A “Jurisdiction Clause“, also known as a “Choice of Law” or “Forum Selection Clause”, is a crucial provision often included in commercial contracts. It establishes the jurisdiction or court that will have the authority to resolve any disputes that may arise between the parties involved in the contract. For startups that create value based on the IP they own, choosing a the right jurisdiction can mean the difference between being able to successfully prove their claim over their IP, and lax protection measures to protect the very same IP.
Understanding Jurisdiction
Jurisdiction can be defined as the limit of a judicial authority or the extent to which a court of law can exercise its authority over suits, cases, appeals etc. The rationale behind introducing the concept of jurisdiction in law is that a court should be able to try and adjudicate only in those matters with which it has some connection or which fall within the geographical or political or pecuniary limits of its authority.
There are three basic types of jurisdictions:
- Territorial Jurisdiction: Territorial jurisdiction concerns whether the cause of action arose within the sovereign boundaries of the State or has a close enough nexus with the State to justify the State deciding on such suit.
- Personal Jurisdiction: Personal jurisdiction concerns jurisdiction over the defendant. For the court to obtain personal jurisdiction, the defendant must be physically present in State.
- Subject Matter Jurisdiction: Subject matter jurisdiction concerns the court’s authority to hear the type of case or matter in question.
Factors to Consider When Selecting a Jurisdiction
Legal Framework and Business Environment
- Stability of laws: Choosing a jurisdiction where there are changes occurring the IP legal landscape can be very risky, as certain IP rights can be affected even retroactively (i.e., the contract was entered into prior to the enactment of the new law, but the new legislation can still be applied).
- Support for IP protection: Different countries have varying levels of support for IP protection. This can be determined based on the proportional amounts of government funding invested in R&D in sectors such as technology, consumer goods, etc. This can also be assessed based on the tax incentives provided for IP and IP transactions. Licensing and Transactions are taxable at different rates across the world, and choosing a favourable tax environment could also aide in the growth of a startup.
- Regulatory environment: The most important factor to consider is the regulatory environment of a country within the jurisdiction of which a contract has been entered into. Certain countries such as the US are known for the robust IP Protection policies as well as the courts’ stance on the importance and protection of IP, which is evidences by the plethora of case laws supporting the same.
Enforcement of Contracts
- Ease of enforcing contracts in the jurisdiction: While a contract is by definition enforceable, the ease of enforcing such contract varies by jurisdiction depending on the time required to enforce it by the court, the cost for such suit, and a history of quality judgements delivered in such jurisdiction under similar circumstances. The Ease of Doing Business data factor of Enforcing Contracts can be a valuable resource to determine the same, in which Singapore, South Korea, Norway, Kazakhstan and China claim the top 5 ranks.
- Historical context of dispute resolution: Looking into a country’s past judgements delivered on the subject matter of the contract can also help when deciding jurisdiction. For example, if a country is likely to be more supportive of licensors over licensees, or has a history of investing heavily into startups, it can prove favourable in the event that the contracts require legal enforcement.
- Accessibility to Legal Resources: An important factor to consider is the accessibility and availability of legal resources such as attorneys who are familiar with the law of the jurisdiction in which the contract is entered into. The quality of the courts and the arbitration centres should also play an important role in making this decision, as the court system can determine factors such as appealability of the decision, the type of bench that typically hears such disputes, etc.
Cross-Border Considerations
Through the inclusion of a jurisdiction provision in an international commercial contract, Indian law recognises the parties’ right to jointly select a forum (an Indian or foreign court) the enforcement of the contract.
A foreign judgement or decree must meet the conclusiveness test in order to be enforceable in India; that is, it must be conclusive and not subject to any of the following restrictions or exceptions:
- not issued by a court with the necessary authority.
- not awarded based on the case’s merits.
- based on a misunderstanding of international law or, if relevant, a refusal to comply with Indian law.
- during the procedures, the Natural Justice principles were not adhered to.
- obtained by fraud and/or deception.
- sustained a claim based on a violation of any Indian law.
- Execution of foreign decree of a reciprocating territory as an Indian decree in India:
A foreign decree issued by a court in a reciprocating territory may be executed as an Indian decree by an Indian district court following the prescribed procedure if a party seeking execution files an execution application with the certified copy of the decree and a certificate attesting to the degree of satisfaction or adjustment of the sum decreed in the district court. To put it another way, the district court will execute the foreign judgement or decree without considering its conclusiveness and without considering the case’s merits. This allows for direct execution, which streamlines and expedites the procedure.
However, for this to apply, the said foreign decree should have been passed by any of the superior courts of any “reciprocating territory ” i.e. any country/territory outside India which is notified to be so by the Central Government in the Official Gazette .
Choosing Between Exclusive and Non-Exclusive Jurisdiction
- Advantages of exclusive jurisdiction: Exclusive jurisdiction provisions restrict disagreements to a single jurisdiction’s courts. You know where you may sue and be sued thanks to an exclusive jurisdiction agreement. Additionally, they provide more protection since, in the event that an exclusive jurisdiction provision is encountered, it is less probable that another court will accept jurisdiction.
- When to consider non-exclusive jurisdiction: In theory, choosing non-exclusive jurisdiction will allow disputes to be heard in the courts of a certain jurisdiction, but it won’t affect either party’s ability to take the matter to the courts of another country if necessary. These provisions provide you with the assurance that conflicts can be heard in a certain jurisdiction that you find desirable, but that jurisdiction elsewhere is accessible if needed. Nevertheless, there remains a chance of parallel processes even though they provide more freedom. However, although they offer greater flexibility there is the risk of parallel proceedings.
In conclusion, it is impossible to exaggerate the importance of jurisdiction in contracts, particularly for startups that rely significantly on their intellectual property. A clear jurisdiction provision acts as a buffer, guaranteeing that disagreements are settled in a way that upholds legal rights and fosters corporate stability. By carefully weighing elements including regulatory environments, legal frameworks, and the ease of contract enforcement, parties can choose locations that suit their risk profiles and interests. Choosing between exclusive and non-exclusive jurisdiction may have a big influence on a startup’s capacity to safeguard its ideas and successfully handle any issues that may arise. Understanding and taking advantage of jurisdictional intricacies is crucial for promoting development and protecting important assets as organisations increasingly conduct cross-border transactions.
Author: Sumedha Vadhulas
Please contact us at info@origiin.com to know more about our services (Patent, Trademark, Copyright, Contract, IP Licensing, M&A of companies)
Subscribe to YouTube Channel HERE
Join LinkedIn Group: Innovation & IPR
WhatsApp: +91 74838 06607
