Building an IP economy in India

Whatever their views and motives, most stakeholders in the Indian IP system are agreed that it is in need of an overhaul. As to precisely what measures must be taken, however, that depends on who you ask

When it comes to high-tech entrepreneurialism, there is no doubt that India is doing something right. Start-ups and longer-established companies in the IT, e-commerce and life sciences sectors have been driving phenomenal economic growth – which, at 7.3%, outstripped the rest of the world last year.

But that is just one side of the story. Behind the scenes, it would seem that these promising business prospects are also leaving India in their droves, in one way or another. Research from the Indian Software Product Industry Roundtable revealed that 54% of high-tech start-ups founded in the country during 2014 subsequently decided to domicile themselves in either Singapore or the United States, because of what they perceived as more favourable regulatory environments – including in relation to issues such as IP protection and valuation. Even more alarming for India is the roundtable’s prediction that an eyewatering 75% of start-ups may have made the same decision during 2015.

Greener pastures

Globally, India’s reputation with regard to IP protection and awareness remains weak. The country appears to be negatively associated with the widespread manufacture and sale of counterfeits, severe patent and trademark application backlogs and compulsory licensing of foreign-owned pharmaceutical patents (although reportedly only one such licence has been issued, back in 2012, allowing local generic manufacturer Natco to produce a version of Bayer’s anti-cancer treatment Nexavar).

While intellectual property is surely not the most important reason for this exodus, it certainly seems a significant one. “Global investors seem to value companies with patents in the United States much higher,” Sriram Kanuni, founder of Indian IT consultancy Arteria Technologies, told the Economic Times in an interview last year. “Therefore, it makes more sense to shift patents out of India if you are looking to raise money or exit.”

IP enforcement in India can also be particularly problematic for the country’s new breed of digital start-ups. “Indian courts are not uniform when it comes to developing jurisprudence around copyright and patent infringement,” Sunil Abraham, executive director of the Centre for Internet and Society, told the same newspaper. Suggesting that some Indian judges lacking in IP-related experience may be too quick to grant injunctions, he added: “Then the loss of six months… can be quite expensive, because in six months’ time your competitor might eat into all of your market.”

Figure 1. Inventor mobility, selected countries 2001-2010

NB: Data based on analysis of inventor country of residence and inventor country of origin information contained in Patent Cooperation Treaty filings
Source: World Intellectual Property Organisation

Compounding this, World IP Organisation data on patentee migration suggests that India has a similarly disappointing record when it comes to attracting and retaining inventors (see Figure 1).

These problems have not gone unnoticed in Delhi, where the government of Prime Minister Narendra Modi, elected in 2014, has launched a number of initiatives aimed – for better or for worse – at revamping India’s IP ecosystem.

At Modi’s behest, the Department of Industrial Policy and Promotion (DIPP) instituted an IP think tank and tasked it with designing a new IP rights policy for the country. The final draft – which was leaked in late 2015 and has been at the centre of much discussion since – describes India as having a “robust, effective and balanced” legal framework for IP rights.

Talking to stakeholders, there is at least some agreement with this assertion. “India’s IP laws take a balanced approach towards conforming to international treaties while keeping in mind India’s development needs and priorities,” suggests Chitra Iyer, head of intellectual property and standards, India, at Philips. “Of late, there have been several welcome initiatives from the government, including a new version of the searchable electronic patent register, a draft manual of trademark practice and initiatives to simplify procedural aspects.”

Going forward, the Indian authorities should ensure that IP rights can be enforced effectively and consistently in order to promote an environment conducive to sustained innovation, she adds.

Not so safe and sound

The government has also made other promising moves to boost India’s IP credentials. “The prime minister has taken several initiatives to foster entrepreneurial culture, including ‘Make in India’, ‘Digital India’ and ‘Startup India’,” says Anil Joshi, managing partner at Mumbai-based venture capital firm Unicorn India Ventures. “India’s IP laws have evolved taking into consideration both national needs and international commitments. These laws, along with various judicial pronouncements, provide a stable and effective legal framework with the aim of imparting predictability, transparency and efficiency. This is necessary so that a secure climate is available to all stakeholders for fully realising the potential of intellectual property.”

However, not all commentators are so optimistic. For instance, recent research from advocacy firm Strategic Partners Group (SPAG) surveyed executives in a number of major Indian and multinational companies across six broadly defined sectors: healthcare, pharmaceuticals and diagnostics (life sciences); information technology, fast-moving consumer goods and telecommunications (IT/telecoms); legal services; music and entertainment; academic/research institutions; and industry associations. A whole 99% of respondents agreed that intellectual property plays an important role in their industry. But when asked whether they believed that India has a “sound IP policy”, 70% of life sciences, 79% of IT/telecoms and 80% of industry association respondents answered in the negative. The most positive group was legal services providers, which were split 50:50 between those content with the existing IP policy and those wanting to see improvements (IP lawyers, of course, have an opportunity to do good business regardless of the efficacy of the IP system in which they work). While 29% of respondents overall felt that policy makers are doing enough to establish a strong IP rights regime in the country, some 65% thought otherwise.

Sweet time

Perhaps one of the most off-putting aspects of the Indian patent system for would-be users is the investment of time, effort and money it requires for little in the way of obvious returns.

Figure 2. Approval periods for Indian patents granted 2006-2015

Source: Office of the Controller General of Patents, Designs and Trademarks

Source: Office of the Controller General of Patents, Designs and Trademarks

Despite substantial reductions in the patent office backlog, it can still be a long wait between applying for an Indian patent and having it issue (see Figure 2). Up to 98% of patents granted in India last year were for applications filed more than five years previously (see Figure 3); one patent granted in 2015 had been applied for by the University of Sheffield in 1996 – a full 19 years beforehand.

Figure 3. Indian patent application backlog 2006-2015

In bureaucratic terms, too, the patent examination and grant process can be laborious, with rights holders expected to fill out and submit a litany of forms and slips. “It may be timely [for the government] to focus on removing or rephrasing certain provisions like the Section 8 requirements of the Patents Act, as most of the documents required to be submitted by the applicant under the provisions of Section 8 are now publicly available online and should normally be easily accessible by the examiners of the patent office,” suggests Iyer. Similarly, she contends that the Form 27 working statement requirements, which request patent owners to fill in a form each year for granted patents, could be made less stringent: “With the increasing complexity of technologies like smartphones, medical diagnostic imaging systems and so on, where thousands of patents can be filed for one product, it could put a lot of pressure on the patentee to be able to accurately provide the required information on the working of invention for each patent.”

Scant interest

Given the byzantine nature of this regime, it is perhaps no great surprise to learn that little in the way of patent filing seems to be going on. In stark contrast to Chinese companies – which have leapt way out in front of their counterparts in other major economies in terms of applications filed and patents granted – Indian companies appear to be indifferent at best, averse at worst, to filing in their home country. Quality trumps quantity – but one cannot hope to have IP assets of any quality at all if one does not own them in the first place. For Santosh Mohanty, vice president and head of intellectual property and product development at Tata Consultancy Services (TCS), this is a major hurdle. “Yes, India has the right characteristics to be a major market,” he says. “However, the total patent applications submitted to patent offices across India by both foreign entities and domestic players need to have a significant lift.”

“In stark contrast to Chinese companies … Indian companies appear to be indifferent at best, averse at worst, to filing in their home country”

Joshi would argue that the situation should not be seen in too negative a light. “It is true that the current numbers are low and around 75% of patent applications submitted in 2013-14 to India’s patent office were from foreign entities,” he acknowledges. “However, domestic patent filings increased by over 10% from 2008-09 to 2013-14.”

But Mohanty points out that although there may be some encouraging signs with regard to local businesses, foreign entities show little inclination to build their portfolios in India. While significantly outranking Indian companies and representing three-quarters of all applications submitted to the country’s patent office in 2013-2014, non-resident filings remain comparatively low overall by global standards (see Table 1). “As of now, the procedural requirements and the timelines of grants could perhaps be perceived as a deterrent for filing in India,” Iyer adds. “The enforcement measures in place currently could also be a reason.”

Table 1. Top 10 non-resident applicants for Indian patents, 2013-2014

Company

Country

Number of applications

Qualcomm

United States

1,062

Philips

Netherlands

839

Ericsson

Sweden

386

Robert Bosch

Germany

375

Samsung Electronics

South Korea

371

BASF

Germany

304

Sony

Japan

263

General Electric

United States

260

Siemens

Germany

249

Alcatel-Lucent

France

222

Source: Office of the Controller General of Patents, Designs and Trademarks

Significant hurdles

Enforceability and the related issue of patentability are particularly problematic in two of India’s crucial sectors – pharmaceuticals and IT – which may go some way towards explaining why filing numbers remain relatively low.

When it comes to the life sciences, India is generally regarded – by foreign companies, at least – as an unfriendly jurisdiction in which to hold patents. A number of pharmaceutical majors have had applications rejected or patents revoked on subject-matter grounds in recent years, while many key court decisions have not gone the way which rights holders would have liked. How this affects India’s own drug makers – which are largely focused on the generic market – is unclear at this stage; although intuitively it would seem that weak patent protection would hold back their aspirations to develop and commercialise original formulations farther down the line.

“When it comes to the life sciences, India is generally regarded – by foreign companies, at least – as an unfriendly jurisdiction in which to hold patents”

As for the IT sector, the potential consequences of uncertainty in the IP ecosystem are more obvious. According to India’s National Association of Software and Services Companies, the industry made $148 billion in revenues last year, representing some 9.5% of India’s GDP. Moreover, the India Brand Equity Foundation indicates that IT companies account for 67% of the global market in IT-related services and business process outsourcing.

Nevertheless, the three most prolific resident patent filers in India’s IT industry chalked up barely a couple of hundred applications between them during 2013-2014 (see Table 2). Considering that information technology is such a critical component of the Indian economy, it is somewhat disconcerting to see it generating so few applications – even in a field where patents are not always the most appropriate form of IP protection.

Table 2. Top three domestic applicants in IT sector, 2013-2014

Company

Number of applications

Tata Consultancy Services

169

Infosys

83

Wipro

59

Source: Office of the Controller General of Patents, Designs and Trademarks

While the Indian statute books prohibit the patenting of software ‘per se’, protection for computer-implemented inventions has nonetheless been granted, with the patent office releasing what many have considered to be contradictory and confusing guidelines on the issue. The most recent set of guidelines, issued in February 2016, represented a “steep U-turn” from the previous guidance, according to Abhishek Pandurangi, a partner at Khurana & Khurana in Mumbai. “The recent version overrides the previous, seemingly over-liberal one with the narrowest possible approach, implying that the sun has set on software patents,” he says. “What discomfits me with the new guidelines is that they are an inaccurate reflection of the actual practice at the patent office and appear to have been worded to appease the critics of the previous guidelines.” As Pandurangi points out, a cursory search of the patent office database demonstrates that many patents essentially claiming software and business methods and that contravene the provisions in the revised guidelines have in fact been granted of late – even since the turn of the year (see Tables 3 and 4).

In Pandurangi’s opinion, India has never been a truly ‘anti-software patent’ jurisdiction. But if the new guidelines are strictly implemented, he feels that the possibility for patenting software-related innovations will be “swept away”. This could spell big problems for the country’s niche in IT enterprise services – as well as for its promising digital start-up scene. And ultimately, it could lead to even fewer domestic patent applications.

Table 3. Select software-related patents granted since 2013

Granted patent number

Title of granted patent

Named inventor(s)

Named applicant

Date of certificate issuance

265810

A METHOD FOR SIMULATING INSTANT MESSAGING CLIENT INTERFACE ON THE BASIS OF A WEB PAGE

Lin Zhou, Jiahui Du

Tencent

22/04/2015

265145

SYSTEM AND METHOD FOR IMPLEMENTING DATA-COMPATIBILITY-BASED VERSION SCHEME

Curtis Wetherly, Bryan R Goring, Michael Shenfield, Michael Cacenco

Research In Motion (now BlackBerry)

10/02/2015

258513

UPDATE DISTRIBUTION SYSTEM ARCHITECTURE AND METHOD FOR DISTRIBUTING SOFTWARE

David B Dehghan, David C Hennessey, Edward F Reus, Jason J Roberts, Jianbo Hou, Lie Charles Ma, Marc Shepard, Nirmal R Soy, Thottam R Sriram, Varadarajan S Thiruvillamalai, Vidayasankar Raman, Xiang He

Microsoft

13/02/2014

257812

SYSTEMS, METHODS, INTERFACES AND SOFTWARE FOR AUTOMATED COLLECTION AND INTEGRATIONOF ENTITY DATA INTO ONLINE DATABASES AND PROFESSIONAL DIRECTORIES

Yohendra Arumainayagam, Christopher C Dozier

Thomson Reuters

14/11/2013

258041

PREPARING COURSE CONTENT ALIGNED WITH STRATEGIC GOALS AND PRIORITIES OF AN ORGANIZATION

William Christopher Draper Jr, John R Hubbell, Thomas Kenneth Stovall, Kai Chuang, Christopher Foley

Accenture

28/11/2013

Table 4. Select software-related patents granted 2016 to date

Application number

Title of patent application receiving order for grant

Named inventor(s)

Named applicant

Date of post-grant publication

264/DELNP/2003

METHODS AND SYSTEMS FOR CRYPTOGRAPHICALLY PROTECTING SECURE CONTENT

Paul England, Marcus Pienado, Nicholas P Wilt

Microsoft

15/01/2016

5493/CHENP/2007

BILATERALLY GENERATED ENCRYPTION KEY SYSTEM

Syed Ibrahim Abdul Hameed Khan Abdul Rahman

Syed Ibrahim Abdul Hameed Khan Abdul Rahman

12/02/2016

2348/CHE/2007

METHOD OF SECURELY TRANSFERRING AN ELECTRONIC DOCUMENT

Information not available

Samsung R&D Institute India-Bangalore

12/02/2016

27/MUMNP/2008

METHOD AND SYSTEM OF BUILDING ACTUAL TRAVEL FARES

Marc Patoureaux, Thierry Dufresne, Gilles Chaumont, Cedric Dourthe, Thierry Blaszka

Amadeus

08/01/2016

Call to action

Patentable subject matter and enforcement will mostly remain the province of the courts and the patent office for the foreseeable future. But there are other areas where legislators are trying to take the initiative in making patenting in India more attractive for residents and non-residents alike.

The aforementioned draft national IP rights policy – which is now being reviewed by Modi’s cabinet with a view to being finalised and implemented later in the year – calls for enhanced coordination at the government departmental level in key areas including IP awareness and promotion, creation, administration and management, enforcement and adjudication, and commercialisation, as well as the overhaul of the legal and legislative framework surrounding IP matters.

Of the more specific proposals outlined in the policy, Iyer particularly welcomes proposed measures to continue tackling the bottleneck at the patent office, as well as the calls for effective protection for trade secrets. “The plans to ‘augment manpower after analysing projected workload, speedy liquidation of backlog, requirements of global protection systems and productivity parameters’ would probably help clear up the existing backlogs to speed up examinations of patent and trademark applications, and also provide faster grant of other IP rights going forward,” she says.

As someone who works with start-ups on a daily basis, Joshi sees a lot of positives for that particular stakeholder group in the draft policy. Echoing Iyer’s appreciation for measures aimed at enhancing trade secret protection, he also backs the call to introduce incentives for patenting. “The policy seeks to stimulate the creation of intellectual property by adopting measures that could encourage IP rights generation,” he says, making it “a definite positive initiative in the direction of better IP-related decision making and legislation in India”.

Keeping up with the neighbours

India is inevitably compared to neighbouring China when it comes to questions of IP policy and development; and the proposal to introduce financial incentives to encourage patenting is something that has been tried and tested in the latter jurisdiction. Whether this has been a successful move overall – or whether the real result has been a proliferation of ‘junk’ patents filed purely due to financial inducements – is a matter of debate. “This could be viewed as a good initiative,” says Iyer, “though it needs to be followed up with the required infrastructure and resources to support the additional filings without compromising on the quality of the grants.”

As part of the ‘Start-up India’ campaign launched in February, Modi appeared to pre-empt the latest call for incentivisation by announcing an 80% rebate on patent filing fees for Indian start-ups. From Joshi’s perspective, this is a good move: “The initiative extended under the ‘Start-up India’ programme will certainly motivate more innovators to file for patents – not for certification, but rather to protect their business in light of growing global competition and to gain recognition for their innovation. Most of the time, innovators shy away from filing intellectual property due to procedural issues, coupled with the cost involved in obtaining IP rights. The government initiative will have positive consequences in this regard.”

Mohanty identifies another potential problem that could arise for Indian businesses, where an incentive-fuelled abundance of patents might prove to be a double-edged sword. “The positive aspects are that it facilitates awareness and reduces the financial bottlenecks and unwillingness of start-ups to invest in IP protection,” he says. “But the long-term potential problem could be the possibility that this may lead to the emergence of non-practising entities (NPEs).”

Nevertheless, Mohanty feels that other aspects of the Chinese system could prove beneficial to Indian industry – including the existence of ‘petty’ patent rights that are cheaper, quicker and easier to obtain. “We need tier two models, like utility models, to give a fillip to domestic patent filings,” he says. “China has been impressive on volumes and implementing sui generis methods to protect domestic intellectual property. It has scaled its IP initiatives and achieved a phenomenal growth rate in terms of output and outreach. However, the development needs to be balanced with the quality of IP assets and the possibility of that intellectual property to translate its benefits to the global IP ecosystem. This is where I, for one, want India to avoid being too insular and confined to its domestic needs and progress.”

Improving outcomes

Beyond the initiatives and incentives outlined in the draft IP rights policy, encouraging evidence suggests that India is edging ever closer towards becoming a key IP jurisdiction, alongside the likes of the United States, Europe and China.

Perhaps foremost among these indicators is the country’s increasing popularity – particularly among foreign rights holders – as a venue for large-scale IP disputes. Speaking at IPBC China in Beijing in April 2015, Paul Fehlner, global head of intellectual property at pharmaceutical giant Novartis, said he was “pleasantly surprised” when the company was granted an injunction by an Indian court in a case relating to one of its patented compounds.

Major players in the telecoms and wireless device sectors are also turning their attention to India. Ericsson has enjoyed some notable successes in enforcing its standard-essential patents (SEPs) in the country, having been handed an injunction against Xiaomi and secured favourable outcomes against domestic vendors iBall, Intex and Micromax. At least one NPE has fared well in the country, too: before reaching a settlement late last year in its worldwide SEP dispute with ZTE, Vringo obtained injunctions from the Delhi High Court, assisting in its drive to sign the Chinese company up to a licence.

India, after all, boasts a number of features that could make it a very attractive forum in which to own, maintain and exploit intellectual property. Unlike China, India has a judiciary that is decidedly independent from the rest of government; while its common law system and English-language proficiency distinguish it from its northeastern neighbour in the eyes of multinationals.

But despite these advances, it is clear that policy makers in India still have their work cut out for them. Without an IP system that effectively addresses the value of IP assets, foreign companies will remain apprehensive about investing in the country – while emerging domestic players may feel that they have little choice but to make their IP-related investments elsewhere. Without change, India’s economic miracle may well end up short lived as a result.

Action plan

As India seeks to reboot its IP system, key stakeholders have expressed their support – with caveats – for several of the proposals that have been made in the country’s draft national IP rights policy:

  • The introduction of a legislative framework for the protection of trade secrets, as has happened in the European Union and the United States, would do much to boost corporate confidence in India – particularly among foreign companies.
  • A utility model regime would seem to have widespread support. This could help Indian industry to capture added value from incremental innovation, while also facilitating the transition towards greater patent ownership.
  • The Indian patent office should clarify the position on the patentability of software. A generous interpretation of its most recent guidelines would be beneficial to the country’s crucial IT sector and high-tech start-ups alike.
  • Financial incentives – such as the ‘Start-up India’ programme’s 80% reduction in patent filing fees for early-stage businesses – could do much to encourage patenting among India’s typically patent-shy entrepreneurs. However, such initiatives should be carefully monitored to ensure that overall quality in the patent system is not compromised in favour of quantity.

Jack Ellis is a freelance journalist based in Hamilton, New Zealand, who specialises in covering IP-related issues

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