The Arbitrability of IP Matters in India

The Basics of IP Arbitration

Arbitration is a form of alternative dispute resolution which aims at resolving disputes without the involvement of courts. This mechanism has gained prominence over time, but there are certain disputes which are not supposed to be solved through the out-of-court mechanism. While the legislation (Arbitration and Reconciliation Act, 1996) has not laid down any specific or comprehensive guidelines for arbitrability, the Supreme Court in the case Booz-Allen & Hamilton Inc vs SBI Home Finance Ltd. & Ors, brought the much-needed clarity on the same. The court formulated a basic principle to decide the arbitrability of any matter, wherein it held that matters which are only related to the rights of parties involved can be solved through arbitration. However, the cases where the subject matter is related to action in rem i.e. refers to right exercisable against the world at large, are incapable of being resolved through arbitration.

Now, although the criteria for arbitrability was established, there happened to be almost no discussion related to the arbitrability of IP matters. There was no distinction for the matters in IP which would affect the rights of the general public and those with specific rights. Later, it was the case of A. Ayyasamy v. A. Paramasivam and Ors, which has considered patents, trademarks, and copyrights disputes as non-arbitrable. However, this could not be considered as a binding statement, since it was merely an obiter-dictum. Finally, in the case of Emaar MGF Land Ltd. Vs. Aftab Singh, the verdict in the Booz-Allen case was reinstated, whereby it was specifically held that Copyright, Patent, and Trademarks disputes were non-arbitrable as these would fall under the category of rights in rem and therefore, only the civil court can exercise jurisdiction over such disputes and not the arbitrators.

Recent Judicial Developments

The Delhi High Court, in its recent decision in Golden Tobie Private Ltd. v. Golden Tobacco Ltd, dealt with the interpretation of Section 8 (which deals with the invocation of an arbitration clause) of the Arbitration and Conciliation Act, 1996, concerning the disputes involving trademarks. The case was related to a dispute over the breach of trademark licensing agreement.

To decide on the same, the Court referred to the case of Vidya Drolia and Ors. v. Durga Trading Corporation, which recently laid down a four-fold test to classify a matter as non-arbitrable. That is:

1) When the cause of action and subject matter of the dispute relates to actions in rem.

2) When the cause of action and subject matter of the dispute affects third-party rights and have erga omnes implication.

3) When the cause of action and subject matter of the dispute relates to inalienable sovereign functions of the state.

4) When the subject matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statutes.

Referring to the abovementioned points, the court in the Vijay Drolia case held that matters concerning the grant/issue of patents and registration of trademarks will be non-arbitrable since they involve certain sovereign functions. The involvement of sovereign functions makes it erga omnes, which means it will apply to the public at large.

Following this, the case of Hero Electric Vehicles Pvt. Ltd. & Anr. v. Lectro E-Mobility Pvt. Ltd & Anr. came up to the Delhi High Court with a similar contention. The dispute, in this case, arose from the contention involving the right to use the trademark under an agreement. However, the court held that the dispute is not concerning the registration of a trademark, rather it relates to the contractual terms of the agreement. Hence, there is no involvement of any sovereign function, and thereby the case can be resolved by arbitration.

All of these were taken into consideration while deciding the Golden Tobie case. The contention, in this case, was related to the legality of the termination of licensing agreement from the defendant’s end and canceling all the assignments of the trademark. This is, by no means, connected to any exercise of a sovereign function, rather it involves the understanding of contractual terms. Hence, the Delhi High Court considered this matter as one where arbitration clause can be enforced. 

Conclusion

Intellectual property, as an area, is in its evolutionary stage. Therefore, the recent developments (including the judicial decisions) become important to consider. This is apparent from the fact that earlier decisions have considered all the disputes under the realm of IP as non-arbitrable. However, the recent decisions including the Hero Electric Vehicle and Golden Tobie cases have analyzed the disputes closely and came out with a more comprehensive understanding. Although the Vidya Drolia case could not explain this distinction, the other two cases clarified the current status. It has been made clear that the Supreme Court’s decision did not put a complete ban on the arbitrability of IP matters, rather they shall be analyzed for the implication of the rights involved on a case-by-case basis.


Author: Unnat Akhouri, Legal Intern at PA Legal.

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