The Bombay High Court, on the 31st of August, held in Indian Performing Right Society Limited (IPRS) v. Entertainment Network, that the dispute at hand was not arbitrable as it related to an action in rem (read the order here). This order by Justice R.D. Dhanuka is in stark contrast to Justice Patel’s well-reasoned Eros v. Telemax (‘Telemax’) judgement pronounced in April this year (read Prof. Basheer’s post and the order here, and here) where it was held that legal claims that arose from IP licensing were in personem disputes and hence there was nothing that ousted IP disputes from arbitration. In this post, I examine Justice Dhanuka’s order in detail, and contrast it with Justice Patel’s analysis in Telemax. [Warning: Long post ahead]
2011 Arbitral Award
I will not be going into the factual background in detail as I want to focus on the in rem/in personem distinction, but please do refer to Pages 2-10 of the order for the same. The dispute between IPRS and Entertainment Network (‘EN’) arose out of EN’s alleged breach of the license agreements between the parties, which gave EN the right to broadcast works from IPRS’ repertoire through their FM Radio Channels. After calling on EN to comply with their contractual obligations, IPRS terminated the license agreements. This led EN to invoke the arbitration clause in their contract in 2006, and the appointed arbitrator reached his decision on the 6th of December, 2011. The learned arbitrator held that EN did not need to obtain a license from IPRS for the broadcast of sound recordings, as the copyright in sound recordings could be differentiated from the copyright held in the original literary and musical works.
The learned arbitrator interpreted Section 13 of the Copyright Act, 1957 (the ‘Act’) to mean that a sound recording may include in it a literary, dramatic, or musical work, but such work could only be included with permission from the original copyright holder in such work, and without infringing the copyright. Pursuant to such permission, it was held that a fresh copyright exists in the sound recording which includes the rights as prescribed in Section 14(e) of the Act – to inter alia communicate the sound recording to the public. Therefore, the learned arbitrator held that there was no infringement of IPRS’ rights in EN’s broadcast of the sound recordings; as there was no need to obtain a license from the owner of the original musical/literary works, and licensing with the owner of copyright in the sound recording would suffice.
The Award was challenged by IPRS on a number of grounds, the most prominent being that the arbitrator had no jurisdiction to adjudicate on the matter as it entailed the determination of IPRS’ rights in rem – or rights exercisable against the world at large.
Copyright disputes as rights in rem
Justice Dhanuka follows the precedent laid down by the Supreme Court in their 2011 case of Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. & Ors., where they had examined the arbitrability of disputes that were in rem, holding such disputes to be inherently non-arbitrable. Booz Allen reiterates the traditional notion of all disputes relating to rights in personem to be open to arbitration, while those relating to rights in rem to be adjudicated by courts and public tribunals. However, the Supreme Court recognized that this rule isn’t infallible – and that subordinate rights in personem that arise from rights in rem might be subject to arbitration.
Justice Dhanuka also relied on the following two cited judgements to arrive at his conclusion. The Supreme Court in 1996 decided in Vikas Sales Corporation and. v. Commissioner of Commercial Taxes that IP rights in rem were to be included within the definition of movable property. The Delhi High Court in 1991 in the case of Mundipharma AG v. Wockhardt Limited held that in a case of infringement of copyright, the remedies of injunctions, damages and otherwise may only be conferred by a Court, and are hence not arbitrable. In line with Munidipharma’s holding, Justice Dhanuka interpreted Section 62(1)’s direction of instituting every suit or civil proceeding in respect of the infringement of copyright in a district court having jurisdiction to be a mandatory provision.
The arbitrator had held that EN was not required to obtain a license from IPRS, as he differentiated between the rights held in original musical works and in sound recordings. Justice Dhanuka interpreted this holding to mean that IPRS’s “rights as a licensor were destructed in the impugned award not only against the claimant, but also against the world at large”, or that the adjudication was one in rem. Justice Dhanuka additionally held that the award negated the need to obtain licenses from IPRS, and such a holding would affect not only the respondent but “also various other owners of the copyright in the underlying works who were not the members of the respondent society or otherwise”. He interpreted the award to have made the overlying property right of IPRS in the in personem agreement between the parties’ void, and it was for this reason that the award decided on an action in rem.
Therefore , the Court found that the impugned award suffered from patent illegality and was in conflict with the public policy of India, and hence liable to be set aside under Section 34(2)(b)(i) of the Arbitration and Conciliation Act, 1996. The Court further held that the question of refund of excess royalty could only be adjudicated by the Copyright Board, and was not subject to arbitration.
Differentiating Eros v. Telemax
Telemax is an exceptionally well written judgement, which expanded on the base that was laid down in Booz Allen. Justice Patel affirmed that it would be very troubling to hold that all disputes dealing with rights that arise from IP are ‘inherently non- arbitrable’; and that the Arbitration Act should not be short circuited in such a manner. With regards to Section 62(1), Justice Patel observed that the section should not be read down to mean the ousting of the jurisdiction of an arbitral panel. Unless specifically barred, an arbitrator should have the same powers as a Civil Court, should the parties have contractually chosen to turn to arbitration instead of litigation. Telemax, therefore in essence held that ‘as between two claimants to a copyright or a trademark in either [an] infringement or passing off action, that action and that remedy can only ever be an action in personem.’
Justice Dhanuka, in the present case dismissed most of the cases relied on by EN, including Telemax. While I believe Justice Dhanuka could have provided more clarity on the issue, he differentiated the cases on the basis of the relief claimed in both suits. Where Telemax dealt with a case of infringement, the present case essentially centered around IPRS’ right to claim royalties in relation to the broadcasting of a sound recording. This issue, though interpreted by Courts in the past, is once again in the limelight as the Supreme Court very recently upheld the Delhi High Court’s ruling in Aditya Pandey v. IPRS. I believe that Justice Dhanuka was correct in ruling the way he did, as the relief claimed in this case was not merely one for damages or an injunction, but the award also had the effect of declaring that IPRS had no entitlement to a copyright vis-a-vis the works it had licensed. As a result of the award, IPRS consequentially would have no right to claim royalties on their works. To differentiate the case from Telemax would therefore be a correct interpretation of the precedent, as it was not merely a right under the license agreements between the two parties that was decided on by the arbitrator, but IPRS’ rights to communicate their works to the public.
It must however, be kept in mind that this case is an exception to the rule as laid down in Booz Allen¸ and expanded in Telemax. IPR disputes as a whole cannot be classified as inherently non-arbitrable, as this would do great harm to the Arbitration Act and cause widespread confusion in commercial transactions that include intellectual property rights as part of the overall transaction. While Justice Patel’s slightly overemphasized prediction of ‘apocalyptic legal thermonuclear devastation’ that will result from holding IPR disputes to be non-arbitrable rings true; it is also important to recognize such disputes that affect the legal validity of rights in intellectual property to be exceptions.
I’d love to hear from our readers on this. Please do leave your views in the comment section below!
Image from here