India: Arbitrability of IP issues
In a recent judgment of October 2017, a Division Bench of the Madras High Court in Lifestyle Equities CV v QDSeatoman Designs Pvt. Ltd & Ors has held that IP issues could be subject to arbitration. The fundamental point at dispute was whether and to what extent are IP related rights arbitrable given that they tend to have effect in rem.
The case concerned a commercial agreement between the parties, whereby QDSeatoman Designs Pvt Ltd, and Quintessential Designs India Pvt Ltd (collectively referred to as "QDS") were engaged by Lifestyle Equities for certain creative services, relating to apparel and garments. This obviously covered IP. This agreement contained an arbitration clause. Certain disputes arose between the parties, though the judgment is not entirely clear on the exact details and circumstances.
Lifestyle Equities invoked the arbitration clause in the matter whereas QDS opposed the same on the ground that the disputes involve IP issues and thus, non-arbitrable. Instead, QDS wanted the Court to permit the filing of a civil suit.
In its judgment dated October 13 2017, the Court held that the issue boiled down to whether the issues being raised would result in a judgment / award in rem or in personam; the former is not arbitrable, but the latter is. According to the Court, the distinction between a right in rem and a right in personam is very old and well-defined one – a judgment in personam refers to a judgment against a person, whereas a judgment in rem refers to a judgment against a thing, right or status or condition of property. In the context of IP, the Court held that a patent licence issue may be arbitrable, but validity of the underlying patent may not be arbitrable.
On facts, the Division Bench agreed with the opinion of the Learned Single Judge, which was under appeal, that the fundamental dispute between the parties related to who had the better right of usage vis-a-vis the other and that this was clearly an issue in personam.
Even though the Hon'ble Court concluded that the dispute between the parties was arbitrable, the Arbitral Tribunal so constituted nevertheless had the jurisdiction to decide its own competence and thus, the final decision on the issue would have to be that of the Arbitral Tribunal.
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