The question as to whether IPR disputes are arbitrable or not, has been around for quite some time now. With the growing trend of arbitration clauses being invoked to resolve IPR disputes, a better understanding of this concept seems to be imperative for lawyers. Keeping in mind that the range of activities that can be dealt using Intellectual property rights is ever increasing and only limited by the extent of human imagination. The courts in India although have tried to answer this question, subsequent judgements of various High Courts and the Supreme Court have made the answer increasingly complex and encrypted. While the courts on one hand uphold the sanctity of arbitration and have been constantly pushing it as an alternate dispute resolution mechanism they are not ready to budge on their authority or dissolve the powers vested in them. The Supreme Court in the case of Booz Allen and Hamilton v. SBI Home Finance, although laid down the broad logic governing the aforementioned question, its open ended explanation has left a lot of scope for interpretation and exploitation by lawyers. The judgement lays down that all disputes relating to rights in personam are considered to be amenable to arbitration and all disputes relating to rights in rem required to be adjudicated by courts and public tribunals, are unsuited for private arbitration. This judgement while creating this distinction also makes a rather vague observation about disputes relating to sub-ordinate rights in personam arising from rights in rem being arbitrable without mentioning proper jurisprudence to explain it. O.P. Malhotra in his book 'The Law & Practice of Arbitration and Conciliation' explicitly holds some disputes as non-arbitrable:
- Patent, trademarks and copyright.
- Antitrust/competition laws.
- Insolvency/winding up
- Criminal matters.
The rationale behind this observation being that a judgment pertaining to a right in rem directly impinges the public policy of a country u/s 34 of the Arbitration and Conciliation Act, 1996 (hereinafter, ‘the act”).
The Supreme Court in Common Cause v. UOI had mentioned that a judgment on a Patent, Trade mark or Copyright is a judgment in rem which includes infringement of a patent or trademark or copyright etc. and the remedy against violation of such right in rem would be only before a Civil Court and not before an Arbitrator. The Delhi High Court on similar lines held in Mundipharma AG v. Wockhardt that claims arising out of copyright infringement are not arbitrable given that copyright is a statutorily granted right. On the contrary the Bombay High Court in the case of Eros International v. Telemax Media while deciding an application u/s 8 of the act, completely disregarded the question of non-arbitrability just because there was a question of copyright infringement involved. The judgement dwells on the supremacy of the parties’ will to arbitrate and discourages the courts stepping in to supersede this will. It creates a sub-category among IPR disputes pertaining to infringement claims, affecting only rights in personam and therefore being amenable to arbitration.
This stringent principle has further been diluted by various judicial pronouncements. The Supreme Court in the case of A. Ayyasamy v. A. Paramasivam where although the dispute was relating to a right in rem (i.e. adjudication of fraud) which can normally be done only by ordinary civil courts allowed an application u/s 8 of the act. The court observed that the allegations of fraud were not that serious and could be taken care by the arbitrator as well. This shows a subjective approach of the courts towards arbitrability of matters pertaining to rights in rem. Further, the Madras High Court in the case of Lifestyle Equity v. Q.D. Seatoman Designs specifically held that disputes pertaining to IPR are arbitrable when they don’t necessarily affect a right in rem. The court explained this analogy by citing an example of a dispute relating to patent licensing which may be arbitrable but not a dispute that questions the validity of the patent. Although in the dispute the question was in relation to a right in rem, it was observed that it pertained to only a better right of usage vis-a-vis the other and therefore in the present case it would fall only within the realm of a right in personam rather than a right in rem, bringing in the much required test of “facts and circumstances” into picture yet again.
The above trend showcases how the courts are aligning themselves further towards arbitration and deviating from the straight-jacket formula to ascertain the arbitrability of IPR disputes. They are relaxing the rule as and when they deem fit. An essential consideration being that it doesn’t impinge on their duty to act in accordance of public policy. The courts have to balance this duty of protecting rights in rem of individuals not being ascertained in a private forum with the duty of a tribunal to grant an enforceable award. They need to be extra cautious and vigilant while deciding an application u/s 8 of the act rather than holding it unenforceable u/s 34 after the tribunal has granted the award at a later stage. This in turn doesn’t lead to questioning the ‘competence’ of an Arbitration Tribunal u/s 16 of the act but supplements it by making sure that its ‘competence’ isn’t questioned in the future by the courts. Although this doesn’t mean that the Arbitration Tribunals can turn a blind eye towards the issue of subject-matter arbitrability while deliberating on the issue of jurisdiction, and passing an award that is subsequently set aside. Therefore, the courts need to be extremely judicious and cautious while deciding when to delegate their authority to a tribunal and to what extent.