Scope of Arbitration in Matters Involving Intellectual Property Rights

Our Associate,  Alvin Antony discusses “Scope of Arbitration in Matters Involving Intellectual Property Rights”

Arbitration is a popular dispute resolution mechanism around the world. Intellectual Property Rights (“IPRs”) is a subject that has not typically been the subject of arbitration in the years gone by. Recently, however, the Hon’ble High Court of Delhi in Hero Electric Vehicles Private Limited and Another vs Lectro E-Mobility Private Limited and Another (2021 SCC Online Del 1058) dealt with the circumstances in which matters involving IPRs can be subjected to arbitration proceedings.

The plaintiffs, Hero Electric Vehicles Private Limited and others, filed a suit to restrain the defendants, Lectro E-Mobility Private Limited and others, from using the HERO trade mark on and in relation to electric bikes with throttle. The Defendants requested the court to refer the matter to arbitration on the basis of a Family Settlement Agreement (“FSA”) and Trademark and Name Agreement (“TMNA”), which, collectively, determined the rights of the parties in relation to use of HERO mark. The Defendants claimed that the provisions of FSA and TMNA governed the usage of said mark by parties and the arbitration provisions contained in them would govern the settlement of disputes. Further, these agreements acted as a complete answer and defense to claims between the parties in relation to use of the mark.  

The court started its analysis by looking into the scope of Section 8 of Arbitration and Conciliation Act 1996. Referring to numerous decisions of the Supreme Court, in particular, the decision in Vidya Drolia vs Durga Trading Corporation ((2021) 2 SCC 1), the court stated the principles that should be considered while determining the question of arbitratbility. As per the court, (a) the entire subject matter should be part of arbitration agreement and cause of action cannot be bifurcated and referred; (b) Section 8 jurisdiction cannot be used to compel third parties to submit to the arbitration proceedings; (c) there is difference between arbitrability of subject matter and arbitrability of claim. The claim may be non-arbitrable due to scope of the arbitration agreement, while the subject matter is normally non-arbitrable if it is non amenable to resolution by arbitration, in law; (d) the matter is non-arbitrable when (i) when the cause of action is not related to subordinate rights in personam arising from rights in rem, (ii) when the cause of action affects third party rights or has erga omnes effect, (iv) when the cause of action is related to the sovereign and public interest functions of the State and (v) subject matter is non-arbitrable by mandatory statutory fiat; (e) Specific instances of non-arbitrable matters include grant and issue of patents and registration of trademarks as they are sovereign or government functions and has erga omnes effect and (f) the courts are only supposed to examine the matter in prima facie manner, i.e., only examine whether there is a valid arbitration agreement and whether the dispute is ex-facie non-arbitrable.

In the present matter, there is a valid arbitration agreement between parties as can be observed from FSA and TMNA. Further, in the suit, the remedies are not claimed for defendants using deceptively similar mark, but, rather on the basis of right to use the mark. The essential infraction committed by defendants in this matter will be thus fall under the provisions of FSA and TMNA, and not under the provisions of Trade Marks Act. The dispute in the present case is in relation to rights of use by parties and not in relation to grant or registration of trade marks. Thus, the dispute is in relation to a right in personam that is subordinately arising out of right in rem and hence is referred to arbitration.

In conclusion, the Hon’ble High Court has clarified that unless there is clear “chalk and cheese” case of non-arbitrability, which in case of IPR will be normally related to determination and grant of rights by relevant governmental authorities, matters ought to referred to arbitration proceedings if there is a valid arbitration agreement.

Citation: Hero Electric Vehicles Private Limited and Another vs Lectro E-Mobility Private Limited and Another (2021 SCC Online Del 1058), Judgement dt. 02.03.21 by Delhi High Court.