Demystifying the Conundrum of Arbitrability of Disputes Concerning Trademarks

Introduction

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 04-06-21 delved into the interpretation of section 8 of the Arbitration and Conciliation Act in relation to the disputes involving Trademarks. The Hon’ble court considered this dispute concerning the breach of a trademark licensing agreement as arbitrable and referred it to arbitration. In this article, we shall be assessing the legal position applicable in relation to the arbitrability of dispute concerning Trademarks.

Background

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 that what disputes are considered as Arbitrable. The court had propounded a fourfold test to determine what dispute in an arbitration agreement are not 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. 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., 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 Trademarks 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 combinedly set out the parameters for determination of arbitrability of the matter pertaining to Intellectual Property. A similar matter arose in the matter of M/S. Golden Tobie Private Limited v. M/S. Golden Tobacco Limited, which is discussed subsequently.

Facts

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.

Decision

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 Trade Mark, and henceforth, 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 to determine 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 legalistic for the Defendant to terminate the said agreements and cancel assignment of the Trade Mark made to the plaintiffs. The Plaintiff’s right is not a right derived from the law on trademarks, but a right derived from the licence agreement. Trade mark assignment in this case is by contract rather than by law, and it does not involve any exercise of sovereign functions of the State. Henceforth, the court referred the said matter to Arbitration.

Conclusion

Through the judgement of Vidya Drolia, certain amount to dilemma was created as to the arbitrability of the disputes involving Trade Marks. However, the recent stand of the Delhi High Court has further clarified the take 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, it puts a limitation only in relation to those matters which are concerned with the grant or registration of Trademark. Although, this particular area of law is yet to be explored as IP Law is a growing entity in India, and henceforth, it will be worthwhile to further delve into this interpretation and understand the intent of the legislation and the judiciary in relation to the same.

Author: Rounak Doshi – a student of National Law Institute University (Bhopal), currently an intern at Khurana & Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at aishani@khuranaandkhurana.com.

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