electric.
In this post, I examine the Indian jurisprudence on the arbitrability of IP disputes. Till 2020, the guidance to courts was provided by a 2-judge bench decision of the SCI in Booz Allen Hamilton v. SBI Home Finance. In this judgment, the SCI held that disputes relating to in personam rights are arbitrable and disputes relating to in rem rights are not. In the context of a dispute relating to the sale of mortgaged property, the court held that a suit for the sale of a mortgaged property relates to a right in rem and was thus non-arbitrable. Moreover, the SCI enumerated the following disputes as non-arbitrable:
disputes relating to rights and liabilities which arise out of criminal offences;
matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights;
insolvency/winding up matters;
Booz Allen Hamilton and Vidya Drolia dealt with larger questions of when disputes were arbitrable. The question of arbitrability of IP disputes was first notably addressed in Eros International Media Limited v. Telemax (Bombay HC, 2016), where the Bombay High Court held that certain IP disputes were arbitrable. In Eros International, the defendants had approached the Bombay HC under Section 8 of the Arbitration and Conciliation Act 1996 (Act) seeking their dispute to be referred to arbitration. The dispute pertained to the plaintiff’s copyrights in feature films and the defendant’s conduct under its content marketing and distribution rights. The court held that IP disputes were arbitrable. The court noted that first, merely because Section 62 of the Copyright Act 1957 provided that infringement actions could not be brought in a court lower than the jurisdictionally competent district court, it did not oust the jurisdiction of an arbitral tribunal. Second, the court held that while IP rights were a species of property rights and could not be set separately as a distinct body of law. Third, IP disputes which involved commercial disputes and were actions in personam, where a party seeks a ‘specific particularized relief’ against a ‘particular defined party’ and not against the world at large, would be arbitrable. Fourth, the court held that unless specifically barred, an arbitrator was empowered to do that which a civil court could do. Consequently, an arbitrator was empowered to grant reliefs of damages and injunctions, including in a dispute involving IP disputes.
However, in 2020, a 3-judge bench of the SCI created a new ‘four-fold’ test to determine arbitrability, in Vidya Drolia. The court held that in four circumstances, disputes would not be arbitrable – where the subject matter of the dispute was barred from arbitration by statutes; where the cause of action or subject matter related to actions in rem, affected third party rights or related to inalienable functions of the State.
The court observed that certain intellectual property issues, such as the grant and issue of patents and the registration of trademarks, were exclusive matters which fell within sovereign governmental functions and had an erga omnes effect. Since the grant of such rights conferred monopoly rights, they were non-arbitrable. While the holding of the court does not impose a blanket prohibition on the arbitration of IP disputes, the obiter creates room for confusion.
Fortunately, the Delhi High Court in March 2021 resolved this ambiguity in Hero Electric Vehicles Private Limited, where the court held IP disputes to be arbitrable. Here, the suit related to trademark infringement allegations. The defendants had filed an interim application under the Act, seeking reference of the dispute to arbitration. The plaintiffs had obtained registrations of certain marks from the Trademark Registry and launched products under those marks in 2007. When the applications for these registrations were filed, Hero Exports was a partnership firm comprising various family members. Subsequently, vide a Family Settlement Agreement (FSA), the business of the group was divided among the family groups. Parallelly, vide a Trade Mark and Name Agreement (TMNA), the right to use the trademark was assigned among the family groups.
The court noted that while Section 2(3) of the Act provides that certain disputes may not be submitted to arbitration and Section 34(2)(b)(i) provides that courts may set aside arbitral awards where the subject matter of the dispute was not capable of settlement by arbitration, the statute does not provide a list of disputes which are non-arbitrable. As noted in multiple judgments, the source of non-arbitrability does not stem from the statute, but either from common law or is culled out by the courts in India.
The defendants had argued that the dispute pertained to the scope of trademark 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 first, the dispute was centered, almost entirely, around 2 contractual arrangements, the FSA and the TMNA. Second, the remedy is sought not on the ground that the defendants are using deceptively similar trademarks, but rather that the right to use the trademark was conferred on a different family group. Third, even if there was any reliance on provisions of the Trade Marks Act 1999, the ‘essential infraction’ as alleged was not of provisions of the Trade Marks Act 1999 but of the provisions of the agreements. The court noted that any effective adjudication of the disputes would be impossible without reference to the 2 agreements.
On the question of arbitrability of IP disputes, the court held that the dispute in the present case does not relate to the grant or registration of trademarks, and was therefore not affected by the concern identified in Vidya Drolia. Further, there was no involvement of sovereign functions, and as it did not fall under any of the categories of disputes excepted by the SCI in Vidya Drolia. Regarding the argument that the dispute was in the nature of an action in rem, the court held that, post-Vidya Drolia, courts must be cautioned to avoid the temptation to enter into such jurisprudential thickets of the difference between actions in rem and rights in rem. As the plaintiffs were merely seeking to assert their right against a particular family group and not against the whole world and as they were not seeking a declaration of their right to use a particular trademark against any potential infringer, neither would it be an action in rem, nor would it have an erga omnes effect.
While IP might be a special form of property due to its intangible nature, to a large extent, the conception of IP is not very different from other species of property. While IP requires registration, it is not the only kind of property that requires registration. In today’s knowledge economy, most commercial contracts contain a strong element of IP. Permitting arbitration of such disputes would lower judicial workload and encourage investment in India. Thus, Hero Electric is a welcome move.
One of the main concerns with the arbitrability of IP disputes has been that the conferment of IP rights is perhaps a sovereign governmental function and has an impact on the world at large apart from the parties to the dispute. However, as delineated by Eros International and Hero Electric, where parties to an agreement merely dispute the assignment of IP rights and are claiming that the other party has violated the first party’s rights under an agreement, there is no conflict with sovereign governmental functions. Even in Eros International, 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 Drolia 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.