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The Arbitrability of Intellectual Property Right Dispute: Scrutinizing the Circumscribed Prospect

Aman Upadhyay[1] and Nitesh Ranjan[2]


Introduction


The structure of modern society is completely different from the ancient society, now disputes arise more frequently. Intellectual property is not immune to disputes, such as those resulting from registration, licencing, and infringement. The establishment of a peaceful and progressive society requires a quick resolution of these conflicts. It becomes a very cumbersome task to resolve disputes quickly and without much expense for a highly populated country like India. The courts are overburdened with already pending cases. Arbitration works as a good alternative to the courts. Also, now arbitration has become the default commercial dispute mechanism because it is less expensive, quicker, secure and offers more privacy. In India, arbitration is recognised as a medium of dispute resolution vides Section 89 of the CPC. Although arbitration is not a new concept to resolve disputes still its expansion to include disputes involving intellectual property is a developing jurisprudence. The court and statutory provision don’t have a clear instance in IP infringement-related disputes. Intellectual property rights while originating in municipal law now is deeply rooted in International law, and play a vital role in the protection of creativity. The clarity in the scope of arbitration in IP rights is the need of the hour for achieving its objective.


Legislative Ambiguity: A Much-Needed Reform


Statuary provisions are important to mention since the arbitrability of some matters is ascertained by them. Although nothing in the Arbitration Act precludes the enforcement of awards with respect to Intellectual Property Rights, including the validity or infringement but Section 135 of the Trade Mark Act, 1999 provides that trademark holders can seek judicial remedies through civil court. Further, the Copyright Act also provides that any suit or civil proceedings in matters of copyright infringement shall be instituted by the civil court having jurisdiction. In some instances such as Indian Performing Right Society (IPRS) Ltd. v. Entertainment Network (India) Ltd,[3] narrow interpretations of these sections are being taken and held as the matters can only be resolved by the court not arbitration. The concept of ‘commercial disputes’ in the Commercial Courts Act, 2015 includes intellectual property conflicts, as per section 2(1)(xvii) of the Act. This means IP disputes are inherently considered as being within the ambit of commercial disputes as defined by the act. Furthermore, the Commercial Courts Act provides that commercial disputes can be arbitrated without excluding IP disputes Following this it could be inferred that the matters on IP disputes comes under the ambit commercial dispute that can be resolved through arbitration under the Commercial Courts Act. Section 103(5) of the Indian Patent Act, 1970 allows for arbitration only in instances involving the government. The statuary provisions are ambiguous, perhaps by some reform or amendment in the legislation such as by specifically providing about the arbitrability of IP disputes in the Arbitration and Conciliation Act the issue could be resolved.


Determination of Arbitrability in India: Uncertainty Prevails


The phrase “Quo Vadis Arbitration” (where do you go arbitration)has famously been asked by Peter Pender and is particularly relevant for the Indian context because of the inconsistency in the laws related to the question of arbitrability. In 2011 with the case of Booz Allen Hamilton vs SBI Home Finance the Supreme court made its first attempt to determine the arbitrability of any matter. In this case, the court laid down that disputes related to right in rem must be out of the scope of arbitration and only disputes related to right to personam can be arbitrable. The Court further stated that personal rights or obligations arise as a subset of public rights. But the issue with this test is that sometimes the matters of right rem and right in personam become difficult to differentiate. The same follows in the cases of Intellectual property rights disputes. In Ayyasamy vs Paramasivam while adding to the list of non-arbitrable matters, the Supreme Court has held that arbitration is available only in the cases where the law accepts arbitration as an alternative remedy. In the judgement court has neglected, the ambiguity of statutory provisions that are silent in the question of the possibility of arbitration in matters of IP disputes. The law doesn’t give a clear view either on the arbitrability or the non-arbitrability of IP matters. Another segment of non-arbitrable matters is related to the State’s inalienable sovereign and public interest functions. In the recent case of Vidya Dorlia vs Durga Trading Corporation Supreme Court has given a “fourfold test” to determine when the subject matter of a dispute in an arbitration agreement is non-arbitrable. According to the test, matters related to right in rem, matters which affects the third party erga omnus effect’, the matters of State’s inalienable sovereign function, disputes which are non-arbitrable on the account of expressly or impliedly stated under the statute are excluded from the scope of arbitration.


The ‘fourfold test’ given in the Vidya Dorila case is much needed as with the advancement of technologies new forms of disputes are arising but there is inconsistency and non-clarity in the usage of these rules. The right in rem and personal are still in question on some subjects. The fourth point of the test is questioned since the possibility of conflicting opinions regarding the restriction of arbitration remains open because of the vagueness of statutes on this subject.


The pendulum of conflicting decisions: conundrum persists in arbitrability of IP


Mundipharma AG vs Wockhardt Ltd. was one of the earliest cases which determined the arbitrability of IPR matters. In this case, the court took a narrow view regarding the arbitrability of intellectual property rights. Following statuary wording under part II of the Copyright Act, 1957, the court concluded that copyright infringement is non-arbitrable since it is up to the civil court to decide all remedies related to copyright infringement. The purposive interpretation of the act was beyond the view of the court since the purpose of the lawmakers while forming any legislation is to provide speedy and fair justice to the stakeholders. Currently, arbitration is one of the best mediums to accomplish this objective. Interpreting the statutory wording of the act provides jurisdiction to civil courts to decide remedies as the prohibition to arbitration is not correctly construed. In the SAIL case, the Bombay High Court has rejected the arbitrability by saying, “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 judgement didn’t consider the possibility of right in personal within the IP infringement disputes as numerous matters related to IP disputes don’t affect society at large.


A different approach in this matter was brought through the Ministry of sound international vs Indus Ranassiance Partners Entertainment Pvt. Ltd. In this case, the court has defended arbitrability owing to the fact that licencing agreements should be interpreted following the common sense approach. Since there is no absolute statutory prohibition on the arbitrability of IPR the Court held that agreements facilitating the licensing of trademarks would merely affect the rights of parties and not infringe on any legal provision. After all, it is a business document that grants the licensee permission to use the trademarks and intellectual property. The arrangement, according to the Court, was governed by English law, allowing the tribunal to issue injunctive relief. As a result, the court determined that the case should be resolved through arbitration. The Delhi High Court gave an important judgement in Golden Tobie Private Limited v. Golden Tobacco Limited.


Referring the case to an arbitrator, the Court laid down that as the dispute was between a family group regarding the usage of trademark, thereby “The right that is asserted by the plaintiff is not a right that emanates from the Trademark Act but a right that emanates from the Agreement... assignment of the trademark is by a contract and not by a statutory act. It does not involve any exercise of sovereign functions of the State. It cannot be said that the disputes are not arbitrable.” Thus, the court has affirmed that IP disputes which arise out of a contract and not directly from the statute would be arbitrable. The court is right in this approach however, the scope of arbitration in the matters of IP disputes needs to be broadened. Limiting the arbitration in IP disputes to this extent is restricting the advantages which could be achieved by increasing the ambit. The ambiguity in the scope of arbitration in IP disputes persists since the decisions don’t follow a certain way and the same could be accounted to the lack of statutory provisions.


Current Scenario and The Way Forward


In arbitration, parties get an opportunity to carefully draft the arbitration clause. This meticulous drafting avoids potential difficulties and ensures that the interests of parties are ascertained. The right in rem approach deprives parties from taking such crucial benefits. There is no doubt that even now the conflicting decisions have made the question related to the arbitrability of IP disputes unclear perhaps due to the lack of statutory provisions. While the formulas given by Vidya Drolia and the approach of the Delhi High Court in the Golden Tobie case have provided some clarity to this issue but the ambiguity still remains. The complexity of IP disputes such as the possibility of right in personam in the disguise of right in rem and also in some contractual IP disputes, litigation would be in favour of the public interest instead of Arbitration. It is a need of the hour to come up with some clear provisions for the matter related to the arbitrability of IP disputes. As it’s already discussed by the authors that there is no clear legislative intendment in either existing IP statutes or Arbitration Act for exclusion of IP disputes from the ambit of arbitration. Even a certain extent the holistic understanding of the statutes shows the implied intention of making IP disputes amenable to arbitration. The expressed provision related to the arbitrability of the IP disputes in arbitration act or IP statues will bring clarity regarding this. IP disputes often transcend the boundary of the nation. Since arbitration has long been one of the most popular ways for businesses to resolve disputes, a nation with pro-arbitration legislation attracts investors and encourages them to invest in its companies. By making IP disputes arbitrable in India, the government can take a step ahead in the path of promoting India as an arbitration-friendly nation and attract more foreign investment, which will boost the country's economy.

 

[1] Aman Upadhyay is a 3rd Year Student at National University of Study and Research in Law, Ranchi. (aman.upadhyay@nusrlranchi.ac.in).

[2] Nitesh Ranjan is a 3rd Year Student at National University of Study and Research in Law, Ranchi. (nitesh.ranjan@nusrlranchi.ac.in).

[3] Indian Performing Right Society (IPRS) Ltd. v. Entertainment Network (India) Ltd, 2016 SCC Online Bom 5893.

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