We are pleased to bring you a guest post from Rounak Doshi, discussing the position of law on arbitrability of trademark disputes in light of Delhi High Court’s recent decision in Golden Tobie Private Ltd. v. Golden Tobacco Ltd. Rounak is a 2nd year student at NLIU Bhopal. Our previous posts on questions of IPR and arbitration can be viewed here.
The Delhi High Court, through its judgement, in the recent matter of M/S. Golden Tobie Private Limited v. M/S. Golden Tobacco Limited (dated June 4, 2021) delved into the interpretation of Section 8 of the Arbitration and Conciliation Act, 1996, in relation to the disputes involving trademarks. The court considered this dispute concerning the breach of a trademark licensing agreement as arbitrable and referred it to arbitration. In this post, I will be assessing the law applicable in relation to the arbitrability of disputes concerning trademarks.
Before going into the discussion over arbitrability of trademark related disputes, it is imperative to take a look at the status quo in relation to arbitrability of IPR concerning matters and the importance of the same in India. Arbitrability of IPR was always a matter of concern in India because of the presence of section 62 of the Copyright Act that provides an infringement matter could not be brought before any court lower than the jurisdictionally competent district court, it led to perplexity as the common interpretation was that the IPR related could not be arbitrated; however, the matter was initially discussed by the Bombay High Court in the matter of Eros International Media Ltd. v. Telemax (covered on the blog here), and an interpretation of section 62 was done, wherein the court declared that section 62 did not restrain arbitration as IPR disputes involve private matter, and IP rights were a species of property rights and could not be set separately as a distinct body of law. It also held that an arbitrator was empowered to do what civil court could do, and henceforth, IPR related matters are arbitrable. According to me, arbitrability of IPR related matters is imperative because they are matters in personam and they are required to be resolved within a short span of time which can be done through arbitration rather than litigation. A further analysis was done by the Supreme Court in Vidya Drolia and Ors. v. Durga Trading Corporation, which is discussed later.
A similar concern in relation to arbitrability of IPR disputes arose in the recent matter of M/S. Golden Tobie Private Limited v. M/S. Golden Tobacco Limited, which I’ve discussed below.
The parties entered into an exclusive Supply Agreement dated 16.08.2019, and a trademark license agreement dated 12.02.2020, and amendment agreement dated 29.08.2020 by which the plaintiff was granted an exclusive non-transferable, non-assignable license for selling, supplying, and distributing the Defendant’s brands in domestic and international market. It was pleaded by the plaintiff that on 13.02.2021, by termination notice, the defendant company stated that timely payment had not been made in terms of the agreement, hence, the defendant terminated the agreement dated 12.02.2020 and amendment agreement dated 29.08.2020 with immediate effect and the plaintiff was to have no right to manufacture and sell the exclusive brands of the defendant in the market from that point onwards. Hence the present suit was filed. The Defendant, in response, cited clause 12 of the License Agreement between the parties while requesting that the suit be referred to a sole Arbitrator to be appointed in terms of the afore-noted Clause 12 of the trademark license agreement dated 12.02.2020 and its amendment dated 29.08.2020.
In the beginning of 2021 itself, the Hon’ble Supreme Court, in the matter of Vidya Drolia and Ors. v. Durga Trading Corporation, had dealt with the question of what disputes are considered as arbitrable. The court had propounded a fourfold test to determine arbitrability, and laid down the following conditions for a dispute being non-arbitrable:
“1) When cause of action and subject-matter of the dispute relates to actions in rem.
2) When cause of action and subject-matter of the dispute affects third-party rights and have erga omnes implication.
3) When cause of action and subject-matter of the dispute relates to inalienable sovereign functions of the state.
4) When the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statutes.”
The court went on to explicitly mention that “grant and issue of patents and registration of trademarks are exclusive matters falling within the sovereign or government functions and have erga omnes effect, which means that rights and obligations arising from this decision shall be generally applicable on all. Further, such grants confer monopoly rights, and hence they are non-arbitrable.”
Later on, in the matter of Hero Electric Vehicles Pvt. Ltd. & Anr. v. Lectro E-Mobility Pvt. Ltd & Anr. (covered on the blog here and here), the Delhi High Court dealt with a similar matter where one of the parties objected against the application of arbitration clause while citing the Supreme Court’s opinion in relation to arbitrability of trademark related issues from the Vidya Drolia judgement. However, in this matter, the Delhi High Court allowed the arbitration while mentioning that “the dispute in the matter does not relate to grant, or registration, of trademarks. The trademarks already stood granted, and registered. The dispute arose on the ground that the right to use the trademark in connection with electric cycles and e-cycles was conferred by a particular agreement on a group different than the one actually using it. This assignment is by contractual terms, not by the statutory ones. The dispute has arisen through a violation of the contractual terms, not of the Trade Mark Act. It does not involve any exercise of sovereign functions. In any event, no inalienable exercise of sovereign governmental functions can be said to be involved in the assignment of the right to use the existing trademarks to the various groups.”
These above-mentioned two judgements together set out the parameters for determination of arbitrability of the matters pertaining to intellectual property.
In response to the Defendant’s request for Arbitration, the Plaintiff relied upon Vidya Drolia judgement to mention that the current matter involves dispute in relation to a trademark, and therefore, it will have erga omnes implications relating to sovereign functions of the state. The court discussed the judgements cited and contentions made by both the parties in length, and found that Vidya Drolia judgement had specifically mentioned that matters which are directly arising from issues of IPR would not be arbitrable, however, this court created a distinction while mentioning that the current matter is indirectly connected to the IPR related matters and is actually concerning the agreement terms between the parties and not the trademark of the parties. The court determined that the current matter is arbitrable as the dispute in question relates primarily to the understanding of the terms of the agreements between the parties, and to whether it is legitimate and legal for the Defendant to terminate the said agreements and cancel assignment of the trademark to the Plaintiff. The Plaintiff’s right is not a right derived from the law on trademarks, but a right derived from the licence agreement. Trademark assignment in this case is by contract rather than by law, and it does not involve any exercise of sovereign functions of the state. Therefore, the court referred the said matter to arbitration.
The Vidya Drolia, judgement led to some amount of uncertainty on the arbitrability of the disputes involving trademarks. Court’s opinion from the same was interpreted in a manner that every dispute involving any IPR was considered non-arbitrable. However, the recent stand of the Delhi High Court in this matter has further clarified the position of the Supreme Court in relation to this matter, as it explicitly pronounced that the Supreme Court’s opinion does not reflect an absolute bar over the arbitrability of the disputes concerning trademarks, but rather it imposes a limitation only in relation to those matters which are concerned with the grant or registration of trademark.