Arbitration of Intellectual Property Disputes

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Intellectual Property Disputes

Arbitration of Intellectual Property Disputes – Intellectual Property is a field of law growing in its value and the scope and volume of rights that come with it. As such, the need for its protection and declaration is imperative in the 21st century world of rapid globalization and digitalization increases alongside it.

ADR is fast becoming the “go-to” mechanism for resolution of conflict rather than the “alternate” as the name suggests. This exodus of the traditional approach of the court system and adoption of ADR has increasingly occurred for the following reasons: –

  1. The acceleration effect:

This phenomenon refers to the accelerated pace of innovation and creative expression which simultaneously leads to the increase in IP rights created. It is hence important to have an all-encompassing and effective legal system to protect the very same rights.

  1. The digitalisation effect:

The most impactful effect in 21st century has been that of the rapid increase and development in the sphere of technology, that is to say, digitalization. The effect above means the ability to copy or reproduce information for a negligent cost, if any, thereby leading the original creator of the work to be distressed about the illicit infringement of his original work.

  1. The complexity effect:

Today, the line distinguishing IP and Information Technology are blurry thus leading to excessive costs for litigation in courts in case of infringement.

  1. The multi-jurisdictional effect:

Globalisation has allowed people all over the world to be bind to each other over paper in the form of contracts and agreements. IP contracts create a lot of rights which in the case of international contracts creates the complicated question of jurisdiction.

  1. The trademarks and private standards effect:

Assurance and guarantee given to customers in respect of products they buy or services they enlist has affected globalization in a way whereby a trademark assures the customer about the quality of the product or service and the same has taken a toll due to varied factors.

The resolution of Intellectual Property disputes (“IP Disputes”) is greatly hindered by the issue of arbitrability. The general stance is that disputes pertaining to granting of rights related to IP should be dealt with by the ordinary courts of the country; something which is a fundamental right of any citizen of India. However, if the IP Disputes arise from commercial arrangements for the use of Intellectual Property, they are arbitrable disputes. This issue was dealt with by the Hon’ble High Court of Bombay in the case of Eros International Media Limited v. Telemax Links India Pvt. Ltd. and Ors[1].

In the aforementioned case, the Plaintiff (“Eros”) was a producer, distributor and exhibitor of movies through multiple mediums. Eros was not only the owner of several copyrights, it had also been assigned several copyrights and had the exclusive license to exploit some others.A term sheet was executed between Eros and Defendant 1 (“Telemax”) for the purpose of content distribution to manufacturers of devices so as to have the content “pre-embedded” on to the device. The said term sheet contained an arbitration clause which stated that ‘any dispute or difference arising out of or in connection with the term sheet’ would be settled by arbitration. The court observed that the arbitration clause was drafted in the widest possible terms.

Eros argued that the documents like a term sheet cannot be binding, especially since a Long Form Agreement, which was required to be executed between Eros and Telemax was not executed. Eros further contended that in view of the circumstances surrounding the dispute, the matter was not arbitrable. Dr. Tulzapurkar, counsel for Telemax contended that all civil disputes (which includes IP disputes) were arbitrable subject to the restrictions imposed by the Booz Allen Case[2].

The aforesaid case laid down that ‘arbitrability’ covers three contexts –

  1. whether the disputes, having regard to their nature, are capable of being resolved by a private forum, or fall exclusively within the domain of public fora;
  2. whether the disputes, by agreement of parties, are covered by the arbitration agreement; and
  • whether the disputes fall within the scope of submission to the arbitral tribunal, that is, whether parties have referred the dispute to arbitration.

The Court first went on to state that certain categories of proceedings were reserved for public fora for public policy reasons either expressly or by necessary implication.All of the above examples are of rights in rem, exercisable against the world at large, as opposed to rights in personam, interests protected against specific individuals. A judgment in rem refers to a judgment that determines the status of property which operates directly on the property itself. Disputes relating to rights in rem are thus generally considered to be unsuitable for private arbitration, although this is not a rigid rule[3].

The only indication regarding arbitrability in the Arbitration and Conciliation Act, 1996 are sections 34(2)(b)[4] and 48(2)[5] of the Act which provide that an arbitral award would be set aside if the court found that the subject matter is incapable of settlement by arbitration (in other words, inarbitrable).

Further, Eros also contended in in the case of Eros International Media Limited v. Telemax Links India Pvt. Ltd. and Ors[6] that there was a valid contract existing between Eros and Telemax. Dr. Tulzapurkar’s primary argument was that the remedies sought by Eros were in personam and not in rem. He also cited the case of V.H. Patel & Co. & Ors v. Hirubhai Himabhai Patel & Ors[7] where the Hon’ble Supreme Court had held that an arbitrator’s powers depend primarily on the arbitration clause and there is no principle in law which bars an arbitrator from examining a question.

Mr. Dhond, counsel for Eros contended that the matter in question is not a purely contractual dispute and therefore, the statutory remedy must be used for dispute resolution. Mr. Dhond referred to the Supreme Court’s judgment in the case of The Premier Automobiles Limited v. Kamlelkar Shantaram Wadke[8] and the case of Management Committee of Monfort Senior Secondary School v. Vijay Premier Automobiles[9] to show that in cases where statutoryremedies are provided, the remedies are exclusively. In response to this, his lordship, Hon’ble Justice Mr. G.S. Patel pointed out that no one is suggesting that the statutory remedy be taken away entirely.

His lordship also pointed out that S.62 of the Copyright Act, 1957 and S.134 of the Trademarks Act, 1999 state that infringement and passing off actions cannot be subject to the jurisdiction of a court lower than the District Court and this in no way ousts the jurisdiction of an arbitral panel. His lordship was quite critical of Mr. Dhond’s arguments ultimately concluded that an IP Dispute arising out of a commercial contract is arbitrable.

This judgment did receive criticism from a few sources. Most of these critics seemed to fixate on the fact that intellectual property rights are a species of property rights and are therefore, arbitrable. Some also made reference to the judgment of the High Court of Madras in the case of Super Audio Madras P. Ltd. v. Entertainment Network Limited which held that the orders of the Copyright Board are in rem and are binding upon third parties as well. It is my opinion that these critics fail to see the point of what Hon’ble Justice Mr. Gautam Patel said. He does not dispute that disputes pertaining to granting of intellectual property rights are arbitrable. Given the facts of the case, the dispute is one arising out of contract and therefore, is not a right in rem but is in fact a right in persona.


References:

[1] 2016 (6) ARBLR 121 (BOM), 2016 (6) BomCR 321

[2] AIR 2011 SC 2507

[3]http://lexarbitri.blogspot.in/2011/05/sc-rules-that-mortgage-suits-are-non.html

[4]Section 34(2)(b) – Application for setting aside arbitral award. (b) The court finds that- (i) The subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) The arbitral award is in conflict with the public policy of India.

[5]Section 48(2) – Conditions for enforcement of foreign awards. – (2) Enforcement of an arbitral award may also be refused if the court finds that- (a) The subject-matter of the difference is not capable of settlement by arbitration under the law of India; or (b) The enforcement of the award would be contrary to the public policy of India.

[6] 2016 (6) ARBLR 121 (BOM), 2016 (6) BomCR 321

[7] 2002 (2) BomCR 479

[8]  (1976) 1 SCC 496

[9] (2005) 7 SCC 472