Smoke clears over arbitration in trademark disputes

In the recent case of M/S Golden Tobie Private Limited v M/S. Golden Tobacco Limited, the Delhi High Court decided the question of whether trademark-related disputes can be the subject of arbitration. The court interpreted section 8 of the Arbitration and Conciliation Act, 1996, which provides that a party to an arbitration agreement has a right to refer a dispute to arbitration even when court proceedings have started. This case clarifies whether disputes arising out of the violation of a trademark licence agreement can be resolved through arbitration.

The parties entered into a supply agreement, a trademark licence agreement and an amendment agreement under which the plaintiff, GTPL, was granted a licence exclusively to sell, supply, and distribute the tobacco brands of the defendant, GTL, in domestic and international markets. GTPL substantially invested in the project, and incurred great expense on advertisements and promotions. However, GTL terminated the licence agreement and purported to withdraw the plaintiff’s right to manufacture the brands of GTL.

The plaintiff sued for wrongful termination. In response, the defendant cited the arbitration clause in the licence agreement, and applied to the court for the dispute to be referred to a sole arbitrator. The plaintiff argued that the termination of the assignment agreement was an issue in rem, affecting interests beyond the assignment of the trademark, and was therefore not arbitrable. The court disagreed and held that, as the dispute arose out of the agreement between the parties, it was arbitrable. Since the rights established by the plaintiff were contained in a contract, they were rights in personam, that is between the parties only and therefore amenable to arbitration.

The defendant relied on the decision of the Supreme Court in Vidya Drolia and Ors v Durga Trading Corporation, which decided which disputes were arbitrable. The court adopted a four-fold test to determine whether it was impermissible to resolve a dispute through arbitration. In addition to setting out the differences between disputes that involved only the parties and those that involved third parties not directly concerned, the court held that where the dispute related to inalienable sovereign and public interest functions of the state, mutual adjudication would be unenforceable. The Supreme Court held that the registration, issue and grant of patents and trademarks were matters within the sovereign function, and therefore disputes involving them were non-arbitrable.

In the case of Hero Electric Vehicles Pvt Ltd. & Anr v Lectro E-Mobility Pvt Ltd & Anr, one party relied on the Vidya Drolia case to object to the application of the arbitration clause in an agreement. However, the Delhi High Court allowed the dispute to go to arbitration, holding that it did not relate to the grant or registration of trademarks. The court ruled that the trademarks had already been granted and registered, and the dispute concerned the right to use the trademark granted by a particular agreement. The agreement was controlled by contractual terms and not sovereign actions. The dispute was over violations of the contractual terms and not of the Trade Marks Act. The dispute could therefore go to arbitration.

In Vidya Drolia the judgment was unclear as to whether arbitration was unavailable in any dispute involving trademarks. However, the Delhi High Court has explained and refined the ruling of the Supreme Court. In the Hero case, the court explained that the Supreme Court was not imposing an absolute bar on disputes concerning trademarks being dealt with by arbitration, but rather enforcing a limitation on arbitration in matters that are concerned with the grant or registration of trademarks. In the Golden Tobie case, the Delhi High Court confirmed the refinement that the Hero case brought to Vidya Drolia. Indeed, the parties in Golden Tobie appeared again before the Delhi High Court in separate proceedings based on the same dispute. In dismissing a second attempt by GTPL to persuade a differently constituted court that arbitration was barred by Vidya Drolia, the court characterised counsel’s arguments as clearly without merit. The court also ruled that the reasons advanced by the plaintiff for not referring the matter to arbitration were misplaced and without merit.

Authors Manisha Singh and Shreyashi Mazumdar provide a detailed analysis of M/s Golden Tobie Private Limited v M/S. Golden Tobacco Limited, where the Delhi High Court decided whether trademark-related disputes can be a subject of arbitration.