Legal Landscape of Arbitrability of IP Disputes in India: Future Directions for Current Conflicts

Abstract

In India, ‘arbitration’ is increasingly becoming the preferred method for effective and efficient determination of any commercial dispute. The question as to whether intellectual property (“IP”) disputes can be resolved through arbitral process requires detailed consideration and understanding, as several courts in India have reserved few classes of disputes for court’s determination and reserving other classes of disputes, for Arbitration. The article examines the arbitration framework that deals with IP disputes, by considering statutory provisions, judicial pronouncements and practical implications. It assesses how arbitration law and IP law intersect, highlights the inherent conflicts and how the courts often deal with them. This article also seeks to provide a holistic suggestion or potential solution to deal with the existing issues concerning arbitrability of IP disputes.

Kkeywords– Intellectual Property, In Rem, In Personam, Arbitrability, Relief Claimed.

I. Introduction

India has been witnessing the rise of a major legal debate on whether intellectual property (“IP”) disputes are arbitrable. IP, including trademarks, trade secrets, copyright, Patents etc., plays an important role in the global economy, as it is grounded in innovation and creativity which is essential for the growth of society. IP disputes are often complex and involve intricate technical details as well as high commercial stakes that need effective and specialized dispute settlement methods. In recent times, IP disputes have become more frequent and complicated due to India’s growing integration into the global economy. Such cases are usually slow when dealt with by the traditional court system due to procedural delays and backlogs. In such a scenario, arbitration offers a better solution because it is faster, more specialized and confidential regarding the settlement of such disputes associated with IP issues. Arbitration being one form of alternative dispute resolution (“ADR”) method, which allows these types of claims resolved quickly through expert-driven processes if adopted. Yet the issue remains; can IP disputes be resolved by arbitral proceedings under Indian law? 

India’s arbitration mainly relies on the Arbitration and Conciliation Act 1996[i] (“the Arbitration Act”), which incorporates “United Nations Commission on International Trade Law”[ii] (“UNCITRAL”) principles. The Arbitration Act gives a structure for both national and worldwide arbitration that lays stress on party autonomy, minimal court intervention and enforceability of arbitral awards. Nonetheless, the arbitrability of certain subject matters including IP disputes depends upon various factors such as statutory provisions, judicial interpretations and public policy considerations.

This paper takes into account India’s legal framework to account for the arbitrability of IP disputes. The discussion will touch on the nature of IP disputes, the applicable legal framework governing arbitrability of disputes in India, landmark decisions in this domain, as well as relevant foreign perspectives. Furthermore, whilst conducting the aforementioned examination, the paper highlights some flaws or conflicts in the existing judicial approach and thereafter, the paper also suggests solutions or way forward to overcome such conflicts in future.

II. Meaning of Arbitrability under the Indian Arbitration Act, 1996

The Parties to a dispute choose which conflicts may be subject to arbitration, as arbitration is a creation of consent, but this flexibility is not without restrictions. Any disagreement between the parties may be arbitrated as long as it falls outside of the state’s exclusive jurisdiction.

A dispute is typically considered arbitrable if it is ‘capable of resolution by arbitration’. The term arbitrability has several connotations[iii], including (a) whether there exists an agreement of arbitration between or among the parties, (b) whether the relevant dispute falls within the scope of the agreement of arbitration, and (c) whether the subject matter of the dispute can be determined through arbitration proceedings.[iv] Thereafter, issues concerning a dispute’s arbitrability will be mostly procedural rather than substantive.[v] In other words, the arbitrability of a dispute determines whether forum has exclusive jurisdiction over an issue. The Arbitration Act does not specifically define or address the nature of arbitrability of disputes, however, it provides certain guiding principles. Section 2(3) of the Act states that “this Part shall not affect any other law for the time being in force by virtue of which certain disputes may not be submitted to arbitration.[vi] Additionally, Section 34(2)(b) allows a court to set aside an arbitral award if it finds that “the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force.[vii]

The Courts in India have declared most of the dispute as ‘non-arbitrable’.[viii] The Supreme Court, in the case of “Booz Allen Hamilton v SBI Home Finance Ltd[ix] has examined the issue of arbitrability in detail and the same is still considered to be a good law. 

III. The Test of Booz Allen

The Supreme Court in this case, extensively dealt with the issue of arbitrability of execution of the bank mortgage via sale deed. The Court formulated two broad tests for determining the nature of arbitrability of an issue –  a) whether the arbitral tribunal possesses ‘power’ to decide the subject of matter of the dispute; or b) whether the relief sort can only be given by special courts or tribunal.[x]

On the basis of the above two grounds, the Court held that the arbitral tribunal can determine the issues, as the parties themselves authorize the tribunal, and every dispute of civil nature or otherwise can be adjudicated by the arbitral tribunal,[xi] unless barred by some express statutes or by some necessary implications like public policy.[xii] It went on to provide an inclusive list of disputes which are non-arbitrable such as matrimonial disputes, winding up and insolvency disputes, criminal offences, guardianship, land and tenancy disputes covered by some special statutes. The Court whilst formulating such categories, opined that the subject matter of these disputes is not arbitrable, as it falls under the realm of in rem.[xiii] Thus, a right based approach[xiv] was taken by the Court, however, it also opined that the aforementioned test is flexible and the subordinate rights falling under in rem actions, can be arbitrable like- right conferred through agreement of patent license is arbitrable while at the same time validity of a patent is not.[xv]

The court then ventured into an area wherein it examined the basic nature of mortgage suit proceeding and opined that since any person, who possess any amount of interest in the property, perhaps be interested in the proceeding of the case, then in such scenario, the Court not only has to adjudicate upon the dispute between the parties but also protect the right of that interested third party, hence, such matter cannot be referred for arbitration.[xvi]

IV. Complexities and Challenges vis-à-vis Arbitrability of IP disputes in India:-

The Supreme Court in Booz Allen, interalia, gave birth to two (2) tests to determine arbitrability of any dispute. The first test is the “Right-Based Test” or “in personam and in rem”, which says that rights against public at large (in rem) are not arbitrable but those against the individual (in personam) are arbitrable.[xvii]The propounded test has been criticized in the latter decisions,[xviii] because it is not sufficient to be called as sole test to check arbitrability of a dispute. The second test talks about the cases wherein, if the relief claimed could only be awarded by the civil court or some “Special Fora”- like Consumer Forum, then such dispute is non-arbitrable.

We will first examine right-based test:

A. Determination of Arbitrability and right-based test:

Traditionally, IP rights are seen as rights in rem, meaning they are not subject to arbitration. However, the Booz Allen case challenged this view, suggesting that there can be subordinate in personam rights. In other words, these are rights derived from primary in rem rights, such as from contractual relationships and thus capable of being arbitrated. For example, rights stemming from a technology sharing or IP licensing agreement are in personam rights, subordinate to the main IP in rem rights, and are derived from them.[xix]Therefore, resolving disputes over such contractual IP rights would only involve the parties in the contract and not affect the public, making these disputes suitable for arbitration.

In Booz Allen, as mentioned earlier, the Supreme Court did not provide an absolute ban on the arbitrability of certain kinds of disputes, thus, it is important for the courts to examine each IP dispute on the basis of given facts and circumstances. However, at times, High Courts, instead of examining the facts, have rejected to issue of arbitrability through mechanical application of Booz Allen. The Supreme Court, while addressing the arbitrability of fraud and landlord-tenant conflicts, respectively, in the case of A. Ayyasamy v A. Paramasivam and Ors. and Emaar MGF Land Ltd. v Aftab Singh made observations regarding the fact that IP disputes are not subject to arbitration. There have been several High Court rulings that classify trademark infringement as a right in rem, making it unfit for arbitration, despite the fact that these obiter dicta declarations classifying IP conflicts as non-arbitrable are debatable in terms of their sound legal reasoning.

In another case of Steel Authority of India Ltd. v SKS Ispat & Power Ltd., Bombay High Court held that disputes concerning copyright and trademark fall under the category of non arbitrable dispute, as they are actions in rem.[xx] However, this view was later rejected by single bench of the same court in the case Eros Media Ltd. v. Telemax Links India Pvt. Ltd[xxi], wherein the Court decided upon the issue of arbitrability of a copyright license dispute. The judicature of Bombay, after detailed deliberation on Steel Authority, rejected the argument of respondent, as the allegation pertaining to passing off and infringement, in the said case, didn’t occur from the agreement, and thus, were out of the jurisdiction of arbitration.[xxii] It further stated that the issue of non-arbitrability of a dispute cannot be decided by reading the provisions of law in isolation, but rather by a joint and harmonious study of facts, in light of the relief sought, and the law provided under legislation, in order to decide arbitrability.[xxiii]Therefore, in a commercial dispute, where parties mutually agree to resolve any dispute through arbitration, can never be referred to as non-arbitrable disputes, as such action effectively fall under the category of in personam, i.e. a party demanding relief from a specific person rather than the public at large.[xxiv]

The Court ruled that the dispute is absolutely arbitrable in nature and reiterated that, if, for example, the argument that all IP Rights should be regarded as non-arbitrable is adopted, then every agreement pertaining to the transfer of intellectual property that includes an arbitration clause will be rendered invalid.

Similarly, in Indian Performing Right Society Ltd. v. Entertainment Network (India) Ltd.[xxv], wherein the issue arose whether copyright infringement problems under a licence agreement were subject to arbitration. Under the terms of their agreement, Indian Performing Right Society Limited (“IPRS”) gave Entertainment Network (India) Ltd (“ENIL”) the right to air music by its members in exchange for royalties. An arbitral award was the outcome of disputes that arose between the parties. The IPRS challenged the award in Bombay High Court, claiming that the topics discussed were not subject to arbitration.

It further argued that the arbitrator misunderstood the question of whether transmitting a sound recording without the proprietors of the literary or musical works’ consent, but with permission from the recording’s copyright owner, constituted copyright infringement. They requested an order stating that IPRS’s copyrights were not violated by ENIL’s broadcast. The Court decided that infringement claims cannot be arbitrated and must be brought in a District Court under Section 62(1) of the Copyright Act, 1957. Furthermore, in line with the Steel Authority of India Ltd decision, it was determined that copyright law confers rights in rem, which are unsuitable for private dispute settlement. The Court also distinguished this case from the Eros International case, stating that the current case involved IPRS’s entitlement to royalties for sound recordings and seeking an injunction against wrongful demands by IPRS, which could not be resolved through arbitration based on precedents set by the Booz Allen and Steel Authority of India Ltd cases.

B. Relief claimed Approach for Arbitrability

The second test that came out of Booz Allen was the “reliefs test” to determine arbitrability. This includes deciding whether the relief sought in arbitration may only be delivered by state courts or specialized tribunals. In the matter of Rakesh Malhotra v Rajinder Malhotra[xxvi], the Bombay High Court held that conflicts under Sections 397 and 398 of the Companies Act are matters in rem and hence non-arbitrable; they must be submitted to the Company Law Board for determination.

Contractual disputes usually involve different kinds of relief, such as damages or specific performance, which can be determined by arbitral tribunals based on findings of fact, unless they involve IP-related contractual disputes that fall solely under Copyright Board jurisdiction, such as copyright assignment,[xxvii] compulsory licencing,[xxviii] disputes mentioned under section 6 of the Copyright Act,[xxix] which cannot be arbitrated.

Indian jurisprudence gives opposing viewpoints on IP infringement cases including damages, injunctions, or lost profits. Cases such as IPRS v Entertainment Network[xxx] and Mundipharma AG v Wockhardt[xxxi], interpret Section 62(1) of the Copyright Act[xxxii] to require that infringement proceedings be brought in district courts, preventing arbitral tribunals from granting such remedies. If applied extensively, this view would rule out the arbitrability of IP issues, including in personam proceedings, which would be contrary to the purposes of the Arbitration Act.[xxxiii]

The author ropes for the method used at Eros Media, which balances intellectual property rules with the Arbitration Act. Eros Media said that Section 62(1) acts as a procedural guideline for the initiation of infringement cases in the legal system and does not provide state courts with exclusive jurisdiction over all infringement remedies. According to Booz Allen, IP infringement claims are considered suits in personam, meaning they harm individual rights rather than the rights of the general public.

V. Arbitrability of IP dispute around the Globe: – A brief view of approaches followed by USA, Hong Kong, Singapore and United Kingdom .

The arbitrability of IP disputes differs across jurisdictions, influenced by domestic laws and judicial attitudes.

A. United States

The United States added section 294 to its Patents Act in 1994, rendering all intellectual property rights disputes subject to arbitration.[xxxiv] Now, if the relevant contract does not contain a clause to the contrary, any dispute pertaining to US patents is appropriate to be resolved by binding arbitration in the U.S.[xxxv] 

Regarding copyright and trademark matters, there is no legal framework that mandates arbitration for these types of disputes.[xxxvi] Nonetheless, where a disagreement over copyright results from a contract’s provisions, U.S. courts do not forbid arbitration.[xxxvii]

B. Hong Kong

Arbitration of IP-related disputes is now permitted in Hong Kong. By amendments,[xxxviii] all IP related issues are now subject to arbitration. The administration makes it clear that this won’t go against public policy as well. One potential obstacle to parties conducting IP arbitration in Hong Kong is eliminated by this statute. The lack of local case laws on the subject had previously made arbitration unclear; nevertheless, this legislation has now paved the way for arbitration.

C. Singapore

In terms of IPR enforceability, Singapore is among the top nations. Singapore laws[xxxix] provide for arbitration in any dispute, provided that both parties consent. IP-related disputes are also included in this. The sole centre for arbitration and mediation run by the World Intellectual Property Organisation (“WIPO”) outside of Geneva is located in Singapore. Additionally, Singapore International Arbitration Centre has a panel of IP arbitrators specifically designated for this purpose. These advancements place Singapore at the forefront of using arbitration to settle IP issues.

D. United kingdom

In the case of Roussel-Uclaf,[xl] when a patent validity question was deemed to be arbitrable, U.K. Courts acknowledged the arbitrability of intellectual property rights concerns. Despite the fact that the U.K. Patents Act permits the arbitration of extremely limited patent disputes.[xli] Trademark[xlii] and copyright[xliii] disputes are likewise seen to be arbitrable.

VI. Way forward; Action versus Rights?

The Courts, in future, should make a clear distinction between the type of action and the type of rights when determining whether IP disputes can be arbitrated or not. Not all IP-related causes of action have in rem ramifications, even though IP rights are typically rights in rem, or rights that function against the people at large. In other words, IP rights do not by their very essence preclude arbitration. This distinction lacks a theoretical foundation and is frequently misinterpreted, as the Eros Media case demonstrates. Further, the Booz Allen case demonstrates that the arbitrability of rights in rem is not completely prohibited. Examining the attributes of the relevant rights is therefore essential. Understanding whether the action concerns rights in personam or rights in rem is necessary to determine arbitrability. By making this distinction, the arbitrability of IP disputes can be decided without departing from the Booz Allen precedent.[xliv]

Moreover, Gary Born makes the case for arbitration in IP rights  even though Indian law makes it abundantly evident that disputes about their existence or validity cannot be settled through arbitration.[xlv]He argues that an arbitral tribunal ought to have the authority to determine whether an intellectual property right exists, provided that the ruling is binding solely on the parties concerned and suggests that the tribunal does not have the authority to revoke patents or register copyrights. This argument backs the tribunal’s authority to determine whether an intellectual property claim is valid and how the award will apply inter partes. This viewpoint is unlikely to be adopted in India, though, as there is a strong opposition to the arbitrability of in rem conflicts. For instance, under the Trademarks Act, only the Intellectual Property Appellate Board (“IPAB”) has the authority to correct trademarks.[xlvi] Such arguments might hold more weight in countries with a strong pro arbitration stance. Therefore, one must be cautious of attempts to evade arbitration by bringing ‘dressed up claims’[xlvii] in bad faith, as such claims have the potential to exclude the jurisdiction of arbitral tribunals. Arbitration agreements must be properly taken into account by adjudicating bodies while considering these disputes. The Supreme Court observed in the Ayyasamy case that the party attempting to get out from under the arbitration clause bears a heavy burden of proof regarding inarbitrability. Only in cases where there is a strong indication of an in rem lawsuit or a complex legal issue, arbitration can be excluded.

VII. Conclusion

Arbitration of IP issues in India is a complicated, yet growing, legal domain. There is an apparent distinction between arbitrable and non-arbitrable issues, which is frequently based on rights in rem versus rights in personam, but the court’s involvement in applying these principles is critical. As India seeks to position itself as an international arbitration hub, its legal system for resolving intellectual property disputes is expected to change, combining corporate interests with public policy concerns. Historically, the issue of arbitrability is more often than not address by scholars of arbitration, as opposed to IP specialists. The National IPR Policy of 2016 on the one hand talks about “strengthening of enforcement and adjudicatory mechanisms to combat intellectual property rights infringements”, however, on the other side, only briefly addresses arbitration as a potential approach for settling IP disputes. Therefore, it is necessary to address the difficulties and take advantage of this opportunity in order to establish India as a reliable destination for IP dispute arbitration, which would promote economic development and creativity. Further, in order to achieve the arbitration hub, especially in IP disputes, requires authorities to – first, create arbitration centers specifically for IP disputes in line of explicit arbitration centers created by Japan and Singapore[xlviii] for IP dispute. In such centers, arbitrators with expertise in intellectual property rights will register. The parties to the dispute would find it quite convenient to settle their differences using this way; Second, similar to the United States[xlix] and Hong Kong[l], India should also modify its IP laws to allow for arbitration in some disputes. This will force the parties to arbitrate, which will reduce paperwork and improve the effectiveness of conflict resolution.


[i] The Arbitration and Conciliation Act, 1996.

[ii] United Nations Commission on International Trade Law [UNCITRAL],Model Law on International Commercial Arbitration 1985 U.N.G.A. Res. 40/72 (Dec. 11, 1985), as amended by U.N.G.A. Res 61/33 (Dec. 18, 2006).

[iii] Homayoon Arfazadeh, ‘Arbitrability under the New York Convention: The Lex Fori Revisited(17(1) ARB. INT’L 2001).

[iv] Booz Allen and Hamilton Inc. v SBI Home Finance Ltd, AIR 2011 SC 2507.

[v] Arfazadehn 4.

[vi] n 1, Sec 2(3).

[vii] n 1 , sec 34(2).

[viii] n 5.

[ix] ibid.

[x] ibid.

[xi] ibid.

[xii] ibid.

[xiii] ibid.

[xiv] P.J. FITZGERALD, SALMOND ON JURISPRUDENCE 235 (12th ed. 2009).

[xv] n 4.

[xvi] ibid.

[xvii] ibid.

[xviii] Rakesh Malhotra v Rajinder Kumar Malhotra, (2015) 192 Comp Cas 516; see also Arthad Kurlekar, “A False start – Uncertainty in the Determination of Arbitrability in India”, KLUWER ARB. BLOG (June 16, 2016),available at http://arbitrationblog.kluwerarbitration.com/2016/06/16/a-false-start-uncertainty-in-the-determinationof arbitrability-in-india/.

[xix] Utkarsh Srivastava, ‘Putting The Jig Saw Pieces Together : An Analysis of the Arbitrability of Intellectual Property Right Disputes In India’ 33 ARB INT’L 631 (2017), 635-637.

[xx] Steel Authority of India Ltd. v SKS Ispat and Power Ltd. & Ors., 2014 SCC OnlineBom 4875.

[xxi] Eros International Media Ltd v Telemax Links India Pvt. Ltd., 2016 SCC Online Bom 2179.

[xxii] ibid.

[xxiii] ibid.

[xxiv] ibid.

[xxv] 2016 SCC OnLine Bom 5893.

[xxvi] n 18.

[xxvii] Copyright Act 1957, Sec. 19A.

[xxviii] Music Choice India Private Limited v Phonographic Performance Limited, 2010 SCC OnLine Bom 113.

[xxix] Section 6 of the Copyright Act, 1957 deals with “certain disputes to be decided by the Copyright Board’.

[xxx] n 25.

[xxxi] ILR (1991) 1 Del 606.

[xxxii] Copyright Act, 1957, Sec. 62(1).

[xxxiii] n 19.

[xxxiv]Camille Juras, ‘International Intellectual Property Disputes and Arbitration: A Comparative Analysis of American, European and International Approaches’ (2003) (unpublished L.LM. dissertation, McGill University) (on file with author).

[xxxv] Kenneth R. Adamo, ‘Overview of International Arbitration in the Intellectual Property Context 2 The Global Business Law Review 15, (2011).

[xxxvi]David W. Plant, ‘Arbitrability of Intellectual Property Issues in the United States’, WORLD INTELLECTUAL PROPERTY ORGANISATION (Mar. 14, 2018) http://www.wipo.int/amc/en/events/conferences/1994/plant.html.

[xxxvii] ibid.

[xxxviii]The Arbitration (Amendment) Ordinance 2017 (“Amendment Ordinance”) will amend Arbitration Ordinance (Cap. 609). amendments came into effect on 1st January 2018.

[xxxix] Singapore International Arbitration Act, 1994.

[xl] Roussel-Uclaf v G.D. Searle & Co. Ltd., [1978] Lloyd’s Report 225.

[xli] Kenneth R. Adamo, Overview of International Arbitration in the Intellectual Property Context, 2 The Global Business Law Review 15, (2011). & AIPPI (ASSOCIATION INTERNATIONALE POUR LA PROTECTION DE LA PROPRIETE INTELLECTUELLE), https://aippi.org/download/reports/forum/forum07/12/ForumSession_12_Presentation_Lawrence_Boo.pdf.

[xlii] ibid.

[xliii] ibid.

[xliv] n 19.

[xlv] Gary Born, Non-Arbitrability and International Arbitration Agreements In International Commercial Arbitration’ 991-993 (2009).

[xlvi] n 19.

[xlvii] n 18.

[xlviii] WIPO and Singapore Partner in the Field of Alternative Dispute Resolution, WORLD INTELL. PROP. ORG., http://www.wipo.int/pressroom/en/articles/2009/article_0027.html accessed 18 September 2024.

[xlix] Patents Act, 1994.

[l] The Arbitration (Amendment) Ordinance, 2017.

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