[This piece has been authored by Palak Jain, a student at the Institute of Law Nirma University.]

Introduction

It is normal for an organization, regardless of size, to have a portfolio of Intellectual Property (IP) and to be involved in several licensing arrangements with multiple market participants throughout the jurisdiction. Because of globalization and the cross-border application of intellectual property, arbitration appears to be an appropriate model for quickly resolving conflicts and has recently gained significance.

One of the most controversial topics in IP arbitration is the arbitrability of IP License Agreements. A dispute’s “arbitrability” establishes whether it may be resolved by arbitration or if the applicable jurisdictional legislation reserves it for settlement by national courts.[1] This is decided by the law of the seat or the law of the country where the award is most likely to be enforced.

Even while the extent and specific restrictions of the arbitrability of some IP rights are still up for question in India, most countries now generally recognize arbitration as a viable option for resolving IP disputes. On the one hand, China does not allow arbitration concerning the validity of patents or registered trademarks. On the other hand, Hong Kong and Singapore have explicitly stated in their arbitration legislation that issues connected to intellectual property are arbitrable. Typically, states that provide validity determination of IP in arbitration stipulate that any award finding validity exclusively binds the parties to the arbitration. Similarly, such states usually provide that an award declaring an IP right invalid does not immediately result in national acknowledgment of the IP right’s invalidity. So, due diligence should be taken by parties who include an arbitration provision in their contracts to ensure that the “IP rights in question are arbitrable under both the applicable law and the law of any state where an arbitral award may need to be enforced.”

Arbitrability of IP Licenses in India

Concerning the arbitrability of a dispute, the Supreme Court ruled in “Booz-Allen & Hamilton Inc. v. SBI Home Finance Ltd.” that disputes _“originating out of rights in personam are arbitrable and those emerging out of rights in rem are not subject to arbitration and the Court further maintained that disputes involving rights in personam, even if they are a subset of rights in rem, are arbitrable.”The intellectual property rights are essentially rights in rem, which are generally conferred by the sovereign, although they do have an aspect of rights in personam with regard to licensing agreements or while enforcing IPR. Arbitration as a means of settling IP conflicts was thus left open for debate. So, several courts reviewed the issue of arbitrability of disputes arising from IP licenses.  In “Eros International Media Limited v. Telemax Links India Pvt. Ltd.,”[2] “the Bombay High Court decided that the non-arbitrability of IP rights does not exclude all IP issues from being arbitrable, and that disputes arising from a breach of contractual conditions, such as licensing, are indeed arbitrable. The same was confirmed by the Madras High Court in “Lifestyle Equities CV vs Qdseatoman Designs Pvt. Ltd.,”^[3] which said that patent license disputes are arbitrable as long as they do not impact the patent’s validity.”

Challenging Validity of IP Protection: A Grey Area in India

Let’s look at an instance where the licensee went beyond the scope of what was permitted by the licensing agreement. One of the typical defenses in infringement lawsuits brought about by violations of license agreements is to challenge the validity of IP protection.[4] Looking at the nature of the defense, it is evident that the arbitral tribunal would not have the authority to decide on said defense, as the validity of IP protection involves right in rem. As a result, the licensee’s options for defending themselves in arbitration are restricted. The concept of severability applies when the licensee challenges IP protection. Issues related to the validity of IP protection are referred to courts while other issues are dealt with by arbitral tribunals.

Need For Clear Policy in India

At first glance, a review of Indian statute law and case law creates the impression that arbitration of intellectual property issues is prohibited in India. However, a deeper examination of the case law discloses that some subordinate IP rights that are personam rights are deemed arbitrable. However, neither the “Arbitration and Conciliation Act, of 1996” nor the policies and regulations governing intellectual property have made explicit or established a clear notion about the arbitrability of IP disputes.  

The Indian Parliament should introduce legislation to clarify the arbitrability of some parts of IP rights, as the United States and Hong Kong have done. Legislative changes can bring clarity to controversial parts of the arbitrability of IP disputes, such as the scope of counterclaims and whether to include or exclude claims that contest the validity of IP protection. IP arbitration will be encouraged by clear legislation.

India “might either use the Swiss model or the Hong Kong model to promote arbitration of IP issues. Arbitration is available in Hong Kong for all IPR-related disputes, including those involving enforceability, infringement, validity, ownership, scope, duration, transactions, and compensation. Third parties have no bearing on the award, and only the parties to the proceedings are bound by it. Therefore, the tribunal’s decision won’t have an impact on the following proceedings even if there is a court case or other legal action between one of the parties to the dispute and a third party.”

While in Switzerland, claims over infringement and invalidity can be arbitrated. The Swiss Institute for Intellectual Property will recognize and uphold the award invalidating a patent in the same way as a judgment or an order to that effect. This has the effect of prejudicing any later action taken against a person that was not involved in the arbitration. Therefore, the losing party would suffer from this method of enforcing a court order acquired as a result of a private dispute against society at large.

Conclusion

Since there is no total restriction to the arbitrability of IP issues in India, and because IP licensing disputes are unavoidable, arbitration can be an appropriate option to resolve IP licensing rights in personam, and an effective alternative to litigation. Furthermore, a licensor who enforces its IP portfolio in numerous jurisdictions does not need to invest time, money, or resources in launching procedures in multiple jurisdictions. Arbitrations also prohibit the licensor from pursuing injunction suits, which hamper the market, and instead force the parties to settle their differences peacefully through arbitration. As a result, “India could choose to be as pragmatic as Hong Kong by allowing the tribunal to decide on all matters arising from the dispute including disputes regarding validity of IP protection and keeping third parties out of the scope of the tribunal’s award, thereby not affecting the parties’ rights against the world at large.