Arbitration as a resolution mechanism in intellectual property disputes

A dispute is considered arbitrable if:

(i) it is covered by the Arbitration Agreement;

(ii) parties refer the dispute to arbitration, in accordance with governing procedure; and

(iii) it is capable of adjudication and settlement by arbitration.

Thus, if the parties have entered into an Arbitration Agreement and if they refer the dispute to arbitration in the manner agreed or provided under law, the dispute can be adjudicated through arbitration, provided that the dispute is capable of adjudication and settlement by arbitration.

The Arbitration and Conciliation Act 1996 (1996 Act), though does not expressly classify any disputes as “not arbitrable”, it provides that an arbitral award will be set aside if “the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force”. Generally any civil or commercial dispute, whether arising from a Contract or otherwise which can be decided by a Court, is capable of resolution by arbitration.  However certain disputes are considered as incapable of such resolution.

Disputes considered incapable of settlement by arbitration: The Supreme Court has laid down that disputes, the adjudication of which are reserved by legislature exclusively by public fora either expressly or by implication would be excluded from purview of private Fora/arbitration.  Disputes relating to rights and liabilities which give rise to or arise out of criminal offences; matrimonial disputes; guardianship matters; Insolvency and Winding-up matters; testamentary matters; and eviction or tenancy matters governed by special statute, have thus been held as non-arbitrable.

Further cases for enforcement of rights in rem i.e., determination of right exercisable against the world at large (as contrasted with actions in personam which is confined to determination of rights of parties only), are not arbitrable. For instance, enforcement of mortgage being in respect of a right in rem is held not arbitrable. However disputes relating to subordinate rights in personam arising from rights in rem remain arbitrable.

It emerges thus that even if the parties consent to refer certain disputes for arbitration, still the Arbitrator will not have jurisdiction over the matter if:

1. public fora is either expressly or even by implication confer exclusive jurisdiction; or
2. the action / claim is in rem or affects third parties who are not privy to the Arbitration Agreement.

Provisions Intellectual property legislations impacting arbitrability:

In India, under the Patents Act the jurisdiction to grant patent and to revoke the same is conferred in favour of the Controller and the High Court.  An application for grant of patent is in rem and can be opposed by “any person”. Whereas in a proceeding for revocation notice is required to be served only to persons appearing from the register to be proprietors of the patent or to have shares/ interests therein.    The Patents Act further provides that no suit for infringement or for declaration as to non-infringement of a claim of patent shall be instituted in any court inferior to District Court. It further specifies the nature/kind of reliefs that can be granted.Similar provisions exist in copyright and trademark laws.

Such provisions examined in the light of law laid down by Supreme Court would indicate that intellectual property disputes involving in rem remedies, will not be arbitrable. Further, remedies for inter aliainfringement having been specified and public fora having been conferred exclusive jurisdiction to determine the dispute relating to intellectual property rights, the claim for infringement and damages may also not be considered as arbitrable.

Judicial View:

There does not appear to be any decision by the Supreme Court on the subject. Although in a case the Supreme Court, while considering whether mere allegation of fraud by one Party against the other would suffice to exclude the subject matter of dispute from arbitration, has generally observed that inter alia the disputes concerning patent, trademarks or copyright are treated is non-arbitrable. The observation as to the disputes relating to patent, trademarks and copyright not being arbitrable, is based on legal commentary. With due respect, the case may not be an authority on the arbitrability of all disputes relating to patent, trademarks and copyrights including those involving infringement.

A Single Judge of Bombay High Court  took a view that provisions of Copyright Act, 1957 and Trade Marks Act, 1999 (did not confer exclusivity over the judicial fora specified by them. Ld.Judge also held that the intellectual property rights are not always “rights in rem” merely  because registration of a mark gives the registrant a right against the world at large and held that as between two claimants to a copyright or a trade mark in either infringement or passing off action, the action and that remedy (by way of injunction and damages) could only be an action in personam; and never an action in rem; finding as to infringement of intellectual property being a finding of fact could be arrived by the arbitrator. Ld.Judge held that unless specifically barred, what a Civil Court could do, could be done by an arbitrator.

Later another ld. Single Judge of the Bombay High Court has taken a view that the issue whether a claimant did not require to obtain license from the opposite party, affected the rights of the opposite party as a licensor not only against the claimant but also against the world at large; and therefore in the nature of an action in rem and consequently incapable of being settled by arbitration. The court relied on previous decision wherein a coordinate bench had taken a view that a suit for the reliefs against infringement and passing off, by their very nature did not fall within the jurisdiction of the arbitrator; that 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.

According to the author, considering that in an action complaining infringement against specific/identified party (who is bound by an arbitration agreement), the dispute does not involve third parties and may not constitute an action in rem. Therefore with due respect the view that the claim for injunction and damages could only be an action in personam appears to be more plausible.

Desirability of subjecting Intellectual Property disputes to arbitration:

Most of the commercial transactions whether they be joint ventures, takeovers, mergers etc. across a myriad of industries in manufacturing as well as service sectors involve some or other form of technology/ intellectual property transfer or licensing, and have arbitration clauses. In case of a disputes arising out of such agreements, particularly when such disputes, besides the claim over intellectual properties also involve other commercial aspects, it is inexpedient and cumbersome to refer the parties to fora designated under the legislation governing intellectual properties. Besides considering that arbitration can afford speedy, cost effective, expert adjudication of complex technical disputes, it is desirable that intellectual property disputes particularly those involving infringement of license are made arbitrable. There is no good reason to exclude intellectual property disputes, not involving any in rem adjudication, from arbitrability when parties agree to have recourse to arbitration.

To make the intellectual property disputes including infringement cases arbitrable, legislative intervention is called for. This can be achieved either by amending the law governing arbitration or the intellectual property rights, or both.

For instance, in Singapore, the International Arbitration Act, vide Section 11 expressly provides that “the fact that any written law confers jurisdiction in respect of any matter on any court of law but does not refer to the determination of that matter by arbitration shall not, of itself, indicate that a dispute about that matter is not capable of determination by arbitration”.  In other words, just because a set of written law requires that a matter be resolved by a particular tribunal or court would not of itself make that subject matter incapable of arbitration. In United States, contract involving a patent or any right under a patent containing a provision requiring arbitration of any dispute relating to patent validity or infringement arising under the contract, is made enforceable.

Conclusion:

In India also a legislative initiative making arbitration agreements for determination of disputes involving claim over intellectual property rights, would go a long way in making arbitration a preferred and effective tool for resolution of commercial disputes.