(Following this post, I wrote two posts on Spicy IP; which I have reproduced in a single post below)
The interface between private international law and intellectual property raises some complex problems in legal policy. This post merely seeks to highlight a few issues in relation to this interface.
Over here, I had noted that the doctrine of forum non conveniens would apply even between two domestic Courts. The principles would be the same as the principles for the application of the doctrine in a private international law context. The position is summed up by Dicey and Morris on the Conflict of Laws, where the authors state that a Court has the power to order a stay of proceedings on the grounds of forum non conveniens if the “…defendant shows there to be another court with competent jurisdiction which is clearly and distinctly more appropriate… and (the stay of proceedings) is not unjust…”
It is interesting to examine how this doctrine will be applied specific to cases of intellectual property. A discussion on this aspect is found in James Fawcett and Paul Torremans, “Intellectual Property and Private International Law” (1998).
A case which highlights the problems posed in this area is Tyburn Productions v. Conan Doyle [1991] Ch 75. The plaintiff was a British company which wished to distribute a Sherlock Holmes movie in the United States. The defendant was the only surviving child of Sir Arthur Conan Doyle. The plaintiff was concerned that the defendant would make allegations that he was the sole copyright-holder in relation to Sherlock Holmes. Therefore, a declaration was sought from the British Courts that the defendant had no such copyright. It was held that the British Courts had no jurisdiction in the matter, as questions relating to the validity of intellectual property rights were local actions which could only be adjudicated in the place in respect of which the relief was sought.
A strong criticism against this decision was that it was based on several unfounded assumptions as to the territoriality of intellectual property rights. At the essence of this debate is the policy question of whether Courts should refuse to try a suit in respect of the infringement of a foreign intellectual property, despite having personal jurisdiction over the defendant in the matter. Suits of title to foreign land are typically not the concern of domestic Courts – should foreign intellectual property be treated on a different footing? (This issue was also discussed in a case between Satyam and Upaid, about which a post is found here.)
Fawcett and Torremans recommend the application of the doctrine of forum non conveniens in such instances. They say:
“The fact that the case concerns a foreign intellectual property right will be a powerful factor suggesting that the clearly appropriate forum is abroad… Nonetheless, there may still be circumstances where an English Court thinks it right not to decline jurisdiction, even though the case concerns the infringement of foreign intellectual property rights… one such case would be where one English company markets products in various countries and owns copyrights, designs and trademarks in respect of them. Another English company enters the same markets with products which infringe those rights. In essence one English company has harmed another and an English Court should try the case. This is the great virtue of the doctrine of forum non conveniens; it provides the flexibility to allow an action commenced in England to continue, which a blanket subject-matter limitation on jurisdiction does not…”
A recent decision of Mann J. in the High Court (Chancery Division) – Lucasfilm v. Ainsworth, [2009] F.S.R. 2 – appears to have narrowed down the position flowing from Tyburn.
Tyburn was based on the extension of the so-called “Mocambique” principle of private international law, which states that domestic Courts have no jurisdiction over suits pertaining to foreign land. In Lucasfilm, the Court distinguished Tyburn on the ground that there was a distinction between actions going to the validity of a foreign right and actions which assume validity and are merely for appropriate relief. The rule in Tyburn was confined to the former category. The following principles were said to emerge from the cases after Tyburn:
There is a tendency to move away from a strict and absolute application of the Moçambique rule to all intellectual property cases, and in particular copyright cases.
There is a distinction between title and validity on the one hand and trespass/infringement on the other, which would justify the conclusion that infringement of foreign copyright should be justiciable in domestic Courts.
The private international law rule (if any) which underpins the extent to which a domestic Court should not embark on a consideration of aspects of intellectual property rights is a policy rule which depends on the specific facts of each case, and is not a rule which takes away jurisdiction as such.
The Court therefore concluded:
I am therefore prepared to conclude that an English court can, and in an appropriate case should, determine at least questions of infringement of foreign copyright cases. Those cases will include cases where subsistence is not in issue. I would not, however, hold that questions of subsistence can never be decided here. In land cases incidental questions of title can apparently now be considered. I can see no reason why the same should not apply to copyright.
It would therefore seem that the rule of Tyburn is confined to its specific facts and is not being extended to other areas.
In general, however, this appears to be one interesting area where the application of PIL rules in an IP context can give rise to legal controversy. Other such areas are documented in this WIPO note on “Private International Law and Intellectual Property”. Further, see this link for a discussion of the problems raised by the internet in relation to IP and PIL.
How do Indian Courts deal with such issues? How should they? The importance of answering these questions will only increase in the future…
In a judgment delivered last week, V. Subramanium v. R. Rao (Civil Appeal 7438/2000; MANU/SC/0417/2009), the Supreme Court declared unconstitutional a significant state amendment to the Partnership Act, 1932.
Through a state amendment, the State of Maharashtra introduced sub-section (2A) to Section 69. This new sub-section read:
(2A) No suit to enforce any right for the dissolution of a firm or for accounts of a dissolved firm or any right or power to realize the property of a dissolved firm shall be instituted in any court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or have been a partner in the firm, unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm:
Provided that the requirement of registration of firm under this Sub-section shall not apply to the suits or proceedings instituted by the heirs or legal representatives of the deceased partner of a firm for accounts of a dissolved firm or to realize the property of a dissolved firm.
Till the introduction of sub-section (2A), a partner in a firm could file a suit for dissolution of an unregistered partnership firm, or for accounts of the dissolved firm, or to recover the properties of the dissolved firm. With the coming into force of the sub-section in 1985, a partner in an unregistered partnership firm in Maharashtra could not file even those types of suits. The question regarding the constitutionality of the sub-section was referred to the Bombay High Court, which upheld the section. An appeal was preferred against this judgment before the Supreme Court.The Supreme Court (Markandey Katju and G.S. Singhvi JJ.) struck down the impugned sub-section (2A) as violative of Articles 14, 19(1)(g) and 300A of the Constitution. This post on Indian Corporate Law briefly looks at the reasoning of the Supreme Court.
The 2nd National Law School of India Review Symposium will be held on the 18th and 19th of April, 2009. The theme of the Symposium is “Towards Unification: Perspectives on Investment and Commercial Arbitration”; and is intended to cover international commercial arbitration as well as investment treaty arbitration. The sessions of the Symposium are as follows:
Domestic Arbitration – The Scope of Arbitrability and Applicable Law
The Expansive Role of the Indian Judiciary and its Implications
Investment Arbitration and MFN
The Unification Movement
The Symposium has an impressive list of speakers which can be accessed here. Registration details are available here and here.
An anti-suit injunction is an injunction directed towards a person restraining the person from commencing or proceeding with a suit before another Court. It is not an injunction directed towards any Court; it is directed to the party concerned. Thus, a British Court can grant an injunction against a party from filing a suit before an Indian Court. The power of Indian Courts, however, seems to be somewhat limited.
Section 41(b) of the Specific Relief Act, 1963, states:
An injunction cannot be granted… to restrain any person from instituting or prosecuting any proceeding in a courtnot subordinate to that from which the injunction is sought…
Thus, anti-suit injunctions can be granted only to restrain a person from approaching a .subordinate Court. Thus, the Bombay High Court can grant anti-suit injunctions only to prevent the parties from approaching subordinate Courts in Maharashtra. I wonder what the policy justification for this is. If Bombay is clearly the most appropriate forum for trying a particular suit, why should the Bombay High Court not be competent to restrain the plaintiff from filing a suit in the Delhi High Court? Issues of judicial propriety do not really arise – the injunction would not be directed towards the Delhi High Court as such.
More interestingly, it is arguable that the statute as it stands prohibits Indian Courts from issuing any anti-suit injunction in relation to proceedings before a foreign Court. For instance, the District Court of New York is not a Court “subordinate” to the Bombay High Court. No foreign Court will ever be ‘subordinate’ to an Indian Court. The bar in Section 41(b) would always apply in the case of a prayer for anti-suit injunction vis-à-vis a foreign Court. Foreign Courts can, however (according to their domestic laws) grant anti-suit injunctions vis-à-vis Indian Courts.
One way of getting around this would be to consider Section 41(b) as applying only to Indian Court. In other words, the term “proceeding in a court” could be read as “proceeding in an Indian court”.
Nonetheless, in Rakesh Kumar v. Ashima Kumar, AIR 2007 Pun 63, the Punjab High Court held (after considering the Supreme Court decisions in ONGC v. Western Co. of North America and Cotton Corporation v. United Industrial Bank) that an anti-suit injunction could not be issued against a foreign Court. The rationale behind this approach seems to be puzzling to say the least. In fact, a correct reading of the ONGC decision would not support the decision of the Punjab High Court.
The latest pronouncement on the point appears to be the recent decision in Rajshree Sugars v. Axis Bank. There, the Madras High Court held:
Thus, Cotton Corporation case was distinguished in Oil and Natural Gas Commission case, to the limited extent of recognizing the power of the Courts to grant anti suit injunctions despite the principle of subordination of courts, found in Section 41(b) of the Specific Relief Act, 1963.
This position appears to be the far more justified approach to take. It is also justified by a reading of ONGC, where the Court affirms the power to issue anti-suit injunctions vis-à-vis foreign Courts. The Punjab decision mentioned above therefore needs to be reconsidered.
A recent post on Spicy IP had led to an interesting discussion on the appropriateness and applicability of the principle of ‘forum non conveniens’ in domestic law. Usually, the principle is applied in the context of private international law. Within a domestic system, the principle is applied in cases where the judicial structure is federal and not unified in structure. The debate assumes importance given the expansions in jurisdiction under certain legislations which allow the plaintiff a choice to file a suit in his place of residence, as opposed to the principle in the Code of Civil Procedure which requires filing of suits in the defendant’s place of residence. Now, if a Court does have the jurisdiction under either the CPC or under the specific provisions such as S. 62(2) Copyrights Act or S. 134(2) Trademarks Act, can it refuse to hear the case on the ground that a more alternative forum is available? Does the private international law principle of forum non conveniens extend to the jurisdiction of Courts within India in a solely domestic context? The Delhi High Court decision in St. Ives Laboratories v. Arif Perfumers, [CS (OS) No. 78/2009, decided by Justice S.N. Dhingra] suggests that it does.
The case involved allegations of trademark infringement. It was not the case of the plaintiff that it resided in Delhi. Thus, for the purposes of the case, the special jurisdictional sections were irrelevant. The question had to be decided in accordance with the rules of the Civil Procedure Code. In particular, the issue was whether part of the cause of action arose in Delhi, so that the Delhi Courts could assume jurisdiction.
There was a clear allegation in the plaint that the defendants were surreptitiously and clandestinely trading their goods under the impugned trademark and labels in Delhi and in other parts of the country. The trademark was registered in Delhi, and the plaintiff alleged that it was suffering losses in Delhi too. In deciding jurisdiction, a Court usually satisfies itself with the averments made in the plaint. In the facts of the case, those averments indicated that part of the cause of action did arise in Delhi. It was argued that in view of this, Delhi Courts would have jurisdiction under Section 20(c) of the CPC.
The Court held:
Looking at the entire plaint, it only seems that the plaintiff had filed this suit at Delhi only as a device of harassment calculated to force the defendant to come to Delhi, engage a Counsel at enormous expense and contest litigation. The plaintiff, who was resident of USA could have easily filed this suit at Courts at Bombay/Maharashtra and pursued the matter. Filing of suit in Delhi on the basis of vague allegations that the goods of defendants were being sold clandestinely throughout the country including Delhi makes no sense. No cause of action can be said to have arisen in Delhi. Such allegations of clandestine sale can be made against any person without any foundation and the plaintiff even during trial can always escape giving proof of such clandestine sale saying that he has stated in the plaint that the sale was clandestine and no bills were being issued. The Court cannot be used as a tool to put such a burden on the defendant that the defendant is unable to even defend the suit. The plaintiff cannot be given absolute liberty to choose the place of suing a defendant out of entire country on the basis of unfounded and vague allegations. In such a case CPC provisions regarding jurisdiction stand rendered useless.
(Emphasis added)
Now, it might well be possible to hold that the Court had concluded that no part of the cause of action arose in Delhi. There are at least three reasons, however, for believing that the Court was in fact applying the doctrine of forum non conveniens.
First, on the averments made in the plaint, it was not possible to say that no part of the cause of action arose in Delhi. The veracity of those averments cannot be gone into for the purposes of determining jurisdiction. Secondly, if indeed no part of the cause of action arose in Delhi, there was no reason to make observations concerning the hardship and burden faced by the defendant. Thirdly, in its reasoning, the Court referred to a Supreme Court decision – Kusum Ingots v. Union of India – holding that a Court is not bound to entertain a plaint if a small part of the cause of action arose within its jurisdiction. This indicates that the Court was holding that even though a part of the cause of action arose in Delhi, the Delhi Courts were not the most appropriate forum for adjudication.
The judgment in Kusum Ingots itself appears to accept the forum non conveniens principle. That case was concerned not with private law disputes but with the public law question regarding the appropriate High Court in cases of writ jurisdiction under Article 226 of the Constitution. Nonetheless, it was held that the CPC principles of jurisdiction were equally applicable to writ proceedings. The Supreme Court went on to say that “indisputably” even if a small fraction of the cause of action arises within the jurisdiction of a particular Court, that Court shall have jurisdiction in the matter. Yet, on appropriate cases, the Court could refuse to exercise that jurisdiction on the ground of forum non conveniens. Thus, the Court recognised the distinction between the existence of jurisdiction and the exercise of jurisdiction.
The principle of Kusum Ingots has been followed subsequently. In Jayaswals Neco, the decision was analysed in depth; and was held to be authority for the proposition that when a cause of action arises partly in one jurisdiction and partly in the other, it is ordinarily for the petitioner to choose his forum. Yet, “in appropriate cases” the Court concerned may refuse to hear the matter because of forum non conveniens. The Delhi High Court decision in St. Ives seems to now settle the issue that the doctrine would also apply outside writ jurisdiction to an ordinary civil suit between two private parties.
A question which arises in such a scenario is, “What are the principles which would determine the application of the doctrine of forum non conveniens?” A subsequent post will try to answer that question.
Mr. V. Umakanth recently posted on SSRN a paper titled “A Cautionary Tale of the Transplant Effect on Indian Corporate Governance” [National Law School of India Review, forthcoming, 2009]. It can be downloaded from this link.
The abstract of the paper is as follows:
During the last decade, there has been a sustained effort on the part of the Indian regulators to strengthen corporate governance norms. This been strongly influenced by developments that occurred in other parts of the world, particularly the US and UK. This study reflects upon whether the approach adopted by the Indian regulators is adequate or whether that requires some mid-course correction. With that in mind, this Article adopts a revisionist approach with the help of two simple assertions, develops those further and leaves some food for thought leading to possible further detailed normative research.
The twin assertions are: (i) the broad features of the Indian corporate governance norms have been transplanted from other jurisdictions such as US and UK that follow the ‘outsider’ model of corporate governance, and hence those norms are not likely to be suitable for implementation in addressing governance problems in India, which follows the ‘insider’ model; and (ii) recent events involving the collapse of several leading companies provide evidence, at least anecdotal in nature, that the corporate governance norms followed in the US and UK have not been effective in preventing large-scale corporate governance failures, thereby raising questions about the efficacy of that model in the Indian context.
Through these assertions, this Article makes the case that the source for strengthening Indian corporate governance lies within. Seeking out other systems of corporate governance to emulate will only lead to further incongruity with the traditional business systems and practices that are replete in India, and unnecessarily add to the eclecticism that persists in Indian corporate governance. What is required is a model of governance that resonates well with Indian business values and practices from the standpoint of economic, social, and political factors.”
(In Part I of this post, I had looked at fact of a recent case before the Pune Bench of the Income Tax Appellate Tribunal in Daimler Chrysler v. DCIT. Part II analysed one of the issues covered by the Tribunal – whether a DTAA applies in the absence of double taxation. The present Part III looks at the issue of “non-discrimination”)
The assessee claimed that the provisions of Section 79 could not be validly invoked in view of the Indo-German DTAA. In particular, the contention of the assessee was that the invocation of Section 79 violated the “non-discrimination” clause in the DTAA. The contention was, effectively, that the subsidiaries of a foreign company were being discriminated against vis-à-vis the subsidiaries of an Indian company; and this resulted in the non-discrimination provisions of the DTAA being violated.
The relevant provision of the DTAA was Article 24, which read in the relevant parts as follows:
1. Nationals of a ContractingState shall not be subjected in the other ContractingState to any taxation or any other requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State …are or may be subjected…
...
4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any other requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of the first-mentioned state are or may be subjected…
(Clause 1 is typically known as a “nationality-based non-discrimination clause; while clause 4 is typically known as an ‘ownership-based non-discrimination clause”)
The issue turned on what “other similar enterprise” in Article 24(4) would mean. In determining whether Article 24(4) was violated or not, the Revenue contended that the Tribunal should compare the treatment accorded to the subsidiary of a foreign company with the subsidiaries of another foreign company. They cannot be compared with subsidiaries of a domestic company. In assessing whether any discrimination had occurred, against what class of companies was the assessee to be compared? Vis-à-vis any subsidiary of any foreign company, the assessee had suffered no discrimination. The claim of discrimination was sustainable only if a subsidiary of a foreign company was compared with a subsidiary of a domestic company (which would not be affected by Section 79).
The Tribunal surveyed the case-law on the point from different jurisdictions. American, German and French Courts had taken the position that to determine whether or not there has been any discrimination, what needs to be examined is the “differentiation in treatment of a company which was a subsidiary of a foreign company vis-à-vis a company which is a subsidiary of a domestic company…” On the other hand, a House of Lords judgment in Boake Alleen Ltd. v. HM Revenue (available here) supported the case of the Revenue.
The Tribunal analysed the House of Lords judgment in great depth, and came to the conclusion that the judgment was inaccurate. The House of Lords had assumed incorrectly that an ownership-based non-discrimination clause [Article 24(4)] was conceptually similar to a nationality-based non-discrimination clause [Article 24(1)]. A nationality-based non-discrimination clause seeks to ensure that no discrimination takes place on account of the nationality of a taxpayer in a host country. On the other hand, an ownership-based non-discrimination clause seeks to ensure that the investment of foreign capital is not made disadvantageous to the entity in which the capital is so invested. This rationale of the ownership-based non-discrimination clause would be defeated unless a comparison was made between a subsidiary of a foreign company vis-à-vis a subsidiary of a domestic company. The Tribunal therefore disagreed with the House of Lords, and cited with approval the following passage by an eminent expert, Kees van Raad, with approval:
The qualification “other similar” is not remarkably precise. In view of the fact that the subject of discrimination is a foreign controlled enterprise, it would be obvious to interpret the term “other” in description of the enterprise to which is must be compared, as referring to control by local residents…”
In view of this, the Tribunal rejected the contention of the Revenue. Therefore, according to the Indo-German DTAA, the rigour of Section 79 could not be applied to the assessee in the case. The carefully reasoned decision indicates that within the DTAA regime, foreign-owned subsidiaries must be treated on par with Indian-owned subsidiaries.
In this post, I had looked at a decision of the Supreme Court in Faqir Chand Gulati v. Uppal Agencies. I had observed, “the broad nature of the observations suggests that the legal form of an agreement is irrelevant in cases of interpretation of documents, and all that matters is the substance of the document.” Questions may be asked as to whether this decision in fact changes the position of law on the point. As a clarification, it must be stated that the position of the law has not been changed by Faqir Chand Gulati’s case.
For instance, reference may be made to Sundaram Finance v. State of Kerala, decided by a three-Judge Bench of the Supreme Court, reported in AIR 1966 SC 1178. The majority (Shah and Sikri, JJ.) went behind the words of the agreement to look at the real nature of the transaction; while Subba Rao J. dissented. Subba Rao took the view that the intention of the parties to a valid contract must be gathered from the words used by the parties in the contract – in other words, the finding of the ‘substance’ must be based on the ‘form’. On the other hand, the majority stated, “In each case, the Court has, unless prohibited by statute, power to go behind the documents and to determine the nature of the transaction, whatever may be the form of the documents…”
It must be added however, that looking at the “substance” ignoring the legal form is justifiable only when there is clear evidence as to the substance. This paragraph in Azadi Bachao Andolan v. Union of India, dealing with the substance-over-form debate in taxation, sums up the position, “If the Court finds that notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the Court might be justified in overlooking the intermediate steps, but it would not be permissible for the Court to treat the intervening legal steps as non-est based upon some hypothetical assessment of the 'real motive' of the assessee. In our view, the court must deal with what is tangible in an objective manner and cannot afford to chase a will-o’-the-wisp.”
The correct position of law in relation to the interpretation of documents therefore seems to be:
The goal of the interpreter is to find the true intention of the parties.
Ordinarily, this true intention must be gathered from the words used. The substance is therefore to be determined in accordance with the form.
However, when it is manifestly clear (from the surrounding circumstances, and from the document read as a whole) that the specific words used do not reflect the true intention of the parties, then the words may be ignored. To that extent, substance will prevail over form.
Thus, the words used by the parties can be presumed to indicate the real intention of the parties; but this presumption can be rebutted in exceptional circumstances. Gulati's case must be read according to these principles, and must not be read to mean that the form is irrelevant.
In Nandan Biomatrix v. DI Oils, available on JUDIS, the Supreme Court decided an interesting issue pertaining to vagueness in arbitration agreements. The alleged arbitration clause in question in the agreement between the parties read:
15.1 Any dispute that arises between the parties shall be resolved by submitting the same to the institutional arbitration in India under the provisions of Arbitration and Conciliation Act, 1996
The question before the Court was whether the clause was vague and uncertain (and therefore void) as it did not specify any particular institution.
Courts will usually uphold the validity of inaccurately worded or imprecise arbitration clauses if the intention of both parties can be ascertained from the text. It appears that the position of law is that an arbitration agreement, though required to be in writing, need not be in any specific form. What matters is the substance of the agreement,. The question to be asked in such cases is – can an intention to arbitrate be demonstrated from an interpretation of the agreement?
On the facts of the case, the Supreme Court held that the clause in the agreement was sufficiently precise to indicate an intention to arbitrate; and accordingly the matter was referred to arbitration before the Singapore International Arbitration Centre (SIAC). The reasoning of the Court was that although no institution was specified, the intention to settle the dispute by arbitration was clear.
This reasoning is slightly problematic if it is extended to mean that the “intention to arbitrate” must be determined in the abstract. Often, an intention to arbitrate will be closely tied to an intention to arbitrate before a specific forum. Thus, it is entirely conceivable that parties want their disputes to be arbitrated only before a particular institution. For instance, let us assume that an agreement says that disputes are to be arbitrated before an ICC panel. Additionally, let us assume that just before the agreement, the ICC has decided to discontinue its arbitration activities. Can the Court now say that the parties had an intention to arbitrate, and therefore the dispute can be arbitrated before another arbitral institution, given that the ICC was no longer an option? The presumption must be that the parties intended to arbitrate only before the specifically named institution; and failing that institution there is no intention to arbitrate at all.
The Court noted, “…the parties unequivocally agreed for resolution of the disputes through Institutional Arbitration and not through an ad hoc arbitration”. It would appear, however, that the parties could at best be stated to have agreed for the resolution of the disputes between them through institutional arbitration in India in accordance with the Indian Arbitration Act in force. The factor that parties in an international commercial transaction have agreed to a specified forum must assume importance. Accordingly, the reference to the SIAC seems slightly problematic – even assuming an intention to arbitrate is inferred, that intention must have meant an intention to arbitrate before an institutional body in India.
A recent report in the Economic Times highlights the difficulties faced by the software industry because of the inclusion of certain software-related services within the service tax net. The issue is a considerably difficult one - when one person sells software to another, has he sold a good (thereby coming under the sales tax/VAT net) or has he rendered a service to the other person (thereby coming under the service tax net)? Is it possible for the two elements to overlap; effectively meaning that the transaction will come under the net of both VAT and service tax, resulting in ‘double taxation’ as such? V. Niranjan has written a note on the Indian Corporate Law blog, discussing some of these aspects. The note is linked here.
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