Are IP Disputes Arbitrable in India?

Intellectual property (IP) disputes refer to disputes related to unfair usage of intellectual properties such as patents, copyright, trademark, geographical indication, trade secrets, etc. It basically refers to anyone using intellectual property without asking its owner for permission to do so.

Arbitration and Conciliation Act, 1996

Arbitration is an alternative dispute resolution mechanism that involves a neutral third party, referred to as ‘arbitrator,’ overseeing the discussion to resolve disputes between parties. It is quite similar to the usual process of litigation, which people choose when resolving conflicts. However, arbitration is somewhat less formal and helps get a solution much faster than the tiring litigation proceedings.

Arbitration can generally be referred to as an ‘out-of-court settlement’ with the intervention of a neutral third party – the arbitrator. It allows disputing parties to choose if they wish to go through arbitration and conciliation. In addition, it is very helpful in terms of helping reduce the overall burden of the Courts by allowing an authorized entity to take over and deal with certain matters and certain types of legal proceedings. Further, it ensures that all awards are enforced in a similar way as legal orders of the Court.

In India, arbitration proceedings are generally governed by the various provision of the Arbitration and Conciliation Act, 1996. The Act was drafted to compile all laws related to domestic and international commercial arbitration and the enforceability of foreign arbitral awards in India into one place.

Although the Act is a code in itself, several judgements related to the applicability of the Act have over the years blurred the lines to some extent.

Exclusions from the Act

Section 2(3) of the Act provides the types of disputes that are excluded from the scope of the Act and should be considered non-arbitrable.

Difference	Rights in Rem	Rights in Personam
Meaning	A right in rem is a right exercisable against the world at large.	A right in personam which is an interest protected solely against specific individuals.
Scope	Rights in rem are absolute rights considering they can be enforced against any individual who interferes with the property, irrespective of whether they are related to the owner of the IP.	Rights in personam are relative rights as they can only be enforced against a specific individual.
Transferability	Transferable from one person to another.	Non-transferable
Enforcement	Rights in rem are enforced by taking a legal action against any individual who infringes the property.	Rights in personam are enforced by taking a legal action against specific individuals who breach the right.

Relevant Case Laws

IP Rights as Rights in Rem

Case: Booz Allen vs. SBI Homes Finance Limited

Some Facts of the Case:

• Capstone Investment Co. Pvt. Ltd. and Real Value Appliance Pvt. Ltd. availed a loan from SBI Home Finance Ltd.
• These companies later entered into a leave and license agreement with Booz Allen and Hamilton – the agreement signed by them included an arbitration clause.
• The dispute between these parties and SBI began when the latter filed a case to recover money by selling suit premises.

Issue:

The issue raised in the matter was:

• Can arbitral tribunals preside over cases related to enforcing a mortgage by sale?
• Does the subject matter of the suit fall within the ambit of arbitration agreements?

Conclusion of the Case:

• It was noted that arbitrability of the topic significantly depends on the concept of ‘public policy.’
• The Court pointed out the differences between ‘Right in Rem’ and ‘Right in Personam.’
• It stated that disputes related to Rights in Personam are manageable through arbitration while disputes pertaining to Right in Rem need to be adjudicated by Courts and public tribunals.
• Also, the Court categorized some cases as non-arbitrable such as matrimonial disputes, guardianship disputes, testamentary disputes, eviction or tenancy disputes, etc.

Rights in Personam

Case: Eron International Media Ltd. vs. Telemax Links India (P) Ltd.

Some Facts of the Case:

• Eros and Telemax signed a copyright license agreement to copyright Eros’ material.
• Eros, at a later date, alleged that Telemax had violated its copyright. It also pointed out that considering the agreement signed by the two parties had an arbitration clause, the matter should be sent to arbitration.
• Telemax, however, challenged this claim by pointing out that the various rights under the Copyright Act, 1957 are ‘rights in rem’ and, thus, non-arbitrable.

Issue:

The matter demanded clarity regarding whether disputes related to copyright infringement that arise out of contractual agreements are arbitrable and if Section 62 of the Copyright Act, 1957 expels the arbitral tribunal’s jurisdiction.

Conclusion of the Case:

• The Bombay High Court upheld the validity of the arbitration clause in the agreement.
• It stated that the Trademarks Act as well as Copyright Act do not oust the authority of an arbitral panel.
• The Court also noted that Section 62(1) of the Copyright Act, 1957 must not be understood to mean ‘ousting of the arbitral panel’s jurisdiction.’

Note: The judgment of the Eros’ matter contradicted the judgment of Booz Allen, and thus, created ambiguity related to arbitration of IP disputes.

Judicial Interpretation

Case: Vidya Drolia vs. Durga Trading Corporation

Issue: Determining whether tenancy disputes under lease agreements are arbitrable.

Some Facts of the Case:

• When reviewing the arbitrability of lease deeds, the Supreme Court was asked to primarily analyze two questions – what does the ‘non-arbitrability of disputes’ mean and who gets to decide the non-arbitrability of any subject matter.
• When differentiating between non-arbitrable claims and non-arbitrable subject matters, the Supreme Court held that non-arbitrable claims arise on account of the scope of arbitration agreements and in cases where the dispute cannot be resolved through arbitration.
• A fourfold test was established to determine whether a subject matter is non-arbitrable. As per the guidelines laid down, a subject matter is non-arbitrable if:
  o    It is an action in rem and no subordinate action in personam arises out of it.
  o    It has the erga omnes effect, i.e., adjudication on the subject matter would affect individuals who are not parties to arbitration.
  o    Inalienable functions of the state are involved.
  o    It is expressly or impliedly non-arbitrable by virtue of law.

Conclusion of the Case:

• The Supreme Court held that applying the above test helps establish that lease deeds are arbitrable if they do not fall within the scope of any special statutes.
• Fraud allegations can be made in relation to the subject matter of arbitration when it is connected to a civil dispute and lacks the seriousness mentioned under criminal laws.
• The Arbitral Tribunal is the primary authorized entity to determine arbitrability.

Contractual Disputes

Case: Hero Electric Vehicles (P) Ltd. vs. Lectro E-Mobility (P) Ltd.

Some Facts of the Case:

• The Munjal family’s business was divided into four family groups – F1, F2, F3, and F4 – through a family settlement agreement (FSA).
• The defendant (F4) was found to be using the ‘Hero’ trademark. The plaintiff (F1) filed a case under Sections 28 and 29 of the Trademarks Act, 1999, and sought permanent injunction that restrains the defendant from using the word ‘Hero’.
• Defendant asked that the case be transferred for arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.
• However, the plaintiff challenged the agreement by stating that the Court must oversee the proceedings as something that affects all and the right in rem.
• The Court held that any IP dispute arising out of some contractual liabilities shall be arbitrable.
• It further noted that any conflicts between family could be resolved through arbitration without describing proceedings in the long term.

Legal Provisions

Certain disputes are considered non-arbitrable due to some statutory provisions. For example:

• Section 135 of the Trademarks Act, 1999: As per this provision, a trademark owner may seek justice and solution against an individual infringing their trademark in a civil court.
• Section 62(1) of the Copyright Act, 1957: As per this provision, all suits and other civil proceedings that arise under this Chapter in respect of the infringement of copyright in any work or the infringement of any other right conferred by this Act shall be instituted in the district court having jurisdiction.

Conclusion

After going through this piece, you can conclude that the arbitrability of any dispute depends entirely on the nature of the dispute, i.e., whether it comes under ‘rights in rem’ or ‘rights in personam.’ While disputes under ‘rights in personam’ would be arbitrable, any dispute under ‘rights in rem’ would not fall within the scope of public tribunals.