Arbitrability of Copyright Disputes

[The following
guest post is contributed by Aditya
Swarup
, who is an Assistant Professor at Jindal Global Law School. The
author would like to thank Shivprasad Swaminthan, Assistant Professor, Jindal
Global Law School and Angad Mehta, Advocate, for their valuable comments.]
In
the recently delivered judgment in
Eros
International Media Ltd. v. Telemax Links India Pvt. Ltd.
, the
Bombay High Court in effect held that a copyright dispute was a dispute “in
personam” and not ‘in rem’, that copyrights are not rights “in rem” and hence
arbitrable. While the judgment itself has far reaching implications on the
arbitrability of IPR disputes, and has probably reached the right conclusion, it
is respectfully submitted that the judgment muddles important distinctions
between rights in rem and personam, without sufficient grounding in
jurisprudence and reference to important texts.
In the case, the Plaintiff, the owner of copyright
in several films, entered into a “Term Sheet” with the Defendant with respect
to distribution of its films. The Term Sheet contemplated an exclusive
licensing contract and an execution of a “Long Form Agreement” and had a
standard arbitration clause stating that any dispute arising out of or in
connection with the Term Sheet shall be settled by arbitration by a sole
arbitrator. The Long Form Agreement was never executed and disputes arose as
regards the copyrighted content provided to the Defendant under the Term Sheet.
Accordingly, the Plaintiff filed a suit in the Bombay High Court and the
Defendant thereafter filed an application under Section 8 of the Arbitration
Act, 1996. It is pertinent to mention that the Defendant was not using the
copyright material anymore and therefore, the only relief that could be
provided was a claim in damages and for relief in terms of a permanent
injunction for the future.
Justice Gautam Patel allowed the Notice of
Motion under Section 8 of the Arbitration Act, 1996 and held that the disputes
were arbitrable. His reasoning was as follows:
(i)        The resolution of copyright disputes by
an arbitral tribunal does not take away or exclude the remedies available to a
claimant (para 14).
(ii)       As between two claimants to a copyright
or a trademark in either infringement or passing off action, that action and
that remedy can only ever be an action “in personam”. It is never an action “in
rem”. Copyright actions are actions “in personam”. (para 17).
(iii)      Holding otherwise would “result in
widespread confusion and mayhem in commercial transactions”. The Learned Judge
didn’t think that “the world of domestic and international commerce is prepared
for the apocalyptic thermonuclear devastation” that would follow holding otherwise.
It is respectfully submitted that all the above
three rationales are flawed.
Rights
“in Rem” and “in Personam”
The classic on the exposition of rights “in rem”
and “in personam” can be found in Salmond’s text on jurisprudence. He explains
the origin of the rights as under:
“The terms jus in rem and jus in personam
are derived from the Roman terms actio in rem and actio in personam. An actio
in rem was an action for the recovery of dominium; one in which the plaintiff
claimed that a certain thing belonged to him and ought to be restored and given
up to him. An actio in personam was one for the enforcement of an obligatio; on
in which the plaintiff claimed the payment of money, the performance of a
contract, or the protection of some personal rights vested in him as against
the defendant….”
Elsewhere he states:
“A right in rem is available against the
world at large; a right in personam is available only against particular
persons. The distinction is of great prominence in the law, and we may take the
following as illustrations of it. My right to the peaceful occupation of my farm
is in rem, for all the world is under a duty towards me to not interfere with
it. But if I grant the lease of the farm to a tenant, my right to receive rent
from him is in personam. …. A right in rem, then, is an interest protected
against the world at large; a right in personam is an interest protected solely
against determinate individuals… the law confers upon me a greater advantage in
protecting my interests against all persons than in protecting them only
against one or two. The right of a patentee, who has a monopoly against the
world, is much more valuable…”[1]
The exercise of a right in rem is meaningless
without a corresponding remedy. It is not plausible to suggest that a person
may have a right against the world in respect of a particular property but is
not able to claim the remedy against all. Rights in rem generally include
torts, crimes and property rights. Rights in personam mainly include contractual
rights.
Intellectual property rights, being a species of
property rights, are rights in rem. The right conferred on an owner of
intellectual property “binds the world”, and is enforceable against everyone.
The right holder has the exclusive right to certain activities (depending on
the intellectual property right in question) within the ambit conferred by law
and is therefore entitled to fight off any encroaching act by any person not
authorised by himself or by the law directly. It has also been argued that if
an unauthorised interfering/infringing act can be resisted by virtue of the
ownership status, then the performance of a contract which constitutes or
contains such an infringing act, can presumably also be resisted on the same
basis[2].
The ruling of the Hon’ble Court in Eros International that copyrights are
not rights in rem is made without reference to any authority though numerous
authorities exist to prove otherwise. In fact, the Madras High Court in Super Audio Madras P. Ltd. v. Entertainment
Network India (P) Ltd.[3]
,
has held (again without reference to authority) that orders of the Copyright
Board are orders in rem and bind third parties.
Arbitrability
of “Rights in rem” 
In Booze
Allen & Hamilton Inc. v. SBI Home Finance Ltd.,[4]

the Supreme Court held:
“35. …… Every civil or commercial
dispute, either contractual or non-contractual, which can be decided by a
court, is in principle capable of being adjudicated and resolved by arbitration
unless the jurisdiction of the Arbitral Tribunals is excluded either expressly
or by necessary implication. Adjudication of certain categories of proceedings
are reserved by the legislature exclusively for public fora as a matter of
public policy. Certain other categories of cases, though not expressly reserved
for adjudication by public fora (courts and tribunals), may by necessary
implication stand excluded from the purview of private fora…..
36. The well-recognised examples of
non-arbitrable disputes are: (i) disputes relating to rights and liabilities
which give rise to or arise out of criminal offences; (ii) matrimonial disputes
relating to divorce, judicial separation, restitution of conjugal rights, child
custody; (iii) guardianship matters; (iv) insolvency and winding-up matters;
(v) testamentary matters (grant of probate, letters of administration and
succession certificate); and (vi) eviction or tenancy matters governed by
special statutes where the tenant enjoys statutory protection against eviction
and only the specified courts are conferred jurisdiction to grant eviction or
decide the disputes.
37. It may be noticed that the cases
referred to above relate to actions in rem. A right in rem is a right
exercisable against the world at large, as contrasted from a right in personam
which is an interest protected solely against specific individuals. Actions in
personam refer to actions determining the rights and interests of the parties
themselves in the subject-matter of the case, whereas actions in rem refer to
actions determining the title to property and the rights of the parties, not
merely among themselves but also against all persons at any time claiming an
interest in that property. …
38. Generally and traditionally all
disputes relating to rights in personam are considered to be amenable to
arbitration; and all disputes relating to rights in rem are required to be
adjudicated by courts and public tribunals, being unsuited for private
arbitration. This is not however a rigid or inflexible rule. Disputes relating
to subordinate rights in personam arising from rights in rem have always been
considered to be arbitrable…”
Gary Born states that the types of disputes
which are non-arbitrable nonetheless almost always arise from a common set of
considerations. The non-arbitrability doctrine rests on the notion that some matters
so pervasively involve public rights, or interests of third parties, which are
the subjects of uniquely governmental authority, that agreements to resolve
such disputes by ‘private’ arbitration should not be given effect.
On the same lines, the reason some matters could
be considered non-arbitrable is because of the inability of a private arbitral
tribunal to grant remedies and pass awards/orders in rem, i.e. orders that bind
third parties. Copyright is a case of this kind. A finding that a person is an
owner of a copyright means that he is the owner as against all persons. For
instance, if “A” is the owner of a movie and “B”, a distributor, is responsible
for making unauthorized copies of the movie and supplying others and selling
the CDs, “A” can not only seek to restrain (and claim damages) “B” but all such
persons in possession of the unauthorized copies. In case “A” and “B” entered
into a contract for distribution and such contract was breached by “B” and “B”
distributed unauthorized copies to others, an order of restraint against third
persons cannot be passed by an Arbitral Tribunal.
Does
this then mean that all intellectual property disputes are non-arbitrable?
Despite being considered rights in rem,
intellectual property disputes are arbitrable across the common law world.
In the US, the arbitrability of patent disputes
is covered under 35 U.S.C. § 294. In the case of copyrights, in Kamakazi Music Corp. v. Robbins Music Corp.,[5]
the Court of Appeals endorsed the arbitrability of copyright infringement
claims where copyright validity was not in issue. There have been a few other
cases where the Court has held that arbitration is possible even when the
validity of the copyright is in issue if the matter arises out of a copyright
license suit.[6]
The arbitrability in this sense is also dependent on the remedies and is
limited to such remedies as can only possibly be granted by an arbitral
tribunal. In Canada, the Supreme Court in Desputeaux
v. Éditions Chouette (1987) inc[7]

stated that copyright disputes are arbitrable as long as the orders are not
against or intended to bind third parties. Thus, the Courts have drawn a
crucial distinction between copyright issues where the issue related to the
right in rem and the claim made thereunder and an issue arising out of a
contract where the remedy is restricted to the parties in the arbitration.
Similar is the position in England.[8]
In fact, this approach takes a leaf out of
Salmond’s book. Salmond states “My right
to the peaceful occupation of my farm is in rem, for all the world is under a
duty towards me to not interfere with it. But if I grant the lease of the farm
to a tenant, my right to receive rent from him is in personam..”
Similarly,
while the holder has a copyright against the world, a license granted without
respect to the copyright and the right of the owner to receive license fees
therefrom or to claim damages for any breach against such licensee is a right
in personam. The dispute in the present case could fit in here.
It is humbly submitted that the Bombay High
Court erred in holding that copyright disputes are not rights in rem and the
enforcement of such copyrights would be in personam. Further, given that the
arbitral tribunal cannot grant (final) remedies against third parties, the
Court ought not to have held that the resolution of copyright disputes by an
arbitral tribunal does not take away or exclude the remedies available to a
claimant. However, the ratio that copyright disputes are subject to arbitration
is more or less correct as long as the award of the tribunal binds only the
parties to arbitration and doesn’t operate in rem.
The approach then taken by the Court is not
sound in principle. In fact, given the fact that no such question had arisen earlier
in the court, it was only prudent that a thorough examination of laws and principles
be undertaken. It is also pertinent to mention that in the present case, the
only reliefs that could have been awarded were damages and a permanent
injunction. Hence, the Court could have merely stated that since no reliefs are
claimed against third parties, the dispute is of one in personam with respect
to the given facts.
Epilogue:
Possible alternative approaches
How then, apart from what is stated earlier, is
it possible to acknowledge that copyrights are rights in rem and still
arbitrable? Two possible approaches could be examined.
First, it could be argued that the when two
parties decide to enter into a contract with an arbitration clause with respect
to intellectual property, they agree to waive their rights in rem and seek
resolution through arbitration. The success of such an approach is dependent on
negating any public policy considerations to arbitrability of IPR disputes.
Second, there is a line of authority to permitting
arbitration of rights in rem in cases of oppression and mismanagement. In Fulham Football Club v. Richards,[9]
the English Court of Appeal stated that there is no public policy consideration
that a case of unfair prejudice is not arbitrable. However, the remedy of the
arbitral tribunal will be restricted since it cannot pass an order of winding
up subsequent to a finding of unfair prejudice. If the plaintiff approaches the
arbitral tribunal and agrees to seek remedies that a tribunal can rightly
grant, then he cannot be told that the dispute is not subject to arbitration. It
could then be suggested that like in oppression cases, if there is an
arbitration clause in a copyright dispute, the petitioner is given an option to
decide which fora he should approach depending on the remedy and the statutory
right under the Copyright Act, 1957 should not be excluded. In the case of
oppression, if the party chooses to go to Court in a petition properly brought
under Section 397 and 398 of the Companies Act, 1956 (as stated by Gautam Patel
J. himself in
Rakesh Malhotra v. Rajinder Malhotra) then the matter cannot be sent
to be resolved by arbitration. Likewise, if he approaches the Court/Board to seek
remedies that a tribunal cannot grant, then he cannot be told that the dispute
is subject to arbitration.
-Aditya Swarup



[1] PJ Fitzgerald, Salmond on Jurisprudence, 12th edn., pg. 235 (Universal
Law Publishing, Delhi).
[2] Andreas Rahmatian, “Contracts infringing
intellectual property rights”, Intellectual Property Quarterly, 2003, 4,
411-444.
[3] (2011) 1 LW 611 (Mad).
[4] (2011) 5 SCC 532.
[5] 684 F.2d 228 (2 Cir. 1982).
[6] Saturday Evening Post Co. v. Rumbleseat
Press, Inc., 816 F.2d 1191, 1198-99 (7 Cir. 1987)
[7] 2003 SCC 17
[8] See Mustill & Boyd, (2001).
[9] [2011] EWCA Civ 855.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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