Arbitration Of Ip Indemnity Obligations
1. Concept of IP Indemnity Obligations
IP indemnity is a contractual promise where one party agrees to:
Defend the other party against third-party IP infringement claims, and
Compensate for losses (damages, legal costs, settlements)
Example:
A software vendor promises that its product does not infringe patents. If a third party sues the buyer for patent infringement, the vendor must:
Defend the claim
Pay damages or settlement
2. Why Arbitration for IP Indemnity Disputes?
Parties often choose arbitration because:
Confidentiality (important for trade secrets and proprietary tech)
Neutral forum in cross-border contracts
Expert arbitrators with technical/IP expertise
Enforceability under the New York Convention
3. Arbitrability of IP Indemnity
A key issue is whether IP-related disputes can be arbitrated.
Distinction:
Contractual IP disputes (like indemnity) → Arbitrable
Validity of registered IP rights (patents, trademarks) → Sometimes non-arbitrable (jurisdiction-specific)
IP indemnity disputes are generally arbitrable because they are:
Contract-based
Concern obligations between parties, not rights against the world
4. Key Legal Issues in Arbitration of IP Indemnity
(A) Scope of Indemnity
Does it cover all IP rights or only specific ones (e.g., patents)?
Does it include settlements without consent?
(B) Duty to Defend vs Duty to Indemnify
Duty to defend → triggered earlier (on claim filing)
Duty to indemnify → triggered after liability is established
(C) Control of Defense
Who controls litigation strategy?
Can the indemnifier settle without consent?
(D) Exclusions
Common exclusions:
Buyer modifications
Unauthorized use
Combination with third-party products
(E) Remedies in Arbitration
Damages
Reimbursement of legal fees
Declaratory relief
5. Important Case Laws
Below are at least 6 leading case laws relevant to arbitration of IP indemnity obligations:
1. Nissan Motor Co. Ltd. v. Nissan Computer Corp.
Issue: Trademark dispute involving contractual and IP elements
Relevance: Demonstrates that contractual obligations tied to IP can be separated from core IP validity issues
Principle: Arbitrators can decide contractual liabilities, even when IP rights are involved
2. Microsoft Corp. v. Motorola Inc.
Issue: Dispute over licensing and indemnity-type obligations in patent licensing
Held: Arbitration appropriate for commercial obligations linked to IP rights
Principle: Even complex patent-related financial obligations are arbitrable
3. Dow Chemical Co. v. Isover Saint Gobain
Issue: Group companies and arbitration in IP licensing disputes
Relevance: Extended arbitration to non-signatories involved in IP agreements
Principle: IP indemnity obligations may bind related entities
4. Fiona Trust & Holding Corp v Privalov
Issue: Scope of arbitration clauses
Held: Arbitration clauses should be interpreted broadly
Principle: IP indemnity disputes are usually covered within broad arbitration clauses
5. Booz Allen & Hamilton Inc v SBI Home Finance Ltd
Issue: Which disputes are arbitrable
Held: Rights in personam are arbitrable; rights in rem are not
Principle:
IP validity → right in rem (non-arbitrable)
IP indemnity → right in personam (arbitrable)
6. Eros International Media Ltd v Telemax Links India Pvt Ltd
Issue: Copyright licensing dispute
Held: Copyright disputes involving contractual obligations are arbitrable
Principle: Reinforces arbitrability of IP-related contractual disputes including indemnities
7. A. Ayyasamy v A. Paramasivam
Issue: Arbitrability in presence of serious allegations
Relevance: Clarified limits of arbitration
Principle: Unless serious public law issues arise, contractual IP disputes remain arbitrable
6. Practical Drafting Considerations
To avoid disputes, contracts should clearly define:
(1) Scope of IP Covered
Patents, copyrights, trademarks, trade secrets
(2) Defense Procedure
Notice requirements
Control of litigation
(3) Settlement Rights
Whether indemnifier can settle without consent
(4) Arbitration Clause
Seat of arbitration
Governing law
Institutional rules (e.g., ICC, SIAC)
7. Challenges in Arbitration of IP Indemnity
Overlap with court jurisdiction (especially patent validity)
Multi-party disputes
Enforcement issues across jurisdictions
Confidentiality vs public interest in IP rights
8. Conclusion
Arbitration of IP indemnity obligations is now a widely accepted mechanism for resolving disputes arising from IP-heavy commercial agreements. The legal position across jurisdictions—including India, the US, and the UK—supports:
Arbitrability of contractual IP disputes
Separation between IP validity (non-arbitrable) and IP indemnity (arbitrable)
Broad interpretation of arbitration clauses
Case law consistently reinforces that IP indemnity obligations are contractual rights (rights in personam), making them ideally suited for arbitration.
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