On 2 March 2021, the Delhi High Court settles the debate on Arbitrability of IP disputes in the case of Hero Electric Vehicles Pvt. Ltd. v. Lectro E-Mobility Private Ltd. 1 The case dealt with the dispute between the Munjal family groups over the trademark 'Hero'.In this case, the Delhi HC indemnified the position of IP dispute resolution through contractual terms without dwelling into the complexities of IP laws.
Background of the case
The business of the Munjal family was divided into four family groups designated as F-1, F-2, F-3, and F-4 vide a Family Settlement Agreement (FSA). Pursuant to Schedule 7 to the FSA, Hero Exportswas transferred to the F-1 group. Under the FSA the parties/ family groups are required to resolve disputes arising out of or in connection with the FSA through arbitration. In the present case, the plaintiffs belong to the F-1 group, whereas the defendants belong to the F-4 group.
Parallel to the FSA, in 2010 a Trade Mark and Name Agreement (TMNA) was executed between the parties, which as contended by the Plaintiff granted them exclusive rights to use the Hero trademark with respect to electronic vehicles and it also granted the rights to use the mark for other classes of goods to F2-F4. Over a period of time, Hero Exports incorporated Hero Electric Vehicles Pvt. Ltd. (HEVPL) for the electric vehicles business. HEVPL became a leading manufacturer of electric vehicles in India, and the products were sold under the trademarks of Hero Exports. The dispute, in this case, arose, when the defendant used the trademark 'Hero' for their electric bicycles. As both FSA AND TMNA were amenable to arbitration, the previous arbitral award held that e-cycles cannot be considered electric bikes for which the plaintiff had exclusive rights.
In light of the above dispute plaintiff sought for permanent injunction in order to restrain the F 4 to use the trademark 'Hero'. As a response, Defendant filed IA under Section 8 of the Arbitration and Conciliation Act, 1996, and contended that the matter must be adjudicated through arbitration.
Issue: Whether IP disputes can be resolved by Arbitration.
Rules: Section 8 - Arbitration and Conciliation Act, 1996
Delhi High Court's Decision
The court was of the view that the appropriate forum to approach the dispute is to present plaint before the Arbitrator. The court held that the matter shall be referred to Arbitration as per the terms of the FSA and the TMNA, which provides the parties to appoint the arbitrator/arbitrators.
Analysis: The Hon'ble Court draws attention to the recent case of Vidya Drolia v. Durga Trading Corporation,2 which depicts that where there exists a valid arbitration agreement, the disputes ought to be referred to arbitration unless there is a clear "chalk and cheese" case of non- arbitrability. Therefore, to prevent arbitration, the cause of action in its entirety must be non-arbitrable. Additionally, Section 8 and 11 are judicial in nature, and Arbitration Tribunal has the sole authority to decide on its own jurisdiction. In the present case, the Court needs to establish one, a valid arbitration agreement, and two, the subject matter of the dispute is arbitrable.
To determine the same, reliance needs to be placed on the case of Eros v. Telemax, whereby it was held that "where there are matters of commercial disputes and parties have consciously decided to refer these disputes arising from that contract to a private forum, no question arises of those disputes being non-arbitrable".3 In addition to this, the court in Eurokids International opined that the restriction on using IPs after the franchise agreement was arbitrable in nature.4
The court expanded that a holistic appreciation of the FSA and the TMNA is required in order to adjudicate upon the rights of the disputing parties as the dispute is between Family Groups, arising out of the FSA and TMNA. From this one could infer that the FSA and the TMNA were not asserted in relation to the whole world and thus exists solely in personam. Therefore, the dispute is primarily a contractual dispute and any violation of the Trademark Act exists supplementary to the contractual dispute.
Here the FSA and TMNA evidence the presence of a valid arbitration agreement and the dispute thereon in a contractual dispute in which with one party to the contract demanding the restraint of use of a Trademark vested with them, and is not a dispute of deceptively similar marks, or general cases of infringement. Furthermore, the court stated that the dispute is ex-facie arbitrable in nature.
Conclusion
In this case, the rights in rem related to IPR or trademark in particular, not give rise to rights in personam. But to the contrary, any right in rem exists incidental to the contractual rights i.e., rights in personam. Under Section 8 rights in personam are arbitrable in nature. 5 To sum, the case upholds the arbitrability of IPR disputes.
Footnotes
1. Hero Electric Vehicles Pvt. Ltd. v. Lectro E-Mobility Private Ltd, 2021 SCC OnLine Del 1058
2. Vidya Drolia v. Durga Trading Corporation,(2021) 2 SCC 1.
3. Eros International Media Limited v. Telemax Links India Pvt. Ltd. and Ors, 2016 (6) ARBLR 121 (BOM)
4. Eurokids International Media Ltd. v. Bhaskar Vidyapeeth Shikshan Sanstha, (2015) 4 Bom CR 73
5. Booz-Allen & Hamilton Inc vs. Sbi Home Finance Ltd. & Ors, (2011) 5 SCC 532
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