Trademarks are intangible assets and rights concerning them operate against the whole world (rights in rem). Generally, a dispute is said to be arbitrable if the rights are to be enforced against a person (rights in personam). That begs the question – are trademark disputes arbitrable? The answer to the question is generally negative. But under certain circumstances trademark disputes are arbitrable. Gagan and Sparsha analyse the underlying issues in this blog post. Read on further to know those exceptional situations.
Understanding Arbitration in IPR Disputes
In India, civil suits take a long time to be decided. A case filed in a High Court takes on an average, 4 years to be disposed of. If we consider the time taken for the institution of the suit and issuing notice to all the parties – it would take at least 2 years for a suit to reach the evidence stage. Since time is of essence in commercial cases, arbitration is a better route to settle IPR disputes. But not all disputes are allowed to be settled through arbitration. In India, arbitrability of disputes depends on the nature of the rights involved in the dispute.
The Supreme Court of India, in Booz Allen and Hamilton Inc. v. SBI Home Finance and Ors made the following observations about the arbitrability of disputes:
“Generally and traditionally all disputes relating to rights in personam are considered to be am
enable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to sub-ordinate rights in personam arising from rights in rem have always been considered to be arbitrable.”
Applying this principle to intellectual property rights, the ownership of a trademark is a broader right in rem operating against the whole world. Trademark owners can assign or license specific trademark rights to individuals through arrangements like Memorandum of Understandings (MoU), franchise agreements and Family Settlement Agreements (FSA). The trademark rights arising out of these arrangements are personal in nature and hence amenable to arbitration. A few relevant decisions of the Indian High Courts are discussed below to understand the nuances of arbitrability in such disputes.
Arbitrability of Trademark Disputes
In the case of Vimi Verma v. Sanjay Verma & Ors, there was a family settlement (MoU) between the various members of the family in respect of the usage of trademarks. As per the MoU, the appellant had the right to use the trademark “SIMPEX”. The respondent had used the trademark “SIMPLEX” which was deceptively similar to “SIMPEX”. The effect was that – the respondent had violated the terms of MoU as well as the statutory rights of the appellant. The Delhi High Court opined that – there was no bar on deciding trademark infringement matters in the arbitration proceedings.
In Steel Authority of India Ltd. v. SKS Ispat and Power Ltd. & Ors, an application was made under Section 8 of Arbitration and Conciliation Act, 1996 to arbitrate a trademark infringement dispute. The Bombay High Court held that the matter was not arbitrable on the following three grounds:
- the matter was beyond the scope of the arbitration agreement;
- it was a matter in rem; and
- the rights of persons who were not a party to the arbitration were affected.
In EuroKids International Private Limited v. Bhaskar Vidhyapeeth Shikshan Sanstha, there was a franchise agreement between Eurokids International Private Limited (franchisor) and Bhaskar Vidhyapeeth Shikshan Sanstha (franchisee). Through the franchise agreement, the franchisor was allowed to use the trademark and copyrighted material of the franchisor. On the expiry of the agreement, the franchisor asked the franchisee to abstain from using the trademarks and copyrighted material, but the franchisee refused to desist. The franchisor went for arbitration of the matter. The franchisee contended that trademark disputes are not arbitrable. The Court held that the matter did not relate to the ownership of the trademark. Rather, the matter arose from the violation of franchise agreement, hence it was arbitrable.
In A. Ayyasamy v. A. Paramasivam and Ors , while deciding the question – whether a matter involving simple fraud is arbitrable, the Supreme Court made the following observations on trademark disputes:
“The Courts have held that certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, cannot be referred to arbitration. Following categories of disputes are generally treated as non-arbitrable: patent, trademarks and copyright …” (emphasis supplied)
The reference in Ayyasamy’s case, that patent, trademark and copyright disputes are “generally non-arbitrable” – was quoted from the book written by O. P Malhotra on ‘The Law & Practice of Arbitration and Conciliation’. This creates a confusion about the arbitrability of Trademark disputes. However, the usage of the word “generally” gives a hint that there are exceptions to this rule and there cannot be a complete bar on arbitration of trademark disputes. Because of the same reason, the Ayyasamy case, despitebeing a Supreme Court judgement, did not serve as a binding precedent in matters relating to arbitrability of trademark disputes.
In Hero Electric v. Lectro E-Mobility, “Manjul Group” consisting of members from the same family was divided into four groups through a Family Settlement Agreement (FSA). Trademarks are used in relation to goods and services. There can be several classes and subclasses of goods and services. To avoid conflicts, the FSA granted the use of the trademark “Hero” in relation to electric bikes to the plaintiff. The defendants started using the Hero trademark on their electric bicycles having throttle. This led to a dispute. The plaintiff contended that this was a matter of trademark infringement requiring passing off. The Delhi High Court held that the dispute concerns the “right to use the mark” arising from the Family Settlement Agreement, hence it was a matter fit for arbitration.
The interesting point for consideration here is that the Delhi High Court while interpreting, did not take into consideration the question of right in rem and right in personam. The plaintiff owned the trademark over “electric bikes”. The court did not deal with the contentious question of – whether the class “electric bikes” includes “electric bicycles”. Overall, the court decided this matter from a contractual angle, rather than the Intellectual Property aspect as highlighted by the plaintiffs. It is the opinion of this researcher that this case involved significant Intellectual Property issues to be addressed and a civil court should have dealt with this matter. Given the subject matter, a civil court would have done justice to this dispute.
In M/S. Golden Tobie Private Limited V. M/S. Golden Tobacco Limited, the issue pertained to a supply agreement and trademark licence agreement in the lieu of which Golden Tobie (“plaintiff”) was given non-transferable, non-assignable licence for selling, distributing and supplying Golden Tobacco’s (“defendant”) products. Meanwhile defendants terminated the agreement with immediate effect and stated timely payment was not made by the plaintiff company according to the agreement. Hence the present suit was filed by the plaintiff for wrongful termination. Defendant in response stated to appoint a sole arbitrator according to the terms of the agreement. The Delhi High Court held that the issues were relating to understanding the rights in lieu of a contract – a right in personam, and hence the subject matter was fit for arbitration.
Analysis and Conclusion
The issue of “arbitrability” of trademark disputes is quite nuanced. The concepts of rights in rem and rights in personam play a vital role in deciding the arbitrability of a trademark dispute. As generally, rights in rem cannot be arbitrated. Matters concerning the ownership of trademarks are rights in rem and are not arbitrable. However, a careful examination of the decisions of various Indian High Courts suggest that – when the trademark disputes arise from the violation of a contractual right or arbitration agreement (rights in personam), such disputes are arbitrable. Thus, the current position in India is that trademark disputes arising out of contractual arrangements like an MOU, franchise agreement and family settlement agreements, are amenable to arbitration.
Authors: Gagan K (Assistant Professor of Law) and Sparsha S Pai (Advocate, Bangalore).
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