In a landmark Judgment dated October 13, 2017 delivered in O.S.A. Nos. 216 and 249 of 2017, a Division Bench of the Hon’ble Madras High Court presided by the Hon’ble Chief Justice Ms. Indira Banerjee who was accompanied by Hon’ble Justice Mr. M. Sundar clarified the legal position with respect to arbitrability of Intellectual Property disputes, which was one of the central issues which had arisen for adjudication before the Division Bench.

The case related to a contractual dispute between two parties who had entered into an agreement wherein one party (hereinafter referred to as “the Service Provider”) was required to render creative services such as product translation, technical design and production administration together with other relevant supporting creative services to the other party (hereinafter referred to as “the Brand Owner”). Pertinently, the contract between the parties contained an arbitration clause. Disputes arose between the parties in relation to performance of obligations, payments and the right to use of Intellectual Property created under the contract.

In view of the Arbitration clause which bound the parties, the Brand Owner approached the Hon’ble High Court in an application under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter to be referred as “the Act”), seeking certain interim reliefs, one of which related to restraining the Service Provider from hindering the Brand Owner’s use of the Intellectual Property created under the aegis of the contract. The Service Provider, among other things, objected to the maintainability of the Section 9 application on the ground that disputes in relation to Intellectual Property are excluded from the pale of arbitrability under the Act.

A Learned Single Judge of the High Court held in favour of the maintainability of the application on the ground that actions in personam flowing from rights in rem, including Intellectual Property Rights, were arbitrable in nature. However, the application under Section 9 was allowed subject to certain conditions, which were not even sought for by the Service Provider. This was in addition to determining certain issues on merits. Consequently, both parties appealed against the judgment of the Learned Single Judge, with the Service provider appealing on the issue of arbitrability of Intellectual Property disputes, and the Brand Owner appealing against imposition of conditions and determination of issues on merits. It is in this factual backdrop that the Judgment was delivered by the Hon’ble Division Bench.

On the specific issue of arbitrability of Intellectual Property disputes, the Hon’ble Division Bench discussed and dealt with the following judgments of the Hon’ble Supreme Court:

• Booz Allen and Hamilton Inc. v SBI Home Finance Ltd. & Ors. [2011(5) SCC 532]
• A. Ayyasamy v. A Paramasivam & Ors. [2016 (10) SCC 386]
• Vimal Kishor Shah v. Jayesh Dinesh Shah [2016 (8) SCC 788]

The Hon’ble Division Bench interpreted Booz Allen as a decision which dealt with arbitrability of disputes relating to rights in rem and Ayyasamy as a decision which dealt with arbitrability of fraud. Critically, the Hon’ble Division Bench dispelled the perception that Ayyasamy was a decision which excluded Intellectual Property disputes from the realm of arbitrability by drawing attention to Paragraph 14 of the said judgment and the footnote contained therein which revealed that the inclusion of Intellectual Property disputes in the list of non-arbitrable disputes was merely an extract from a book titled The Law and Practice of Arbitration and Conciliation. In other words, since the arbitrability or otherwise of Intellectual Property disputes was not in issue before the Hon’ble Supreme Court in Ayyasamy, the said judgment could not be treated as an authority on the said issue.

Further, the Hon’ble Division Bench observed that what was truly in dispute between the litigating parties before it was superiority of right to use the Intellectual Property, which would effectively qualify as a dispute in relation to a right in personam. This would make the Brand Owner’s action of approaching the Court under Section 9 an action in personam rather than an action in rem. In fact, the Hon’ble Division Bench drew a parallel with patent disputes by observing that while patent validity was not arbitrable, a patent license was certainly arbitrable. Clearly, the ratio of the decision is that actions for enforcement of Intellectual Property Rights which qualify as actions in personam are arbitrable, notwithstanding the fact that the right to pursue such actions flows from a right in rem. This reinforces the ratio of the judgment of the Hon’ble Bombay High Court delivered in Eros International Media Limited v. Telemax Links India Pvt. Ltd & Ors(2016).

Having held in favour of arbitrability, the Hon’ble Division Bench further clarified that by virtue of Section 16 of the Act, an Arbitral Tribunal itself has the jurisdiction to deal with objections relating to arbitrability of disputes before it, thereby suggesting that Courts should adhere to the spirit of minimal judicial intervention in arbitral proceedings. This was further reinforced by the Hon’ble Division Bench by setting aside the Learned Single Judge’s determination on merits on the ground that such determination was not warranted in a proceeding under Section 9 and must be left for determination by the Arbitral Tribunal. The Hon’ble Division Bench also set aside the conditions imposed by the Learned Single Judge on the Brand Owner on the ground that such conditions ought not to be imposed on an applicant under Section 9 in the absence of a specific application by the Opposing party seeking imposition of such conditions and demonstrating atleast a primafacie case for their imposition.

This is a significant judgment on multiple issues, since apart from clarifying the law on arbitrability of Intellectual Property disputes, it also circumscribes the metes and bounds of a Court’s powers in a proceeding under Section 9. Hopefully, this judgment should pave the way for parties who wish to expeditiously resolve Intellectual Property disputes through arbitration given the commercial and hence, time-sensitive nature of such disputes.