Arbitration: a declining power

The breakneck speed at which new technology is created requires fast legal recourse to protect the various intellectual property rights arising from it. Disputes can involve high stakes and niche technologies and IP, requiring competent economical and expeditious options for dispute resolution other than conventional litigation.

However, in order to understand those disputes, conventional courts lack technical knowledge of niche areas. Alternative dispute resolution methods have become a necessity and are often chosen as a speedy method of resolution.

IP suits have moved from being merely injunctive relief matters to requiring more layered investigations related to diverse IP including pecuniary damages and other reliefs. Arbitration statutes have been adopted and revised by most countries in line with the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, New York Convention and Geneva Convention. Therefore, a uniform understanding is required.

IP rights and other intangible assets have now become standard corporate assets of companies. Nowadays, most commercial transaction agreements relate to IP rights, meaning IP has become a norm in most commercial transactions.

One of the issues faced by the courts is the recent trend of the plaintiff asking a court to award damages at arbitration on the pretext of third parties not being a signatory to the arbitration agreement. This is a mischief often adopted by the plaintiff to build up pressure on the defendant, especially where one of the non-signatory parties is a reputed company.

This issue was settled by the Indian legislature by amending the arbitration statute in 2015. Section 8(1) of the Arbitration and Conciliation Act 2015 now reads as follows: “A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming though or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any court, refer the parties to arbitration unless its finds that prima facie no valid arbitration agreement exists.” In 2016, this was relied on by the Bombay High Court in Eros v Telemax, discussed in detail below.

When arbitration won’t work

The second significant issue the world has faced is whether IP can be arbitrated. Under the 1958 New York Convention, there are two heads under which a subject matter may not be considered capable of arbitration: first, when the agreement to arbitrate may be considered invalid, and second, when the IP dispute is such that it is a matter of public policy.

As such, if a class of dispute is not amenable to arbitration, an award made on such a dispute would be contrary to public policy and will result in an award that the arbitration is unenforceable. However, what would fall under the definition of public policy has differed at various times and is ambiguous.

"Justice Gupte, while ruling in favour of Telemax, (the defendant), held that there is no specific bar to the arbitration of IP disputes in any of the IP statutes."

In India we have witnessed varied observations in relation to arbitration of IP rights especially in cases which involve third parties not signed up to the arbitration agreement. The Indian Supreme Court, in a landmark case of Sukanya Holdings v Jayesh H Pandya in 2013, held that the meaning of the words “a matter” indicates that the entire subject matter of “the suit should be subject to arbitration agreement”.

However, at the same time bifurcation of the cause of action as being arbitrable and non-arbitrable has not been contemplated under the statute. Therefore, a case cannot be split thereby avoiding delays in the disposal of disputes, increases in cost of litigation, the parties being harassed and the possibility of having conflicting judgments and orders by two different forums.

In relation to balancing public policy/public interest vis-à-vis a dispute between two entities (in personam), the Indian Supreme Court in Booz Allen and Hamilton v SBI Home Finance & Ors held that a mortgage is a transfer of a right “in rem” and so must be dealt with by a court of law, not by arbitration.

Other decisions

On the flip side, in Eros before the High Court of Bombay, Justice Gupte, while ruling in favour of Telemax, (the defendant), held that there is no specific bar to the arbitration of IP disputes in any of the IP statutes. This judgment highlights that the parties cannot approach the court when they have contractually agreed to arbitrate.

The court said: “Where there are matters of commercial disputes and parties have consciously decided to refer these disputes arising from that contract to a private forum, no question arises of those disputes being non-arbitrable. Such actions are always actions in personam: one party is seeking a specific particularised relief against a particular defined party, not against the world at large.”

A dispute regarding the validity or grant of a registration is a right in rem, but the infringement, passing off or contractual breach is a right in personam and can be arbitrated, as it only binds the parties involved. A blanket ban on arbitration of IP disputes would be a great injustice specifically when there is a written agreement to the contrary. Gupte, with his literary flair, held that not allowing arbitration in IP matters would result in an “apocalyptic legal thermonuclear devastation”.

Further, IP rights are territorial and are primarily derived from the legal protection granted by the local sovereign power, which affords the grantee exclusive rights to use and exploit the right. It has been generally argued worldwide that disputes in relation to grant, validity, and extent of the rights granted should be determined only by the authority which granted the right or, in certain situations, by the courts of that country.

This had the effect that rights and entitlements to IP, and the legal issues which flowed from those rights, could not usefully be referred to or considered by an arbitration tribunal. However, this train of thought has gone through a massive metamorphosis.

The new type of IP disputes requires ‘new wineskins’ of alternative dispute resolution methods to keep pace with the ever-changing dynamics of IP subject matter. One of the numerous benefits of arbitration allows parties the choice of an arbitrator who is well versed in the technical/domain knowledge of the disputes.

This alone is a giant step towards easing the various hurdles such as long duration and high cost that hinder innovation. The sensitive nature of information relating to IP puts emphasis on the need for a confidential and neutral process.

However, somewhere down the line these objectives have also been diluted, as nowadays arbitration proceedings are becoming more costly because of the remote and inconvenient jurisdiction that the parties are compelled to agree to, high charges of arbitrators, cost of venue and specialised lawyers representing the parties. These have emerged as further challenges to overcome, which is in contradiction to what was envisaged by our respective legislatures while adopting arbitration as an alternative dispute resolution.

Mahua Roy Chowdhury is managing partner at  Solomon & Roy. She is a qualified attorney and a registered patent agent with around 20 years of experience. Chowdhury has successfully litigated matters related to copyright, patent and trademark infringement in various courts in India. She advises various national and multinational clients. She can be contacted at: mahua@solomonandroy.com