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.


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