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Courts and legislatures have devised arbitration to complement and aid legal procedures. By removing procedural barriers, it speeds up case disposition and improves access to justice. Bilateral and multilateral treaties (including arbitration clauses) serve as dispute resolution centres for cross-border conflicts. As a result, arbitration is still the greatest option for resolving commercial conflicts today. This is mostly due to party autonomy, forum neutrality, and international enforcement finality. Arbitration in IP disputes, on the other hand, is different. The question is whether all IP disputes in all jurisdictions are arbitrable.
Arbitration in IP Disputes
IP covers a wide spectrum of property rights that allow intangible and valuable assets, such as creative expressions, industrial inventions, and commercial names, to be protected, shared, and transferred. Arbitration has been used to settle intellectual property issues since the 19th century. For example, in Sweden, an 1834 Royal Ordinance required arbitration for patent oppositions, while in the United Kingdom, legal practitioners urged arbitration for patent disputes as early as 1855.
Despite these early examples, arbitration for intellectual property issues was not extensively employed until the late twentieth century. As a result, IP issues have always been viewed as non-arbitrable. Traditionally, disputes over intellectual property rights have been resolved primarily through national courts. Many legal systems previously prohibited the arbitration of IP disputes since the rights were conferred by a sovereign power. And the reasoning was that because of the nature of the rights, only the authority that issued the right should rule on their validity. In theory, an arbitral tribunal can rule on any matter that can be decided by a court, with the exception of a few that are not regarded as “arbitrable.” Certain subjects are reserved for the court alone by a jurisdiction’s public policy. IP lawyers sometimes appear to believe that arbitrating IP disputes will always result in objective arbitrability difficulties. Non Arbitrability is a reason for the non-enforcement of arbitral awards under the New York Convention, as well as a reason for setting aside an award under numerous national legislation. The lack of differentiation between local and foreign arbitration, as well as the absence of clear laws dealing with IP arbitration in most jurisdictions, has sparked this debate.
Arbitrability of any subject matter, including IP issues, is determined by a country’s public policy to arbitrate, and whether or not an IP dispute should be arbitrated varies by jurisdiction. Extraterritorially, country legislation that allows for the protection of IP rights, such as patents that need registration, does not apply. However, international arbitration provides, in theory, an attractive alternative to litigation for resolving cross border IP disputes. IP disputes, such as those involving the scope of an IP licence, IP infringement disputes, and disagreements over the validity of IP rights, can be submitted to arbitration if they arise out of or in connection with an agreement that also contains an arbitration clause.
However, because of the nature of IP disputes, there is a territoriality issue. This territoriality notion is fundamental in IP issues. Intellectual property rights are limited to the area of the country where they were granted under the territoriality concept. The Investor-State Dispute Settlement (ISDS) system allows corporations to challenge regulatory measures (established by host nations to achieve certain societal goals) before international arbitration courts under a number of these investment agreements. Within the framework of the ISDS system, there is still room for the territoriality concept to be preserved. There are a number of ways in which the assetization of intellectual property and the ISDS system can negatively impact the principle of territoriality in International Intellectual Property Law (IIPL). The two +problems stated can be used as a yardstick to critically analyse the findings of the tribunals in Philip Morris v Uruguay in assessing if there is still potential for the maintenance of the principle of territoriality in IIPL within the ISDS system.
Hong Kong recently amended its Arbitration Ordinance, clarifying the arbitrability of IP issues in Hong Kong, on June 14, 2017. All disputes regarding the enforceability, infringement, subsistence, validity, ownership, extent, duration, or any other feature of an IP right would be arbitrable under the revisions. As a result, Honk Kong joins nations such as Switzerland and the United States in allowing disputes over the validity of intellectual property rights to be arbitrated.
IP Laws and Policy in India
Various existing domestic IPR laws in India have been amended from time to time to meet international obligations under the TRIPS. The Indian government approved its National Intellectual Property Rights (IPR) Policy on May 12, 2016. The policy’s main focus is on the slogan ‘Creative India, Innovative India,’ which has recently been aligned with various government initiatives and missions such as ‘Make in India,’ ‘Atal-Innovation Mission,’ ‘Start-Up India,’ and ‘StandUp India,’ all of which promote creativity, innovation, and entrepreneurship in the country. The stated Vision of this Policy is: ‘An India where creativity and innovation are stimulated by Intellectual Property for the benefit of all; an India where intellectual property promotes advancement in science and technology, arts and culture, traditional knowledge and biodiversity resources; an India where knowledge is the main driver of development, and knowledge owned is transformed into knowledge shared.’
Intellectual property rights are granted and regulated under various statutes and rules framed there under. The statues like; the Patents Act 1970 and the Patents Rules 2003, the Copyright Act 1957 and the Copyright Rules 2013, the Trade Marks Act 1999 and the Trade Marks Rules 2002, amended in 2017, which came into effect on 6 March 2017, the Designs Act 2000 and the Design Rules 2001, amended in 2014, the Geographical Indications of Goods (Registration and Protection) Act 1999 and the Geographical Indications of Goods (Registration and Protection) Rules 2002, the Semiconductor Integrated Circuits Layout-Design Act 2000 and the Semiconductor Integrated Circuits Layout-Design Rules 2001, the Protection of Plant Varieties and Farmers’ Rights Act 2001 and the Protection of Plant Varieties and Farmers’ Rights Rules 2003, amended in 2009, the Biological Diversity Act 2002 and the Biological Diversity Rules 2004; and the Intellectual Property Rights (Imported Goods) Enforcement Rules 2007.
Issue of Arbitrability in IP Disputes
The issue of arbitrability of IP disputes is worldwide. In India too, with the persistent strain between rights in rem and rights in personam results to believe that it is difficult to decide. Judicial trend also seems acute to judge. Infringements of trademarks, cross-licence infringements in patents, broad-casting copyrights issues, information and communication technology outsourcing issues, and so on are examples of IP disputes. Except for a few disputes that are not regarded “arbitrable,” the arbitral tribunal can rule on any dispute that can be decided by a court.
In the case of McDonalds India Pvt. Ltd. and Ors. vs. Commissioner of Trade & Taxes, New Delhi and Ors., the Hon’ble Delhi High Court described the Intellectual Property Rights, as the peculiarity of intangibles or incorporeal property, of the kind this court has to deal with, i.e. intellectual property, is that unlike real property, its boundaries are unset. These rights are only real and effective to the extent they enable the owner or transferee to “keep out” from use to those who are not permitted to do so.
In the case of GurukrupaMech Tech Pvt. Ltd. vs. State of Gujarat and Ors., the Hon’ble Gujarat High Court has defined the Intellectual Property as a negative right. The relevant extract is as under:
“The Intellectual Property Law is a negative right which means it is a right to exclude others from using the property generated by the registered owner. It is thus obvious that this law anticipates pre-emptive measures to prevent the misuse, as the property is intangible per se. Any reproduction in tangible medium becomes susceptible to misappropriation therefore, the statutory rights ought to be protected”
The owner’s IP rights, by their very nature, stand in opposition to the rest of the world, i.e. right in rem. However, in today’s commercial world, the IP landscape is writ large, with a web of other parties’ rights intermingled with the rights of the originator. These subordinate rights recognise the owner’s right and operate between two private parties without the involvement of the government. As a result, determining the arbitrability of an IP issue requires courts/arbitral tribunals to discern the fine line between rights in rem and subordinate rights resulting from those rights in rem. Arbitrability is not defined under Indian arbitration law. The landmark case of Supreme Court, Booz-Allen Hamilton v SBI Home Financein India, has summarised the conceptual jurisprudence regarding arbitrability. In this case, 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.
The Court also cited well-known non-arbitrable disputes, such as those involving rights and liabilities arising from criminal offences, matrimonial disputes involving divorce, judicial separation, restitution of conjugal rights, child custody, guardianship, and so on, but it did not specifically mention IP disputes.
The Hon’ble High Court of Delhi in the case of Mundipharma AG vs. Wockhardt Ltd., inter alia, held that the issue of infringement of copyright in the packaging of the product cannot be the subject-matter of arbitration as the Chapter XII of the Copyright Act, 1957 relating to civil remedies in case of infringement of copyright, and 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 Copyright Act have to be instituted in the district court having jurisdiction.
In Mustill and Boyd’s Commercial Arbitration, commentary 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.’
In another case, Madras High Court in 2017 in Lifestyle Equities C V v Q D Seatoman Designs (P) Ltd has more clearly dealt with the traditional in rem versus in personam debate. Herein, it was held that patent disputes can be arbitrable if the dispute is about the licensing of a patent or infringement of a patent, but a dispute challenging the validity of the patent will not be arbitrable.
The Court held in Eros International Media Limited v Telemax Links India Pvt. Ltd. and Ors. that a ‘IP Dispute arising out of a commercial contract, such as between two claimants to a copyright or a trademark in either an infringement or passing off action, that action and that remedy can only ever be an action in personem, and thus such IP disputes are arbitrable in nature.’ It was pointed out that Section 62(1) of the Copyright Act should not be interpreted as removing an arbitral panel’s jurisdiction.’ Despite the existence of an arbitration clause in the contract, the Bombay High Court in Steel Authority of India Ltd. v. Engineers Project India Ltd., in 2014 considered an issue of trademark infringement and ruled that the conflicts were not arbitrable.
In another case of EuroKids International Private Limited vs. Bhaskar Vidhyapeeth Shikshan Sanstha, the Hon’ble Bombay High Court adopted a different approach than the above case and while entertaining a petition under Section 9 of the Arbitration Act, restrained the respondents from using the trademark and copyright of the petitioner. In the said case, the Hon’ble Court observed that since there is no dispute about the petitioner’s ownership of the trademark and copyright involved in the present case, therefore, the proceedings filed by the petitioner cannot be considered as proceeding in rem. Thus, the Hon’ble Court allowed the petition filed by the petitioner to restrict the respondent from breaching the terms of the franchise agreement entered between them.
In the year 2016, the Hon’ble Supreme Court in the case of A. Ayyasamy Vs. A. Paramasivam and Ors., while deciding that the mere allegation of fraud is not sufficient to detract from the obligation of the parties to submit their disputes to arbitration, referred to the book written by O.P. Malhotra on ‘The Law & Practice of Arbitration and Conciliation’, Third Edition, authored by Indu Malhotra and quoted from the book as under:
Following categories of disputes are generally treated as non-arbitrable:
- patent, trademarks and copyright;
- antitrust/competition laws;
- insolvency/winding up;
- criminal matters.
There can be no dispute that in the said judgment there had been no discussion on the aspect of the arbitrability of the IPR disputes and the said observation with respect to the arbitrability of the IPR dispute came in the judgment due to the reference to the book authored by Mr. O.P. Malhotra. Further, the presence of the word “generally” in the said extract also supports the contention that there is no complete bar on the arbitrability of IPR disputes and the question of arbitrability has to be seen on a case to case basis.
National Intellectual Property Rights Policy of India, 2016 is a roadmap for the future of IP rights. Objective 3 of the policy is said to balance between the interest of the right holder and larger public interest. It has been suggested that existing IP laws be reviewed, and where necessary, updated and improved, or anomalies and inconsistencies removed in conjunction with stakeholders. In fact, an Indian IPR strategy may be considered inclusive if and only if it is successful in delivering long-term answers to the most pressing issues. It recommends that IP-related regulations, guidelines, procedures, and practises be reviewed and updated for clarity, simplification, streamlining, transparency, and time-bound processes in IP rights administration and enforcement. It suggests that the challenges of technological transfer, know-how, and licencing relevant to SEPs be examined on fair and reasonable terms, and that a legal framework to handle these issues be developed.The objective 4 of the Policy, suggests the administration of the Copyright Act, 1957 under the Department of Higher Education, and the Semiconductor Integrated Circuits Layout Design Act, 2000, under the Department of Electronics and Information Technology is being brought under the aegis of the Department of Industrial Policy and Promotion leading to synergetic linkage between various IP offices under one umbrella, streamlining processes, and ensuring better services to the users.
There is no rule of international law that prevents investment tribunals from adopting a broad interpretive approach when construing investment treaties. A broad interpretive approach will permit investment tribunals to incorporate relevant principles from other areas of international law such as international intellectual property law and international human rights law when deciding disputes between states and corporate actors. And this approach with public interest may lead to benefit in larger interest for a long period of time.