Dispute over Licensing, Royalties, and IP Enforcement

Disputes concerning licensing, royalty payments and enforcement of intellectual-property rights arise when an IP owner permits another party to exploit patents, trademarks, copyrights, know-how, software, designs or other proprietary technology in return for consideration, usually a fixed fee, milestone payment or royalty calculated by reference to sales, production or revenue.

In India, these disputes are governed by a combination of contract law, the Patents Act, 1970, Copyright Act, 1957, Trade Marks Act, 1999, Designs Act, 2000, Specific Relief Act, 1963, Arbitration and Conciliation Act, 1996, and general principles of damages and equitable relief.

A particularly important feature is that an IP licensing dispute can contain two distinct dimensions:

1. Contractual/in personam disputes — whether royalties were paid, whether the licence was terminated, whether accounts were properly maintained, whether the licensee exceeded the licence, etc.; and
2. IP/property/in rem disputes — questions concerning validity or ownership of registered IP rights and relief against the world at large.

The first category is generally well suited to arbitration, whereas the second may require determination by courts or specialised statutory authorities depending on the right and relief involved. The Supreme Court has recently reaffirmed that contractual trademark disputes arising from assignment/licensing arrangements are not automatically non-arbitrable merely because they concern IP.

1. Nature of a Licensing Dispute

An IP licence is essentially permission granted by the IP owner to another person to exercise specified rights that otherwise belong exclusively to the owner.

A licence agreement normally identifies:

• the IP being licensed;
• territory;
• duration;
• exclusivity or non-exclusivity;
• permitted products or services;
• manufacturing rights;
• distribution rights;
• sublicensing rights;
• royalty rate;
• minimum guaranteed royalty;
• milestone payments;
• reporting obligations;
• audit rights;
• quality-control obligations;
• confidentiality;
• improvement and derivative technology rights;
• infringement-enforcement responsibilities;
• termination rights; and
• post-termination obligations.

A dispute may therefore arise even where ownership of the underlying IP is undisputed.

Example

Suppose A owns a patented manufacturing technology and licenses it to B for ten years.

The agreement requires B to pay:

5% of net sales generated from products incorporating the technology.

B reports annual sales of ₹100 crore and pays ₹5 crore.

A subsequently discovers that B excluded ₹30 crore of sales by treating certain products as "non-licensed products".

A may claim:

• additional royalties;
• interest;
• audit costs;
• damages;
• contractual penalties, if enforceable;
• termination of the licence; and
• injunction against further use.

The dispute is primarily contractual, although the continued unauthorised use of the technology after termination may also constitute IP infringement.

2. Major Categories of Licensing and Royalty Disputes

A. Dispute concerning the scope of the licence

The parties may disagree about what exactly was licensed.

For example:

• Does a software licence include source code?
• Does a patent licence cover improvements?
• Does a trademark licence cover online sales?
• Does a manufacturing licence include export rights?
• Does a copyright licence include streaming rights?
• Does a technology licence permit sublicensing?

The tribunal or court must generally interpret the agreement as a whole.

Particular attention is given to:

• grant clauses;
• definitions;
• schedules;
• technical specifications;
• territorial restrictions;
• exclusivity provisions; and
• subsequent conduct of the parties.

3. Royalty Calculation Disputes

Royalty disputes are among the most commercially significant licensing disputes.

Royalty may be calculated as:

Royalty=Net Sales×Agreed Royalty Rate

For example:

₹200 crore×4%=₹8 crore

But the critical issue is often the meaning of "net sales."

The agreement may permit deductions for:

• GST;
• discounts;
• returns;
• freight;
• insurance;
• rebates;
• distributor commissions;
• promotional expenses.

A licensee may attempt to increase deductions to reduce the royalty base.

The licensor may argue that those deductions are not contractually permitted.

4. Minimum Guaranteed Royalty

Many technology and trademark licences contain a minimum guaranteed royalty (MGR).

For example:

Licensee shall pay 4% of net sales, subject to a minimum annual royalty of ₹10 crore.

If actual royalties calculated on sales amount to ₹7 crore, the licensee must nevertheless pay ₹10 crore, subject to the precise wording of the contract.

A dispute may arise over whether:

• the minimum is absolute;
• it is waived during force majeure;
• it is reduced for supply failures by the licensor;
• it is applicable during a product launch period; or
• it survives suspension or termination.

5. Audit and Accounting Disputes

Royalty agreements commonly provide the licensor with audit rights.

A licensee may be required to:

• maintain books;
• submit quarterly statements;
• identify licensed products;
• disclose sales by territory;
• maintain records for a specified period; and
• permit independent auditors to inspect records.

Failure to provide accurate information can itself constitute a contractual breach.

An arbitration clause dealing with royalty disputes should ideally expressly cover:

"all disputes concerning calculation, reporting, payment, audit and recovery of royalties."

This prevents later arguments about whether an accounting dispute falls within the arbitration agreement.

6. Underpayment and Concealment of Sales

One of the most serious disputes occurs where the licensor alleges that the licensee deliberately understated sales.

Possible methods include:

• sales through related companies;
• transfer pricing;
• sales through distributors;
• unreported exports;
• bundling licensed and unlicensed products;
• classifying products under another SKU;
• shifting revenue to affiliates;
• deducting unauthorised expenses.

The licensor may seek:

1. production of books;
2. forensic accounting;
3. independent audit;
4. interest;
5. damages;
6. injunction;
7. termination; and
8. recovery of unpaid royalties.

7. Trademark Licensing Disputes

Trademark licensing creates a special problem because the owner must maintain control over the quality associated with the mark.

A trademark licence may therefore impose:

• quality standards;
• packaging requirements;
• manufacturing standards;
• advertising guidelines;
• inspection rights;
• approval of products;
• restrictions on modification of the mark.

If the licensee sells inferior products under the licensed trademark, the licensor may seek termination and injunctive relief.

The dispute can consequently involve both:

contractual breach + trademark infringement/passing off.

8. Copyright Licensing Disputes

Copyright licences frequently concern:

• music;
• films;
• books;
• broadcasting;
• streaming;
• software;
• photographs;
• databases;
• digital content.

A critical question is whether the licensee has obtained rights for the particular mode of exploitation.

For example, a licence to broadcast a musical work on terrestrial radio does not necessarily mean that the licensee has acquired unrestricted rights for:

• streaming;
• podcasts;
• digital downloads;
• synchronisation;
• advertisements.

The scope of copyright licensing therefore needs to be interpreted according to the rights actually granted.

9. Patent Licensing Disputes

Patent licences can be considerably more complex.

A patent licence may cover:

• manufacture;
• use;
• sale;
• import;
• research;
• territorial exploitation;
• particular fields of use.

Disputes may concern whether the licensee's product actually falls within the patent claims.

A licensee may argue:

"Our product does not practise the licensed patent."

The licensor may respond:

"The product incorporates the patented technology and therefore royalty is payable."

Technical expert evidence is often essential.

10. Post-Termination Use

A particularly important dispute arises after termination.

Suppose:

• licence expires on 31 December;
• licensee continues using the trademark from 1 January;
• licensee continues manufacturing patented products;
• licensee continues distributing copyrighted software.

The legal position changes substantially after expiry.

The former licensee can no longer rely upon contractual permission unless the agreement provides a continuing right.

Continued exploitation may expose the licensee to:

• injunction;
• damages;
• account of profits;
• delivery-up/destruction;
• infringement proceedings;
• contractual damages.

11. Arbitration of Licensing Disputes

Licensing agreements frequently contain arbitration clauses because they involve commercially confidential information.

Typical clause:

"Any dispute arising out of or relating to this Agreement, including any dispute concerning royalty calculation, licensing rights, termination, infringement arising from the contractual relationship, or payment obligations, shall be finally resolved by arbitration."

Arbitration is particularly useful for:

• royalty accounting;
• contractual interpretation;
• breach of licence;
• termination;
• confidentiality;
• audit disputes;
• payment disputes;
• technical disputes.

However, the arbitration agreement should be drafted carefully where the dispute involves validity of registered IP rights or remedies that affect third parties.

12. Case Law

1. Entertainment Network (India) Ltd. v. Super Cassettes Industries Ltd.

Supreme Court of India, 2008

This is one of the most important Indian cases concerning copyright licensing, broadcasting and royalty.

The dispute involved broadcasting of sound recordings and the obligation to obtain appropriate licences and pay royalty.

The Supreme Court examined the relationship between copyright ownership, licensing and the statutory framework governing exploitation of copyrighted works. The case demonstrates that commercial exploitation of copyrighted material cannot simply be justified by an assumption that a licence exists or by payment made under an unrelated arrangement.

Principle

A person commercially exploiting copyrighted material must identify the relevant statutory and contractual rights and obtain the appropriate licence.

Relevance

The case is particularly useful in disputes involving:

• music licensing;
• broadcasting;
• royalty payments;
• copyright societies;
• compulsory licensing; and
• commercial exploitation.

13. Vidya Drolia v. Durga Trading Corporation

Supreme Court of India, 2020

Although not an IP case, this decision is fundamental when licensing disputes are referred to arbitration.

The Supreme Court established the modern Indian framework for determining arbitrability.

The Court distinguished between disputes concerning:

• rights in personam; and
• rights in rem.

Principle

Private contractual disputes are generally arbitrable unless they fall within categories reserved for public fora or are otherwise incapable of arbitration.

Application to IP licensing

A dispute such as:

"Has the licensee paid the agreed royalty?"

is essentially a contractual dispute.

Likewise:

"Did the licensee breach the territorial restriction?"

is generally an in personam contractual dispute.

Such issues are fundamentally different from a challenge to the validity of an IP right itself.

14. Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.

Supreme Court of India, 2011

The Court developed the important distinction between:

• rights in personam; and
• rights in rem.

The decision remains foundational for analysing whether a dispute is capable of arbitration.

Relevance to IP licensing

Suppose a software company and its distributor disagree about:

• unpaid licence fees;
• territorial restrictions;
• sublicensing;
• termination.

These are generally disputes between the contracting parties.

By contrast, a dispute concerning the validity of a statutory IP right may involve a right in rem and require consideration of the relevant statutory forum.

Practical consequence

An arbitration clause should be drafted to capture contractual licensing disputes expressly without assuming that every conceivable IP dispute is automatically arbitrable.

15. Eros International Media Ltd. v. Telemax Links India Pvt. Ltd.

Bombay High Court, 2016

This case is particularly relevant to arbitration and copyright disputes.

The Court considered whether disputes concerning copyright licensing could be referred to arbitration.

The important distinction was between disputes concerning contractual rights between particular parties and disputes involving statutory rights enforceable against the world at large.

Principle

A contractual dispute arising from a copyright licence can, depending on its nature, be arbitrable even though the underlying subject matter is intellectual property.

Example

If:

Licensor says ₹10 crore royalty is due,

and:

Licensee says only ₹6 crore is payable,

that is fundamentally a contractual dispute.

An arbitral tribunal can ordinarily determine that contractual controversy where the arbitration agreement covers it.

16. Hero Electric Vehicles Pvt. Ltd. v. Lectro E-Mobility Pvt. Ltd.

Delhi High Court, 2021

This case is highly relevant to trademark and licensing disputes.

The dispute concerned the use of the "Hero" trademark and contractual arrangements between parties belonging to the broader Hero business ecosystem.

The Delhi High Court examined the contractual and trademark dimensions of the dispute.

Principle

Trademark rights cannot be examined in isolation from the contractual arrangements governing the parties' relationship.

The case demonstrates why licensing agreements must clearly identify:

• permitted trademark use;
• business fields;
• territories;
• duration;
• restrictions;
• ownership;
• termination consequences.

Practical significance

A licensee cannot necessarily rely upon a broad commercial relationship to justify continued trademark use after the contractual basis for that use has ended.

17. K. Mangayarkarasi v. N.J. Sundaresan

Supreme Court of India, 2025

This is particularly important for modern arbitration analysis of IP-related contractual disputes.

The Supreme Court held that trademark-related contractual disputes arising from assignment arrangements could be referred to arbitration where the dispute was essentially in personam.

The Court rejected the proposition that merely because a dispute concerns a trademark, it necessarily becomes non-arbitrable.

Principle

The existence of an IP component does not automatically destroy arbitrability.

The court must identify the real nature of the dispute.

If the dispute concerns contractual obligations between the parties, arbitration may be appropriate.

Importance

This case is especially valuable for licensing disputes involving:

• assignment;
• royalty;
• contractual trademark use;
• termination;
• contractual restrictions;
• payment obligations.

18. Satyam Infoway Ltd. v. Sifynet Solutions Pvt. Ltd.

Supreme Court of India, 2004

This landmark case concerned domain names and passing off.

The Supreme Court recognised the commercial importance of domain names and their ability to distinguish businesses.

Principle

A domain name can possess characteristics analogous to a trademark and can be protected against deceptive use.

Relevance to licensing

Modern trademark licences frequently extend to:

• websites;
• domain names;
• social media;
• digital advertising;
• mobile applications.

Consequently, a licensee's unauthorised digital use after termination may give rise to both contractual and trademark-based remedies.

19. Cadila Health Care Ltd. v. Cadila Pharmaceuticals Ltd.

Supreme Court of India, 2001

The Supreme Court established important principles for determining deceptive similarity in trademark disputes.

The Court emphasised that the likelihood of confusion must be assessed from the perspective of the relevant consumers and the overall circumstances.

Relevance to licensing disputes

Suppose a licensee:

• modifies the licensed mark;
• creates a deceptively similar sub-brand;
• uses the licensed mark on unrelated products;
• continues using a similar mark after termination.

The licensor may invoke trademark principles to restrain the conduct.

Thus, a licensing dispute can move beyond the question of royalty and become an infringement/passing-off dispute.

20. Novartis AG v. Union of India

Supreme Court of India, 2013

Although primarily a patent-law case rather than a licensing dispute, Novartis is significant because it demonstrates the importance of the underlying validity and scope of patent rights.

The Court examined Section 3(d) of the Patents Act and the standards applicable to patentability.

Relevance to patent licences

A royalty agreement may depend upon the existence and enforceability of a patent.

If the underlying patent is invalidated or found unenforceable, questions can arise concerning:

• future royalties;
• past royalties;
• minimum guaranteed payments;
• termination;
• restitution;
• representations and warranties.

Therefore, a patent licence should expressly allocate the consequences of invalidity or revocation.

21. Distinguishing Royalty Disputes from Infringement

This distinction is extremely important.

Scenario 1 — Pure royalty dispute

Licensee says:

"I owe ₹2 crore."

Licensor says:

"You owe ₹5 crore."

This is primarily a contractual/accounting dispute.

Scenario 2 — Licence breach

Licensee was authorised to sell only in India but sells in Europe.

This may constitute:

• breach of contract; and potentially
• unauthorised IP exploitation.

Scenario 3 — Post-termination infringement

Licence terminates, but the licensee continues using the trademark.

This may become:

• breach of contract;
• trademark infringement;
• passing off; and
• potentially an issue requiring court-based injunctive relief.

22. Damages in Licensing Disputes

A successful licensor may seek several forms of monetary relief.

A. Unpaid royalty

The most straightforward claim is the contractual amount due.

B. Interest

Interest may be recoverable pursuant to:

• the agreement;
• applicable law;
• arbitral discretion.

C. Damages

Damages may compensate the licensor for losses caused by breach.

D. Account of profits

In appropriate IP infringement cases, the claimant may seek an account of profits rather than ordinary damages.

E. Reasonable royalty

Where infringement has occurred but actual loss is difficult to establish, the concept of a reasonable royalty may become relevant depending upon the statutory and factual context.

23. Injunctions

In IP enforcement disputes, injunctions can be more commercially significant than damages.

A licensor may request:

Interim injunction

Preventing continued exploitation while proceedings are pending.

Permanent injunction

Restraining unauthorised use following final determination.

Mandatory injunction

Requiring the defendant to:

• remove trademarks;
• surrender materials;
• transfer domain names where appropriate;
• remove infringing software;
• destroy counterfeit products.

Indian courts apply the conventional principles of:

• prima facie case;
• balance of convenience; and
• irreparable injury,

subject to the particular IP statute and factual circumstances.

24. Termination of the Licence

Termination is frequently the central issue.

Typical grounds include:

• non-payment of royalties;
• material breach;
• failure to meet minimum sales;
• unauthorised sublicensing;
• quality-control violations;
• confidentiality breach;
• insolvency;
• change of control;
• infringement by the licensee.

The agreement should distinguish between:

termination for convenience and termination for cause.

It should also provide a cure period where appropriate.

25. Consequences of Termination

A well-drafted licence should expressly address:

1. cessation of IP use;
2. disposal of remaining inventory;
3. sell-off period;
4. destruction/return of confidential information;
5. removal of trademarks;
6. website and digital-account transition;
7. payment of outstanding royalties;
8. audit rights;
9. treatment of sublicences;
10. transfer of customer data where legally permissible;
11. return of technical documents;
12. treatment of improvements.

A major source of litigation is the absence of clear post-termination provisions.

26. Arbitration and IP Enforcement: Practical Distinction

The safest approach is to divide disputes into two categories.

The precise answer depends upon the relief sought and the governing statute.

27. Evidentiary Issues in Royalty Arbitration

Royalty disputes are often evidence-intensive.

The licensor may request:

• audited financial statements;
• GST records;
• invoices;
• purchase orders;
• sales ledgers;
• inventory records;
• ERP data;
• distributor agreements;
• customs documentation;
• export records;
• bank statements;
• related-party transactions.

A tribunal may need assistance from:

• forensic accountants;
• technical experts;
• valuation experts;
• IP specialists.

The audit clause is therefore critical.

28. Confidentiality

IP disputes often involve extremely sensitive information.

Disclosure may expose:

• source code;
• formulas;
• manufacturing processes;
• customer lists;
• pricing;
• sales data;
• technical drawings;
• research data;
• future products.

Arbitration is attractive because proceedings can be conducted privately, although parties should not assume that confidentiality automatically provides unlimited protection in every jurisdiction.

A licence agreement should therefore contain a specific confidentiality regime covering:

• arbitration documents;
• expert reports;
• financial records;
• source code;
• technical information;
• award disclosure.