As intellectual property disputes grow in number in India, corresponding questions arise regarding the most appropriate adjudicating authority to be approached for redress. Besides regular courts, IP disputes also occasionally make their way into arbitrations. But the circumstances under which IP disputes can be referred to arbitration are not always clear. This matter was discussed in a recent suit in the Delhi High Court involving “Hero”, a well-known trademark in the business of two-wheelers.
In this suit, the plaintiffs had sought a decree of permanent injunction restraining the defendants from dealing in electric bikes having a throttle, using “Hero” or any deceptively similar mark.1
The trademark originated in the business of Hero Exports, which used to be a partnership firm of all the members of the Munjal Group. After a Family Settlement Agreement (FSA), the businesses of the group were divided among four family groups. Alongside the FSA, a “Trade Mark and Name Agreement” (TMNA), was executed, which assigned the right to use the trademark “Hero”, and its variants, among the various groups.
The plaintiffs and defendants belonged to two different family groups. The plaintiffs asserted that the TMNA conferred on their family group, the exclusive right to use the trademarks “Hero” and “Hero Electric”, and its variants, on all-electric vehicles, including electric bikes. The plaint alleged that the defendants (Lectro) were manufacturing, selling and promoting electric bikes under the brand “Hero”, thus violating the exclusive right vested in the plaintiffs.
The defendants argued that subsequent to the FSA and TMNA, any right to use the mark was necessarily governed by those agreements. Any dispute would, therefore, be subject to the provisions for arbitration contained in the agreements. Accordingly, defendants under Section 8 of the Arbitration and Conciliation Act, 1996 (A&C Act) sought to have the dispute raised by the plaintiffs to arbitration.
The Delhi High Court, which was hearing the case, relied on the four-fold test of non-arbitrability of the subject matter, laid down by the Supreme Court in Vidya Drolia and Ors. v. Durga Trading Corporation.2 As per this test, a cause of action and/or subject matter of a dispute is non-arbitrable when:
- It relates to actions in rem, that do not pertain to subordinate rights in personam.
- It affects third-party rights and has an erga omnes effect (i.e., it has implications on the public).
- It relates to an inalienable sovereign and public interest function of the State.
- It is expressly or by necessary implication non-arbitrable as per mandatory statute(s).
The court stated that the dispute between the plaintiffs and the defendants required a holistic appreciation of the FSA and TMNA in order to adjudicate on the rights conferred on the various family groups; and that the dispute was ex-facie arbitrable in nature, seen in the light of the FSA and TMNA.
The Court concluded that the controversy did not relate to the grant or registration of trademarks. The trademarks were already granted and registered, prior to the FSA and TMNA. The dispute was regarding the family group to which the FSA and TMNA assigned the rights to use the trademarks in connection with electric cycles and e-cycles. Thus, the dispute was based on rights emanating from the FSA and TMNA, and not on provisions of the Trade Marks Act.
Accordingly, the Court decided that the petitioner ought to approach an Arbitrator for appropriate reliefs as it may choose under Section 17 of the A&C Act, and decided that the suit should be referred to arbitration, with parties at liberty to appoint the arbitrator/arbitrators in accordance with the FSA and TMNA.
Of particular interest here is the Court’s decision to not examine the trademark infringement matter, and instead focus only on contractual aspects. The Court highlighted that the present suit was not about the deceptive similarity of the marks or trademark infringement, but rather, about the ‘right to use the mark’ which arises from the FSA and TMNA.
Judicial precedent shows that arbitrability has been decided by the courts on the basis of the nature of the claim raised. Disputes pertaining to the ownership, validity of IP right, etc., are actions in rem and thus, not arbitrable. However, disputes arising out of contractual relations such as restriction against the future use of IP by a party, are contractual, and actions in personam and therefore, arbitrable.
At least two questions arise from the present decision of the Delhi High Court:
- Why did the Court not delve greater into the issues concerning IP infringement?
The plaintiffs had argued that the Court did not need to refer to the two family agreements, as they (the plaintiffs) were relying on the Trade Marks Act and the fact that Hero Exports was the registered proprietor of the trademark ‘Hero’ for electric bikes.
The judgement did not however, consider the permanent injunction that the plaintiffs had sought. One line of criticism is that the Court overlooked the fact that invoking a right in rem against a particular person does not make it a right in personam which is subject to arbitration. Adjudication of the dispute would automatically define the scope of the plaintiffs’ rights, which can be claimed against other infringers as well in the future.
On the other hand, there is the argument that while this case deals with IP claims, the case also deals with the capability of courts to refer parties to arbitration. The High Court relied on the judgement in Vidya Drolia v Durga Trading Corporation, which laid down the tests that allow a court to refer a matter to arbitration. All other questions of arbitrability of the dispute must be left to the tribunal to adjudicate upon, without the intrusion of the court, for if the court indulged in anything further, it would amount to usurping the powers of the tribunal.
Further, the entirety of the cause of action in the dispute must be rendered non-arbitrable in order for a court to be able to completely prevent arbitration. A court of law can only prevent arbitration if the issue is not prima facie arbitrable. The jurisdiction of the court, as per Indian law, extends merely to judging two aspects:
- Whether a valid arbitration agreement exists (which it does here, as evidenced by the FSA and TMNA);
- Whether the subject-matter of the dispute is arbitrable (i.e., here, adjudicate the presence of a violation of a right purely in rem vide the IPR dispute in question). It is in this context that the Court also differentiates a non-arbitrable subject-matter and a non-arbitrable claim.
- Why did the Court fail to notice that plaintiffs’ exclusive claim over ‘Hero’ for electric bikes which includes (as per plaintiffs) electric bicycles conflicts with the defendants’ claim of rights over electric bicycles?
In this regard, the line of criticism is that the issue of whether “electric bikes” include “electric bicycles” is a question on the scope and the validity of the registrations of trademarks. This is purely a question of law that needs to be analyzed through examination of the Trade Marks Act, Trade Marks Rules, and the extant registrations of the parties.
However, as a pre-emptive observation against this, in paragraph 146 of the decision, the Court stated that the trademark in question already stood granted prior to the FSA and TMNA, and that the dispute here was in connection with which family group of the four was assigned the rights to the same. The assignment in this case was contractual via the FSA and TMNA, and thus existed solely in personam.
This decision clears some air around the arbitrability of IP disputes in certain circumstances. Specifically, the Delhi High Court made the distinction between the treatment of an IP dispute and a contractual dispute, specifying that arbitration would follow in the latter case. While this decision offers a little more clarity than what existed before, on which dispute resolution forum parties would have to approach in different circumstances, it is likely that this determination will need to be made on a case-by-case basis.
1 Hero Electric Vehicles (P) Ltd. v. Lectro E-Mobility (P) Ltd., 2021, Delhi High Court, CS (COMM) 98/2020 and I.A. 3381/2020, Decided on 02.03.2021
2 2019 SCC OnLine SC 358