[By Saumitra Shrivastava]
The author is a fifth year student of NLU Raipur.
The issue of arbitrability of intellectual property rights (hereinafter “IPR”) disputes has always been a subject of great speculation and interest. This is partially because of the massive role of IPR in the world of commerce which eventually leads to a significant number of disputes. For a healthy functioning economy, it is imperative to resolve these disputes as soon as possible. This has necessitated the Indian courts, over the time, to acknowledge the arbitrability of a class of these disputes and reject the blanket ban on arbitration of same.
This post analyses the position of Indian law and proposes certain amendments to Indian laws in order to clear the air on the issue of arbitrability of IPR disputes.
Indian legal position on arbitrability of IPR disputes
The first time the Indian courts dealt with this question was in Booz Allen & Hamilton Inc. v SBI Home Finance Ltd.(2011) where the Supreme Court gave a framework popularly known as “Booz Allen Framework” to determine the arbitrability of any dispute. It states, when the dispute is based on assertion of rights in personam, it is arbitrable. Otherwise, it is not. It further held: ‘Every civil or commercial dispute, either contractual or non-contractual, and which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless it is excluded either expressly or by necessary implication.’ Though the arbitrability of IPR disputes was not in issue, the Supreme Court included ‘disputes of patent, trademarks and copyright’ in category of ‘generally non-arbitrable disputes’. Since the question was not an issue of the case, it is argued that the above conclusion was an obiter dicta and not ratio decidendi.
In Mundipharma AG Vs. Wockhardt Ltd., the Delhi HC categorically held that where copyright in any work is infringed, the remedies by way of injunction damages, account and otherwise as are or may be conferred by law for the infringement of such a right, cannot be subject-matter of arbitration. In IPRS v. Entertainment Network , the Bombay High Court set aside that part of award in which the arbitrator decided upon validity of copyright subsisting in one of the parties.
Later, in Vikas Sales Corp, the Supreme Court held that these rights can be included in definition of movable property and are rights in rem. This reasoning would essentially make the Booz Allen Framework conclude that all IPR disputes are inarbitrable.
However, in the landmark Eros v. Telemax (which has been followed in many subsequent cases), the Bombay HC allowed the arbitration of IPR disputes given they are contractual. It is to be noted that although Booz Allen Framework provided for adjudication of both ‘contractual as well as non-contractual disputes, of commercial/civil nature or those which are not barred by express or implied provision,’ yet in this case, the HC added a qualifier ‘contractual’ for adjudication of IPR disputes, thus contradicting the Supreme Court’s stance. These judgments show that the judiciary has been quite unable to provide a clear position of law on the issue.
Coming to the statutory position of law in India, section 2(3) of the Arbitration and Conciliation Act, 1996 provides that: ‘This part (which deals with domestic arbitration) shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.’
Since Indian laws (including IPR laws) do not provide for any exhaustive list as to which disputes are arbitrable and which are not, it depends significantly upon the courts to decide upon arbitrability of the matter, giving courts discretionary power to adjudicate upon the same. Different Courts are either giving contradictory decisions or they are giving the same decisions with different reasoning, thus rendering the law not just unclear but also ambiguous.
How do foreign jurisdictions approach the afore-said issue?
The issue of arbitrability of these disputes has been dealt by different countries in different ways. Some countries almost put a blanket ban on it while some allow full arbitrability subject to a very small set of conditions. But most of the countries remain somewhere in the middle. For instance, Spain allows arbitration of disputes involving registration of trademarks with exceptions. Akin to India, several national legal systems like Germany and France traditionally reject the arbitrability of disputes concerning the validity of registered IP rights but have been moving towards arbitrability of contractual IPR disputes in the last few decades.
Hong Kong (Amendment) Ordinance 2017
The government of Hong Kong brought the Hong Kong (Amendment) Ordinance in 2017, which adds a whole part (Part 11A) namely ‘Arbitration Relating to Intellectual Property Rights’.
Part 11A provides that an IPR disputes are capable of settlement by arbitration as between the parties to the IPR dispute [i]. It further provides that the subject matter of a dispute is not incapable of settlement by arbitration under the law of Hong Kong, nor the award out of arbitration is against the public policy of Hong Kong only because the subject matter/award relates to an IPR disputes [ii].
Similar developments have been seen in countries like Switzerland, United States and Israel.
Unnecessary litigation due to unsettled law on the issue
According to a noted international scholar, Francis Russell, the question of arbitrability can arise at three stages of arbitration. In India, these are akin to the following sections of Arbitration and Conciliation Act, 1996 (“the Act“): (i) Application to stay arbitration (Section 8); (ii) Application to question the authority of the tribunal to entertain the subject matter of arbitration (Section 16); and (iii) Application to set aside the award (Section 34).
In absence of a clear law and multiple opinions of the Supreme Court and various High Courts of India, Section 8 of the Act rarely bars all arbitral proceedings on the ground of non-arbitrability of the subject matter (which are later proved not arbitrable after lengthy litigation proceedings). The arbitral tribunal under Section 16 of the Act, also tends to assume jurisdiction over these cases. In such cases, the award is finally challenged on the same grounds and if the challenge is successful, it results in wastage of time, cost and effort put into these proceedings. Thus, it is necessary for the government to bring in certain amendments to the law in order to enable courts to decide upon the arbitrability at once, under Section 8 of the Act.
Way Forward for the Indian Legislature: Amendments in Indian Laws
The Parliament can either amend the provisions of the Arbitration and Conciliation Act, 1996 to add a section which could delineate the matters which can be arbitrated and which cannot be arbitrated. Those disputes which are contractual in nature and arise out of agreements among parties in which one of the parties has a valid IPR in the subject matter should be explicitly declared arbitrable. Further, the legislature should categorically specify the matters in which the arbitral tribunal cannot pass an award: the validity of an IPR, ownership of an IPR or any relief of injunction, etc on a third party to the arbitration agreement.
Another way is to alter various IPR laws to provide for disputes which can be arbitrated. For instance, Section 62 of the Copyright Act, 1957, which gives exclusive jurisdiction to the civil courts could be amended by adding that IPR disputes arising out of a contract between the parties, one of whom have a valid ownership of the IPR could be arbitrated by an arbitral tribunal. More importantly, those areas on which the tribunal could not pass an award shall be clearly specified.
It is evident that the Indian courts have not been able to find a clear law to be followed upon the issue of arbitrability of IPR disputes. As mentioned above, different Courts are either giving different decisions or they are giving the same decisions with different reasoning. This makes the law ambiguous in the eyes of the commercial men. This leads to unnecessary disputes and delays. It is need of the hour for the legislature to come up with a set of amendments which conclusively decide upon the issue and eliminate the litigation arising out of it at the initial stage. It would not only lead to faster resolution of disputes in the 2.6 trillion-economy but also save the valuable time of the already burdened judiciary.
[i] R.103D, Arbitration Ordinance, 2011 (Hong Kong)
[ii] R.103F, Arbitration Ordinance, 2011 (Hong Kong)