India: Pre - Institution Mediation Under The Indian Commercial Courts Act: A Strategic Advantage
A 2018 amendment
to the Indian Commercial Courts, Commercial Division and Commercial Appellate
Division of High Courts Act, 2015 ("Commercial Courts Act") makes
it mandatory for a party to exhaust the remedy of mediation before
initiating court proceedings under the Commercial Courts Act, with
the limited exception of cases where urgent relief is being sought. Patent
infringement disputes, being disputes of a commercial nature, are governed by
the Commercial Courts Act and, therefore, the mandatory pre-institution
mediation provision applies to such disputes.
In cases where a
patentee is not seeking a preliminary injunction and wants to use litigation as
a tool to negotiate terms for granting limited rights to their IP,
pre-initiation mediation is a viable option. negotiation table under the threat
of future litigation but also allow patentees to resolve disputes in a timely
manner by avoiding long-drawn litigation in Indian courts. Patentees can now
consider a different strategy when considering steps for enforcement of patent
rights in India in view of the possible advantages of such mediation
proceedings discussed in this article.
The Commercial Courts Act: Scope and Objectives
The Commercial
Courts Act was introduced in 2015 to establish commercial courts in India for
adjudication of "Commercial Disputes". The statute lays down a
streamlined procedure for quick resolution of high stake disputes of a
commercial nature with strict timelines for filing of pleadings, discovery and
procedure for grant of summary judgments. The definition of
"Commercial Disputes" under the Act is broad and generally covers
commercial transactions and includes disputes arising out of intellectual
property rights. In 2018, the Act was amended to bring in some clarity
of procedure and also to introduce the mandatory pre-institution mediation
provision. As per the amendments in 2018, any Commercial Dispute valued
at more than INR 3,00,000 (about USD 4,338) is governed by the provisions of
the Act.
Pre-Institution Mediation Defined
Section 12A of the
Commercial Courts Act provides parties with an alternative means to resolve
disputes through discussions and negotiations with the help of a mediator. The provision states that a plaintiff must initiate mediation before
filing a suit, with a limited carve out for suits filed with applications for
urgent interim relief.
Courts in India
frequently refer ongoing patent infringement suits to mediation when there
exists a possibility for the parties to arrive at a settlement. However, in the
absence of a law imposing a time limit for completion of such court-referred
mediations, in many cases, mediations of patent infringement suits go on for
months with no resolution. Mediation under the Commercial Courts Act bridges
this gap by making mediation a time-bound process. In India, most IP
infringement suits are filed with an application seeking a preliminary
injunction. This would qualify as "urgent interim relief" under
Section 12A and initiation of mediation prior to filing of the suit would not
be mandatory. However, in disputes where a patentee is not seeking a
preliminary injunction and wants to use litigation as a tool to negotiate terms
for granting limited rights to their IP, pre-initiation mediation is a viable
option.
Procedure for Initiating Pre-Institution Mediation
The procedure to
be followed in such mediation proceedings is set out in the Commercial Courts
(Pre-Institution Mediation and Settlement) Rules, 2018 ("Rules"). As
per the Rules, the plaintiff must file an application with the State Legal
Services Authority or the District Legal Services Authority constituted under
the Legal Services Authorities Act, 1987 ("Authority") to initiate
mediation. Once an application is received, the Authority will issue notice to
the opposing party to appear within 10 days of receipt of notice and give
consent to participate in the mediation proceedings. The Rules provide for
issuance of a final notice if the Authority does not receive a response within
10 days of the initial notice. If the opposing party fails to appear following
the final notice or refuses to participate in the mediation proceedings, the
Authority will treat the mediation process as a non-starter and prepare a
report to that effect. If the opposing party agrees to participate, then the
mediation process begins. Following negotiations and meetings with the
mediator, if the parties arrive at a settlement, it will be recorded in a
settlement agreement.
The Pros
Instituting
pre-initiation mediation holds many advantages over out-of-court interparty
negotiations:
1. Time and cost-effective. Pre-institution mediation initiated under the Commercial Courts Act must be completed within a period of three months from the date of application made by the plaintiff, with a possible extension of two months with the consent of the parties. The time bound process saves time and costs incurred by the parties involved. A recent example of effective use of this mechanism is the mediation instituted by Nokia to negotiate licenses for its standard-essential patents relating to technology used in handsets. The mediation procedure was reportedly completed within a time span of 8 months and Nokia was able to resolve the dispute without filing a suit.
2. Patent litigations in India are known to be lengthy. According to one report from 2017, a total of 143 patent infringement suits were filed between 2005 and 2015 in the Delhi High Court, Bombay High Court, Madras High Court and Calcutta High Court out of which judgments were delivered in only five cases after completion of trial proceedings. Exploring the possibility of a settlement before filing a suit could avoid such lengthy litigation.
3. Confidentiality. Confidentiality of negotiations with a potential licensee is key to prevent disclosure of important business strategies to competitors. The Rules ensure confidentiality by providing that the mediator, the parties, and their counsels must maintain confidentiality about the mediation. Stenographic or audio or video recording of the mediation proceedings is prohibited under the Rules.
4. No threat of a validity challenge. A patentee must always assess the strength of their patent before filing a suit since a defendant can challenge the validity of a patent. Even at the interim stage, a defendant can avoid an injunction being granted against them by raising a credible challenge to the validity of a patent. When the patent is susceptible to a challenge, pre-initiation mediation can be a good choice to negotiate a license without the threat of a validity challenge.
5. Assessing the strength of the opponent's case. Through negotiations in a mediation proceeding, a patentee can get a sense of the opponent's strengths and weaknesses and prepare for the possibility of contesting a suit. The opponent might reveal that their product is covered by another patent or is based on technology available in the public domain. The patentee then has time to assess the likelihood of its success in a suit. There is no bar on seeking interim relief if a suit is filed in the event of a failure of mediation proceedings. Depending on the patentee's assessment of its case, a patentee may still seek an interim injunction even after trying mediation.
6. Negotiating in good faith. Licensee negotiations between parties can often go on for months. During this time, a potential licensee may at time engage in infringing acts. The threat of possible litigation that could result due to an unsuccessful mediation under the Commercial Courts Act would possibly motivate a potential infringer / licensee to negotiate license terms in good faith. The Rules also provide that parties shall participate in the mediation process in good faith with an intention to settle the dispute.
1. Time and cost-effective. Pre-institution mediation initiated under the Commercial Courts Act must be completed within a period of three months from the date of application made by the plaintiff, with a possible extension of two months with the consent of the parties. The time bound process saves time and costs incurred by the parties involved. A recent example of effective use of this mechanism is the mediation instituted by Nokia to negotiate licenses for its standard-essential patents relating to technology used in handsets. The mediation procedure was reportedly completed within a time span of 8 months and Nokia was able to resolve the dispute without filing a suit.
2. Patent litigations in India are known to be lengthy. According to one report from 2017, a total of 143 patent infringement suits were filed between 2005 and 2015 in the Delhi High Court, Bombay High Court, Madras High Court and Calcutta High Court out of which judgments were delivered in only five cases after completion of trial proceedings. Exploring the possibility of a settlement before filing a suit could avoid such lengthy litigation.
3. Confidentiality. Confidentiality of negotiations with a potential licensee is key to prevent disclosure of important business strategies to competitors. The Rules ensure confidentiality by providing that the mediator, the parties, and their counsels must maintain confidentiality about the mediation. Stenographic or audio or video recording of the mediation proceedings is prohibited under the Rules.
4. No threat of a validity challenge. A patentee must always assess the strength of their patent before filing a suit since a defendant can challenge the validity of a patent. Even at the interim stage, a defendant can avoid an injunction being granted against them by raising a credible challenge to the validity of a patent. When the patent is susceptible to a challenge, pre-initiation mediation can be a good choice to negotiate a license without the threat of a validity challenge.
5. Assessing the strength of the opponent's case. Through negotiations in a mediation proceeding, a patentee can get a sense of the opponent's strengths and weaknesses and prepare for the possibility of contesting a suit. The opponent might reveal that their product is covered by another patent or is based on technology available in the public domain. The patentee then has time to assess the likelihood of its success in a suit. There is no bar on seeking interim relief if a suit is filed in the event of a failure of mediation proceedings. Depending on the patentee's assessment of its case, a patentee may still seek an interim injunction even after trying mediation.
6. Negotiating in good faith. Licensee negotiations between parties can often go on for months. During this time, a potential licensee may at time engage in infringing acts. The threat of possible litigation that could result due to an unsuccessful mediation under the Commercial Courts Act would possibly motivate a potential infringer / licensee to negotiate license terms in good faith. The Rules also provide that parties shall participate in the mediation process in good faith with an intention to settle the dispute.
The Cons
Section 12A
imposes a mandatory obligation upon the plaintiff to initiate mediation.
However, the Rules give the opposing party the right to refuse to participate
in the mediation proceedings. If the opposing party does not appear, it will
also result in the mediation proceedings being deemed a non-starter. This
optional approach arguably results in the provision lacking teeth.
The Way Forward
With the option of
time-bound pre-institution mediation, it is now possible for patentees to
target infringers in India and prevent infringement without spending years in
litigation. Weighing the pros and cons of the situation, patent holders can
decide to press for immediate relief in a suit or settle the matter using
pre-institution mediation.
Original Article Published by Aparna Gaur and Aarushi Jain - Nishith Desai Associates.
Link:http://www.nishithdesai.com/fileadmin/user_upload/pdfs/NDA%20In%20The%20Media/News%20Articles/190506_A_Pre_Institution_Mediation_Under_the_Indian_Commercial_Courts_Act.pdf
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