Arbitrability of Intellectual Property Right (Trademarks & Copyrights) Disputes in India
The instant article deals with the arbitrability of the Intellectual Property Right (Trade mark & Copyright) disputes which have been time and again asserted as non-arbitral disputes via judicial precedents for the reason that the said disputes are disputes in rem.
The rights conferred on an IPR owner are considered as ‘right in rem’ as the same is right against the whole world protecting his property from the world and not just against one individual. This is in contrast to ‘right in personam’ that gives the person the right against one or specific individuals
Right in rem constitutes rights conferred by the statute, for instance, the right over a trademark conferred by the Trade Marks Act, 1999 to an individual gives the individual the right over title against anyone claiming any interest in the property. However, the right in personam is conferred by contracts or agreements between specific individuals conferring the right via the said agreement/ contract among themselves.
The distinction between actions in rem/ right in rem and actions in personam/ right in personam has been explained in the judgment of Hon’ble Supreme Court in Booz Allen and Hamilton Inc. vs. SBI Home Finance Ltd. and Ors. ( AIR 2011 SC 2507) and the same is as below:
“A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which 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, whereas actions in rem refer to actions determining the title to the 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. Correspondingly, judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right, or status, and judgment in rem refers to a judgment that determines the status or condition of the property which operates directly on the property itself. Generally, and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to sub-ordinate rights in personam arising from rights in rem have always been considered to be arbitrable.”
II. NON-ARBITRABLE DISPUTES CATEGORIZED BY JUDICIAL PRECEDENTS IN INDIA:
- Booz Allen and Hamilton Inc. vs. SBI Home Finance Ltd. and Ors. (AIR 2011 SC 2507)
The Hon’ble Supreme Court in the instant judgment clarified that there are certain categories of proceedings which are reserved exclusively for the courts to decide as to the matter of public policy and other categories which are not expressly reserved, however, by necessary implication stand excluded from the purview of private fora.
The instant judgment laid down the distinction between disputes which are capable of being decided by arbitration, and those which are not. The Court held that disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration.
The Court also laid down a non-exhaustive list of non-arbitrable matters that are:
- disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
- matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody;
- guardianship matters;
- insolvency and winding up matters;
- testamentary matters (grant of probate, letters of administration and succession certificate);
- eviction or tenancy matters 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.
- A. Ayyasamy vs. A. Paramasivam and Ors. (AIR 2016 SC 4675)
The Hon’ble Supreme Court, in the instant matter, mentioned that the disputes related to patent, trademarks, and copyright are generally treated as non-arbitrable.
- N.N. Global Mercantile Pvt. Ltd. vs. Indo Unique Flame Ltd. and Ors. (2021 (2) ALD 129)
A similar view was taken by the Supreme Court in the instant matter wherein the court held that “disputes relating to rights in rem are required to be adjudicated by courts and/or statutory tribunals. A right in rem is a right exercisable against the world at large. Actions in rem refer to actions that create a legal status such as citizenship, divorce, testamentary and probate issues, etc. A lis in rem is not arbitrable by a private tribunal constituted by the consent of parties. Actions in personam determine the rights and interests of parties to the subject matter of the dispute, which are arbitrable.”
- Vidya Drolia And Others vs. Durga Trading Corporation (2019 SCC Online SC 358):
The Hon’ble Supreme court propounded a four-fold test for determining when the subject matter of a dispute in an arbitration agreement is not arbitrable:
- when the cause of action and subject matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem
- when the cause of action and subject matter of the dispute affects third party rights; have erga omnes effect (meaning: towards all); require centralized adjudication, and mutual adjudication would not be appropriate and enforceable
- when the cause of action and subject matter of the dispute relates to the inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable; and
- when the subject matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s)
III. RECENT PRECEDENTS ANALYZING THE ARBITRABILITY OF IPR SUITS:
- Mundipharma AG vs. Wockhardt Ltd. [(1991) ILR 1Delhi 606]
The Hon’ble Delhi High Court in the instant case had interpreted the provisions of Chapter XII of the Copyright Act, 1957 relating to civil remedies in case of infringement of copyright. Every suit or other civil proceedings arising under that Chapter in respect of Infringement of copyright in any work or the infringement of any other right conferred by the said Copyright Act, 1957 shall be instituted in the District Court having jurisdiction. In the case where copyright in any work is infringed, the remedies by way of injunction, damages, account, and otherwise as are or may be conferred by law for the infringement of such a right, cannot be subject-matter of arbitration.
- Steel Authority of India Ltd. vs. SKS Ispat and Power Ltd. & Ors. (Notice of Motion (L) No. 2097 of 2014 in Suit No 673 of 2014)
The Hon’ble High Court of Bombay, in the instant case, has considered the application of the Defendants in an infringement suit filed by the Plaintiff who had claimed a permanent injunction against the Defendants from infringing the registered trademarks of the Plaintiff. The Plaintiff had also claimed for damages against the Defendants. The Defendants had filed a notice of motion under Section 8 of the Arbitration and Conciliation Act, 1996 relying upon the arbitration agreement admittedly entered into between the parties in that matter. The Court held that the said suit was for the reliefs against infringement and passing off, which by their very nature do not fall within the jurisdiction of the arbitrator. The rights to a trademark and remedies in connection therewith are matters in rem and by their very nature not amenable to the jurisdiction of a private forum chosen by the parties. The Court accordingly dismissed the said notice of motion filed under Section 8 of the Arbitration and Conciliation Act, 1996, by referring the parties to the arbitration.
- The Indian Performing Right Society Ltd. vs. Entertainment Network (India) Ltd. (MANU/MH/1597/2016)
The Hon’ble High Court of Bombay while rejecting the arbitral award passed in the matter held that “The learned arbitrator has rendered a finding on the legal character and validity of the ownership of the respondent in the copyright and thus the said award would be in the nature of an adjudication on an action in rem”.
- Hero Electric Vehicles Pvt. Ltd. & Anr. vs. Lectro E-Mobility Pvt. Ltd & Anr., (2021 SCC OnLine Del 1058)
In the aforementioned matter, Plaintiff had sought a decree of permanent injunction restraining the Defendants from dealing in electric bikes using the trademark “Hero”. The Defendants in response to the same filed an application for referring the matter to arbitration. The trademark was filed for registration when the Hero Exports was a partnership firm which was later divided amongst four family groups vide a Family Settlement Agreement (FSA) & Trade Mark & Name Agreement (TMNA).
The Hon’ble High Court of Delhi while allowing the matter to be referred to arbitration stated that the right asserted by the Plaintiffs is not a right that emanates from the Trade Marks Act, 1996, but a right that emanates from the FSA and the TMNA, and is not asserted vis-à-vis the whole world, but is asserted specifically vis-à-vis the F-4 Family Group.
- M/S. Golden Tobie Private Limited (Formerly Known As Golden Tobie Limited vs. M/S. Golden Tobacco Limited [CS (Comm) 178/2021]
The facts of the aforementioned matter are that the parties entered into a Master Long Term Supply Agreement dated 16.08.2019 by which the Defendant on an exclusive basis had supplied to the Plaintiff the exclusive brands of the Defendant. Subsequently, the Plaintiff entered into a trademark license agreement dated 12.02.2020.
On 14.08.2020, the Defendant issued the termination notice. The termination communication dated 14.08.2020 was withdrawn and an amendment agreement dated 29.08.2020 was entered into between the parties. Subsequently, on 13.02.2021 by another termination notice, the Defendant company stated that timely payment had not been made in terms of the agreement. The Defendant terminated the agreement dated 12.02.2020 and the amendment agreement dated 29.08.2020 with immediate effect and the Plaintiff was to have no right to manufacture and sell the exclusive brands of the Defendant in the market from that point onwards.
The Defendant filed an application seeking reference of the matter to arbitration as the arbitration clause existed in the License Agreement executed between the parties.
The Hon’ble High Court of Delhi while allowing the application to be referred to the arbitration stated that “The right that is asserted by the plaintiff is not a right that emanates from the Trademark Act but a right that emanates from the Agreement dated 12.02.2020 and the amendment agreement dated 29.08.2020. The assignment of a trademark is by a contract and not by a statutory act. It does not involve any exercise of sovereign functions of the State. It cannot be said that the disputes are not arbitrable.”
In the light of the above discussions, it can be said that if the crux of the dispute is an intellectual property right (right in rem), it is not arbitrable. But, if the dispute is something other than the intellectual property right per se, the same may be arbitrable. Therefore, the courts will analyse the facts and circumstances of each case to arrive at the appropriate conclusion.