Arbitrating IP Licensing Disputes in India and the Way Forward
Keywords: Intellectual Property Rights, IP Licensing, IP Disputes, Arbitrability of IP
In India, the courts are plagued with the pendency of cases. Close to 9.2 million civil cases in District Courts and 3 Million civil cases in the High courts are yet to be disposed of as of now. The ever-increasing vacancy of judges and the courts being understaffed are prime reasons for the pendency apart from the procedural factors. This being the scenario, arbitration emerged as a dispute resolution forum. The Indian courts have also taken a pro-arbitration stand by actively enforcing arbitration clauses, restoring to minimal interference in the proceedings and enforcing the awards without any delay.
Irrespective of the size of an organisation, it is common to have a portfolio of Intellectual Property (IP) and being involved in various licensing agreements with multiple market players across the jurisdiction. Due to globalisation and cross-border applicability of IP, arbitration seems like an ideal model to swiftly resolve disputes and has been gaining prominence in the recent past. But arbitrability of an IP dispute has been a subject matter considered by various courts. Before dwelling into arbitrability of IP dispute, it is necessary to understand the term ‘arbitrability’.
The Supreme Court in Booz-Allen & Hamilton Inc. v. SBI Home Finance Ltd. identified three facets of arbitrability. First, based on the nature and subject matter of the dispute, i.e. whether the dispute can be resolved by the arbitral tribunal or falls within the exclusive jurisdiction of courts. Second, the list of arbitrable disputes, the arbitration agreement should specifically include the dispute to be resolved through arbitration. Third, the dispute should be identified in the joint list of disputes referred to arbitration, i.e. the dispute should form an integral part of the pleadings and shouldn’t arise out of the statement of claims or counterclaims. The Court further dealing with arbitrability of a dispute, categorically stated that disputes which arise out of rights in personam are arbitrable and those arising out of rights in rem are out of the scope of arbitrations. At the same time, the Court affirmed that disputes which relate to rights in personam are arbitrable even if they form a subset of rights in rem.
The IP rights are primarily rights in rem which are mostly granted by the sovereign, but they do have a shade of rights in personam with respect to licensing agreements or while enforcing IPR. This left resolving IP disputes through arbitration, a subject matter of debate. Finally, the Bombay High Court in Eros International Media Limited v. Telemax Links India Pvt. Ltd., held that non-arbitrability of IP rights does not mean to oust all IP disputes from being subject to arbitration, and those disputes which arise out of a breach in contractual terms like licensing are still arbitrable. The same was affirmed by Madras High Court in Lifestyle Equities CV vs Qdseatoman Designs Pvt. Ltd., by observing that the patent license disputes are arbitrable, as long as it is not with respect to the validity of the patent. This article deals with IP and Standard-Essential Patent (SEP) licensing agreements and arbitration as an effective mode to resolve disputes arising out of it.
Why Arbitrate IP Disputes?
Arbitration poses as an effective mode to resolve IP disputes for many reasons, and a few of them are discussed in brief in this section. First, given the highly technical nature of disputes, arbitration emerges as a forerunner as it allows the contracting parties to choose their arbitrators which ensures the panel has requisite knowledge in the domain of dispute. The clauses dealing with the selection of arbitrators can define the qualifications of an arbitrator which leads to a more active process of resolution. Second, the confidentiality of the proceedings makes it an ideal choice as these disputes primarily involve trade secrets, proprietary rights over technology or any IP, and commercially sensitive data. Since the details of the proceedings are kept confidential it shields the parties from getting affected due to negative publicity arising out of the dispute, which is the case in litigation. Third, it reduces the cost associated with the adjudicatory process as it helps to resolve disputes which are multi-jurisdictional in a single proceeding.
So once an arbitral award is awarded, the decree-holder needs to focus on enforcing the award against the judgement debtor in respective jurisdictions instead of initiating parallel litigation in all jurisdictions which is usually time-consuming and costly. Therefore, the parties should thoroughly evaluate their IP licensing agreement before drafting the arbitration clauses to make sure the subject matter of arbitration is arbitrable and draft the agreement in a way that it gives a strategic advantage in the future.
Arbitration Clauses in IP Disputes
In both international and domestic arbitration, while drafting arbitration clauses in IP and SEP licensing agreements, importance should be given to the clauses dealing with the scope of arbitration, rules which govern the arbitration and qualification of the arbitrator. The scope of arbitration was observed to be one of the three facets which determine arbitrability in the Booz-Allen Case (Supra). Therefore, the provision dealing with the scope of arbitration should ensure it encompasses all possible claims at issue, as poorly drafted clauses can result in unnecessary litigation, thereby vexing the process. The parties have the liberty to choose the rules governing arbitration proceedings, as there are associations that have framed rules pertaining to IP specific arbitration. The American Arbitration Association has Supplementary Rules for the Resolution of Patent Disputes, and the World Intellectual Property Organization (WIPO) has its own WIPO Arbitration Rules, incorporating patent-specific rules. The parties are also at liberty to frame their own rules which govern the proceedings. Therefore, before subjecting to said rules, parties should consider all the possible aspects to have a tactical advantage.
One of the most significant advantages of arbitrating IP disputes is that in arbitration, the parties can make their own choice of arbitrators. Given that the disputes involve subject matter with high technicality, an arbitrator with significant experience in the said field and having knowledge of IP laws, SEP and fair, reasonable and non-discriminatory (FRAND) practices would be a perfect fit. Therefore, a tribunal with in-depth technical knowledge would enable the parties to present their case involving scientific questions in an effective manner which plays a significant role in the outcome of the case. The tribunal will also be able to deliver robust, technically sound and reasoned awards based on the evidentiary analysis of documents compared to the Courts dealing with infringement suits. Therefore, clauses dealing with the selection of arbitrators should be drafted considering the necessary skill required in an arbitrator.
A Grey Area in Defence
Let us consider a situation in which the licensee acted beyond the scope of the patent licensing agreement. One of the common defences in infringements suits arising out of breach of licensing agreement is to either approach Intellectual Property Appellate Board (IPAB) with revocation petition u/s 64(1) Indian Patent Act, 1970 or to file a counterclaim in the infringement suit. On looking at the nature of defence it clear that it would be out of the scope of the tribunal to decide on said defence as competent authority decide the revocation petition is IPAB and similarly, the counterclaim can only be determined by a High Court. This leaves the respondents with a limited scope of defence in arbitration, or even if the respondent is allowed to proceed with necessary actions at the competent forum, it will make arbitration redundant.
The Way Forward
To encourage arbitration of IP disputes, India could either choose Hong Kong’s model or Switzerland’s model. In Hong Kong, any type of dispute (enforceability, infringement, validity, ownership, scope, duration, any transaction or compensation) relating to any IPRs is arbitrable. Further, only the parties to the proceedings are bound by the award, and third parties do not have any effect on the award. So, even if there is any proceeding in the Court or before the appropriate authorities between one of the parties in dispute and a third party, the award passed by the tribunal won’t affect the subsequent proceedings.
Whereas in Switzerland, both infringement and invalidity disputes are capable of arbitration. The award declaring a patent invalid will be recognised and enforced by the Swiss Institute for Intellectual Property in the same manner as a judgment or order to the same effect. This results in prejudicing any subsequent proceeding against a party who was not part of the arbitration proceedings. Hence, this approach of enforcing a decree obtained from tribunal arising out of a private dispute against the world at large would be detrimental for the losing side.
Hence, India could choose to be as pragmatic as Hong Kong by allowing the tribunal to decide on all matters arising out of the dispute and keep the third parties out of the scope of the award given by the tribunal, thereby not affecting the rights of the parties against the world at large.
As there is no complete bar on arbitrability of IP disputes in India, and since IP licensing disputes are inevitable, arbitration can be an ideal mode to resolve IP licensing and SEP-related disputes which are rights in personam, and an efficacious alternative to litigation. Moreover, a licensor who engages in enforcing its IP portfolio in multiple jurisdictions need not spend time, money and resources initiating proceedings in multiple jurisdictions. Arbitrations also prevent the SEP licensor from filing injunction suit which frustrates the market, instead resort to resolving disputes amicably through arbitration. Even though post-dispute arbitration agreement is an option, it is always advisable to incorporate arbitration clause in the licensing agreement when the deal is negotiated, which keeps the parties committed to arbitration.
The arbitration clauses should focus on the place of arbitration (preferably those jurisdictions which are liberal towards IP arbitration), the governing institution and the governing rules of the proceeding. The clause should be sufficiently broad to cover possible IP infringement claims. Further, the terms should extensively deal with the remedies which the tribunal can award to ensure they don’t go beyond those recognised by law at the place of enforcement. As the trend is emerging towards favouring arbitrating the IP disputes, and it would be wise for a country like India to make its stand clear on various aspects of the same. The policymakers should also encourage arbitration to resolve IP disputes and make the position of the State clear with respect to the scope of the tribunal, effect of the award, and enforceability of the award.
[i] Thendralarasu S is a Second Year Student of LL.B. (Hons.) with specialisation in IPR at Rajiv Gandhi School of Intellectual Property Law, IIT Kharagpur. For any discussion related to the article, he can be contacted via mail email@example.com.
This article was reviewed by Snehal Dhote (Managing Editor) and Utsav Saxena (Associate Editor).
Preferred Citation: Thendralarasu S, “Arbitrating IP Licensing Disputes in India and the Way Forward”, Arbitration and Corporate Law Review, Published on 22nd July 2020