Working Paper for Discussion at the Nagpur Congruence of the Think Tank of SJM on basic understanding on the legal and economic implications of IPR,
Opportunities and Challenges
Intellectual Property (IP) refers to the creative power of the human brain and is manifested in different work of Art, literary work, and scientific invention and is ultimately converged into Intellectual Property Rights (IPR) such as Copy Right, Trade Mark, Industrial Design, Patent and various other similar legal rights. In the present Knowledge Era when the global economy is driven by the forces of knowledge and technology, almost 80 per cent of the global wealth is in the form of Intellectual Property or the Intangible assets. The word innovation occupies the maximum space in all important discussion in all meetings and conferences around the world. There is a direct correlation between innovation and intellectual property. Though the invention takes place in a scientific laboratory but the innovation takes place in a factory or in a business environment at market place and many a time the innovator is not an inventor as is known in the case of Steve Jobs the founder and CEO of Apple iPhone who was not a scientist and there are many such examples. However technology and innovation move hand in hand. There cannot be innovation in true sense without continuous invention and therefore today the business survives on the competitiveness of the technology to meet the growing and changing demands of the customers.
The subject of IPR has gained relevance and importance in the past two decades since after signing of the TRIPs Agreement under the overall legal framework of the World Trade Organization (WTO) which came into effect from 01.01.1995. According to the TRIPs Agreement there are seven types of IPR for which each member country of the WTO have to comply with the obligations for protection and enforcement of the intellectual property imbedded in the technology or any other kind of products used or manufactured or dealt in the respective country. The stated purpose and objective is to exploit the full commercial value of the related intellectual property and to prevent the piracy and counterfeiting of the same. However the underlying objective is also to enjoy monopoly and extract maximum profit in the form of royalty or technical fees and thereby to dominate the business and the market at global level. Sometimes it also leads to encroachment upon the economic sovereignty of the other member country of the WTO. Nowadays USA and few other European Countries are also trying to ask for some more rights on IPR which are known as TRIPs Plus as imbibed in Transpacific Partnership (TPP) and the same will be dealt with at later stage of this article/booklet.
However apart from TRIPs, there are several international conventions which also govern the IPR Rules since long even prior to signing of the TRIPs agreement. Some of the International Conventions are enumerated as below for general understanding of the readers.
PARIS CONVENTION FOR PROTECTION OF INDUSTRIAL PROPERTY:
Paris convention may be defined as one of the first treaties for the protection of Intellectual property Rights. It was signed on March 20, 1883 in Paris basically for the protection of industrial property.
BERNE CONVENTION FOR THE PROTECTION OF LITERARY AND ARTISTIC WORKS, 1886.
Berne Convention for the Protection of Literary and Artistic Works was the first multilateral convention on copyright adopted in 1886.
WIPO COPYRIGHT TREATY (WCT) OF 1996.
After adoption of the TRIPS Agreement, it was realized that not all problems posed by the growing use of Digital Technology especially the Internet were addressed. In order to fill this gap, the WIPO Diplomatic Conference on Certain Copyright and neighboring Right Questions adopted the WIPO Copyright Treaty in 1996.
There are about 36 such international conventions on different issues of copy Rights, Trade Mark, Industrial Design and on other IPRs.
Different kinds of IPRs:
IPR have been categorized mainly into seven (7) kinds under the TRIPS agreement (Agreement on Trade Related Aspects of Intellectual Property Rights under WTO). All these IPRs are governed by separate statute in India except for Trade Secrete. These are as below:
1) Copyrights, Covering artistic work like, painting, sculpture, Cinematographic films, Computer programs dramatic work etc. It is regulated by the Copyright Act, 1957. This is monitored by Ministry of Human Resource Development, Govt. of India
2) Patents – Covering scientific and technologies inventories. It is regulated by the Patent Act, 1970. This is under Ministry of Commerce, Department of Industrial Policy and promotion (DIPP)
3) Trademarks – Covering Brand goodwill Trade Name etc. It is regulated by the Trade Marks Act, 1999. This is under Ministry of Commerce, Department of Industrial Policy and promotion (DIPP)
4) Geographical Indications – Covering a name or sign used on certain products which corresponds to a specific geographical location or origin such as Darjeeling Tea, Alphanso Mango, Kolhapuri Chappal, Agra Petha and many others. It may be agricultural produce or a natural produce or a manufactured goods of a particular territory. It is regulated by the Geographical Indications Act, 1999. The office for registration is in Chennai but is regulated by DIPP, Ministry of Commerce, Govt. of India.
5) Integrated Circuits and Design Layouts - It covers micro cheap or electronic circuits used in Semi Conductor materials in Computer hardware and other electronic gadgets. It is regulated by the Semi-Conductor Integrated Circuits Layout Designs Act 2000. This is under Ministry of Information Technology, Govt. of India.
6) Industrial Designs - It covers shape, pattern and outer layout of any article which has an aesthetic value. This is under Ministry of Commerce, Department of Industrial Policy and promotion (DIPP)
7) Confidential or Undisclosed Information (Trade secrets) - It is largely covered under the Indian Contract Act so far but the Government is thinking of bringing a specific law to govern trade secrets as many other countries like USA already has a legislation for it.
However there are few other types of IPRs which are yet to be recognized by the TRIPs but for which negotiations are going on at various levels of WTO. These are in respect of Bio-diversity, Traditional knowledge and folklore, plant variety and farmers rights etc. Government of India has already legislated Biological Diversity Act 2002 and Protection of Plant Varieties and Farmers’ Rights Act 2001. Prior approval of National Biodiversity Authority (NBA) is required before making an application for getting any kind of IPR based on any research or information on a biological resource obtained from India. In case of plant varieties it is important to provide an effective system of protection with an aim to encourage the development of new varieties of plants for the agriculture, horticulture and forestry also known as sui generis form of intellectual property rights. The international convention on biodiversity is CBD or the Convention on Biodiversity and the one for the Plant Varity is UPOV or Union for protection of new varieties of plant.
All the different IPRs as stated above have a limited period of legal right as below:-
The Legal life or duration of Different IPRs
Patent
The term of patent is 20 years from the date of filing of patent application in general. The owner of the patent has a right to prevent others to use the patented technology without is permission. However he may grant a license to use it either on payment of royalty or technical fees or the license fees. Sometimes the technology may become obsolete and the legal life of the patent may become irrelevant and therefore in order to have an effective economic life of the invented technology especially in today’s era of innovation, there is a need for continuous improvement of technology through research and invention.
Copyright
The term of the copyright is generally the life of the authors plus 60 years (Sixty) after his death and it may vary with respect to different copyrighted works
Trademark
A registered trademark is valid for a period of ten years from the date of registration which could be renewed before the expiry of the validity. Non- renewal of a registered trade mark results in the removal of the trade mark from the register of trademarks. The renewal can be done for another period of ten years for any number of times. Thus with continuous renewals the trade mark may have an infinite right which is not so for any other kind of IPR. This is on the logic that the brand or the goodwill keep increasing with the age of the continued credibility of and support of the customers.
Geographical Indication (GI).
A registered GI provides protection for a period of 10 years from the date of registration which can be continued for an unlimited period by renewing it from time to time. This is similar to trade mark rights but the only major difference is that no individual or firm can be the owner and only the related community in that particular territory can alone hold rights over it.
Industrial design.
The total time of a registered design is 15 years. Initially the right is granted for a period of 10 years, which can be extended by another 5 years and no further renewals are granted.
Integrated Circuit and layout design.
The term of protection provided by a registered layout design is 10 years from the date of filing. There is no provision for renewals.
Difference between IP and IPR:
IP stands for intellectual property. There are various laws governing protection of IP for literary work or invention and once this protection is granted through proper registration of the patent or copyrights, trademark, design etc., IP become IPR or the Intellectual Property Rights which entitles the owner of respective IP to enforce the same against the infringement.
Different Important Aspects of IPR for an effective IP Eco System
In order to have an effective IP Eco System one has to take a holistic view of all different stages of an intellectual property. The very first stage is creation of an intellectual property whether it is a subject matter of copy right or a patent right. The moment an invention takes place one has to look for its protection under the respective IPR law which in this case is the Indian Patent Act 1970. In order to get a valid patent, one has to satisfy the three legal criteria i.e. (i) Novelty, (ii) Inventiveness or non-obviousness and (iii) Industrial Utility or application.
It may be noted that the Indian Patent Authorities refused to grant patent to Novartis of Switzerland for their cancer drug Glivek on the ground of novelty u/s 3d of the Indian patent Act as there was an attempt for evergreening of the patent right. The Honorable Supreme Court of India also upheld the decision of the Controller General of India for such refusal of the patent.
Section 3 of the Indian Patent Act prescribes that certain inventions are not patentable. Section 3(d) is one of such enabling provision whereby frivolous patents in case of pharmaceuticals which lacks increased efficacy for a known substance are not allowed. Similarly patents are not allowed for living plants and animals, seeds, Computer Software, traditional knowledge etc. Further no patent is allowed for an invention relating to atomic energy, falling within sub-section (1) of Section 20 of the Atomic Energy Act, 1962.
The creation of IP or intellectual property depends on the level of awareness in the country on IPR and the amount of money spent on research and development. In India almost 80 per cent of the research takes place at Government laboratories and private sector has a very abhorrent or indifferent view on conducting research for invention of new technology. Almost 80 per cent of the patent applications filed in India are by Multi-National Corporations (MNCs). There is therefore a need for increase in research spending by private sector in order to stay competitive. There is also need for creating awareness about registration of patent for invention especially by the small scale industries. A recent study shows that 90% of the inventions at global levels take place at micro and small enterprises which do not apply for patent due to several legal hurdles and due to lack of knowledge. Therefore in order to have an effective IP eco systems the below mentioned five areas need to be strengthened for the indigenous technology. (i) Creation of IP by encouraging research and development (ii) Protection of IPR, (iii) Enforcement of IPR, (iv) Commercialization of IPR, and last but not the least (v) Awareness of IPR at all levels of the organisation.
Intellectual Property as an Intangible asset
In today’s knowledge based economy intellectual property is considered as an intangible asset. Payments made for acquisition of technology, brands and technical knowhow are recognized as part of the business assets which brings benefits to the business for several years and also adds value to the profit of the business. There is need for proper identification and proper accounting and valuation of IP assets in the organization. Intangible assets are transferrable from one hand to another and are also subject to stamp duty, Vat, service tax, custom duty, income tax on different types of IP related transactions. In the Balance sheet of a company it is shown as a separate item under the head fixed assets just like land, building, plant and machineries and are allowed depreciation under the income tax act. IP as an asset can also be mortgaged and the royalty income or the regular license fees can also be securitized for obtaining loan and other financial facilities from the banks. Nowadays the companies are also subject to several risks for likely infringement for known or unknown use of others IP rights and sometimes are subject to pay damages and compensation and also look for IP insurance to cover the risk arising out of litigations. In view of growing complexities of laws and in order to stay competitive in business there is need to develop IP policy and IP strategy and to have effective IP management. Most of the knowledge based companies have a separate department for managing their IP and most of the research institutions have a technology transfer offices or the TTO which enable commercialization for optimizing and leveraging the IP assets in effective manner. IP today has changed the concept of R&D as a profit center from the early concept of cost center. However one must maintain a tradeoff between the profit maximization and the social welfare and between risk and reward. Development should not be at the cost of society and the environment.
The Contentious Issues on IPR and TRIPS.
The issues concerning Intellectual Property Rights are always sensitive, serious and to a large extent controversial and contentious due to conflict of national interest of each member country in the WTO. When the issue of IPR was first brought in through Uruguay Round and Dunkel Proposal (1986-1993) in the form of Trade Related Aspects of Intellectual Property Rights (TRIPs), the developing countries had expressed their concern about its non-relevance to the international trade which largely deals with movement of goods and services. However, despite résistance from the developing countries the developed countries who were under the pressure from big pharmaceutical Companies, the TRIPs agreement was introduced as a matter of commercial diplomacy. The developing countries had to amend their respective patent laws in order to grant product patent to pharmaceutical industries from 01.01.2005. It may be noted that the WTO primarily deals with three issues namely (i) Movement of Goods, (ii) Movement of Services, and (iii) Trade Related aspects of Intellectual Property Rights (TRIPs).
The Indian Government has amended its Patent Act, 1970 by deleting section 5 to enable product patent along with process patent for food, medicines and drugs and thereby bringing the Indian Patent law in full compliance with the TRIPS requirement. In order to prevent frivolous inventions from being patented as ever greening and for safeguarding the national interests especially in the area of public health, Section 3(d) was introduced which inter- alia lays down certain restrictions and criteria such as enhancement of the known efficacy for medicines and pharmaceutical substances. In one of such case, the Controller General of India refused to grant patent to Novartis of Switzerland for their cancer drug Glivek on the ground of novelty and the Honorable Supreme Court of India also upheld the decision of the Controller General of India for such refusal of the patent. In another different instance the Controller General of Patent issued a compulsory license to Natco Pharma of India for a cancer drug “Nexavar” which was patented by Bayer Corporation of Germany. Natco is a reputed Indian drug manufacturing company and was denied a license by Bayer corporation and as a result the Controller General of India granted compulsory license to Natco to manufacture Nexavar in pursuance of section 84(1) (a), (b) and (c) of the Indian Patent Act. Today Natco is supplying the drug to cancer patients at a cost of below Rs. 10,000 per month as against the exorbitant cost of approximately Rs. 3,00,000 per month charged by Bayer corporation and this has brought substantial relief to Indian cancer patients.
The above two provisions in the Indian Patent Act regarding Novelty under section 3(d) and for compulsory licensing under section 84 has bought undesired controversies by the big Pharma companies in the developed countries. The USA has published the Special 301 Report for the year 2014 on 30th April, 2014 which classifies India as a “Priority Watch List Country” mainly on the ground of provision of section 3(d) and for issue of compulsory licenses under section 84 of the Indian Patent Act. The Special 301 process is a unilateral measure taken by USA under The Trade Act 1974, to create pressure on countries like India to provide IPR protection beyond TRIPS agreement. It is an extra territorial law of the USA and is not tenable under the overall WTO regime. It is also a matter of fact that no WTO member countries have so far brought any dispute for any alleged violation of the TRIPS agreement by India. In such a situation the extra territorial pressure from USA is undesired and has been objected by the Government of India.
Meanwhile, the Government of India is in the process of finalizing its National Intellectual Property Rights policy and a draft had been submitted by the task force on the 24th December 2014. A joint working group is also appointed by the Government of India and United States to look into the working of the Intellectual Property laws of the country.
It is a matter of utmost surprise that in a meeting held by the TRIPS Council in the first week of June 2015 at Geneva, United States and Switzerland had tried to invoke the provisions of ‘Non Violation Complains’ stipulated under article XXIII (1b) and (1c) of GATT 1994 read with Article 64.2 of TRIPS agreement. The said proposal had been strongly opposed by India, Brazil and other 17 countries on the ground that the said Non Violation Complain is neither relevant nor legitimate in case of TRIPS agreement for which a moratorium is in force. The said Non Violation Complain is applicable only in a limited manner to movement of goods and services alone and does not apply to issues relating to Intellectual Property Rights under the TRIPS agreement. The illicit proposal of United States and Switzerland was very much visible at the 10th Ministerial Conference in Nairobi on 15-18 December 2015, which has adopted a working programmed on “Non-Violence Complain” which is likely to be incorporated as part of the Draft 11th Ministerial Conference in 2017.
We should strongly protest the same with advance preparation and through awareness program. The National IPR policy should be drafted in overall national interest keeping in view the above contention issues in mind. It may be noted that the Indian Patent Act is in due compliance of Article 27 for grant of Patents and Article 31 for grant of Compulsory License as contained in the TRIPs Agreement of the WTO and by using the flexibilities allowed as per the spirits of Article 30 of the TRIPS.
There are few other areas where the western countries and especially USA has objection to our IPR regime with regards to Pre-grant opposition rights granted in pursuance of section 25 of our Patent act and the rights granted for use of the clinical data for manufacturing generic drugs which is in full compliance with the provisions of Article 39.3 of the TRIPS and hence there is no violation for data exclusivity under our Patent laws and Govt. of India should not compromise on any of these issues which are of prime importance for the public health and social security. One also need to bear in mind that the limited disclosure of preclinical data by the regulating authorities to the generic companies is very much in compliance with the Bolar exceptions as enshrined in the Hatch-Waxman Act of USA in order to avoid the repetition of the preclinical research and also to produce generic medicine in the market with due approval of the regulating authorities immediately after the expiry of the patent of the innovative drugs which has a large advantage to the poor patients and also to the government which provide free medical facilities to its citizen.
USA is trying to find a way out for the flexibilities granted under the TRIPS agreement by entering into free trade agreements and regional trade agreements such as the recent transpacific partnership (TPP) between United States and several other Asian countries. USA is afraid that many other countries may adopt India and change their Patent Law in line with section 3d and thereby challenge the hegemony of the Big Pharma companies. The major emphasis of the TPP is on IPR rules than the trade rules although the avowed objectives of any trade agreement are international trade in goods and services and not the IPR alone. However USA itself is now rethinking on agreeing to the terms of TPP as there are adverse views in US congress about free trade and its impact on US trade deficit. Multilateralism in any case needs to prevail upon bilateralism or the plurilateralism or even the unilateralism. The present society cannot afford the unipolar world and India needs to provide effective leadership to the global community for free and fair trade.
Opportunities and Challenges of IPR
A country may have huge amount of human resource but the same requires proper education and training in the field of science and technology to convert the same into knowledge resource or the intellectual resource. This requires establishment of educational institution, research and development. However, mere research of inventions and technology by itself is not enough as the same needs to be legally protected by complying with due process of registration for its protection and its full exploitation through the process of innovation process management. In this way, we find that there are certain in-built gaps between Human resource and Intellectual resource on the one hand and invention-innovation gap on the other hand. There is a need to fill these gaps in order to generate an optimum economic value of the Intellectual property rights in the present globalized knowledge based economy. It may be pertinent to note that the money spent on Research at global level is about USD 1.4 trillion with about 31.1 % contribution by US alone and another about 24.1 % by Europe with a very meager share of India which in fact is much lower than China.
A broader analysis of the developed nations specially United states and Western Europe reveals that these nations have been successful in meeting the aforesaid gaps and have been able to generate good amount of revenue from copyrights, brands and technologies which are contributing enormously to their national income. In, United States alone, almost USD 5.06 trillion, accounting for about 34.8 % of its GDP in 2010 came from Intellectual property intensive industries and generated 40 million jobs which are 27.7 percent of all jobs in U.S. When we compare this figure with India’s GDP, which is about USD 1.8 trillion, we find a very gloomy picture. India’s national income from all different resources comprising manufacturing, agriculture and service sector put together is less than one third of United States’ income from IPR resources alone. This should be one of the important lesson and also a challenge for a nation like India with a population of 1.3 billion people which is more than four times that of United states population of about 300 million people, but has not been able to look at the primary need of converting its huge Human resource into an Intellectual resource, even though India has declared the present decade as the decade of innovation, which appears to be superficial.
If India is to become an economic power as per its vision document 2020, it has to increase its R&D activity from the present level of USD 40 billion per year, to at least USD 100 billion annually and should give more emphasis on creativity and innovation in order to increase the total factor productivity in all sphere of its economic activities including agriculture, manufacturing and services. Conversely it may, otherwise remain confined to only marginally successful in its food security through agriculture; generate some marginal employment through its manufacturing and earn some marginal foreign exchange earnings from export of services from semi- skilled outsourcing jobs. It cannot become an economic power with an improved standard of living for its people by sharing adequate portion of global income in proportion to its population in the global economic map. Merchandise exports of IP-intensive industries totaled $775 billion in 2010, accounting for 60.7 percent of total U.S. merchandise exports. The aforesaid statistics wholly manifest that the developed countries especially U.S. is concentrating its focus on IP-intensive industries which come from innovation, technology and creativity.
However, when we look at China, we find that, it has been able to increase its IPR power by filing the highest number of patent applications as on December 2011, as is evident from the following two charts. It is a matter of fact that the mushrooming of IPR filing in China is due to increased number of utility patents. India also need to adopt utility model to increase grassroots innovation in the country.
The role of IPR in knowledge based economy
Ideas and technologies are two ingredients of a knowledge-based economy and in the present globalized knowledge based economy; research and innovation are the twin engines of competitiveness, means for economic growth and success.
We may better understand the positive impact of application of IPR in a business model followed by Philips by shifting its manufacturing locations in different countries with low wages through technology transfer. Before 1985, Philips’ business model was based on investments on R&D, the resultant R&D outputs were converted to products that were manufactured, marketed and sold resulting in return on investments. The company increased its patent portfolio from around 877 in the year 1993 to around 3144 in the year 2002 which has been increasing consistently. This has helped the company to increase its turnover as well as net profit tremendously.
IPR Regime and Economic Development
A nation’s innovation graph is highly affected by the IPR regime it follows. The IPR regime also affects the inflows of FDI, technology transfers and trade that might interrupt on the economic growth. Developed countries do have stronger IPRs regime than the developing countries that in turn affects the relationship between IPR protection and level of development which is basically non-linear which suggests that patent protection tends to reduce the economic strength and further moves beyond the poorest stage into a middle-income stage in which they are more efficient to reproduce new inventions. Therefore, there is no universally imposed minimum standard for patent protection which may contribute to increased growth in countries below a certain threshold level of economic development. However one must bear in mind the national interest at the top priority while implementing the IPR laws. Economic sovereignty should not be compromised.
IP as reliever to sick units: Case study of JLR and Kodak film
It has been observed that many companies which have been facing financial difficulties due to global competition and for other reasons are able to find some relief and despite their net worth and operative results being negative, they have been able to come out of the difficulties by selling out their patents and other intellectual properties. One of such example was seen in the recent past when Ford motor sold its Jaguar and Land Rover (JLR) loss making manufacturing unit in UK to Tata motors of India at a fabulous price of USD 2.5 billion. We find a similar example from Kodak Film Company of Japan which has valued its 1100 patents to an estimated amount of US 2.6 billion, which may provide relief to its creditors. Indian Banks should look at his aspect which may enable them to realize money by capitalizing the IP assets of their defaulting borrowers and thereby to reduce their NPAs.
The link between R&D expenditures and IP in select countries
The below figure shows the R&D expenditure in percentage of GDP, compared to number of resident patent filings from 2001 to 2009
The above graph reflects that Japan and Korea spend about 4 % of their respective GDP on R &D followed by U.S, EU and China with 3.5, 2.75 and 2 % of their respective GDP. However, the figure shows that the number of patents filed by Resident has sharply increased in China in the past few years. India on the other hand spends only about 0.9 per cent of its GDP on R&D.
Share in global R &D expenditure
Country US Europe China Japan India
2007 34.3 25.9 9.5 13.5 2.0
2012 31.1 24.1 14.2 11.2 2.9
It is a fact as reveals from the above table that the global share of R & D has been increasing for both India and China, though the share of U.S and EU has been declining over the past five years, even if they remain the largest spenders in the R & D.
The growing importance of intangibles in the present knowledge economy
S&P 500 asset distributions:
Year Tangible Assets (in %) Intangible Assets (in %)
1978 95 5
1982 62 38
1992 38 62
1998 28 72
2002 13 87
2004 20 80
2008 25 75
2010 20 80
Data source: Investopedia.com, Brookings Institute, Balanced Scorecard European Summit, Ocean TOMO, Vanguard 500 Index Trust fund
Concluding Remarks
India had been very rich in its intellectual resources from the time immemorial but never thought of Intellectual Property or intellectual property rights. Indian brain is globally recognized but due to wrongful policy since independence there had been a continuous brain drain. Even today most of the inventions are undertaken by Indians but the IPR belongs to MNCs or to the foreign countries who provide adequate R&D infrastructure and who are able to commercialise the IPR. There has been piracy of our intellect due to lack of due awareness within the country and our scientists are not very inclined to obtain patents for their inventions. The need of the hour is to create a robust IP Eco system in the country whereby the entire five important segments in the value chain of IPR, i.e. Creation, protection, enforcement, commercialization and all pervasive awareness are duly recognized. The IP education and the importance of IPR is taught form the school level, the IP incubation centers are established at all district level and there is an enlightened effort for unlocking the hidden treasure to reestablish our country as a great intellectual powerhouse across the globe.
No comments:
Post a Comment