Mediation & Arbitration

MEDIATION & ARBITRATION

IP disputes are time sensitive and often very complex. The Indian Judicial System is very heavily backlogged. Moreover, the Judicial Officers generally do not have the relevant knowledge, skill and competence to deal with specialized and complex IP matters which can be very techno-legal in nature.

In 2009, the Supreme Court of India in the case of Shree Vardhman Rice & Gen Mills v. Amar Singh Chawalwala has held that “…Without going into the merits of the controversy, we are of the opinion that the matters relating to trademarks, copyrights and patents should be finally decided expeditiously by the Trial Court instead of merely granting or refusing to grant injunction. In the matters of trademarks, copyrights and patents, litigation is mainly fought between the parties about the temporary injunction and that goes on for years and years and the result is that the suit is hardly decided finally. This is not proper…In our opinion, in matters relating to trademarks, copyright and patents, the proviso to Order XVII Rule 1(2) C.P.C. should be strictly complied with by all the Courts, and the hearing of the suit in such matters should proceed on a day to day basis and the final judgment should be given normally within four months from the date of the filing of the suit.”

Despite the above observation of the Supreme Court of India the vast majority of IPR disputes before India courts remain pending for over 10 years. As a result, alternate dispute resolution mechanisms such as mediation/conciliation and arbitration are gaining ground.

NASCAP through NIMCAC (NASCAP IPR Mediation, Conciliation and Arbitration Center) provides services for mediation and arbitration based on specialized rules created on the basis of corresponding WIPO rules. Parties are encouraged to include mediation/conciliation and are arbitration clauses in all important and complex transactions involving intellectual property rights based on the specialized rules referred above.

NIMAC maintains roster of NASCAP members who act as mediators and arbitrators. They are chosen on the basis of their competence and profressionalism. They have an appropriate legal and professional backgrounds and experience.

Mediation is a confidential, non-binding procedure which is in the interest of the parties which plays a premium on the preservation or an enhancement of their relationship while maintaining control over the dispute settlement process with a view to reach a speedy settlement without damage to their reputation. In a successful mediation procedure a neural intermediary, the mediator helps the parties to reach a mutually satisfactory settlement of their dispute, which is recorded in an enforceable contract.

Alternate Dispute Resolution procedures are normally used in resolving contractual disputes unless mandated by a court. Mediation is certainly more challenging in disputes such as where a deliberate infringement, bad faith, a counterfeiting or piracy is involved. Mediation does require  the cooperation of both parites which means – from the outset – that both parties must be present and ready to talk. That is usually not practicable in counterfeiting and piracy disputes. Also in cases of clear cut scenarios or where the objective is to obtain a neutral opinion on a certain question, mediation might not be the way to go. However, there are examples where even counterfeiters were turned into licensees through a mediation process but these examples are rather rare.

When the Arbitration and Reconciliation Act first introduced mediation in Section 30 as a form of alternative dispute resolution, the Government did not draw up the rules for mediation as it did for conciliation. However, in 1999, the Government enacted the Code of Civil Procedure (Amendment) Act, 1999 (“CPC Amendment Act”) in which a new Section 89 was introduced. This newly inserted section introduces the concept of ‘judicial mediation’, as opposed to voluntary ` mediation’. A court can now identify cases where an amicable settlement is possible, formulate the terms of such a settlement, and invite the observations thereon of the parties to the dispute and, if needed, refer the dispute to:

  • Arbitration
  • Conciliation
  • Judicial settlement including settlement through Lok Adalats or
  • Mediation

Mediation of IPR claims is becoming important in India. For example, to deal with an overwhelming backlog, the Controller General of Patent Designs and Trade Marks, in collaboration with the Delhi Legal Services Authority (DLSA), had referred around 500 pending oppositions and rectifications in the Trademarks Registry(TMR), Delhi, to mediation and conciliation via a public notice,[1] dated 31st March 2016, under the Legal Services Authorities Act, 1987. In furtherance to this, the DLSA also released a Standard Operating Protocol[2] on 13th May 2016 for introducing uniformity in such mediation processes in TMR, Delhi.

Another positive step towards mediation of IPR disputes is the introduction of Section 12A in the Commercial Courts Act of 2015 (“The Act”) [3]via Chapter IIIA of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Ordinance, 2018 (“The Ordinance”)[4] to mandate pre-institution mediation and settlement in cases where no urgent relief has been sought. (Under Section 2(c) of the Act, “commercial disputes” include disputes arising out of intellectual property rights.) The mediation can be conducted by authorities constituted under the Legal Services Authority Act, 1987. It is required to be completed within a period of three months and it may be extended by two months. A signed settled agreement between the parties is to have the same effect as an arbitral award under the Arbitration and Conciliation Act, 1996. Further, the Central Government, on 3rd July 2018 notified Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 for standardizing such mediation processes. This Amendment and the subsequent notification of the Rules are welcome steps since they are in keeping with the original aim of the Act i.e., to bring about reduction in delay of cases. These steps will also encourage parties to stop depending on Courts for resolving IPR disputes and take the matter into their own hands.

Arbitration, like mediation, is procedure in which a dispute is submitted by agreement of the parties to one or more arbitrators who make a binding decision. In choosing arbitration the parties opt for a private and confidential dispute resolution procedure instead of going to court. Although in a case before a court the parties maybe suggested or required to first go through mediation/conciliation and/or arbitration. In contrast to mediation, a party cannot unilaterally withdraw from arbitration. Unlike a court case, the parties to an arbitration are able to choose the applicable law, language and venue of the arbitration. Normally the decision of an arbitral tribunal is final and easy to enforce. Mediation/conciliation and arbitration take much less time and therefore are also much less costly than settlement of disputes in courts.

The differences between mediation and arbitration all stem from the fact that, in a mediation, the parties retain responsibility for and control over the dispute and do not transfer decision-making power to the mediator. In concrete terms, this means two things principally:

  • In an arbitration, the outcome is determined in accordance with an objective standard, the applicable law. In a mediation, any outcome is determined by the will of the parties. Thus, in deciding upon an outcome, the parties can take into account a broader range of standards, most notably their respective business interests. Thus, it is often said that mediation is an interest-based procedure, whereas arbitration is a rights-based procedure. Taking into account business interests also means that the parties can decide the outcome by reference to their future relationship, rather than the result being determined only by reference to their past conduct.
  • In an arbitration, a party’s task is to convince the arbitral tribunal of its case. It addresses its arguments to the tribunal and not to the other side. In a mediation, since the outcome must be accepted by both parties and is not decided by the mediator, a party’s task is to convince, or to negotiate with, the other side. It addresses the other side and not the mediator, even though the mediator may be the conduit for communications from one side to the other.

Naturally, in view of these differences, mediation is a more informal procedure than arbitration.

It is possible to combine mediation with arbitration. In such a case, the dispute is submitted first to mediation under the NASCAP Mediation Rules. Then, if a settlement is not reached within a defined period of time (it is recommended that the parties provide for either 60 or 90 days), or if a party refuses to participate or to continue to participate in the mediation, the dispute is referred for a binding decision through arbitration under the NASCAP Arbitration Rules (or, if the parties so agree, through expedited arbitration). The advantage of the combined procedure is the incentive that it offers for a good faith commitment by both parties to the mediation process, since the consequence of a failure to reach an agreed settlement will be more tangibly measurable in terms of the financial and management commitment that would need to be incurred in the subsequent arbitration procedure.

The Arbitration and Conciliation (Amendment) Act, 2019 has brought in some significant, changes including Appointment of Arbitrators by Arbitral Institution instead of courts in India, setting up of the Arbitration Council of India, introducing time-lines of six months for filing pleadings, making international arbitration’s beyond the purview of the twelve months adjudication period prescribed under S. 29 and altering the scope of Section 17, Section 45, Section 50 of the Arbitration Act and lastly introducing Section 87 to clarify the prospective effect of the 2015 Amendment Act.

In the context of IPR disputes in India, there are some concerns about ‘objective arbitrability’ linked to Section 34(2)(b)(i) of the Indian Arbitration and Reconciliation Act, especially the impact of arbitral awards on non-consenting/third parties. The Supreme Court of India has not settled conclusively the issue of arbitrability of IP disputes. The Supreme Court of India in April 2011, first shed light on the implications of Section 34(2)(b) in Booz Allen and Hamilton v. SBI Finance. The Court emphasized that the scope of arbitrable disputes must be limited to those concerning ‘rights in persona’ or personal rights enforceable against certain individuals. A contrario, ‘rights in rem’ excercisable against the world at large were excluded from the scope of arbitrable disputes. While most IPRs are ‘right is rem’ enforceable against the world at large, the specific contractual dispute over it’s infringement is a ‘right in personam’ action against a particular individual. Unfortunately, different High Courts in India have given  very different judgements on this issue. For example, the Delhi High Court in the Mundipharma Case[ILR 1991 Delhi 606] has held the claim for copyright infringement to be inarbitrable as the copyright law provides exclusively remedies through civil courts only.The Bombay High Court in a Trademark infringement case, SAIL Case [Suit No. 673/20114]. However, in the Eros Case of 2016, the Bombay High Court has held for the first time/ that it would be too broad, impractical and against all commercial sensibilities to hold that the entire realm of IP disputes is inarbitrable. Accordingly, the case rightly noted the nuance that that IP disputes arising purely out of contracts are arbitrable because they are actions in personam, i.e. “ one party seeking a specific particularized relief against a particular defined party”. The court went a step ahead to state that, a finding of infringement has to be made for proving such a contractual breach and that an arbitrator was empowered to make such a finding of infringement as ‘infringement’ can only be in personam. Thus, an infringement claim could now be determined by arbitration. In October 2017 the Madras high court in Lifestyle Equities CV v QD Seatoman Designs Pvt. Ltd has applied the Booz Allen caveat to reiterate the disputes relating to patent use and infringement concern ‘rights in personam’ and are therefore arbitrable.

As per the current position in India, there is no blanket bar on arbitrability of IP disputes. Instead, arbitrability is determined on the basis of nature of claims raised. Disputes of royalty, geographical area, marketing and other terms of the license agreements, which are purely contractual, would be arbitrable. Parties in India can and should freely arbitrate such disputes. However, a dispute of validity/ownership of an IP right should be decided by the court/assigned public administration, for the dispute would result in a judgement affecting the general public’s right to use the respective asset.

Countries such as the United States of America and Switzerland permit the arbitration of patent infringement claims, provided that the consequent award is registered with the relevant patent authority or board.This simultaneously safeguards the complementary interests of effective arbitration of IPR disputes and public interests in ‘rights in rem’. A similar legislative provision could be emulated in India.

[1] https://selvams.com/wp-content/uploads/2017/08/DLSA-Public-Notice-05April2016.pdf

[2] http://dslsa.org/wp-content/uploads/2016/05/Final-SOP-Mediation-TMR.pdf

[3] http://prsindia.org/uploads/media/Commercial%20courts/Commercial%20courts%20Act,%202015.pdf

[4] http://legalaffairs.gov.in/sites/default/files/The%20Commercial%20Courts%2C%20Commercial%20Division%20and%20Commercial%20Appellate%20Division%20of%20the%20High%20Courts%20%28Amendment%29%20Ordinance%2C%202018.pdf