The rise of ADR in India

Some major SEP owners have found success using pre-litigation mediation in India to reach 11th-hour deals with previously unwilling licensees. A recent court ruling means that arbitration is now on the table too

Alternative dispute resolution (ADR) has become a mainstay in the world of commercial disputes and offers myriad benefits to parties in comparison to litigation. It is being used to resolve increasingly complex commercial disputes, including in the IP realm.

There is growing demand for resolving IP matters, such as infringement disputes and resultant damage claims, through mechanisms including arbitration. The Netherlands Arbitration Institute suggests that more than 80% of all private international contracts contain dispute resolution clauses in favour of arbitration, with IP contracts proving no exception.

However, this was not always the case as ADR was not previously held in such high esteem by IP practitioners. Arbitral awards used to be routinely challenged before the courts; the dispute resolution process itself was not particularly quick; and the enforcement of foreign awards frequently opened up a Pandora’s box of complex legal structures and protocols.

Such conditions meant that arbitral awards came with significant costs in terms of time and money before the benefits of an award could be felt. Further, countries with independent internal legal regimes, which prevented international awards from being enforced with ease, further diminished their international legal and commercial appeal.

The Indian government has become aware of this situation and has undertaken some impressive measures over the last two decades to ensure that the international ADR framework functions smoothly alongside the Indian legal regime. While India has made significant progress in improving the functionality, dependability and efficacy of ADR mechanisms in recent years, ADR is not a new concept when it comes to resolving disputes in India.

This article analyses the role that ADR currently plays in the resolution of patent disputes in India and assesses the pros and cons of dispute resolution through ADR. Does the growing popularity of ADR mean that it will take over the world of patent litigation or will it fall short?

The long history of ADR in India

As in every other developed judicial system, India has an organised framework of judges and attorneys who decide the outcome of civil and criminal disputes, which dates back three to four centuries. However, this does not mean that people suffered under an arbitrary and lawless regime before the introduction of codified legal systems.

As one of the oldest civilisations of the world, Indian culture and tradition led to the creation of peaceful and amicable systems of dispute resolution many centuries ago. The established and complex structures, which were developed to facilitate access to justice for all citizens, reflects the heightened socio-legal consciousness of Indian society.

For example, during the Indus Valley Civilisation, which had one of the most advanced international trading systems of its time (around 2,500 BCE), trade-related disputes between the many merchants and traders that visited its markets were resolved by the intervention of clans (kulas) or groups similar to trade unions (srenis). Similarly, the Vedas (holy scriptures documenting the Indian way of life in the past) also recognise the existence of village associations, which acted as conciliators and were often used to resolve disputes at the first instance.

Subsequently, several religions that originate in India (Buddhism and Jainism being foremost) teach that non-violence is one of the fundamental principles of life, and also require that individuals refrain from inciting conflict and follow a middle path of tolerance. As a result, the mentality of Indians through the ages has led to a belief in resolving disputes through peaceful, non-contentious and inclusive means.

Over time, the basic structure of the Indian way of life has remained roughly consistent with disputes generally being resolved at grass-root (first-instance) levels (ie, in villages). A body (the panchayat), which usually comprises five elected leaders of a village is charged to resolve disputes through inclusive and equitable means. This method of dispute resolution is such an intrinsic and integral part of Indian society that it was officially recognised as the third-tier of governance in the Constitution of India 1950.

Overview of the ADR system

With such a rich history of resolving disputes through amenable means, ADR cannot be considered to be a novel concept in India. While most developing economies have created independent statutes to regulate the practice of arbitration, mediation and conciliation (eg, the Arbitration and Conciliation Act 1996 in India), India has also recognised ADR as an official and statutory recourse for the resolution of ongoing litigation.

In addition to recognising the panchayats as constitutional bodies to resolve disputes in an inclusive way, the Code of Civil Procedure 1908 encourages parties to resort to mediation and conciliation (among other available options) even during heated litigation.

In 2005 the chief justice of India, RC Lahoti, presided over a Mediation and Conciliation Project Committee, which charged the authorities to explore other forms of ADR besides conventional arbitration.

The Delhi High Court (and other civil courts under its jurisdiction) spearheaded the campaign towards institutionalising court-sponsored mediation and conciliation, with the courts at Bengaluru and Mumbai following suit.

In 2006 there was a training drive for judges in Delhi and Bangalore, which exposed them to advanced models of mediation, early neutral evaluation (ENE) and plea bargaining. The Delhi High Court introduced a form that must be filed at the institution stage of every lawsuit in which a plaintiff indicates whether it desires to settle the matter through mediation or conciliation. In Bawa Masala Co v Baba Masala Co Pvt Ltd Judge Sanjay Kishan Kaul of the High Court granted an ENE order and two parties submitted their reports. As a result of mediation, a number of disputes between the parties were subsequently resolved.

ADR in intellectual property

Initial concerns

Even as ADR made great strides in resolving all kinds of civil disputes in India, IP law was perceived to be beyond its reach. The reasons for this include:

  • the complexity of the subject matter of most IP disputes, especially those involving patent infringement;
  • the perception that such disputes could not be initiated in any court of law besides the civil courts specifically named in IP statutes (eg, the Trademarks Act 1999, the Patents Act 1970 and the Copyright Act 1957 all stipulate that infringement disputes must be instituted before district courts with adequate territorial jurisdiction); and
  • the perception that IP rights are not confined to the rights holder only, but are in fact exclusionary rights and are therefore rights in rem. Since ADR seeks to resolve disputes solely between two contentious parties, the consequences of any decision or development in ADR will affect third-party entities that are related to the intellectual property in question.

In other words, ADR is commonly utilised for resolving disputes where an individual’s right in personam is called into conflict, whereas an IP right is traditionally a right in rem.

Rise in popularity of mediation

The initial apprehension towards mediation has proved to be unfounded. In civil and commercial litigation, courts are often faced with resolving disputes that are essentially borne out of:

  • misunderstandings;
  • lack of communication; or
  • cultural differences and differing approaches to business.

Not only is mediation well suited to resolving such issues, but there are also several other factors that have contributed to its rise in popularity.

Judicial push towards mediation for resolving complex pharmaceutical patent disputes

While the stakes in commercial litigation cases are high, experienced judges can quickly identify the most salient points, which can help to resolve disputes quickly.

As mediation and conciliation have become an integral component in resolving disputes, the Delhi High Court has led from the front, urging parties to talk across the table and attempt to reach a mutually beneficial settlement.

When highly complex patent disputes (eg, Hoffman La Roche v Cipla (CS (OS) 89 of 2008, High Court of Delhi) and Merck Sharp Dohme Corporation v Glenmark Pharmaceuticals (CS (OS) 586 of 2013, High Court of Delhi)) were referred to the Mediation Centre of the Delhi High Court, this was received positively by the entire IP community in India. The decision to refer such complex disputes – involving questions of infringement of complex pharmaceutical patents and challenges to the validity of these patents – was unprecedented and revolutionary in many ways.

Although the mediation proceedings did not resolve the disputes between the parties, this move opened the minds of the entire IP community (both lawyers and litigants) to a whole new approach to disputes. As a result, an increasingly large number of litigants have started exploring mediation, both before and during litigation.

Resolving opposition and cancellation proceedings before the Trademarks Office

Such was the enthusiasm with which the government embraced ADR that in an unprecedented move, on 19 February 2016, the Office of the Controller General of Patents, Designs and Trademarks referred up to 500 disputes relating to opposition and rectification petitions pending at the Trademarks Registry, so that they could be resolved amicably at the Delhi High Court Mediation Centre.

Legislation – mandatory pre-litigation mediation in commercial disputes:

The Commercial Courts Act 2015 is a revolutionary piece of legislation which governs every aspect of a commercial dispute filed before the civil courts. An amendment introduced to Section 12A of the legislation mandates that parties explore pre-litigation mediation and seek an amicable resolution to the dispute, unless the plaintiff has sought an injunction on an urgent basis.

This process, known as ‘pre-litigation mediation’, has revolutionised the Indian dispute-resolution paradigm. Given the expertise of senior mediators and conciliators and the fact that parties to such proceedings approach negotiations with the intention to settle their dispute, pre-litigation mediation has led to the successful conclusion of hundreds of complex IP disputes in India, including disputes relating to the infringement of SEPs.

Pre-litigation mediation in SEP licensing

Pre-litigation mediation was rising in popularity even before its use was mandated through legislation under the Commercial Courts Act 2015, especially in the resolution of complex IP disputes.

While the resolution of routine software and trademark disputes through mediation is a welcome development, it is the high success rate of this mechanism in resolving complex patent disputes that has caught the attention of the IP community across the globe.

In recent years, SEP owners have started to approach the Delhi High Court Mediation Centre, inviting resistant licensees to negotiate complicated commercial deals. Surprisingly, it is foreign corporations that have invoked this mechanism with great success, including against unwilling licensees in India.

As a result, some major telecoms companies have leveraged the mediation process to issue licences to such entities on a significant scale. These deals are testament to the fact that pre-litigation mediation exerts the required pressure that is clearly lacking in routine commercial settings.

In addition to traditional reasons favouring ADR in general, there are several aspects which make pre-litigation mediation an even more attractive option to both patent owners and respondents alike, including:

  • pre-litigation mediation can be instituted at a convenient forum without any challenge to the jurisdiction of the centre in which the proceeding is instituted, unlike litigation;
  • the process is presided over by a neutral and experienced senior authority, whose wise and timely intervention can send a seemingly unresolvable dispute in a positive direction, similar to litigation;
  • both parties commence proceedings with the mutual understanding that peaceful settlement is preferable over contentious litigation;
  • mediation proceedings encourage greater participation from respondents, unlike conventional IP lawsuits, which see a fair share of ex parte judgments; and
  • if there is a failure to reach a settlement, the rights holder can take the case to court quickly (between two and three days after the failure of mediation), therefore, the patent owner loses no tactical advantage in terms of time.

Further, a settlement resulting from this procedure is given statutory recognition as an award passed under the Arbitration and Conciliation Act 1996. As a result, the settlement constitutes a final and binding agreement, which is enforceable in a court of law.

Table 1. Success rate for the Delhi High Court Mediation Centre

Year

Number of cases referred

Successfully resolved cases

Success rate

2011

2,632

1,221

46%

2012

2,635

1,534

58%

2013

2,791

1,382

50%

2014

2,981

1,542

52%

2015

2,607

1,965

75%

Total

13,646

7,644

56%

“Strengthening mediation in India, a report on court-connected mediations”, Vidhi Centre for Legal Policy, December 2016

Table 2. Success rate for the Bombay High Court Mediation Centre

Year

Number of cases referred

Successfully resolved cases

Success rate

2011

4,255

2,904

68%

2012

4,844

3,275

68%

2013

5,256

3,532

67%

2014

5,310

3,397

64%

2015

5,320

3,271

61%

Total

24,985

16,379

66%

“Strengthening mediation in India, a report on court-connected mediations”, Vidhi Centre for Legal Policy, December 2016

Success rates

In the short period since the institution of mediation and conciliation centres under the aegis of the civil courts, the ratio of resolved disputes to those instituted has risen significantly.

This success can be credited to the increase in the number of ADR institutes, the high-quality staff training and the enthusiasm with which the public has embraced litigation alternatives.

Empirical data collected by progressive high courts (eg, the High Court of Bombay and the High Court of Delhi) reveals the tremendous success that the ADR centres have achieved in bringing otherwise heated litigations to an amicable conclusion (see Tables 1 and 2).

Can patent disputes be resolved through ADR?

While the arbitration of IP disputes (especially disputes arising out of licensing contracts) is not a new phenomenon in many countries, the case in India is quite different. While mediation took several giant leaps towards establishing a foothold in the Indian IP environment, arbitration has not been as popular despite having enjoyed the advantage of a head start. Again, there are several explanations for this, which are detailed below.

Belief that IP disputes are not arbitrable

The landmark judgment of the Supreme Court of India in Booz-Allen Hamilton v SBI Home Finance (2011, 5 SCC 532) is widely regarded as the benchmark decision with regard to the arbitrability of disputes.

In its decision, the court held that arbitral tribunals are forums that are privately chosen for the resolution of disputes between contracting parties. Therefore, they are fundamentally different from civil courts, which are public forums. Further, it was observed that arbitral awards are reflective of rights, liabilities and interests as they exist between the parties to the proceedings or those directly affected as a result thereof. The decision was widely interpreted to mean that rights in rem cannot be subject to arbitration, while rights in personam can.

The next case to be tried by the court on the issue of arbitrability was Ayyaswamy v Paramasivam (2016, 10 SCC 386). While IP disputes were not the subject matter of the appeal before the Supreme Court, they were mentioned in the court’s judgment.

When considering the question of which categories of dispute are subject to arbitration, the court held that while the Arbitration Act 1996 itself does not exclude any particular category of dispute from its purview, a holistic reading of the statute leads one to observe that disputes involving criminal offences of a public nature, those which arise out of illegal agreements and status of a title affecting the public, cannot be arbitrated. This led the court to observe that disputes relating to patents, trademarks and copyrights (along with antitrust disputes, cases alleging fraud and criminal offences) are not arbitrable.

Can IP disputes be filed only before civil courts specified under statute?

Many years before the Supreme Court passed an observation that alluded to the non-arbitrable nature of IP disputes, a predominant view was that IP disputes could not be arbitrated, since respective governing statutes specifically held that actions for infringement could be introduced before a civil court, which was not inferior to a district court (Mundipharma Ag v Wockhardt Ltd, ILR 1991 Delhi 606).

However, this view was set aside by orders of the Bombay High Court in Eros. Rejecting the argument, the court held that the law did not confer exclusive jurisdiction on civil courts and merely provided the lowest forum in which IP suits could be initiated.

Winds of change

In a case concerning the violation of a copyright licence agreement, the High Court of Bombay passed a landmark judgment whereby it distinguished the observations made by the apex court in Aiyyasami (supra). In unequivocal terms, the court held that it would be too broad, impractical and against all commercial sensibilities to hold that all IP disputes are not arbitrable.

The court took special note of the fact that IP disputes arising purely out of contracts are arbitrable because they are actions in personam (ie, “one party seeking a specific particularised relief against a particular defined party”).

Savvy SEP owners have already figured out that mediation proceedings in India can form a key part of a licensing strategy. It remains to be seen whether arbitration proceedings will become a bigger part of IP disputes.

Action plan

While ADR has a long history in India, it has only played a major role in the resolution of IP disputes relatively recently. Given the global trend towards the utilisation of ADR in IP disputes, its use is likely to increase, which makes it all the more important that rights owners and advisers understand the context in which it has been used:

  • For a long time, IP disputes were beyond the reach of ADR mechanisms in India due to concerns about the complex nature of IP disputes and legislative questions – but new laws and court rulings have opened the floodgates.
  • Mediation was first trialled in pharmaceutical IP disputes, but it is now required by statute that it be attempted before any commercial litigation.
  • SEP owners in particular have enjoyed success in initiating pre-trial mediation with prospective licensees to reach final and binding licence agreements without the need for lengthy trials.
  • Arbitration was held to be non-arbitrable by Indian courts, but a 2016 decision changed this understanding and it is now another option available for IP owners to resolve disputes.


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