Arbitration is one of the popular and structured forms of Alternative Dispute Resolution mechanism in India. It is a way to avoid the court proceedings and arrive at settlements, without any judicial proceedings. The disputes under arbitration are decided by an arbitrator who renders the ‘arbitral award’, which is legally binding on both parties. Arbitration has become a preferred mode of settling commercial disputes. The very nature of an arbitration settlement is fundamentally different from a judicial proceeding in many aspects. Apart from being a much faster and more convenient form of dispute settlement when it comes to enforcement Arbitral awards unlike court judgments are not directly enforceable. The party seeking enforcement might have to resort to judicial remedies. While this fore mode settlement works perfectly for commercial and trade disputes come disputes cannot be trailed by arbitration. Therefore by their very nature, the subject matter of some disputes is not capable of being decided by arbitration. This is where the concept of “Arbitrability” comes in, what it means is whether the subject- matter of a dispute can be decided by an arbitral proceeding or not.
The New York Convention on the Recognition and Enforcement of Foreign Arbitral Award discusses the concept of arbitrability under Article II para 1, which states that each contracting State must provide for an agreement in writing regarding the Subject matter which would be capable of being settled by way of arbitration. Also, under Article V of the same convention paragraph (2) (a) states that recognition and enforcement of an arbitral award may be refused if the court where such recognition and enforcement is sought finds that the “subject matter of the difference is not capable of settlement by arbitration under the law of that country.” Therefore, Articles II and V of the New York Convention provide for the law of arbitrability as a ground for a court to refuse to recognize and enforce an award but are silent as to which law should govern the question of arbitrability at the pre-award stage.
ARBITRABILITY OF INTELLECTUAL PROPERTY DISPUTES
Arbitrability of Intellectual property disputes is one of the most contentious matters in Intellectual Property disputes which is mostly determined by the law of the country where the seat of Arbitration is determined or by the law of the country where the arbitral award is to be enforced. If we look at the traditional approach the Intellectual property disputes were mainly settled by the domestic courts of a country, because the subject matter of Intellectual Property disputes was connected directly to the public policy of a country, which lead to the notion that Intellectual Property disputes were not arbitrable. In the present scenario, the Intellectual Property rights are considered to be arbitral in most jurisdictions like in the United Kingdom, the United States and their domestic laws consider IP disputes to be subject to arbitration. In 2019, the Singapore government passed specific legislation regarding Intellectual Property Dispute Resolution. This has made Singapore a hub for IP dispute settlement apart from already the world’s preferred destination as an Arbitration hub of the world.
The concept of ‘arbitrability’ is believed to refer to three elements of an arbitral tribunal’s jurisdiction that must be met before an arbitral tribunal may rule on a matter. The first is that it relates to the capability of the subject matter of a dispute to be adjudicated and settled by a private arbitral tribunal chosen by the parties, as opposed to a public forum; the second is concerned with whether the dispute falls within or outside the scope of the arbitration agreement between the parties; and third, looks into whether there has been the proper reference of the disputes to arbitration, irrespective of the first and the second conditions having been fulfilled.
The World Intellectual Property Organization has a specialized center for technology and IP disputes called the WIPO Arbitration and Mediation Centre. This Arbitration and mediation center has been tailored specially to cater to IP disputes between private parties. The amount of Intellectual Property related disputes is continuously on the rise not only at WIPO but also, at other major arbitration institutions. This evident shift from litigation to arbitration of IP disputes is logical and expected – as IP-related disputes are inherently international, accordingly, arbitration is considered a more suitable and efficient dispute resolution method than litigation. The trend is expected to continue, with the number of IP disputes increasing given the importance of intellectual property to the global economy.
While Arbitration continues to be an attractive option for dispute resolution, the complication regarding the arbitrability of the subject matter remains a hindrance. This is especially true in the case of Intellectual Property disputes, because of the technical nature of such disputes. When there arises a dispute, there are usually many layers attached to it and the technicalities of the issue make it even more difficult to determine the jurisdiction of the subject matter. While it is true that there cannot be a blanket ban on the arbitrability of IP disputes, many countries do allow arbitration. What is to be determined in such a case is whether the right infringed is of the nature which can be decided by a private forum? The nature of the dispute plays an important role in determining the arbitrability of a dispute and it is also important to make sure that the right parties that are central to the dispute are approaching the tribunal.
ARBITRABILITY OF IP DISPUTES IN INDIA
The Indian Legislature has not formed any specific matters that can be considered to be non- arbitral, although Section 34(2)(b)(1) of the Arbitration Act, states that courts may set aside arbitral awards in those cases where the subject matter of the dispute cannot be settled through arbitration. This very clearly specifies that not all disputes can be arbitrable.
Resolution of Intellectual Property Disputes through Arbitration has obvious benefits when we compare it to Judicial Proceedings, especially in a country like India where Alternative Dispute Resolution would play an important role in decreasing the pendency of cases in an already overburdened judicial system. However, what is to be noted here is the fact that the Arbitration and Conciliation Act doesn’t solve the dilemma of subject matter which can be considered to be resolved by arbitration. Therefore, the arbitrability of any subject matter is determined by the country’s public policy.
The Supreme Court of India has played an important role in determining what can form the subject matter of an arbitral dispute. The Hon’ble Apex court in the case of Booz Allen vs. SBI Home Finance Ltd (2011) 5 SCC 532, established a test to determine the arbitrability of the subject matter and declared two categories that were completely outside the jurisdiction of arbitration.
- Nature of Dispute: The Supreme Court held that the dispute related to a right which is available to the person against the whole world i.e. Rights in Rem would not be considered a subject matter of arbitration whereas the disputes relating to Rights in Personam can form the subject matter of the arbitration.
- Relief Test: The second test of arbitrability is that if the dispute was reserved under a special type of statute to be under the exclusive jurisdiction of a specific court cannot form a subject matter for arbitration.
Since there is no specific provision for arbitrability of Intellectual Property Disputes in India, the principles applied by the Supreme Court in determining the Arbitrability in Booz Allean Case would also apply to IP disputes. Hence Relying on the principles of this case the Supreme Court in the case of Ayyasamy vs. Paramasivam (2016) 10 SCC 386 declared that disputes regarding Patents, Copyright and Trademark would not come under the purview of Arbitration as these rights are considered ‘rights in rem’. This is the leading case of many other IP disputes where the court ruled that Intellectual Property cannot be considered arbitrable like in the case of Mundipharma AG vs. Wockhardt Ltd. (1991) ILR 1 Delhi 606, where the court declared copyright cannot be considered to be a subject matter of the arbitration. Although the judgment in Ayyasamy had a profound impact on deciding the arbitrability of Intellectual Property disputes, it cannot be considered as a blanket bar on the arbitrability of IP disputes because ‘Fraud’ was also included in the list culled out in Ayyasamy, but the Supreme Court in the very same judgment said that the fraud-related disputes were arbitrable under certain circumstances. So, this judgment cannot be considered as a strict precedent and ratio decidendi on all the issues enumerated in the judgment, but rather just obiter dictum of the court on some of the issues.
Looking at these judgments of the Supreme Court, it can be derived that the arbitrability of a matter is determined by the nature of the dispute and as far as Intellectual property Rights are considered they have always been recognized as ‘rights in rem’, but the rights arising out of such rights in rem can be considered to ‘rights in personam’. For instance, the rights arising out of licensing agreements are rights in personam as they are guaranteed against one party and not against the whole world and thus can be considered as arbitrable as per the test laid down in Booz Allen. The subordinate rights created by such contractual relations are thus inter-party and can come under the purview of arbitration.
In a recent Bombay High Court judgment on Section 8 of the Arbitration and Conciliation Act, Justice Patel tried to deal with the issue of the subject matter of IPR disputes. In Eros International Media Ltd vs. Telemax Links India Pvt. Ltd. 2016 (6) BomCR 321, Justice Patel believed that infringement proceedings cannot be considered to be Right in Rem as they are never actions against the whole world but are targeted towards someone in particular and therefore, such proceedings will come under the purview of Rights in personam. Justice Patel observed that “…Even though the infringement action is founded upon a right in rem, the infringement action by itself is an action in personam…”
After the judgment of the Eros case, the Bombay High Court decided IPRS vs. Entertainment Network Ltd, Arbitration Petition Nos. 341 and 1017 of 2012 where it had to decide upon the legal character and validity of the copyright itself. The court in this case held that the question of validity and existence of Intellectual Property involves legal issues operating in Rem, because when an intellectual Property right is granted it is a right against the whole world, and the question as to its existence or non-existence would affect not only the parties but the whole world. Therefore, such a subject matter would not be suitable for arbitration.
In a recent decision of the Hon’ble Supreme Court in Vidya Drolia vs. Durga (2021) 2 SCC 1, the court formulated a similar opinion and laid down that actions in rem including grant and issue of patents and registration of trademarks are exclusive matters falling within the sovereign & government functions and are non-arbitrable. The court held that the present dispute did not pertain to infringement of a trademark, but was on the right to use the trademark conferred by a particular agreement on a particular group. Thus, the dispute between the parties was held to be arbitrable. Further, it was held that ‘the assignment of a trademark is by a contract and is not a statutory fiat’.
From the above discussion and analysis of the judicial case laws, it is evident that the arbitrability of Intellectual Property disputes is a web of different opinions but it is more or less dependent on the nature of the dispute and relief sought thereof. Although, there is no uniformity in the judgments and legislation when it comes to this issue what can be derived from the discussion is that Intellectual Property rights are Rights in Rem, but the sub-ordinate rights derived from these property rights can be rights in personam like infringement rights and they can form subject matter to arbitration.
Today we live in a world that is a Global Village where we have many complex commercials as well as public relations, and Intellectual Property Rights, as well as Arbitration, play a very important role in protecting individual rights from being easily violated in this globalized world. Still, the Arbitrability of Intellectual Property disputes is a very complex issue with no model law to govern it. There is no Blanket bar on the Intellectual Property disputes becoming the subject matter of arbitration, but these rights are also not considered to be an ideal subject of arbitration, because the IP rights have a more complex nature than private rights which usually are considered the ideal subject matter of the arbitration. There is no denying that Arbitration as a dispute resolution mechanism for Intellectual Property disputes has a very promising scope. Perhaps, the lack of legislation and precedents in this regard makes this process very difficult and complex. Moreover, the ambiguity of the Court’s decision on the matter further increases the confusion. There is an urgent need for codification of legislation, laws & rules to govern the process. Such legislation process will not only help resolution of disputes efficiently but also, clear the questions of jurisdiction in Intellectual Property Dispute, especially in a country like India where dispute pendency has become a grave concern.
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