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Effectiveness of Arbitration in Copyright Disputes

Intellectual property rights are rights that provide protection to one’s creations and allows them to derive monetary benefits from it. Intellectual property rights are the backbone of commerce and allows various brands and companies to thrive in a unique manner. There are several intellectual property rights that can be vested in a person via patents, copyrights, trademarks, design copyrights etc. Since intellectual property are protected by rights, it is quite natural that there will be disputes related to the same. Currently, the easiest recourse for remedying a breach of intellectual property rights is to a court of law, wherein the judge decides the rights and liabilities of each party involved and passes orders to compensate the aggrieved party.

Copyrights are protected in India under the Copyrights Act, 1957. Section 13 r/w Section 2 of the Act lays down the scope of the Act, which extends to original literary, dramatic works, musical works, artistic work, cinematograph films and records.

Arbitration is a form of alternative dispute resolution mechanisms. In India, arbitration is covered by the Arbitration and Conciliation Act, 1996 which was amended via the Arbitration and Conciliation (Amendment) Act, 2015. It is referred to as an out-of-court-settlement since it relies only on the award given by the Arbitrator. Big commercial companies already use arbitration as a way to settle disputes between them and consumers for a variety of reasons. It has started gaining popularity in India with even the endorsement of the Courts.

The Booz Allen Hamilton Case [1]

This case was a major landmark case pertaining to the arbitrability of disputes. Since all disputes could be referred to the court for settlement, what kind of disputes could be sent to be arbitrated? The Supreme Court of India sought to lay down a test to determine whether a dispute could be sent to arbitration. It stated that “Generally and traditionally all disputes relating to rights in personam are considered to be amenable 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.”

A right in personam is a right enforceable against a person whereas a right in rem is a right that can be exercised against the world as a whole. The test that the Supreme Court lays down for arbitrability of any dispute is whether the right involved is a right in rem or a right in personam. Rights in personam are arbitrable whereas rights in rem are not arbitrable. It also states that rights in personam which are associated with rights in rem are still arbitrable. Therefore, a breach of contract would be arbitrable despite there being fraud involved[2]. The Court emphasises this idea by laying down a list of examples such as constitutional disputes, criminal offences, guardianship etc which would not be arbitrable.

The Court also noted that this rule would not be completely inflexible. Right in personam that were sub-ordinate and arising from rights in rem would be arbitrable. The scope of an arbitrator’s powers is limited because of public policy considerations and the fact that the parties mutually appoint an arbitrator to settle their dispute, therefore, the arbitrator cannot make an award that is binding on the public at large[3].

Eros v Telemax Case[4]

This case dealt with the arbitrability of copyright disputes. The plaintiff herein, Eros, was an exhibitor, distributor and producer of movies across various mediums. Eros was the owner of multiple copyrights and had also been assigned a multitude of copyrights, while also possessing the exclusive license over some other copyrights. Eros and Telemax, the defendant, executed a term sheet between themselves to distribute content to manufacturers of devices in order to have the content already available on the devices. The term sheet also contained an arbitration clause which laid down that any and every dispute that would arise from the term sheet would be referred to arbitration. It was observed by the Court that the arbitration clause was worded in the widest terms possible.

Eros had contended that the term sheet could not be held as binding as since a Long Form Agreement, which was a necessity to be executed between the parties, was not done so. They argued that the action against Telemax was not one of breach of contract, but rather an action arising under the Copyrights Act, 1957 which was inherently non-arbitrable.

Telemax argued that under Section 8 of the Arbitration and Conciliation Act, 1996, since there was an arbitration clause between the parties, all disputes must be referred to arbitration. It further argued that the dispute arising out of the term sheet was contractual in nature and not just a copyright infringement action. They contented that Eros was trying to enforce their right in personam and not a right in rem. There was no restriction on arbitrability of disputes that were in the nature of right in personam, as laid by the Supreme Court in Booz Allen and Hamilton Inc v SBI Home Finance Ltd. and Ors.

The Court held that since an arbitration clause was included in their agreement, they should ordinarily be referred to arbitration. Section 62(1) of the Copyrights Act, 1957 did not put a bar on the arbitrability of copyrights. Dealing with the issue at hand, the Court said that Eros was exerting their right in personam which as such was arbitrable. This was because any relief claimed would be valid only against Telemax and not any other party, making it only a right to be exercised against Telemax by Eros. Further, the arbitrator was capable of granting the remedy sought by Eros. Thus, since the Court laid down that the relief sought by Eros was for a right against Telemax only, that is, in personam, the dispute between them was arbitrable.

This case was a huge victory for the issue of arbitrability in case of intellectual property disputes. Intellectual property rights are largely a right in rem, that is, against the world at large, but when disputes are of a contractual nature, that is, when the rights involved regarding the intellectual property can be exercised against a particular person, then these rights are arbitrable since they are rights in personam. Therefore, even though intellectual property rights are inherently non-arbitrable, rights in personam that arise from such property rights are arbitrable.

IPRS v Entertainment Network Case[5]

This case was in stark contrast to the decision laid down in the Eros v. Telemax case. The dispute in this case was caused by the alleged breach of licensing agreements by Entertainment Network which allowed EN to broadcast works covered by the IPRS through their FM Radio Stations. Directing EN to carry out their contractual obligations, IPRS terminated their licensing agreement causing EN to invoke their arbitration clause. The arbitrator held that EN did not need a licensing agreement to broadcast the sound recordings since copyrights in sound recordings were different than copyrights in original literary and musical works. He interpreted Section 13 of the Copyrights Act, 1957 to mean that a sound recording may include in it a literary, dramatic or musical work but such work had to be included only after permission of the original copyright holder in such work[6]. It was held that subsequent to the permission, a new copyright exists in the sound recording which envisages the rights under Section 14 (e) of the Copyrights Act, 1957, that is, communication of the sound recording to the public. Therefore, there was no infringement by EN as it was not a necessity to enter into a licensing agreement with IPRS since licensing with the authority of the copyright owner would suffice. This award was challenged with the argument that the arbitrator had no authority to grant an award over a right that was against the world at large.

Following the precedent laid down in Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. & Ors, disputes that were rights in rem would not inherently be arbitrable whereas rights in personam would be arbitrable. Further, subordinate rights in personam arising from rights in rem would indeed be arbitrable. Relying further on Vikas Sales Corporation and Anr. v. Commissioner of Commercial Taxes and Anr.[7] and Mundipharma AG v Wockhardt Ltd.[8] the Court held that rights in IP were to be included within the definition of movable property and in case of infringement of copyrights, the remedies of injunctions, damages and others may only be conferred by a Court and would not, therefore, be arbitrable. The Court interpreted Section 62(1) of the Copyrights Act, 1957 to mean that every suit or civil proceeding instituted in respect of copyright infringements would only be in a district court having jurisdiction. Further, the Court held that the rights concerned here were of rights in rem.

Arbitrability of copyright disputes is a complex subject that involves many nuances. The Supreme Court laid down that inherently, rights in rem would be non-arbitrable whereas rights in personam would be arbitrable. Arbitration has several benefits, these being quick dispute settlement, lack of formal procedure, secrecy of proceedings, efficiency, voluntary and finality of award. Copyright disputes are quite common and their arbitrability would make dispute settlement much easier. There needs to be a higher encouragement to opt for arbitration on part of the Courts. Today, IP rights are usually enforced only in courtrooms. There needs to be stronger legislative backing for arbitrating disputes. The drawback to dispute settlement via arbitration is that there is no system of precedents. An award passed by the arbitrator is binding only between parties.

[1] Booz Allen & Hamilton Inc. v SBI Home Finance Ltd. & Ors. (2011) 5 SCC 532
[2] Arthad Kurlekar, A False Start – Uncertainty in the Determination of Arbitrability in India, (Last accessed 18th September 2018)
[3] Prarthna Bathija, Demystifying the Arbitrability of Patent Disputes in India, (Last accessed 18th September 2018)
[4] Eros International Media Ltd. v. Telemax Links India Pvt. Ltd. and Ors. 2016 (6) ARBLR 121 (BOM), 2016 (6) BomCR 321
[5] Intellectual Property Rights Society (IPRS) v. Entertainment Network, MANU/MH/1597/2016
[6] Inika Charles, On the ‘Apocalyptic’ Arbitrability of Copyright Disputes: IPRS v Entertainment Network, (Last accessed 18th September 2018)
[7] 1996 (5) TMI 363
[8] ILR 1991 Delhi 606

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