Software Ownership Disputes Involving IPR Not Arbitrable: Bombay High Court

The Bombay High Court has recently held that an arbitral tribunal was right in refusing to decide who owns a software product, saying such questions involve intellectual property rights that affect the public at large (rights in rem) and cannot be settled through private arbitration.

A Single-Judge Bench of Justice Sandeep V Marne said that deciding ownership of the “Test Magic” software would inevitably involve ruling on trademark and copyright rights, which are not meant for arbitration.

The court observed, “The rights arising out of ownership of the mark TestMagic would be rights in rem incapable of being resolved through private arbitration.”

The dispute goes back to a fallout between Anand Khosla and Punam Kumari Singh, who had come together in 2012 to run a software business through Universal Test Solutions LLP. Singh, along with her husband, had developed a software called “Test Magic an Innovative Test Solution” and had obtained a registered trademark for it in 2010.

Khosla later invested money in the business, and the LLP was formed. Differences cropped up a few years later, and in April 2016, Khosla expelled Singh from the LLP. Singh challenged the expulsion through arbitration.

In July 2019, the arbitral tribunal upheld her expulsion and rejected all her claims, but also declined to grant the counterclaims raised by Khosla and the LLP. Singh did not challenge the award. Khosla and the LLP approached the High Court, limited to the rejection of their counterclaims.

Before the court, Khosla's side argued that the arbitrator had wrongly refused to decide who owned the “Test Magic” software, even after finding that Singh and her husband had siphoned off funds and acted against the LLP's interests.

They said the dispute was not about copyright infringement but about misuse of software that had become LLP property, and sought damages and an injunction restraining Singh and her husband from using it. Singh's counsel, on the other hand, defended the award, saying the arbitrator had taken a reasonable view and had correctly stayed away from issues of intellectual property ownership.

The High Court agreed with the arbitrator. It noted that Singh's expulsion had already been upheld and had become final, along with findings about siphoning of funds and poaching of clients. On the claim for loss of revenue and profits, the court said projections of income were not enough, and that loss of revenue does not automatically mean loss of profits without proper evidence.

On the software issue, the court said any decision on whether the trademark or software belonged to Singh or the LLP would amount to deciding rights against the whole world (right in rem).

It added that such questions cannot be settled in arbitration, and clarified that Khosla and the LLP were free to approach a civil court if they wanted to restrain Singh or her husband from using, selling, or licensing the software. Finding no ground to interfere, the court dismissed the petition.