Arbitrability of IP Disputes in India: Lessons from Hong Kong

[Chandni Ghatak is a final year B.A. LL.B (IPR Hons.) student at the National Law University, Jodhpur]

India has constantly been making attempts to emerge as a pro-arbitration hub in Asia. While many of these attempts are laudable, a contentious issue that persists is the confusion prevailing over arbitrability of certain kinds of disputes. One such category of disputes is where the subject matter involves intellectual property (IP) rights. In 2016, for the first time, IP rights as a subject matter of the dispute was allowed to be resolved by way of arbitration by the Bombay High Court in Eros International v. Telemax Links India. Eros International is presently pending before the Supreme Court and this decision can conclusively determine this issue of arbitrability.  Thus, it becomes important for the court to develop a balanced approach that satisfies the opposing ends of the rights in rem versus rights in personam debate, which has traditionally affected the issue of arbitrability of IP disputes world over.

This post shall discuss the current position of law in India and the possible approach that may be adopted by the Supreme Court, with a specific focus on the approach that has recently been adopted in Hong Kong. The reason behind choosing Hong Kong as a reference model is the jurisdiction’s success in emerging as an attractive hub for arbitration within Asia.

Eros International & Beyond – the Myriad Views on Arbitrability of IP Disputes

India currently follows the test enumerated in Booz Allen Hamilton v. SBI Home Finance for determining arbitrability of disputes. Therein the Supreme Court of India held that all disputes which concerned rights in rem (i.e. rights available against the world at large) were non-arbitrable. Booz Allen was significant because it also provided an exhaustive list of instances wherein disputes cannot be subjected to arbitration which included constitutional issues, divorce proceedings, and the like. Interestingly, the said case did clarify that disputes concerning in personam rights, although arising from rights in rem, would be arbitrable.

This brings us to Eros International wherein the aforesaid clarification issued within the Booz Allen test was actually implemented. The High Court ruled that although IP rights are generally awarded to a creator to protect its work from exploitation by the world at large, its enforcement is undertaken against select individuals who have caused such breach. This, the Court held, was the correct approach because a breach of the underlying agreement between the parties was to be resolved and, thus, it was necessary to treat it like any other commercial transaction wherein parties have themselves chosen to resort to arbitration to resolve disputes arising from the agreement. This means that although a right in rem (in this case the issue of copyright) is the underlying subject, the dispute arising is concerning a right in personam (in this case, the breach of the agreement determining the usage of the copyright) and thus referring such dispute to arbitration would be permissible.

However, the Madras High Court in 2017 in Lifestyle Equities CV v. QDSeatoman Designs (P) Ltd has more clearly dealt with the traditional in rem versus in personam debate, as compared to Eros International. 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.

This leaves the Supreme Court at a cross road. As a result, there is a need to examine comparative approaches to tackle said situation.

Adopting the Hong Kong Way – Can the Supreme Court of India Formulate a Similar Test?

In early 2017, the Arbitration (Amendment) Ordinance became the law in Hong Kong. The path breaking provisions of the ordinance dealt with the way IP disputes may be referred to arbitration. According to section 103D of the Ordinance, IP disputes, including those relating to the subsistence, scope, ownership, validity and infringement of IP, would be capable of resolution by arbitration in Hong Kong.  Another intriguing provision is section 103F which clarifies that arbitration may still be resorted to even when some other forum as per relevant Hong Kong laws would otherwise have the requisite jurisdiction to adjudge the dispute.

At the outset, the Supreme Court of India may not be inclined to allow arbitral tribunals to deal with the issue of subsistence of the relevant IP right. This is because, as noted in the Madras High Court decision, such determination would squarely fall within the ambit of right in rem. Further, the validity of the concerned right is better scrutinized by properly equipped authorities as envisaged within the IP statutes prevailing in India such as the Patents Act, 1970 and Trademarks Act, 1999, simply because this requires a highly technical form of assessment. On the other hand, questions related to scope of such right, validity and terms of usage boil down, at their core, to issues of contractual arrangement, which are at large private rights at best. The reliefs sought when these questions emerge invariably revolve around the question of quantum of compensation or damages which again, at its heart, arises from the breach of a contractual arrangement. Thus, a harmonised approach may be resorted to by the court in order to allow reference of disputes to arbitration so long as the question to be dealt with is largely contractual.

The Impact – What Happens if Such Test is adopted?

By constructing such a test, two things are likely to occur – first, party autonomy as an idea is respected and, second, resolution of such disputes are more likely to take place in a time bound manner. Further, the Indian jurisprudence regarding in rem versus in personam rights is bound to expand. The burden of the courts as well as the relevant authorities designated under the IP statutes in India shall be reasonably lowered. One cannot ignore that even arbitral tribunals in India are also empowered to award interim measures concerning the preservation and stoppage of sale of the subject matter of the dispute. These types of measures are particularly necessary in cases such as passing off, thus making arbitration an efficacious method of dispute resolution which is capable of serving the interests of parties.

Concluding Remarks

If the Supreme Court chooses to go down this road, the Hong Kong approach must be adopted on a case-by-case basis. The Court must bear in mind certain factors such as the bargaining power of the parties involved. This factor is important in the Indian scenario because, in several instances, especially those concerning patents, the companies involved are small or medium sized entities, unlike multinationals which usually are the right holder. Arbitration in that situation may not be entirely cost effective or even fair, due to the fact that such agreements may largely be in the form of standard forms of contract. Therefore, a balanced approach which rules conclusively on subject matter of arbitrability shall certainly prove beneficial.

Chandni Ghatak

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