TY - JOUR
AU - Gokhale,, Gowree
AB - The author Kshama A. Loya is a Senior Member in International Dispute Resolution Practice at the multi-skilled research-based law firm Nishith Desai Associates. Gowree Gokhale is a Partner, Intellectual Property and Technology Media & Telecom Practice at the same firm. This article With growing cross-border investments and intellectual property transactions, the global surge in Intellectual Property (IP) disputes cannot be overlooked. The issue of arbitrability of IP disputes is gaining traction worldwide, with the perennial tug of war between rights in rem and rights in personam. The conclusion whether certain IP disputes should be adjudicated through arbitration or through courts is not always easy to reach. In light of the above, it is critical to study judicial trends in the arena and help evaluate the principles that guide courts and arbitrators in decision-making. This article focuses on judicial trends in India, one of the fastest growing economies. As India witnesses a surge of Foreign Direct Investment inflows and cross-border transactions, there is a resultant rise in IP disputes, both domestic and cross-border. Needless to state that with the overhaul in the Indian legal regime, stakeholders in IP are fast turning to alternative dispute resolution than to traditional courts. Are courts in India laying down an edifice for ADR in IP disputes, or do IP rights largely deserve to be safeguarded by courts? This is the question the article proposes to tackle. The study of judicial trends in India will help inform and shape the realm of IP dispute resolution. This article also discusses aspects that should be evaluated during negotiation of contracts. I. Intellectual property disputes International conventions such as the TRIPS Agreement1 and national legal frameworks govern the Intellectual Property (IP) landscape on ownership, conduct, exploitation and enforcement of IP rights. In the event of disputes involving the aforesaid issues, the majority of jurisdictions have vested powers in national courts to adjudicate upon them. The type of IP manifestation and the several possible ways in which it can be used by and through the originator, multiplies the type of disputes that could arise from IP. The World Intellectual Property Organization (WIPO) provides a useful guide to these types of disputes. A tabular form is reproduced in Table 1. Table 1. Types of disputes arising from IP Trade marks Patents Copyright Information & Communication Technology Coexistence Cross-licensing Art Mobile Apps Infringements Infringements Broadcasting Outsourcing Licences Licences Entertainment Systems Integration Oppositions Ownership Film and Media Software Development Revocations Patent Pools Infringements Software Licensing Commercial R&D / Tech Transfer TV Formats Telecommunications Distribution Royalty Payment 30% Franchising Marketing Sports Trade marks Patents Copyright Information & Communication Technology Coexistence Cross-licensing Art Mobile Apps Infringements Infringements Broadcasting Outsourcing Licences Licences Entertainment Systems Integration Oppositions Ownership Film and Media Software Development Revocations Patent Pools Infringements Software Licensing Commercial R&D / Tech Transfer TV Formats Telecommunications Distribution Royalty Payment 30% Franchising Marketing Sports View Large Table 1. Types of disputes arising from IP Trade marks Patents Copyright Information & Communication Technology Coexistence Cross-licensing Art Mobile Apps Infringements Infringements Broadcasting Outsourcing Licences Licences Entertainment Systems Integration Oppositions Ownership Film and Media Software Development Revocations Patent Pools Infringements Software Licensing Commercial R&D / Tech Transfer TV Formats Telecommunications Distribution Royalty Payment 30% Franchising Marketing Sports Trade marks Patents Copyright Information & Communication Technology Coexistence Cross-licensing Art Mobile Apps Infringements Infringements Broadcasting Outsourcing Licences Licences Entertainment Systems Integration Oppositions Ownership Film and Media Software Development Revocations Patent Pools Infringements Software Licensing Commercial R&D / Tech Transfer TV Formats Telecommunications Distribution Royalty Payment 30% Franchising Marketing Sports View Large Alternative fora and mechanisms for dispute resolution are on the rise due to their commercial efficacy—delivering expert expeditious solutions and adjudication to an increasingly commercial world. The WIPO Arbitration & Mediation Rules is exemplary of this shift towards Alternate Dispute Resolution (ADR) for IP disputes, and is being adopted worldwide. While negotiation, mediation and conciliation assist parties to arrive at non-binding commercial solutions, arbitration provides binding decisions that adjudicate upon the rights and obligations of parties. In the contemporary world, arbitration is the strongest parallel to court adjudication. II. Various ADR efforts in India In India, certain mechanisms exist as alternatives to court for protection of IP rights. For instance, Trademark Registry registers trade marks and handles oppositions and rectifications/ cancellations of trade marks. In 2016, the Trade Mark Registry (Delhi) decided to undertake a pilot project,2 whereby 500 pending oppositions/rectifications were referred to mediation/conciliation based on consent by the parties involved and as per the rules framed under the Legal Services Authorities Act, 1987. It was recognized that the nature of opposition/rectification may lend themselves to mediation/conciliation as the law in these matters is more or less settled, leaving parties to understand and negotiate based on facts and come to flexible and mutually acceptable solutions. Similarly, in any proceedings involving use of patent for government purposes, the High Court may at any time order the whole proceedings or any question or issue of fact to be referred to an official referee, commissioner or an arbitrator on such terms as the High Court may direct. As such, Indian law does not consider litigation as the sole avenue for resolution of every IP dispute. In 2002, nearly a century after the coming into force in 1908, the Indian Code of Civil Procedure was amended to introduce a new provision for ADR.3 This transformed the course of Indian litigation. For IP, this change was welcomed in 2006 when the judiciary in cities of Delhi (the national capital) and Bangalore (the technology centre) received advanced training in mediation and an American procedure called ‘early neutral evaluation’. Under this procedure, a senior counsel or a panel of senior counsels with expertise on IP assumes the role of a ‘neutral evaluator’. Lawyers provide a written brief to the evaluator—summarizing facts, legal arguments and authorities in support of each party's case and make a short case presentation. The evaluator then prepares a note on the central dispute in the case and the likely outcome on each issue. He/she shares his/her conclusion with the parties either at joint or private sessions, called caucuses, involving free discussion about the parties’ strength and weaknesses. Failing a settlement between parties, the matter is referred back to the court without disclosing the reason for failure. In 2007, the Delhi High Court passed the first landmark judgment on this procedure in the case of Bawa Masala,4 directing a number of interlinked IP disputes to be resolved through early neutral evaluation. However, not many reported cases can be found on the use of early neutral evaluation. III. Arbitrability of IP disputes In principle, an arbitral tribunal can adjudicate upon every dispute that can be adjudicated upon by a court, except a few that are not considered to be ‘arbitrable’. Public policy of a jurisdiction reserves certain matters for the court alone. These include matters where the type of remedy required is not one, which an arbitral tribunal is empowered to give.5 This depends on the nature of rights involved and remedies sought in a dispute. Even Article V(2) of the New York Convention recognizes this exclusion. It provides that recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: (i) the subject matter of the difference is not capable of settlement by arbitration under the law of that country; or (ii) the recognition or enforcement of the award would be contrary to the public policy of that country. A. Nature of rights in rem and personam: where do IP rights fall? Most rights can be categorized as rights in rem and rights in personam. A right in rem is a right exercisable against the world at large. Actions in rem refer to actions determining the title to property, and the rights of the parties not merely among themselves but also against all persons at any time claiming an interest in that property.6 In contrast, a right in personam is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject matter of the case. Correspondingly, judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status. Several commentaries provide that disputes relating to ‘real’ rights in rem, which are valid against the whole world, cannot be subject to private arbitration. However, some acknowledge that arbitrators may rule upon subordinate rights in personam derived from the rights in rem.7 IP rights of the owner, by their very nature, stand against the world at large. Inherently, they constitute rights in rem. However, the IP landscape in the contemporary commercial world is writ large with a mesh of rights of other parties intertwined with the rights of the originator. Often, these subordinate rights acknowledge the owner’s right; are derived from the original right of ownership; and operate between private parties with no involvement of the State. The contracts that deal in IP increasingly provide for arbitration of disputes arising under the contracts. In such a scenario, the interplay of rights in rem (safeguarded by courts) and sub-ordinate rights in personam (compelling adjudication by private forum) becomes dominant and challenging. While the right is granted by the State to the owner of IP, the owner might further deal with its right through contracts with other parties. Thus, multiple parties in varying forms and capacities, making matters complex, could hold IP rights. In light of the complex web of agreements involving licensing, assignment and other forms of devolution of IP rights, it is challenging for courts/arbitral tribunals to identify the thin line between rights in rem and subordinate rights arising out of rights in rem—in order to ascertain arbitrability of an IP dispute. Statutes play an important role in providing a legal framework to govern IP rights. However, neither legislations relating to IP nor that relating to arbitration lay out a list of arbitrable and non-arbitrable IP disputes. In such a scenario, judicial decisions and published arbitral awards play a key role in shaping the contours of this sphere of law. Some commentaries acknowledge that arbitrators may adjudicate subordinate rights in personam derived from the real rights. Thus, the conventional view is that, for example, rights under a patent licence may be arbitrated, but the validity of the underlying patent may not. An arbitrator whose powers are derived from a private agreement between A and B plainly has no jurisdiction to bind anyone else by a decision on whether a patent is valid, for no one else has mandated him/her to make such a decision and a decision which attempted to do so would be useless.8 In addition to ascertaining the nature of rights, it is also important to assess the nature of remedy sought or deemed appropriate in disputes involving IP rights. The types of remedies, which the arbitrator can award, are limited by considerations of public policy and by the fact that he/she is appointed by the parties and not by the state. For example, an arbitral tribunal cannot impose a fine or a term of imprisonment, nor can he/she make an award which is binding on third parties or affects the public at large, such as a judgment in rem declaring validity of patent.9 Thus, disputes involving remedies, which can be provided only by courts, would be non-arbitrable. Thus, transactions involving IP rights can raise a string of questions. Are IP disputes arbitrable? How will arbitration be an effective remedy in case of multiple parties that are not party to the arbitration agreement? Can there be bifurcation of disputes depending on the type of disputes and parties involved? What is the distinguishing line between rights in rem and rights in personam in the context of IP rights? Should courts readily assume jurisdiction or exercise caution when faced with an arbitration clause in a contract involving IP rights? With the aforesaid foundation of nature of IP and its interrelation with arbitration, the authors attempt to gather the perspective of the Indian judiciary—recipient of the largest number of cases in the world’s fastest growing economy, on the issue of arbitrability of IP disputes. IV. Indian perspective on arbitrability of IP disputes The diverse nature of IP rights raises issues as to whether the rights are arbitrable or within the sole domain of courts. Helpfully, Indian court decisions throw light on these myriad issues. The analysis and interpretations adopted by Indian judiciary on each of the above issues is dealt with in the following sections. A. Public policy: the bedrock of arbitrability Before delving into decisions assessing the interplay between arbitration and IP disputes, it is useful to understand the perspective of Indian courts on arbitrability. Public policy in India forms an intense core of unwritten principles underlying social laws. In an era where commerce is growing by leaps and bounds, the Indian judiciary is constantly called upon to define, shape and reshape public policy. Under Arbitration & Conciliation Act, 1996 (A&C Act) based on the United Nations Commission on International Trade Law Model Law, an arbitral award is not enforceable if it is contrary to the public policy of India or deals with a subject matter that is not capable of settlement by arbitration ie that is non-arbitrable.10 This mirrors the grounds under Article V(2) of the New York Convention discussed above. Arbitrability is not defined under any statute in India. However, the decision of the Supreme Court of India in 2011 in the case of Booz Allen11 is considered as a landmark decision on this concept. In Booz Allen, the Supreme Court culled out three facets of arbitrability as under: (i) whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties or fall within the exclusive domain of public fora; (ii) whether the disputes are enumerated as matters to be decided through arbitration; and (iii) whether the parties have submitted disputes to arbitration that fall within the scope of the arbitration agreement.12 The Court recognized that every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court is in principle capable of being adjudicated and resolved by arbitration, unless the jurisdiction of arbitral tribunals is excluded either expressly or by necessary implication. In this regard, the Court recognized that adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. There is no express reserved list. However, the Court drew certain well recognized examples of non-arbitrable disputes such as: (i) those relating to rights and liabilities arising out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship; (iv) insolvency and winding up; (v) testamentary (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.13 The Court recognized that these disputes involved an adjudication of rights in rem, therefore require adjudication by courts. However, the Court importantly stated that this was not a rigid and inflexible rule. Disputes relating to sub-ordinate rights in personam arising from rights in rem have always been considered to be arbitrable.14 Booz Allen did not contain a reference to IP disputes, specifically. However, this decision referred to a paragraph from the commentary on Mustill and Boyd’s Commercial Arbitration, which stated that: for example, rights under a patent licence may be arbitrated, but the validity of the underlying patent may not. An arbitrator whose powers are derived from a private agreement between A and B plainly has no jurisdiction to bind anyone else by a decision on whether a patent is valid, for no-one else has mandated him to make such a decision, and a decision which attempted to do so would be useless. 15 With respect to remedies that an arbitral tribunal is empowered to give, the Court implied that an arbitral tribunal has wide powers. It relied on the case of Olympus Superstructures16 where the Court held that even a discretionary remedy as that of directing specific performance of a contract could be granted by an arbitral tribunal. This goes hand in hand with the principle that every civil or commercial dispute can in principle be adjudicated upon by an arbitral tribunal. B. Bifurcation of arbitrable and non-arbitrable disputes in a contract and third party involvement A common hindrance to arbitration of IP disputes is the possibility of disputes being beyond the scope of arbitration agreement and/or the involvement of third parties foreign to the arbitration agreement. Scope of arbitration agreement Consider an instance of termination of a franchise contract for non-payment of dues by the franchisee. Post termination, the franchisee continues to use the trade mark—thereby committing trade mark infringement. An arbitration clause that refers disputes relating to termination of the agreement and infringement of trade mark post termination to arbitration would cover the entire dispute. However, in the event infringement post termination of contract is not specifically covered, it could put arbitration in jeopardy. In Sukanya Holdings,17 the Supreme Court of India held that there is no provision in the Act that, when the subject matter of the suit includes subject matter of the arbitration agreement as well as other disputes, the matter is required to be referred to arbitration. Splitting of the cause of action is not permissible. Thus, arbitrability will depend on the drafting of the scope of arbitration clause. This is critical for two reasons. First, disputes falling beyond the arbitration agreement cannot be subject to arbitration—since this would be beyond the intent of parties to refer to arbitration. Secondly, disputes that are agreed to be subject to arbitration might be inextricably linked to disputes falling outside the arbitration agreement—thereby making bifurcation difficult. In such a scenario, the entire body of disputes will have to be taken away from arbitration and adjudicated upon by courts. In the case of Ministry of Sound18 in 2009, Ministry granted licence to Indus to use its trade marks/copyright in respect of ‘Ministry of Sound’ and the Ministry logo to run a night club by the name of ‘The Pyramid’. The arbitration clause in the licence agreement provided: Nothing shall prevent either party from seeking injunctive relief in the case of any breach or threatened breach of any obligation of confidentiality or infringement of IP. Subject to the foregoing, any dispute arising out of or in connection with this Agreement shall be submitted to the arbitration in London of the London International Court of Arbitration (‘LCIA’). Ministry contended that the dispute was non-arbitrable since the arbitration clause was subject to a clause relating to breach of obligation of confidentiality or infringement of IP rights. The Delhi High Court held that the clause did not seek to limit the subject matter of arbitration, and that the entire agreement is the subject matter of arbitration. The Court further held that questions relating to IP rights and obligation of confidentiality can be made subject matter of arbitration. In this case, the first sentence of the arbitration clause was limited to injunctive reliefs and the intention did not seem to exclude confidentiality and IP infringement from arbitration. Third party involvement Third party involvement in disputes can also impact arbitrability. Traditionally, only parties to an arbitration agreement could refer disputes to arbitration. However, with the amendment to section 8 of the A&C Act in 2015, parties claiming through or under a party who is party to the arbitration agreement, can refer disputes to arbitration. In Eros,19 the plaintiff filed a composite suit against various parties in addition to the party to the arbitration agreement and contended that the cause of action could not be referred to arbitration since it could not be bifurcated. The Court relied on the amendment in section 8 of the A&C Act and stated that the parties could be referred to arbitration as they were parties claiming through the respondent. Thus, courts have assessed whether the entire gamut of disputes falls within the scope of the arbitration agreement and do not entail bifurcation. However, where a party that is unrelated to the parties in the arbitration agreement claims a right relating to the IP rights involved in the arbitration agreement, the courts will assume jurisdiction, unless all parties agree to arbitration. For instance, in a dispute arising between the two parties under an agreement relating to telecast of television rights, a party may request for impleading a third party as a necessary party on the ground that one of the two parties granted rights in the television series to such third party. If the third party is not a party claiming through or under either of the original parties, it might be difficult for the court to refer the dispute to arbitration. An illustration of a similar situation is provided below. In case of dispute between Party A and Party B, Parties D or E cannot be impleaded either as a party to arbitration, nor can an interim relief be granted through or under such parties in an arbitration petition. The only remedy against parties D and E will be in a civil suit, subject to conditions under the relevant IP enactments. C. Rights in rem and in personam in IP disputes Several Indian cases provide guidance on arbitrability of IP disputes. These are discussed in the following. RK Productions: non-bifurcation of infringement and non-payment issues in assignment agreement In R.K. Productions20 in 2012, the High Court of Madras was seized with an application to refer disputes to arbitration. The case involved a copyright assignment agreement where RK Productions agreed to assign a movie to NK Theatres upon full payment of consideration amount. NK Theatres failed to pay the last instalment to RK Productions. However, it obtained prints of the relevant film on the basis of an undertaking to make payment. While payment was outstanding, NK Theatres entered into an assignment agreement with another party C towards exploitation of satellite rights of the suit movie; while party C further entered into an agreement with party D to broadcast the suit movie on television. RK Productions filed a suit before the Court for copyright infringement, while NK Theatres prayed for reference to arbitration. The Court referred to the facets of arbitrability as laid out in Booz Allen. However, without delving into an analysis of the nature of rights involved in the present dispute, the Court ruled that the issues of non-payment by NK Theatres and copyright infringement against parties C and D were inextricably mixed. It relied on Sukanya Holdings and held that the subject matter of the suit could not be bifurcated. Therefore, the disputes could not be subject to arbitration. Steel Authority of India: use of trade mark outside the purview of the contract In Steel Authority of India Ltd21(SAIL) in 2014, the Bombay High Court considered an issue of infringement of trade marks and held that the disputes were not arbitrable, despite existence of arbitration clause in the contract. In this case, parties entered into an agreement whereby SKS Ispat & Power Ltd. (SKS) was required to emboss all materials it produced on SAIL’s behalf with SAIL’s registered trade mark. SAIL alleged that SKS misused its brand name by embossing it on materials not covered by the contract. It further pleaded that SKS had infringed SAIL’s trade marks and passed off goods of SKS as those of SAIL. An application by SKS was filed to refer disputes to arbitration. Rejecting the application, the Court observed that the rights to a trade mark and in connection therewith are matters in rem and by their very nature not amenable to private forum chosen by the parties. However, the Court circumscribed this broad proposition by stating that the disputes in the matter before Court concerning infringement and passing off did not arise out of the contract between the parties, which contained an arbitration clause. Eros International: Subordinate rights in contracts are arbitrable In the well-known 2016 Eros case, Eros owned copyright in several feature films. In 2012, Telemax offered a sum of INR 15 Million to Eros for the grant of content marketing and distribution rights in respect of films. The parties entered into a Term Sheet contemplating an exclusive licensing contract. A Long Form Agreement was agreed to be executed after 10 days of execution of the Term Sheet. It was agreed that till the Long Form Agreement was executed, Telemax would not exploit or deal with the copyright content. Telemax allegedly infringed Eros’ copyright. Eros filed a suit seeking damages and permanent injunction against Telemax. However, since the Term Sheet contained an arbitration clause, Telemax made an application under section 8 of the A&C Act seeking reference to arbitration. Eros pleaded that the said dispute relating to copyright infringement was inherently non-arbitrable. Telemax argued that it was altogether too broad a proposition to say that no action under the Trade Marks Act or the Copyright Act can ever be referred to arbitration. However, Eros contended that a finding of infringement of copyright was only within the remit of a court since the same involved rights in rem. The Court rejected the broad proposition on non-arbitrability of IP disputes. It founded its decision on an analysis of the nature of the rights involved, the source of the claim and the consequences of non-arbitrability of IP disputes. First, the Court ruled that as between two claimants to a copyright or a trade mark in either infringement or passing off action, the action and the remedy can only ever be an action in personam, and never an action in rem. For instance, under trade mark law, the registration of a mark gives the registrant a right against the world at large. It is possible that an opposition to such an application (before the Registrar) would be an action in rem, for it would result in either the grant or non-grant of the registration, good against the world at large. However, an infringement or passing off action binds only the parties to it. For instance, A may allege infringement and passing off by B and may succeed against B. However, this did not imply that A must necessarily succeed in another action of infringement and passing off against C. Similarly, one may be able to demonstrate that this copyright in a film, a literary work, an artistic work or any other work in which copyright is said to subsist is infringed by a certain party. However, he/she may not be able to show such an infringement at the hands of another party. Both are actions in personam. What is in rem is the entitlement of the claimant or registrant to bring that action. That entitlement is a result of having statutory or common law rights in a mark or having obtained or acquired copyright (either by authorship or assignment). The Court stated that 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. Secondly, with respect to the source of the claim, the Court recognized that the dispute arose purely out of contract. The issue of infringement of Eros’s copyright by Telemax was a finding of fact, which could be determined by an arbitrator. The Court distinguished this from a testamentary proceeding where a will is sought to be proved, or winding up proceedings that ensure for the entire body of creditors and similarly each category as set out in Booz Allen. Thirdly, the Court recognized that IP rights of various descriptions are dealt with or transferred through several commercial documents and transactions. These often contain an arbitration clause. If one were to completely remove IPR from arbitration, then in any of these cases, where IP 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 be void and non-est ab initio. The Court recognized that this would have to be so since the decision in Sukanya Holdings would not permit bifurcation of IP disputes. Finally, the Court ruled that the world of domestic and international commerce would not be prepared for the apocalyptic thermo-nuclear devastation that will follow a blanket bar on arbitrability of IP disputes. Recognizing the gravity of the remedy of arbitration, the Court ruled that the A&C Act is not one that should be easily short-circuited. The aforesaid judgments assist one in drawing the distinguishing line between issues involving rights in rem and rights in personam. They also imply that unless specifically barred, what a civil court can do, an arbitrator can do. Hence, ousting of arbitration should not be lightly assumed and efficacy should be accorded to commercial contracts when permitted by public policy. However, drawing this fine line can be challenging for courts and arbitral tribunals. IPRS: Right in rem are not arbitrable In another extensive judgment of the High Court of Bombay 6 months later in Indian Performing Right Society Ltd (IPRS),22 involving a copyright infringement dispute, the Court distinguished the judgment in Eros. In this case, Entertainment Network India Ltd (ENIL) operated private FM radio stations in various cities. IPRS was a Copyright Society established to monitor, protect and enforce the rights, interests and privileges of its 2500 members comprising authors, composers, film producers and publishers/music companies. IPRS granted non-exclusive licence to Entertainment to communicate to the public/publicly perform the works from the repertoire of IPRS from seven FM Radio Stations by making advance payments of licence fees before expiry of every 6-month period. Disputes arose when ENIL requested IPRS to refund the alleged excess amount paid by Entertainment. In turn, IPRS alleged that Entertainment had committed breach of the licensing terms by not announcing the names of composers and authors/writers after broadcast of each work from its Radio Stations. Entertainment contended that the broadcast of sound recording embodying the literary and musical works did not amount to use or exploitation of the copyright in Musical and Literary works and demanded refund. It stated that once the sound track was generated by the producers and/or music companies by hiring and/or employing the musician, lyric writers, etc, the copyright in such sound track/sound recording vests in the producers and/or the music companies alone. It was averred that since Entertainment only broadcasts the sound recording, no copyright belonging to the composers and lyricists, if any, were exploited and thus IPRS could not claim any royalty from Entertainment. The licensing agreement contained an arbitration clause and disputes were referred to arbitration. Amongst other issues, the arbitrator framed an additional question as to whether the use/broadcast of sound recording as such with the permission of the owner of the copyright in sound recording but without the permission of the owner of the copyright in literary work and/or musical work infringes the copyright in literary work and/or musical work. The arbitrator declared that Entertainment was not required to obtain a licence from IPRS for sound recordings as Entertainment had valid licence from the owners of copyright in the sound recordings. The Court set aside the award. It held that, by virtue of the award, IPRS had lost its locus in the ownership of copyright in sound recording. The rights of IPRS as a licensor were destroyed not only against ENIL but also against the world at large. A declaration of this nature had entailed a determination of the rights of IPRS in rem. It held that declarations of validity and ownership of in rem rights is exclusively reserved for public fora. Reading the issue with the contract and distinguishing from Eros, the Court held that the issue was a pure legal issue about existence of copyrights in musical/literary work and did not tantamount to a dispute in connection with the licence agreement. As such, the dispute was not arbitrable. The Court set aside the award on the ground that it violated the public policy of India. D. Statutory fora versus remedies Another issue in the debate concerning arbitrability of IP disputes is that of existence of special IP statutes and statutory fora for resolution. It is argued that these statutory civil fora and remedies oust arbitration by implication. In Eros, the Court was seized with the issue of special statutes versus the A&C Act. It was argued that the Copyright Act, 1957 and the Trade Marks Act, 1999 ousted applicability of the A&C Act since they expressly provided for courts that would have jurisdiction to adjudicate upon IP disputes arising under the statutes. In other words, it was argued that if a statute confers a right and provides for a remedy for its enforcement, the remedy provided by the statue is an exclusive one. The Court rejected this contention and observed that these so-called ‘intellectual property’ statutes could not be seen as statutes relating to rights that stand wholly apart from the general body of law. These are special rights to be sure, but they are, at their heart, a species of property and share much with the other forms of moveable and immoveable property. The Court held that the provisions outlining jurisdiction of certain courts in the IP statues merely define the entry level of such actions in judicial hierarchy. They confer no exclusivity and it is not possible from such sections, common to many statutes, to infer the ouster of the A&C Act. The Court emphasized that such provisions did not themselves define arbitrability or non-arbitrability. For that, regard must be had to the nature of the claim made. This is significant to enable the arbitral tribunal to operate as a forum alongside the court system. Further, Courts have recognized that a forum is distinct from a remedy. Arbitral tribunal is a forum for resolution—available in parallel with courts, unless expressly barred. An arbitrator can provide a range of civil remedies akin to courts arbitration such as permanent injunction, damages, specific performance and declaration of infringement (as opposed to ownership or validity) of IP. E. Stage at which arbitrability is tested Lastly, it is important to assess the provision under which the issue of arbitrability is raised. This issue could arise at the time when a party makes an application to court under section 11 of the A&C Act for appointment of an arbitrator (when the other party fails to so appoint or agreement does not provide a procedure for appointment); or at the time when a party makes an application to court under section 8 of the A&C Act (when in spite of arbitration clause a party approaches the court and the other party seeks reference of dispute to arbitration as per the arbitration agreement). Under section 11, the court would only need to prima facie assess if a valid arbitration agreement exists between the parties, before appointing an arbitrator. It would not embark upon an examining the ‘arbitrability’ of the dispute or appropriateness of adjudication by a private forum. This would be left to the arbitral tribunal. If the arbitrator wrongly holds that the dispute is arbitrable, the aggrieved party will have to challenge the award by filing an application under section 34 of the Act. However, under section 8 of the A&C Act in a pending suit, the court will have to decide all aspects of arbitrability of a dispute before referring parties to arbitration. At this stage, the court may not leave the issue to the decision of the Arbitrator. Hence, the stage of the proceedings influence the treatment accorded to the issue of arbitrability of a dispute. F. Enforcement of foreign awards Article V(2)(a) of the New York Convention provides that an arbitral award may be refused enforcement if the subject matter of the difference is not capable of settlement by arbitration under the law of ‘the country in which enforcement is sought’. As such, parties must consider arbitrability of IP disputes in the country of the opposite party or where they seek enforcement. In common law countries like Japan, USA, Australia and the UK, the works made for hire are recognized in the employment context by vesting the ownership rights of the creative works done during the course of employment with the employer. USA limits the definition of works made for hire to nine specific categories defined in its internal laws. However, Australia and the UK limit the application of the general rule to artistic and literary works. On the other hand, civil law countries such as France, Germany and China vest the initial ownership of such a work in the employees, but Chinese law provides for a mandatory 2-year licence to the employer by the employee. Moreover, German courts also provide for a contractual transfer of ownership of such work to the employer based upon an employment agreement. However, the employee author retains the moral rights, as they are inalienable once originally vested with the employee. Moreover, all three nations have specific exceptions for software, ownership of which vests in the employer. India does not recognize work for hire agreements for all works. In such scenario, an arbitral award dealing with a dispute relating to work for hire arrangements may not be enforceable under the Indian law where not applicable. G. Negotiation of contracts Appropriately drafted arbitration clauses often assure effective arbitrations. These ‘midnight clauses’ are fast assuming the place of sunrise clauses and require careful negotiation and drafting. Following are some key considerations. First, it is critical to anticipate the nature of dispute that could arise out of an IP agreement. Accordingly, parties must clearly and unequivocally delineate the scope of the arbitration agreement, ie the type of disputes that would be amenable to arbitration. A broadly worded clause such as ‘all issues arising out of or in connection with this agreement’ may only cover issues relating to breach or termination but not cover issues such as infringement post termination of the agreement. A narrowly worded clause setting out the types of disputes specifically with carve outs of arbitrable or non-arbitrable disputes might be effective in reducing litigation over scope of arbitration agreement. Parties may even decide not to subject the questions regarding the validity of the IP or the infringement of the IP to arbitration. Similarly, issues might be intrinsically linked. For instance, a licensor may terminate an agreement and allege infringement before court, in case the licensee continues to use IP. However, the licensee might allege that the termination is wrongful and approach the arbitral tribunal. Suitable arbitration clauses will need to be drafted to cater to such scenarios where one claim might be dependent on the other. Secondly, in an IP contract, two types of laws could come into play: the law governing the contract as chosen by the parties, and the law of the country where the IP rights originate. Operation of the latter law appears natural since issues of infringement and validity will be best addressed by the law of the originating country. The governing law clause must be drafted accordingly to reduce conflict. For instance, in the event of transfer of copyright under the Indian Copyright act, non-use of the copyright within a year of transfer results in automatic return of copyright to the owner of copyright. In the event, parties to the agreement choose governing law of UK, such deeming provision will not operate under English law as it does under Indian law. This might result in conflict, in as much as a party would seek application of Indian law being the law of origin of copyright, while other party might seek application of English law being the law governing the contract. Such jurisdictional peculiarities might hinder the enforceability of the resultant award. Such peculiarities can be catered to by appropriately drafting the governing law and arbitration clauses. Thirdly, seat of arbitration determines arbitrability of the dispute and enforceability at the seat. Likewise, while drafting contracts imbibing subordinate rights and arbitration clause, the end result of enforceability of an arbitral award by compliance with public policy must always be kept in sight. V. Conclusion An analysis of the Indian judgments on the issue of arbitrability of IP disputes sheds light on four key features, as follows: First, Indian courts no longer adopt a blanket prohibition on arbitrability of disputes placed traditionally within the domain of courts. Secondly, Indian courts have refrained from sidestepping the agreed remedy of arbitration on the ground of existence of special statutes and statutory civil remedies to resolve IP disputes. Thirdly, the question of arbitrability depends on the nature of the claim and the rights involved. Questions regarding validity of IP or declaration as to ownership of IP involve questions in rem—they point towards determination of right against everyone. However, IP disputes arising from commercial arrangements for the use of IP, or determination of infringement of intellectual property, without involving a determination on who owns the IP or whether the IP is valid, could be amenable to arbitration since they involve adjudication of the rights between the concerned parties. Fourthly, the source of the claim and a clear scope of reference are critical to make disputes amenable to arbitration. Disputes falling within the scope of arbitration and not linked with those falling beyond the scope can be resolved via arbitration. Failing the above, bifurcation of disputes for adjudication by a court and by an arbitrator may not be permissible. Where IP rights form the backbone of commercial agreements, substantial attention should be paid to drafting of dispute resolution clauses to ensure effective resolution as discussed above. Where arbitration is a preferred remedy, parties must be mindful of several considerations. Rights involved in the transaction, nature of disputes that could arise therefrom, efficacy of litigation over arbitration and vice versa, third party involvement, arbitrability of the potential disputes, scope of disputes referable to arbitration, conduct of parties post termination of the agreement, choice of seat, governing law, law of origin of the IP, law of the jurisdiction where the award could most likely be enforced—all these factors are vital considerations for parties. Where IP forms the backbone of the business itself, choice of a resolution mechanism is often a business decision. Time and costs could be critical, along with expertise of the judges or arbitrators deciding on the merits of the disputes. The manner in which parties can tailor-make the arbitration agreements will play a key role in shaping the destiny of an IP dispute. Equally significant is to understand the public policy of nations, which shape the rights and remedies for their people and renders an arbitral award enforceable. Courts in India are laying down an edifice for alternative dispute resolution in IP disputes, particularly in instances where the rights involved are rights in personam. The analysis of Indian jurisprudence demonstrates a shift in the traditional position that IP rights ought to be safeguarded by courts alone. Therefore, it would be a matter of sound legal analysis as well as informed commercial judgment to adopt a suitable dispute resolution mechanism in commercial contracts that involve IP rights. Footnotes 1 Agreement on Trade Related aspects of Intellectual Property Rights, 1995 2 The project was undertaken in collaboration with the Delhi State Legal Services Authority 3 s 89 of the Indian Code of Civil Procedure, 1908: Settlement of disputes outside the Court: (1) Where it appears to the court that there exist elements of a settlement which may be acceptable to the parties, the court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observation of the parties, the court may reformulate the terms of a possible settlement and refer the same for: (a) arbitration; (b) conciliation (c) judicial settlement including settlement through Lok Adalat; or (d) mediation. 4 Bawa Masala Company v Bawa Masala Pvt. Ltd. & Anr. 2007 (97) DRJ 541. 5 Francis Russell, Russell on Arbitration (22nd edn, 2002), 28, para 2.007. 6 Indian Performing Right Society Ltd. v Entertainment Network (India) Ltd., Arbitration Petition Nos 341 of 2012 and 1017 of 2012 (Bombay). 7 Lord Mustill and Stewart C Boyd, Commercial Arbitration, Companion Volume (2nd edn, Butterworths 2001) 73. 8 ibid. 9 Lord Mustill and Stewart C Boyd, Law and Practice of Commercial Arbitration in England (2nd edn, Butterworths 1989). 10 art 48, A&C Act. 11 Booz Allen & Hamilton v SBI Home Finance Ltd. & Ors. (2011) 5 SCC 532. 12 ibid, para 21. 13 ibid, para 22. 14 ibid, para 23. 15 Mustill and Boyd (n 7). 16 Olympus Superstructures Pvt Ltd v Meena Vijay Khetan & Ors. 1999 (5) SCC 651. 17 Sukanya Holdings Pvt. Ltd. v Jayesh H. Pandya AIR (2003) SC 2252. 18 Ministry of Sound International Ltd. v Indus Renaissance Partners Entertainment Pvt. Ltd (2009)1 ArbLR 566. 19 Eros International Media Limited v Telemax Links India Pvt. Ltd. Notice of Motion No 886 of 2013 in Suit No 331 of 2013. 20 R.K. Productions Pvt. Ltd. v NK Theatres Pvt. Ltd. (2014) (1) ArbLR 34 (Madras). 21 Steel Authority of India Ltd. v SKS Ispat & Power Ltd. & Ors. Notice of Motion (L) No 2097 of 2014 in Suit No 673 of 2014. 22 See n 6. © The Author(s) 2019. Published by Oxford University Press. All rights reserved. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)
TI - Arbitrability of intellectual property disputes: a perspective from India
JF - Journal of Intellectual Property Law & Practice
DO - 10.1093/jiplp/jpz072
DA - 2019-08-01
UR - https://www.deepdyve.com/lp/oxford-university-press/arbitrability-of-intellectual-property-disputes-a-perspective-from-3w0O3wMwuD
SP - 632
VL - 14
IS - 8
DP - DeepDyve
ER -