I am pleased to bring to you our next guest post by Angad Singh Makkar. Angad is currently a 4th year student at Jindal Global Law School and had earlier written a post for us here. In this informative piece, Angad talks about the arbitrability of intellectual property disputes in India through a case by case analysis.
Over the past decade, the growth of arbitration as a dispute resolution mechanism in India has been astounding. Parties increasingly prefer to settle their disputes privately and swiftly through an arbitral tribunal, rather than suffer through the rigorous and time-consuming proceedings of Indian courts. However, the rise of arbitration has not been seamless and straight-forward, and time and again, it has raised numerous intriguing questions of law. Foremost amongst these has been the debate surrounding the arbitrability of intellectual property disputes in India. This question arises upon a perusal of Section 34(2)(b) of the Arbitration and Conciliation Act, 1996, which makes it clear that an arbitral award will be set aside if the court finds that subject-matter of the dispute is not capable of settlement by arbitration. Accordingly, ‘arbitrability’, for the purposes of this article, will connote the capability of the subject matter or nature of a dispute to be resolved by a private arbitral forum chosen by the parties, as opposed to it falling exclusively within the domain of public fora.[i] This article will undertake an analysis of the Supreme Court’s landmark judgment in Booz Allen and Hamilton v. SBI Finance (‘Booz Allen’), and trace judicial developments on the issue of arbitrability of intellectual property in India.
Booz Allen: Laying down the Determining Criteria
Though not directly dealing with the arbitrability of intellectual property disputes, the Apex Court’s thorough analysis of the notion of ‘arbitrability’ in Booz Allen has served as the foundation of eventual jurisprudence on this matter. Herein, the Court put forth down certain examples of non-arbitrable disputes – criminal suits, matrimonial disputes, guardianship matters, etc. – and observed that all these illustrations related to actions in rem. Essentially, a right in rem is a right exercisable against the world at large, whereas a right in personam is an interest protected solely against specific individuals. This distinction, which serves as the rule of thumb for ascertaining arbitrability, is quite sound, as it would be unjust to permit private adjudication of rights which affect non-parties to the dispute as well. However, as the Court keenly noted, this distinction should not function as ‘a rigid or inflexible rule’. Thus, disputes relating to sub-ordinate rights in personam arising from rights in rem were deemed to be amenable to arbitration as well. As shall be observed, this particular dictum was of great significance, as it paved the way for eventual judicial pronouncements affirming the arbitrability of certain intellectual property disputes.
Nonetheless, despite the aforementioned rationale, the Supreme Court in A. Ayyaswamy v. A. Paramasivam (‘Ayyaswamy’)[ii] expressly stated that disputes pertaining to patents, trademarks and copyright are non-arbitrable. The context of this observation (which was merely obiter), and the fact that it was a blind reiteration of a broad principle of arbitration law, is often overlooked. Instead, reliance has been placed on this observation to argue that intellectual property disputes are ‘inherently non-arbitrable’.[iii] This argument would fly in the face of the Bombay High Court’s ruling in Eros International v. Telemax Links India Pvt Ltd (‘Eros International’)[iv], where it clearly dismissed such outlandish contentions. A similar approach was recently adopted by the Madras High Court in Lifestyle Equities v. Q.D. Seatoman Designs (‘Lifestyle Equities’)[v] as well, with the Court acknowledging that the impugned paragraph from Ayyaswamy is not the ratio of the Supreme Court in that case. In this light, it would be inaccurate to suggest that intellectual property disputes are ‘inherently non-arbitrable’, and the Booz Allen distinction should continue to guide judicial determination of the arbitrability of intellectual property disputes on a case-by-case basis.
Judicial Developments Post-Booz Allen
In its aforementioned decision in Eros International, the Bombay High Court was directly faced with the issue of arbitrability of disputes relating to intellectual property. The Court made two extremely pertinent observations in this regard. Firstly, it dismissed the argument that the effect of Section 62 of the Copyright Act, 1957 and Section 134 of the Trade Marks Act, 1999, is to oust the jurisdiction of an arbitral panel. The effect of these provisions is simply to ensure that the actionable claims enumerated thereunder are not brought before the Registrar or the Board instituted under those legislations. Secondly, the Court commented upon the scope of the phrase rights in rem, and held that an infringement claim or a passing-off action can only ever be an action in personam, as it binds only the parties to it. The following example put forth by the Court elucidates the same:
A may allege infringement and passing off by B. A may succeed against B. That success does not mean that A must necessarily succeed in another action of infringement and passing off against C. The converse is also true. Should A fail in his action against B, he may yet nonetheless succeed in his action against C.
There is thus a clear-cut distinction between such actions in personam and the overlying right in rem, i.e. a registrant’s title in the mark or ownership of the copyright to bring that action in the first place. In clarifying this position, the Court correctly emphasized upon the inevitable overlap between commercial transactions and intellectual property in the modern world, and the irrationality of placing a blanket embargo on intellectual property disputes of all forms. This comprehensive decision was another step in the right direction from the Bombay High Court, which had earlier briefly mentioned that where there is no dispute about the trade mark and copyright of a party, proceedings to restrain illicit usage of those marks and copyright would not be in the nature of proceedings in rem (EuroKids International v. Bhaskar Vidhyapeth Shikshan Sanstha).[vi]
A case-by-case factual analysis of arbitrability of a dispute relating to intellectual property accordingly comes across as the most prudent judicial practice. This can be observed through another decision of the Bombay High Court, in The Indian Performing Right Society v. Entertainment Network (‘IPRS’)[vii]. Herein, the Court found that the reliefs claimed by the claimant were completely different from those claimed in Eros International, insofar as the claimant had challenged the respondent’s right to claim license or royalty in relation to certain works. Specifically, the issue framed was whether the use/broadcast of a sound recording as such/with the permission of the owner of the copyright in sound recording but without permission of the owner of the copyright in literary work and/or musical work infringes the copyright in literary work and/or musical work. Upholding an arbitral award pertaining to this issue would have affected not only to the parties to the action, but would have had implications for third-parties as well. Ergo, the Court deemed it to be in the nature of an action in rem.
However, the Hyderabad High Court failed to engage in a thorough factual analysis of this sort, in Impact Metals v. MSR India (‘Impact Metals’).[viii] Rather than scrutinizing whether the claims in this case amounted to an action in rem or proceedings in personam, the Court simply reiterated the illustrative list of non-arbitrable disputes put forth in Booz Allen. The absence of ‘disputes under the Copyright Act’ from this list was sufficient for the Court to declare that these disputes would not be included in the category of non-arbitrable disputes. This approach is as reprehensible as the blind categorization of all intellectual property disputes as non-arbitrable; as illustrated above through the Bombay High Court’s decisions in Eros International and IPRS, arbitrability of intellectual property disputes must necessarily boil down to a factual analysis of each case.
The seminal judgment in Booz Allen expertly put forth the distinguishing criteria to ascertain the arbitrability of any ilk of disputes in India. This action in rem v. action in personam test has been cogently applied by the Bombay High Court in the past few years to disputes related to intellectual property, with a case-by-case factual analysis being preferred over the imposition of a rigid rule. In doing so, the Court has selectively provided for expeditious arbitral recourse to parties to an intellectual property proceeding in pesonam (such as the infringement claims of an undisputed copyright-holder), while not trampling upon the rights of third parties by permitting arbitration of an action in rem. Attempting to lay down a hard-and-fast rule on the arbitrability (or non-arbitrability) of intellectual property disputes, as was inadvertently done in Ayyaswamy and erroneously stated in Impact Metals, is clearly not desirable. Therefore, Indian courts must ensure that parties to a dispute related to intellectual property are not deprived of the swift and private nature of an arbitral proceeding, if they so agree and if the Booz Allen test is satisfied.
[i] Booz Allen and Hamilton v. SBI Home Finance Ltd. AIR 2011 SC 5207
[ii] A. Ayyaswamy v. A. Paramasivam AIR 2016 SC 4675
[iii] Utkarsh Srivastava, Putting the Jig Saw Pieces Together: An Analysis of the Arbitrability of Intellectual Property Right Disputes in India, Arbitration International (2017).
[iv] Eros International Media Ltd. v. Telemax Links India Pvt. Ltd. 2016 (6) Bom CR 321
[v] Lifestyle Equities CV v. QD Seatoman Designs Pvt. Ltd. 2018 (1) CTC 450
[vi] EuroKids International Private Ltd v. Bhaskar Vidhyapeth Shikshan Sanstha 2015 (4) BomCR 734
[vii] The Indian Performing Right Society Ltd. v. Entertainment Network Ltd. 2016 SCC OnLine Bom 5893
[viii] Impact Metals Ltd. v. MSR India Ltd. & Ors. AIR 2017 AP 12