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.

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