US: The Big Brother Bully

This alliteration refers to the dreaded ‘Special 301’ report which was published by the United States recently, putting India on its ‘Priority Watch List’ (PWL) for the 22nd year in a row. The Special-301 is an annual review of the status of IPR protection and enforcement worldwide and categorizes countries according to the level of IPR protection which they offer. PWL is an honour that is bestowed upon a trading partner, which in the opinion of the US, has “serious intellectual property rights deficiencies” that require the attention of the United States Trade Representative (USTR).

The PWL countries stand the risk of being elevated to Priority Foreign Country (PFC) which refers to countries where the most egregious violations of IPR exist and which harm competition to the US market abroad. The Special 301 derives its name from Section 301 of the US Trade Act of 1974 which gives power to the US to impose unilateral trade sanctions on PFCs.

The Special 301 report has expressed much angst against India for its so-called weak IP protection laws such as compulsory licensing of patented drugs, pre-grant opposition to patent applications and section 3(d) of the Indian Patents Act (a provision to check ever-greening of pharmaceutical patents). India, which is currently a PWL country, stands the risk of being designated a PFC if it does not mend its IP laws in favour of stronger protection for rights holders.

The Special-301 has been criticized worldwide since it violates the WTO obligations of member countries to refrain from exercising unilateral trade sanctions. The proper recourse for the US to take against countries, which thwart US trade, is to file a WTO complaint. Section 301 of the Trade Act allows the US Congress to take action against a country even where the trading partner otherwise fulfils its obligations under the WTO.

While the US cannot impose trade sanctions on PWL countries, the PWL has served as an effective instrument to get countries to toe the line. In 1993 when Taiwan was designated a PWL country it quickly passed the Cable TV law to prosecute video piracy in order to avoid being listed a PFC.

India has maintained a cold response to the Special 301 so far and refused to negotiate with the US over its IP laws. However, the recent developments in patent law practices in India cause one to wonder whether India has indeed stuck to its guns. In March this year, there were allegations that India had privately assured the US against issuing compulsory licences over patented US drugs. These allegations were quickly brushed aside by the Indian government. On 9th May, the Indian Patent Office granted the patent application over Gilead’s blockbuster Hepatitis-C drug, Sovaldi, although it had in an earlier decision rejected the same application on the ground that it failed section 3(d) requirements under the Patents Act. The Sovaldi application has been the subject of much controversy in India due to the lack of transparency in the Sovaldi pre-grant opposition proceedings. India has also been toying with a draft IP policy which has been severely criticised as serving the interests of the US.

It appears that India is gradually caving in to the duress by Big Brother, US. The US approach of putting countries on the PWL can be likened to carrying a stick to have one’s way without actually using the stick. By putting countries on the PWL, the US warns its trading partners that it would ‘use the stick’ (i.e. impose unilateral sanctions by designating the countries as PFC) if they do not change their IP laws to favour the US.

The WTO Dispute Settlement Understanding prohibits not only unilateral trade sanctions but also determinations by member countries that a trading partner has violated its obligation under the WTO. Putting a country on the PWL constitutes a determination by the US that the trading partner does not provide for effective IP laws and such a determination can be challenged in the WTO. The PWL therefore is as illegitimate under the WTO as the PFC list.

The US might argue on a technical ground i.e. that it placed India on the PWL list not because India violated its TRIPS obligations but because of India’s weak IP laws (section 301 allows US to impose sanctions against countries even where they fulfil their TRIPS obligations). To me, this argument is fundamentally flawed because the purpose of having an institution like the WTO in place is to preclude countries from exercising unilateral trade sanctions unless countries have entered into free trade agreements (FTAs) allowing such an action.

India should consider challenging its PWL status under Special 301 in the WTO instead of waiting for the US to designate India a PFC. India’s unique IP laws are consistent with its minimum obligations under the WTO and India should not let the US bully it into changing its IP laws as this might harm access to medicines in India.

For an excellent analysis of arguments that India can use if it challenges the Special 301 in the WTO, read Suzanne Zhou’s article.

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Arbitrability Of IP Disputes: 50 Shades Of Grey?

Recently, Justice Gautam Patel of the Bombay High Court ruled on the issue of arbitrability of intellectual property disputes in Eros International Media Limited v. Telemax Links India Pvt. Ltd. (Suit No. 331 of 2013). The matter was filed under section 8 of the Arbitration & Conciliation Act, 1996 (section 8 refers to the Court’s power to refer parties to arbitration where a valid arbitration agreement exists between the parties). The Bombay HC in deciding the case made a distinction between actions in rem and actions in personam, holding that IP claims insofar as they are actions in personam are arbitrable.

In Eros International, Justice Patel affirmed the Indian Supreme Court decision in Booz Allen & Hamilton Inc. v. SBI Home Finance Limited wherein it was held that actions in rem are non-arbitrable and include “disputes relating to rights and liabilities that give rise to or arise from criminal offences; matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights; guardianship matters; insolvency and winding up matters; testamentary matters such as those for grant of probate, Letters of Administration and Succession Certificates; and eviction or tenancy matters governed by special statutes where jurisdiction is specifically conferred on designated Courts”.

Justice Patel further advised against the wisdom of ousting the arbitrability of all IP disputes as suggested by Eros’ counsel, I believe an acceptance of Mr. Dhond’s view must result in widespread confusion and mayhem in commercial transactions. We often have complex commercial documents and transactions that routinely deal with intellectual property rights of various descriptions as part of the overall transaction. This can be said of mergers, acquisitions, joint ventures, the setting up of special purpose vehicles, technology transfer and sharing agreements, technical tie-ups, licensing and so on. The range of fields of human activity that could possibly be covered by any one or more of these is limited by nothing but our own imagination: steel manufacturing, setting up of power plants, software, motor car manufacture, computer hardware, music, films, books and literature, performances and even services. If Mr. Dhond is correct, then in any of these cases, where intellectual property rights are transferred or, for that matter, in any way dealt with, no dispute arising from any such agreement or transactional document could ever be referred to arbitration, and every single arbitration clause in any such document would actually, in his formulation of it, be void and non-est ab initio…I do not think the world of domestic and international commerce is prepared for the apocalyptic legal thermonuclear devastation that will follow an acceptance of Mr. Dhond’s submission” (para 22).

The conclusion reached by the Bombay HC seems fairly straightforward given the commonly understood principle in arbitration that actions in rem are non-arbitrable, whereas, actions in personam can be arbitrated.  If an arbitral tribunal were to rule on a right in rem, it can never be enforced against the world at large because only parties to an arbitration agreement submit to the jurisdiction of the tribunal. However, the practice of bifurcating IP disputes into actions in personam and in rem is not harmonized worldwide, with certain countries like South Africa disallowing arbitrability of all IP disputes. Under the US law, any IP dispute can be arbitrated and the award is enforceable against the world at large. This can be contrasted with UK which like the US allows any IP dispute to be arbitrated but the award binds only the parties to the arbitration. Further, there are countries which bar arbitrability of certain kinds of IP disputes such as patent validity, while allowing patent infringement issues to be arbitrated. While India has not yet seen a patent infringement dispute go to arbitration, under Eros International, it seems that India falls in this last category.The 1996 Act as well as the various IP legislations in India are silent on the issue of arbitrability of IP disputes. Enforcement of domestic and foreign awards can be refused in India on the grounds of non-arbitrable subject-matter and public policy. An interesting issue that came up before the Court was whether the Copyright Act 1957 ousts the jurisdiction of arbitration tribunals. Section 62 of the Copyright Act confers jurisdiction on District Courts for cause of action arising under the Act. It was Eros’ argument that section 62 ousts the jurisdiction of arbitral tribunals. Justice Patel rejected this argument and ruled, “All that they mean is that such actions are not to be brought before the registrar or the board, viz., an authority set up by either of those statutes.”

Section 104 of the Indian Patents Act similarly confers jurisdiction on a District Court for patent infringement suits. Section 104 of the Indian Patents Act reads:

No suit for a declaration under section 105 or for any relief under section 106 or for infringement of a patent shall be instituted in any court inferior to a district court having jurisdiction to try the suit.

This can be contrasted with the language in section 18(1) of the Patents Act in South Africa:

[…] no tribunal other than the commissioner shall have jurisdiction in the first instance to hear and decide any proceedings…relating to any matter under this Act. [Emphasis supplied]

While South Africa explicitly excludes the jurisdiction of all tribunals (including an arbitral tribunal) from hearing patent suits, the Indian legislation contains no such exclusion. In fact, Justice Patel observes, “Unless specifically barred, what a Civil Court can do, an arbitrator can do… The relief that the Plaintiff seeks today, a decree in damages and injunction, are both reliefs that an arbitrator can well grant.”

Arbitration is routinely being preferred as a dispute resolution method in IP licensing contracts worldwide. Arbitration offers the distinct advantage that patent infringement claims can be decided by arbitrators who have domain expertise. Arbitration can also resolve cross-border claims since IP rights are territorial and therefore, multiple litigations need to be commenced simultaneously in different jurisdictions by a party enforcing a patent infringement claim through courts. Arbitration would also preclude the danger of contradictory rulings because of different approaches taken by courts in various jurisdictions.

Given the protracted nature of litigation in India, it is desirable that parties be allowed to arbitrate IP disputes. The 2015 amendments to the Arbitration Act inserted section 29A which provides that an arbitral award should be made within one and a half years. By allowing IP disputes to be arbitrated, there is hope yet for parties for swift resolution of their disputes in India.

Op-ed: Needless pressure to change copyright laws

The recently leaked Intellectual Property chapter of the Regional Comprehensive Economic Partnership has garnered much attention worldwide. Given the imminent negotiations over the free-trade agreement between India and 15 other Asia-Pacific countries, the leaked draft gives a direct insight into the stand that participating countries would be taking over IP protection, one of the major concerns of the FTA. The provisions relating to copyright protection are particularly worrisome, since they call for stringent measures, in excess of India’s current IP law obligations under the WTO.

Under the RCEP, each party must ratify or accede to the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT). The WCT and the WPPT (together known as WIPO Internet Treaties) protect the rights of authors and performers/producers of phonograms respectively.

A unique feature of the WIPO Internet Treaties is that they provide effective legal remedies against the circumvention of technological measures taken by authors and performers/producers of phonograms to protect their works on the internet (also known as Digital Rights Management or DRM measures). For instance, certain apps enable internet users in India to watch shows on video-streaming website Netflix even though the content is not available in India. They achieve this by circumventing technological measures put in place by Netflix to restrict the downloading of its content in a particular region.

Overarching measures

Under the WIPO Internet Treaties, the internet user who circumvents the technological measure would be liable for circumventing the DRM measures irrespective of whether the internet user downloaded the content for their personal enjoyment (without the intention to make the content available commercially).

The WIPO Internet Treaties have been criticised by internet activists for imposing substantial costs on the public without any real benefits to the artists. Additionally, the DRM measures threaten free speech and access to information online.

The RCEP itself contains many provisions of the WIPO Internet Treaties, including the DRM measures.

While India is not a signatory to the WIPO Internet Treaties and is as such not obligated to conform to them, India incorporated many of the provisions of the WIPO Internet Treaties including DRM measures when it amended its copyright legislation in 2012. Since India is not bound by the WIPO Internet Treaties at present, it can repeal the over-arching provisions anytime it wishes on the ground of public policy. However, this would be impossible if the RCEP in its current form becomes a reality.

No obligation

The DRM measures are a TRIPS-plus measure which means that under the WTO, India is not obliged to abide by them. If India agrees to the current copyright law provisions in the RCEP and accedes to the WIPO Internet Treaties, India would necessarily have to honour its obligations under the FTA. If this happens, it is likely that India would pass a law similar to the Digital Millennium Copyright Act (DMCA) in the US to strictly enforce measures against the circumvention of digital rights management. The DMCA, which criminalises production/dissemination of technology, devices and services intended to circumvent DRM measures, has been widely criticised for chilling scientific research and freedom of speech and expression online.

The WIPO Internet Treaties also lack a fair-use exception for circumvention of technological measures. While the Indian law does not expressly provide for fair-use exception in the protection of technological measures, it allows acts committed to circumvent the technological measures if they are “not expressly prohibited” under the Indian law. Unless the RCEP allows for fair-use exceptions (for private or personal use, including research), the freedom of the internet in India stands to be threatened due to the RCEP.

Given that the DRM provisions in RCEP will negatively impact internet users in the country, India must take a hard stand when negotiating the IP chapter of the RCEP.

– Written by Radhika Agarwal & Devika Agarwal

[This op-ed was originally published in The Hindu Business Line on 4th May, 2016.]

Non-Arbitrability of IP disputes~ An Apocalypse in International Commerce

This is the conclusion which Justice Gautam Patel of the Bombay High Court recently drew in the case of Eros International Media Limited v. Telemax Links India Pvt. Ltd. (Suit No. 331 of 2013).

Eros, the plaintiff, owned copyright in several feature films and was engaged in the production and distribution of its content through various media. Telemax (the first defendant in the instant case) approached Eros for a licence for the distribution rights to Eros’ content. Accordingly, a Term Sheet was executed between Telemax and Eros.

The Term Sheet contemplated an exclusive licensing contract for various audio-visual materials and the execution of a ‘Long Form Agreement’ within ten days of execution of the Term Sheet which would supersede and override the terms of the Term Sheet. The Term Sheet also contained an arbitration clause to arbitrate the disputes “arising out of or in connection with the Term Sheet”.

Due to certain disagreements between Telemax and Eros, Eros filed a suit for copyright infringement against Telemax and Defendants no. 2 to 8 for injunction and damages.  Defendants no. 2 to 8 named in the suit claimed to use the copyrighted material in question under a sub-licence from Telemax.

Subsequently, Telemax filed a ‘Notice of Motion’ (interim application) before the High Court to refer the parties to arbitration under section 8 of the Arbitration and Conciliation Act, 1996 (under section 8, where an action is brought in a matter which is the subject of an arbitration agreement, the Court shall refer the parties to arbitration). Defendants no. 2 to 8 also submitted affidavits before the HC agreeing to have their disputes submitted to arbitration.

Eros argued that the present suit is a composite suit because Defendant no. 1 (Telemax) had created rights in favour of other parties (Defendants no. 2 to 8) through a sub-licence. Since the other parties are not parties to the Arbitration Agreement, the dispute cannot be referred to arbitration. Telemax counter-argued that by virtue of the 2015 amendments to the 1996 Act, the Court can exercise its power under section 8 on the action brought by a party to an arbitration agreement or person claiming through or under him and that Defendants no. 2-8 were parties claiming through Telemax.

Eros argued that all disputes in copyright and trademark infringement are inherently non-arbitrable and that the only remedy for parties is to approach the Court, notwithstanding a valid arbitration agreement. Eros submitted that the present dispute was not purely contractual because in deciding Eros’ claim for damages, the adjudicating authority must decide whether Telemax infringed Eros’ copyright. Since remedy for copyright infringement is a statutory remedy, the finding of copyright infringement can only be given by a Court and not an arbitrator.

Telemax argued that the action sought by Eros is not in rem but in personam between Eros and Telemax (and those claiming under Telemax). Telemax argued that Eros’ claim arose out of the Term Agreement and was not a case of ‘copyright infringement’ simpliciter. Telemax argued that all civil disputes are arbitrable unless specifically excluded. Telemax cited SC’s decision in Booz Allen & Hamilton Inc. v. SBI Home Finance Limited wherein it was held that non-arbitrable disputes include disputes relating to rights and liabilities that give rise to or arise from criminal offences; matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights; guardianship matters; insolvency and winding up matters; testamentary matters such as those for grant of probate, Letters of Administration and Succession Certificates; and eviction or tenancy matters governed by special statutes where jurisdiction is specifically conferred on designated Courts.

Rejecting Eros’ submission that a copyright infringement claim cannot be arbitrated, the Bombay HC reasoned that the statutory remedy against copyright infringement is not taken away by arbitration. In an arbitration agreement, the parties do not exclude the statutory remedy itself; the parties merely choose a particular forum (the arbitral tribunal) to seek that remedy. Further, the Court held that the present dispute arose out of a contract i.e. the Term Sheet and was a contractual dispute.

Rejecting Eros’ submission that IP laws provide for statutory remedies and therefore can only be brought before a Court, the Court held that the IP statutes do not oust the jurisdiction of the arbitral tribunal, “All that they mean is that such actions are not to be brought before the registrar or the board, viz., an authority set up by either of those statutes.”

The Bombay HC recognised that actions in IP law can be either in rem (opposition to the registration of a trademark) or in personam (copyright infringement and passing off).

The Court observed, “Unless specifically barred, what a Civil Court can do, an arbitrator can do… The relief that the Plaintiff seeks today, a decree in damages and injunction, are both reliefs that an arbitrator can well grant.”

Further, “Where there are matters of commercial disputes and parties have consciously decided to refer these disputes arising from that contract to a private forum, no question arises of those disputes being non-arbitrable. Such actions are always actions in personam, one party seeking a specific particularized relief against a particular defined party, not against the world at large.”

The Bombay HC rightly observed that Eros’ submission that all IP disputes are non-arbitrable would lead to widespread chaos in commercial transactions involving intellectual property. This is because in an earlier SC decision (‘Sukanya Holdings’ case) it was held that the cause of action in a suit cannot be bifurcated; this means that if one were to accept that all IP disputes are non-arbitrable, no commercial transaction involving intellectual property (including mergers, acquisitions, joint ventures, the setting up of special purpose vehicles, technology transfer and sharing agreements, technical tie-ups etc.) could ever be subjected to arbitration.

Finally, the Court held that Defendants no. 2 to 8 were covered under section 8 of the 2015 Act and accordingly referred the matter to arbitration.