Arbitrability of Intellectual Property Disputes in India

Espousing a Case-by-Case Factual Analysis

Introduction

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.1 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

1
Booz Allen and Hamilton v. SBI Home Finance Ltd. AIR 2011 SC 5207
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’)2 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’.3 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’)4, 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’)5 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

2
A. Ayyaswamy v. A. Paramasivam AIR 2016 SC 4675
3
Utkarsh Srivastava, Putting the Jig Saw Pieces Together: An Analysis of the Arbitrability of Intellectual
Property Right Disputes in India, Arbitration International (2017).
4
Eros International Media Ltd. v. Telemax Links India Pvt. Ltd. 2016 (6) Bom CR 321
5
Lifestyle Equities CV v. QD Seatoman Designs Pvt. Ltd. 2018 (1) CTC 450
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).6

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’)7. 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

6
EuroKids International Private Ltd v. Bhaskar Vidhyapeth Shikshan Sanstha 2015 (4) BomCR 734
7
The Indian Performing Right Society Ltd. v. Entertainment Network Ltd. 2016 SCC OnLine Bom 5893
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’).8 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.

Conclusion

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.

8
Impact Metals Ltd. v. MSR India Ltd. & Ors. AIR 2017 AP 12