By Nihit Nagpal and Manmeet Singh Marwah
The answer to overcoming of overburdening of Courts was resolution of cases through arbitration.
Since its advent, disputes pertaining to various areas of laws have been adjudicated by arbitration and now it has become a stable device for settling out the disputes between the parties. However, the evolution of its jurisprudence in Intellectual Property Rights (IPR) is quite different.
The Courts ad nauseam have stated that Intellectual Property Rights disputes cannot be referred to Arbitrators with the preeminent reason being that the IPR rights fall under the bracket of right in rem and not under right in personam. However, the Hon’ble High Court of Delhi in Golden Tobie (P) Ltd. v. Golden Tobacco Ltd passed a judgement dated June 04, 2021 wherein it was held that the dispute was primarily related to interpretation of the terms of the Agreement between the parties and right asserted by Plaintiff emanates from the Agreement. Therefore, the Assignment of trademark is by a contract and not by a statutory act and the matter was accordingly referred to Arbitration.
The Defendants had filed an Application before the Hon’ble High Court of Delhi under Section 8 of the Arbitration and Conciliation Act, 1996 for referring the disputes between the parties to Arbitration.
The plea of the Plaintiff was that both the parties to the suit entered into a Master Long Term Supply Agreement dated August 16, 2019 which granted the Plaintiff exclusive right to sell, supply and distribute the Defendants brands “Golden’s Gold Flake, Golden Classic, Taj Chap, Panama and Chancellor” in international and domestic domain. The parties on February 12, 2020 agreed to enter into a Trademark License Agreement. However, later on August 14, 2020, the Defendants ignoring the fact that Plaintiff had already incurred huge amount of capital on promotions and advertisements, terminated the Trademark License Agreement on the ground that commercial production had not begun yet. Consequently, the above stated termination notice was set aside and a new amendment Agreement was agreed by the parties on August 29, 2020. These Agreements gave the Plaintiff right to manufacture the Defendant’s products in an exclusive manner and the rights granted through the Agreement were non-assignable, non-transferable. In February, 2021 another termination notice was served by the Defendant to the Plaintiffs stating that Agreements dated February 12, 2020 and August 29, 2020 stands cancelled. The Defendants through the notice blamed the Plaintiff for not making timely payments in accordance with the Agreement thereby, withdrawing the Plaintiff’s right to manufacture and sell the brands of the Defendant. The Plaintiff in the suit has pleaded to restraint the Defendant from using the trademark which had been conferred upon them in perpetuity through trademark agreement dated February 12, 2020 and August 29, 2020.
JUDGEMENT BY THE HON’BLE HIGH COURT
The Hon’ble High Court of Delhi to arrive at the decision in the present case had observed the judgments passed in various earlier cases. The Hon’ble Court elucidated the four fold test of arbitrability as established by the Hon’ble Supreme Court in Vidya Drolia and Ors. vs. Durga Trading Corporation, and held that the issuance of patents and registration of trademarks come under the category of actions in rem. Not only these matters are subjected to sovereign as well as government functions but these intellectual properties also confers monopolistic rights and have erga omnes effect and thus, are non-arbitrable.
The Hon’ble Court further observed the legal position of the principles laid out in Hero Electric Vehicles Pvt. Ltd. & Anr. vs. Lectro E-Mobility Pvt. Ltd & Anr., wherein it referred the matter to arbitration in a trademark dispute. The Hon’ble Court sustained that the right sought by the Plaintiff is a right that stems from Family Settlement Agreement & Trade Mark and Name Agreement and not from Trademark Act. The Hon’ble Court further observed that the Plaintiff’s right to trademark is claimed only against a specific family group and not against the world at large and thus, the view point that the dispute being an action in rem cannot be arbitrable is not correct. In the said case the partnership firm i.e. Hero exports was divided among four family groups designated as F1, F2, F3, and F4.
After perusing the contentions of both the parties, the Single Bench of Hon’ble High Court of Delhi consisting of Justice Jayant Nath held that the Plaintiff’s right does not emanate from Trademark Act rather arises from the Agreement dated February 12, 2020 and the amendment Agreement dated August 29, 2020. The Hon’ble Court in furtherance to holding that pleas of learned Senior Counsel of Plaintiff’s is without merit pronounced that the disputed trademark was assigned through a contract and not by a statutory act. The states do not exercise their sovereign functions in such cases and thus, the dispute can very much be referred to arbitration. Accordingly, the parties were referred to Arbitration as per the Arbitration Agreement.
HISTORY OF ARBITRATION OF IPR DISPUTES
The whole conundrum of arbitrality of IPR disputes can be viewed through different stances and decisions of different Courts throughout India.
The Hon’ble Delhi High Court passed a judgment dated September 11, 1990 in Mundipharma Ag vs. Awochardt stating that the copyright disputes do not fall within the ambit of arbitration as remedies for such infringement are statutory in nature which are to be exclusively granted by the Civil Courts.
The Hon’ble Supreme Court in Booz Allen & Hamilton Inc. vs. SBI Home Finance Ltd while laying down the test of arbitration, passed a judgment dated April 15, 2011 stating that the disputes which fall under the category of right in rem are non arbitrable whereas disputes falling within the category of Right in personam are arbitrable. It is pertinent to note that IPR matters fall within the scope of right in rem because the creator of such intellectual property is conferred with monopoly rights which enables him to prevent the exploitation of his creation by others, allowing him to enjoy his right against the world at large.
The Hon’ble Supreme Court in its judgement dated October 4, 2016, in A. Ayyasamy vs. A. Paramasivam and Ors, referred to the book penned by OP Malhotra called “The Law & Practice of Arbitration and Conciliation” and stated that generally patent, copyright, trademark disputes are non arbitrable. This was well recognised as obiter dictum in many cases. The Hon’ble Apex Court has reiterated the same stance of non arbitrability of IPR disputes in Vikas sales case vs. Commissioner of Commercial Taxesand in the case of Emar MGF. Vs. Aftab Singh .
The Bombay High Court vide its judgement dated April 12, 2016 in Eros International Media Limited vs. Telemax Links India Pvt. Ltd. and Ors., initiated a new trend by pronouncing the Judgement in favour of arbitration. The Hon’ble Court in this case allowed an application for copyright infringement under section 8 of Arbitration and Conciliation Act, 1996 and held that if the parties have wilfully decided to adjudicate their commercial disputes ascending from contract to a private forum then no question regarding their non- arbitrability shall be raised. The High Court made it clear that these disputes can be taken up to the arbitration centres as they are in nature of action in personam, only one party is asserting their right against a particular group and not against the world in large.
The Madras High Court in its judgement dated September 3, 2020 in Sanjay Lalwani V Joystar Enterprises and Ors acknowledged the prior decisions of the Hon’ble Supreme Court and stated that copyright disputes are in the nature of action in rem and thus, cannot be adjudicated through arbitration.
Taking all together a different stand in Hero Electric Vehicles Private Limited and Anr. v. Lectro E- Mobility Private Limited and Anr, the Delhi High Court vide its judgement dated March 2, 2021 gave a pro arbitration judgement by holding the view that if the dispute is regarding the enforcement of trademark against the particular group as contrary to enforcement of such rights against the world, then such cases are arbitrable.
The path to Arbitrability of Intellectual Property Rights disputes has never been without challenges. From giving firm and rigid judgements against arbritrability of IPR disputes to giving green signal to certain IPR disputes, the Indian Courts have come a long from their anti-arbitration attitude in IPR disputes.
It is to be noted that through dictums laid in abovementioned cases Hero Electric Vehicles; Vidya Drolia and Golden Tobie, the Courts have established a principle that IPR disputes that emanates from right in rem (like registration/grant of trademark and patent) cannot fall within the realm of arbitration because in addition to having erga omnes effect, it grants monopoly rights and are subjected to the functions of the Government. Whereas, certain disputes pertaining to IPR where right asserted by a Plaintiff is not a right that emanates from any statutory act but a right that emanates from an Agreement, can be resolved through Arbitration. Like in the present case, the assignment of trademark was through contract and thus, the infringement of trademark can be resolved through the terms of the contract.
 CS(COMM) 178/2021
 (2021) 2 SCC 1
 2021 SCC OnLine Del 1058
 ILR 1991 Delhi 606
 2011 5 SCC 532
 AIR2016SC 4675
 2018 SCC Online SC 2771
 2016(6)BomC R321
 (2020) SCC Online Mad 2003
 2021 SCC OnLine Del 1058