Thursday, May 26, 2016

Arbitrability of Copyright Disputes

[The following guest post is contributed by Aditya Swarup, who is an Assistant Professor at Jindal Global Law School. The author would like to thank Shivprasad Swaminthan, Assistant Professor, Jindal Global Law School and Angad Mehta, Advocate, for their valuable comments.]

In the recently delivered judgment in Eros International Media Ltd. v. Telemax Links India Pvt. Ltd., the Bombay High Court in effect held that a copyright dispute was a dispute “in personam” and not ‘in rem’, that copyrights are not rights “in rem” and hence arbitrable. While the judgment itself has far reaching implications on the arbitrability of IPR disputes, and has probably reached the right conclusion, it is respectfully submitted that the judgment muddles important distinctions between rights in rem and personam, without sufficient grounding in jurisprudence and reference to important texts.

In the case, the Plaintiff, the owner of copyright in several films, entered into a “Term Sheet” with the Defendant with respect to distribution of its films. The Term Sheet contemplated an exclusive licensing contract and an execution of a “Long Form Agreement” and had a standard arbitration clause stating that any dispute arising out of or in connection with the Term Sheet shall be settled by arbitration by a sole arbitrator. The Long Form Agreement was never executed and disputes arose as regards the copyrighted content provided to the Defendant under the Term Sheet. Accordingly, the Plaintiff filed a suit in the Bombay High Court and the Defendant thereafter filed an application under Section 8 of the Arbitration Act, 1996. It is pertinent to mention that the Defendant was not using the copyright material anymore and therefore, the only relief that could be provided was a claim in damages and for relief in terms of a permanent injunction for the future.

Justice Gautam Patel allowed the Notice of Motion under Section 8 of the Arbitration Act, 1996 and held that the disputes were arbitrable. His reasoning was as follows:

(i)        The resolution of copyright disputes by an arbitral tribunal does not take away or exclude the remedies available to a claimant (para 14).

(ii)       As between two claimants to a copyright or a trademark in either infringement or passing off action, that action and that remedy can only ever be an action “in personam”. It is never an action “in rem”. Copyright actions are actions “in personam”. (para 17).

(iii)      Holding otherwise would “result in widespread confusion and mayhem in commercial transactions”. The Learned Judge didn’t think that “the world of domestic and international commerce is prepared for the apocalyptic thermonuclear devastation” that would follow holding otherwise.

It is respectfully submitted that all the above three rationales are flawed.

Rights “in Rem” and “in Personam”

The classic on the exposition of rights “in rem” and “in personam” can be found in Salmond’s text on jurisprudence. He explains the origin of the rights as under:

“The terms jus in rem and jus in personam are derived from the Roman terms actio in rem and actio in personam. An actio in rem was an action for the recovery of dominium; one in which the plaintiff claimed that a certain thing belonged to him and ought to be restored and given up to him. An actio in personam was one for the enforcement of an obligatio; on in which the plaintiff claimed the payment of money, the performance of a contract, or the protection of some personal rights vested in him as against the defendant….”

Elsewhere he states:

“A right in rem is available against the world at large; a right in personam is available only against particular persons. The distinction is of great prominence in the law, and we may take the following as illustrations of it. My right to the peaceful occupation of my farm is in rem, for all the world is under a duty towards me to not interfere with it. But if I grant the lease of the farm to a tenant, my right to receive rent from him is in personam. …. A right in rem, then, is an interest protected against the world at large; a right in personam is an interest protected solely against determinate individuals… the law confers upon me a greater advantage in protecting my interests against all persons than in protecting them only against one or two. The right of a patentee, who has a monopoly against the world, is much more valuable…”[1]

The exercise of a right in rem is meaningless without a corresponding remedy. It is not plausible to suggest that a person may have a right against the world in respect of a particular property but is not able to claim the remedy against all. Rights in rem generally include torts, crimes and property rights. Rights in personam mainly include contractual rights.

Intellectual property rights, being a species of property rights, are rights in rem. The right conferred on an owner of intellectual property “binds the world”, and is enforceable against everyone. The right holder has the exclusive right to certain activities (depending on the intellectual property right in question) within the ambit conferred by law and is therefore entitled to fight off any encroaching act by any person not authorised by himself or by the law directly. It has also been argued that if an unauthorised interfering/infringing act can be resisted by virtue of the ownership status, then the performance of a contract which constitutes or contains such an infringing act, can presumably also be resisted on the same basis[2].

The ruling of the Hon’ble Court in Eros International that copyrights are not rights in rem is made without reference to any authority though numerous authorities exist to prove otherwise. In fact, the Madras High Court in Super Audio Madras P. Ltd. v. Entertainment Network India (P) Ltd.[3], has held (again without reference to authority) that orders of the Copyright Board are orders in rem and bind third parties.

Arbitrability of “Rights in rem” 

In Booze Allen & Hamilton Inc. v. SBI Home Finance Ltd.,[4] the Supreme Court held:

“35. …... Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private fora…..

36. The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.

37. It may be noticed that the cases referred to above relate to actions in rem. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject-matter of the case, whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. …

38. 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. This is not however a rigid or inflexible rule. Disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable...”

Gary Born states that the types of disputes which are non-arbitrable nonetheless almost always arise from a common set of considerations. The non-arbitrability doctrine rests on the notion that some matters so pervasively involve public rights, or interests of third parties, which are the subjects of uniquely governmental authority, that agreements to resolve such disputes by ‘private’ arbitration should not be given effect.

On the same lines, the reason some matters could be considered non-arbitrable is because of the inability of a private arbitral tribunal to grant remedies and pass awards/orders in rem, i.e. orders that bind third parties. Copyright is a case of this kind. A finding that a person is an owner of a copyright means that he is the owner as against all persons. For instance, if “A” is the owner of a movie and “B”, a distributor, is responsible for making unauthorized copies of the movie and supplying others and selling the CDs, “A” can not only seek to restrain (and claim damages) “B” but all such persons in possession of the unauthorized copies. In case “A” and “B” entered into a contract for distribution and such contract was breached by “B” and “B” distributed unauthorized copies to others, an order of restraint against third persons cannot be passed by an Arbitral Tribunal.

Does this then mean that all intellectual property disputes are non-arbitrable?

Despite being considered rights in rem, intellectual property disputes are arbitrable across the common law world.

In the US, the arbitrability of patent disputes is covered under 35 U.S.C. § 294. In the case of copyrights, in Kamakazi Music Corp. v. Robbins Music Corp.,[5] the Court of Appeals endorsed the arbitrability of copyright infringement claims where copyright validity was not in issue. There have been a few other cases where the Court has held that arbitration is possible even when the validity of the copyright is in issue if the matter arises out of a copyright license suit.[6] The arbitrability in this sense is also dependent on the remedies and is limited to such remedies as can only possibly be granted by an arbitral tribunal. In Canada, the Supreme Court in Desputeaux v. Éditions Chouette (1987) inc[7] stated that copyright disputes are arbitrable as long as the orders are not against or intended to bind third parties. Thus, the Courts have drawn a crucial distinction between copyright issues where the issue related to the right in rem and the claim made thereunder and an issue arising out of a contract where the remedy is restricted to the parties in the arbitration. Similar is the position in England.[8]

In fact, this approach takes a leaf out of Salmond’s book. Salmond states “My right to the peaceful occupation of my farm is in rem, for all the world is under a duty towards me to not interfere with it. But if I grant the lease of the farm to a tenant, my right to receive rent from him is in personam..” Similarly, while the holder has a copyright against the world, a license granted without respect to the copyright and the right of the owner to receive license fees therefrom or to claim damages for any breach against such licensee is a right in personam. The dispute in the present case could fit in here.

It is humbly submitted that the Bombay High Court erred in holding that copyright disputes are not rights in rem and the enforcement of such copyrights would be in personam. Further, given that the arbitral tribunal cannot grant (final) remedies against third parties, the Court ought not to have held that the resolution of copyright disputes by an arbitral tribunal does not take away or exclude the remedies available to a claimant. However, the ratio that copyright disputes are subject to arbitration is more or less correct as long as the award of the tribunal binds only the parties to arbitration and doesn’t operate in rem.

The approach then taken by the Court is not sound in principle. In fact, given the fact that no such question had arisen earlier in the court, it was only prudent that a thorough examination of laws and principles be undertaken. It is also pertinent to mention that in the present case, the only reliefs that could have been awarded were damages and a permanent injunction. Hence, the Court could have merely stated that since no reliefs are claimed against third parties, the dispute is of one in personam with respect to the given facts.

Epilogue: Possible alternative approaches

How then, apart from what is stated earlier, is it possible to acknowledge that copyrights are rights in rem and still arbitrable? Two possible approaches could be examined.

First, it could be argued that the when two parties decide to enter into a contract with an arbitration clause with respect to intellectual property, they agree to waive their rights in rem and seek resolution through arbitration. The success of such an approach is dependent on negating any public policy considerations to arbitrability of IPR disputes.

Second, there is a line of authority to permitting arbitration of rights in rem in cases of oppression and mismanagement. In Fulham Football Club v. Richards,[9] the English Court of Appeal stated that there is no public policy consideration that a case of unfair prejudice is not arbitrable. However, the remedy of the arbitral tribunal will be restricted since it cannot pass an order of winding up subsequent to a finding of unfair prejudice. If the plaintiff approaches the arbitral tribunal and agrees to seek remedies that a tribunal can rightly grant, then he cannot be told that the dispute is not subject to arbitration. It could then be suggested that like in oppression cases, if there is an arbitration clause in a copyright dispute, the petitioner is given an option to decide which fora he should approach depending on the remedy and the statutory right under the Copyright Act, 1957 should not be excluded. In the case of oppression, if the party chooses to go to Court in a petition properly brought under Section 397 and 398 of the Companies Act, 1956 (as stated by Gautam Patel J. himself in Rakesh Malhotra v. Rajinder Malhotra) then the matter cannot be sent to be resolved by arbitration. Likewise, if he approaches the Court/Board to seek remedies that a tribunal cannot grant, then he cannot be told that the dispute is subject to arbitration.

-Aditya Swarup



[1] PJ Fitzgerald, Salmond on Jurisprudence, 12th edn., pg. 235 (Universal Law Publishing, Delhi).
[2] Andreas Rahmatian, “Contracts infringing intellectual property rights”, Intellectual Property Quarterly, 2003, 4, 411-444.
[3] (2011) 1 LW 611 (Mad).
[4] (2011) 5 SCC 532.
[5] 684 F.2d 228 (2 Cir. 1982).
[6] Saturday Evening Post Co. v. Rumbleseat Press, Inc., 816 F.2d 1191, 1198-99 (7 Cir. 1987)
[7] 2003 SCC 17
[8] See Mustill & Boyd, (2001).
[9] [2011] EWCA Civ 855.

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