Introduction
Arbitration has evolved over the last few years as a preferred mode for resolving commercial disputes. In general, arbitral tribunals can adjudicate any civil or commercial dispute, provided that (a) the dispute is covered under the arbitration agreement, (b) referred to arbitration by the parties involved and (c) is capable of being resolved by arbitration i.e., the subject matter of the dispute is arbitrable.
The scope of “subject-matter arbitrability” in India is not covered under any specific legislation including the Arbitration and Conciliation Act, 1996 (Arbitration Act). In India, the judiciary has played a pivotal role in providing clarity on the issues surrounding the arbitrability of certain disputes, including disputes relating to intellectual property rights (IPR). As, IPR disputes are increasingly being arbitrated through international mechanisms such as the World Intellectual Property Organization[i], the question of whether IPR disputes can be arbitrated in the Indian context becomes relevant.
Subject-matter arbitrability vis-à-vis IPR
The arbitrability of IPR disputes has been a matter of concern in India, mainly because the statutes such as the Copyright Act, 1957[ii], the Patent Act, 1970[iii], etc., mandates that district courts have exclusive jurisdiction to decide infringement matters. This led to a confusion, as it was commonly interpreted that IPR disputes cannot be resolved through arbitration. To fully understand the issue of arbitrability of IPR disputes, one may refer to the various judgments of the Indian courts on this matter.
The ‘arbitrability of disputes’ was addressed by the Supreme Court of India (SC) in Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. and Ors., (Booz Allen), where the SC compartmentalized a few subject matters as arbitrable and non-arbitrable on a ‘rights-based approach’. The SC held that disputes are incapable of being resolved through arbitration when the matters are reserved by the lawmakers to be determined exclusively by a public fora.
The SC explained that traditionally, disputes related to right in personam (exercisable against specific individuals) are amenable to arbitration, while disputes related to right in rem (exercisable against the public) are required to be adjudicated by courts or public tribunals, although there are exceptions, such as the subordinate right in personam (exercisable against individuals but arising from a right in rem) which have always been considered as arbitrable. Further, the SC provided examples of various disputes that it considered to be non-arbitrable such as disputes relating to criminal offenses, matrimonial disputes, guardianship matters, insolvency and winding-up matters, testamentary matters, and eviction or tenancy matters governed by special statutes.
Thereafter, the SC in the case of Vidya Drolia and Ors. v. Durga Trading Corporation (Vidya Drolia) has prompted a fresh look at non-arbitrability of disputes in India. In this case, it was held that a dispute relating to tenancy governed by the special statutes, where the tenant enjoys statutory protection against eviction, is non-arbitrable. The SC noted that the rights of a tenant in such dispute are not purely contractual in nature but arises from a statute that confers special protections to the tenants. The court specified the following four instances where disputes will not be arbitrable:
(a) when the statute barred the subject matter from arbitration;
(b) when the subject matter or cause of action related to right in rem;
(c) when it affected third party rights; and
(d) when it related to inalienable functions of the State.
While questions regarding arbitrability of disputes were dealt with in Vidya Drolia and Booz Allen case, the arbitrability of IPR disputes was specifically addressed in the case of Eros International Media Limited v. Telemax Links India Pvt. Ltd. and Ors. (Eros International). The Bombay High Court held that disputes relating to IPRs arising out of an agreement are arbitrable, if the agreement contains an arbitration clause. The case concerned Eros, who owns copyright in several feature films, and Telemax, which had marketing and distribution rights in the films. Eros filed a suit for copyright infringement against Telemax to have exploited the content. Telemax filed an application under the Arbitration Act stating that all disputes between Eros and Telemax be referred to arbitration, which was allowed by the court. The court held that the provisions of the Copyright Act and the Trademarks Act do not oust the jurisdiction of an arbitral panel.
Eros International widened the scope of arbitration, allowing for disputes related to intellectual property to be arbitrable if the contract contains an arbitration clause, and the arbitrator is capable of granting the requested relief. This case expanded the Booz Allen test and upheld arbitration clauses in various agreements related to intellectual property, including mergers, acquisitions, joint ventures, technology transfer, licensing, and more. However, there may be limitations in cases where a third party distributes copies without authorisation, as an arbitrator may not be able to restrain third parties from using such copies.
The Delhi High Court also in the 2021 case of Golden Tobie Private Limited v. Golden Tobacco Limited (Golden Tobie), ruled that disputes involving trademarks are arbitrable and can be referred to arbitration. The court made this determination while considering a case of breach of a trademark licensing agreement. The court referred to the fourfold test propounded in Vidya Drolia. The court held that trademarks were a species of property rights and that an arbitrator was empowered to do what a civil court could do.
In January 2023, the Delhi High Court passed a judgment in M/s. Liberty Footwear Company v. M/s. Liberty International (Liberty v. Liberty), reiterating that subordinate rights in personam are amenable to arbitration, while disputes arising out of right in rem are required to be adjudicated by the courts and public tribunals. The case involved M/s. Liberty Footwear Company (Liberty Footwear) alleging that M/s. Liberty International (Liberty International) was unauthorizedly using its trademark ‘LIBERTY’. Liberty International moved an application requesting that the parties be referred to arbitration in accordance with the arbitration clause under the Partnership Deed.
The High Court held that the suit did not relate to an issue of the “grant or issue or registration of a trademark”, but rather concerned the enforcement of a right, not against any third party, but someone who claims a right to use the trademark under or through the registered proprietor of the trademark, and therefore relates to a subordinate right in personam. Accordingly, Liberty International’s application to refer the parties to arbitration under the Arbitration Act was allowed in accordance with the arbitration clause under the Partnership Deed.
Our thoughts
In recent years, Indian courts have passed a series of judgments aimed at expanding the scope of arbitration. Essentially, if a contract related to intellectual property allows for arbitration and the arbitrator has the power to grant the relief sought by the claimant, the dispute is considered as arbitrable. This approach goes beyond the test laid out in Booz Allen.
Courts have consistently recognised and respected the commercial intent of parties to be resolved through arbitration, such as disputes in relation to intellectual property licensing. This pro arbitration approach of Indian courts is reflected in the Bombay High Court judgment of Eros International, and also in the Delhi High Court judgments of Golden Tobie and now in Liberty v. Liberty.
However, it is worth noting that this approach isn’t a universal rule. In cases where a third party engages in an unauthorized distribution of copies, the arbitrator is incapable of restraining such third parties from using those copies and the same would be adjudicated by the courts.
Authors: Renjith Nair and Altamash Qureshi
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[i] The WIPO Arbitration and Mediation Rules
[ii] Section 62 of the Copyright Act, 1957
[iii] Section 104 of the Patent Act, 1970