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The Union Cabinet has given its ex-post approval for the Memorandum of Understanding (MoU) between India and Canada. The MoU was signed on 23-02-2018 to establish bilateral cooperation activities in the field of Intellectual Property (IP) and is intended to promote innovation, creativity and economic growth in both countries.

The MoU establishes a broad and flexible framework through which both countries can exchange best practices and work together on training programs and technical exchanges to raise awareness on IPRs and better protect intellectual property rights (IPRs).

The priority initiatives under the MoU include

  1. Exchange of best practices, experiences and knowledge on how to raise IP awareness among the public, businesses and educational institutions of both countries;
  2. Exchange of experts for interacting with the human resources engaged in specialized IP fields;
  3. Exchange and dissemination of best practices, experiences and knowledge on IP with industry, Universities, research and development organizations and Small and Medium-Sized Enterprises (SMEs) through participation in programs, training, and events, organised singly or jointly by the participants;
  4. Cooperation in the development of automation arid implementation of modernization projects, new and existing documentation and information systems in IP and procedures for management of IP;
  5. Cooperation to understand how traditional knowledge is protected; and the exchange of best practices, including traditional knowledge related data bases and awareness raising of existing IP systems;
  6. Collaboration in IP related training for local IP and business communities, and
  7. Any other cooperation activities they  may  mutually decide upon within the scope of the MoU.

[Press Release no. 1526896, dt. 28-03-2018]

Cabinet

Experts CornerGNLU - Microsoft

With globalisation and increasing competition, technological self-reliance has become a necessity. India has always believed in the middle path. It can be traced to the tendency in our cultural milieu to avoid extremes in any thought process. Intellectual property rights (IPR) management is no exception. However, while the law is evolving, the practices are changing even faster.  The companies which traditionally held our hands on technology and supplied us know-how (at a price), have started to see us as a competitor. As a result of which in the recent years there have been several cases filed by Indian companies against other Indian companies demonstrating increasing awareness among the inventors of their rights. At the same time the case for open source technologies has also become quite strong. It is not just in softwares that one ought to be concerned about open source technologies, but even in hard technologies, the Government can incentivise innovators to bring their technologies in public domain. One can hybridise both IP and open source system protection among corporations and other organised sector entities but freedom to copy, improve, and learn from each other at the community level. Open innovation contrasts with the traditional “closed innovation” model employed by the large vertically integrated firms which grew prominent during the twentieth century.[1]

The most closely linked intellectual property relating to the open innovation is patents, and that is where the column focuses on. Most patent jurisdictions in the world were designed keeping in mind the lone inventor who, through the marshaling of extraordinary insight and experimental toil, conceives a novel invention. As a reward, the inventor is given the right to profit from his contributions through personal commercial exploitation. Open innovation suggested that this model can no longer be successful because the growth of alternative models of technology development challenges the competitive advantage of integrated R&D.

Having established that intellectual property rights would often lock horns with the concept of open innovation, this column would like to explore how to manage one’s intellectual property in order to successfully implement an open innovation model.

What justifies an open innovation model?

Having established that the underlying philosophies of open innovation model and patent laws are polar opposites, it is safe to conclude that an open innovation model would be in conflict with existing patent laws. The question that needs to be asked is, what then, justifies the concept of open innovation model. Traditionally, patent doctrines look for a “flash of creative genius” in the invention as in Graham v. John Deere Co. of Kansas City Calmar Inc.[2] But it is largely accepted now that the process of innovation is not random. The creation of new ideas in the modern world often heavily relies on existing ideas and builds on them.

New technologies arose from the intersection of previously unconnected fields. Technology fusion describes the process whereby entirely new technologies, such as electro-mechanical manufacturing equipment, are spawned by the integration of different fields of art. New fields, such as biotechnology and nanotechnology, stem from the integration of existing disciplines.

There are an almost unlimited number of potential recombinations which an innovator may pursue. The process of finding and trying new technical inputs is often referred to as search. Search processes are often characterised as local and distant search. Local searches involve component with which the innovator is familiar. Distant search tap into unfamiliar fields.

An open innovation model need simplifies the distant searches for an innovator. This may help and tap into different solutions for the same problem developed by different entities and make a breakthrough innovation. Such innovations are beyond the abilities of any one firm to envision.

It is easy to see from the above that open innovation model is beneficial in many ways like maximising profit, avoiding unnecessary competition and, to innovate in the intersection of two different fileds of art.

Managing the open innovation model vis-à-vis patent laws

It is well established that traditional patent laws, offering monopoly rights to the innovator, discourage the very idea of open innovation. But the author would like to postulate that if the intellectual property of an innovator firm is managed in an intelligent manner, it would be helpful in developing innovation model, should they choose to do so. By systematically managing the open innovation and patent management processes a firm might optimise the benefits that are to be gained by these two seemingly conflicting systems.

Some of the world’s largest patent-holders (firms like Philips NV, IBM, and Microsoft) have embraced the open innovation model. As an example transformation of Microsoft’s IP strategy due to the increased demand for interoperability of their Linux and Windows systems has encouraged the move. And if we examine the patenting activities of Microsoft, we observe that it does not appear to have reduced its patenting activities in response to this strategic shift. Microsoft has maintained a constant patenting.[3]

Managing the open innovation process

The volatility and the conflict in the open innovation model make it difficult to manage especially in the light of patent laws. The facts that make management difficult are:

  • There are always multiple claim holders who have heterogeneous interests.
  • Open innovation requires openness in the communication and exchange which is not always forthcoming.
  • Joint ownership and management of intellectual property is complicated.

These demand formation of a governance structure that can decide how multiple claims be prioritised. The open innovation model requires an open exchange of communication, but at the same time an understanding of confidentiality. This becomes all the more important due to the sensitive nature acquired by patents with regard to the time and value. Such confidentiality can be achieved by either signing a formal non-disclosure agreement, or by informal means of community norms, trust and implicit corporate culture.

Managing the intellectual property

To foster the open innovation culture without letting go of the advantages brought by the patent laws, firms must be very intelligent in the management of their intellectual property.  This is not to suggest that one circumvent the patent laws but only that firms utilise it in such a way that it provides a harmonious environment for the open innovation model.[4]

First, in competitive field of technology, like pharmaceutical, the importance of earliest filing of a patent cannot be understood. Since patent rights are granted to the first person who files for it, the application must be made at the earliest. Firms wishing to foster an open innovation model must adapt to the existing patent laws. An application must be made at the earliest, even if it is just a provisional application. The pace of the application process must also not be relaxed. The goal is to get the patent granted as fast as possible.[5]

Second, if possible, the patent application should be filed before collaborating with the partner. This helps with the issue of non-confidentiality encountered while entering into an agreement with a partner. Therefore, this issue may be simply solved by filing a provisional application before making a partnership. Although the applicant must make sure, even with a provisional application, that it meets the legal standards set by the rules. This is so because mere filing of a patent application does not guarantee the grant of patent, it must satisfy all the requirements of law. Although it is better to file a complete specification from the very start, the author realises it may not be financially, economically and realistically feasible.[6]

Third, it is very important to refrain from making any public disclosures about the invention at least till the provisional specification has been filed. The need for secrecy in a competitive market must be stressed upon. The firms involved in the transfer of technology should try to avoid publishing any material by themselves, as it would adversely affect their later claims to joint ownership.[7]

Fourth, third party technology-based solutions with staged disclosure can perhaps ease the tension that arises from receiving ideas that are not yet patented or subject of patent application.

Conclusion

Innovation as a process has increasingly become dependent on many factors including external technologies. It has become so saturated that groundbreaking innovations are becoming more prominent in the intersection of two or more technologies rather than in the realm of one. This has led to the increasing need for firms to collaborate among themselves to continue to increase their innovative output. But at the same time the concept of sharing technologies is directly in contrast with the intellectual property regime built in most jurisdictions.

But we can conclude that with proper management of open innovation model and of the intellectual property, a harmonious environment, where both can survive, can be made. This can be achieved by adopting better mechanisms for technology transfer and by adopting proper licensing practices.

Also, it is imperative to speed up the patent application filing process to supplement the open innovation made adequately. Some problems faced by the open innovation model can be directly solved by optimally utilising the patent law. The two systems, though prima facie at loggerheads with each other, are actually beneficial to each other. Open innovation fosters radical innovation and the intellectual property regime helps to design a better open innovation model. Therefore, the two systems share a symbiotic relationship. They aid in each other’s growth, provided that both are managed in an intelligent manner.

*Vaishali Singh is Research Associate, GNLU-Microsoft IPR Chair, Gujarat National Law University.

[1]  Chesbrough, Henry W. (2003), Open Innovation: The New Imperative for Creating and Profiting from Technology, Boston: Harvard Business School Press.

[2]   1966 SCC OnLine US SC 19 : 15 LEd 2d 545 : 383 US 1 (1966).

[3]   Phelps, Marshall and David Kline (2009), Burning the Ships: Intellectual Property and the Transformation of Microsoft.

[4] The Open Innovation Model, © International Chamber of Commerce (ICC), 2014: <www.iccwbo.org/Innovation-and-intellectual-property>.

[5]    Ibid.

[6]    Ibid.

[7]    Ibid.

Case BriefsHigh Courts

Madras High Court: While relying upon the Supreme Court decision in Midas Hygiene Industries (P) Ltd. v. Sudhir Bhatia, (2004) 3 SCC 90, the Single Bench of K. Kalyanasundaram, J. has observed that an injunction would normally follow in the cases of infringement of  intellectual property rights, especially when the dishonesty qua the defendants was apparent, and a mere delay would not be a ground to deny an order of interim injunction in such cases.

The plaintiffs submitted that the defendants had deliberately copied their registered bottle design, and thereby had caused design infringement and passed off their bottles as that of the plaintiffs. The defendants contended that there was no novelty in the design of the plaintiffs since the curves on the bottles and the vertical projection on the caps were functional features, and similar designs were in public domain even prior to the plaintiffs’ design registration, hence, the design registration was invalid. The defendants also submitted that they had been selling the alleged infringing products from past five years to the knowledge of the plaintiffs, therefore, as per Section 41(g) of the Specific Relief Act, the plaintiffs had acquiesced their right.

The High Court noted that it was an admitted fact that the plaintiffs’ design was registered in 2008, whereas the defendants launched the impugned design only in 2011. Moreover, it was not the case of the defendants that they were prior user of the design. The defendants had also not produced any material to substantiate their submissions that the designs of the plaintiffs were not new and the similar bottled designs had been used previously. Also, since the defendants themselves claimed to be the registered proprietor of similar designs, hence, they could not be permitted to approbate and reprobate as to the registrability of the bottle design. The Court also noted that the utility of the grip of a bottle, or the feature to facilitate the opening of the cap, could also be attained by other design options, therefore, such features could not be considered as “essentially functional”. The Court, thus, concluded that the design of the plaintiffs had been copied and adopted by the defendants, and the plaintiffs had made out a strong prima facie case for the grant of interim injunction. [Dart Industries Inc v. Cello Plastotech, 2017 SCC OnLine Mad 1851, decided on 12.05.2017]

Case BriefsHigh Courts

Delhi High Court: In a case regarding Intellectual Property Rights, the plaintiffs-manufacturer of water purifiers sought protection by obtaining design registrations under the Designs Act, 2000 in respect of the aesthetic appearance of its water purifier systems stated that products covered by the plaintiffs registered designs are being marketed and sold by the defendant through e-commerce platform-Ebay constituting piracy under the Designs Act, 2000 and alleged that Ebay’s action of permitting the defendant to advertise, offer for sale and sell its products too amounts to infringement of the plaintiffs rights under Section 19 of the Designs Act.

The plaintiffs sought relief against Ebay to take down, remove, delist all products infringing the registered designs of the plaintiffs and issue of prohibitory injunction to from allowing products infringing the registered designs of the plaintiffs being offered for sale and sold from their portal. Plaintiffs contended that Ebay being an intermediary had a duty to do due diligence in order to ensure that before posting any information on its computer resources, it is important to satisfy itself that the same does not infringe the intellectual property rights of any person.

Ebay averred referring to Section 79 of the IT Act, 2000 which states that an intermediary shall not be liable for any third party information, data, or communication link made available or hosted by him. The Court accepted this contention observing that asking the intermediary e-commerce websites to screen the products they advertise for infringement of IPR would amount to an unreasonable interference with the rights of the intermediary to carry on its business.

The Court held that the intention of the Legislature has been to require the intermediaries to be vigilant and to only declare to all its users its policy and advise them not to host any infringing information on the website of the intermediary and to on receipt of complaint remove the same within 36 hours whereas no requirement of keeping a check upon the nature of products being advertised has been posed by the Legislature and did not pass any such directions to ebay as sought by the plaintiffs. [Kent RO Sytems v. Amit Kotak, 2017 SCC OnLine Del 7201, decided on 18.01.2017]

Case BriefsHigh Courts

Delhi High Court:  Dealing with the question of situs or location of intellectual property rights  in logos, trade marks and brands with reference to the income accruing in India from intangible assets, the Court held that income accruing from the transfer of intangible assets like intellectual property whose owners were not based in India cannot be taxed in India.

The issue related to the transfer of 16 trade marks and Foster’s brand intellectual property of the petitioner, Foster’s Australia Ltd. to SABMiller executed in Australia. By a brand licence agreement executed earlier, Foster’s India Ltd. had been permitted to use 4 trade marks in India. The licensed trade marks continued to remain the absolute property of the petitioner who received royalty and was subjected to withholding tax in India. The petitioner sought an advance ruling from the Authority for Advance Ruling (Income Tax) under Section 245-Q of the Income Tax Act regarding the issue of taxability in India having regard to the provisions of the Income Tax Act, 1961 and the Double Taxation Avoidance Agreement between India and Australia.

The AAR ruled that the income accruing to the applicant from the transfer of its right, title and interest in and to the trade marks and Foster’s brand intellectual property is taxable in India under the Income Tax Act, 1961 on the ground that the subject-matter of assignment/transfer were situate in India.

The petitioner’s plea was that in the case of intangible capital assets the situs thereof has to be determined by the situs of the owner. Because of the nature of an intangible capital asset, the common law principle ‘mobilia sequuntur personam’ had been evolved, whereby a fiction is created to the effect that the situs of an intangible capital asset would be the situs of the owner of that asset. In this backdrop, since the owner of the intangible assets in question was located in Australia, the petitioner, being an Australian company, the intangible assets, which include the intellectual property rights of the petitioner, were also located in Australia. Therefore, the transfer of those assets would not result in any income deemed to have accrued in India and would not be exigible to tax in India. The AAR was of the view that since the intellectual property rights pertain to India, as they were used and nurtured in India and some of them were registered in India, the same had taken roots in India and therefore, were completely situate in India.

Upholding the petitioner’s contention, the Division Bench of Badar Durrez Ahmed and Sanjeev Sachdeva, JJ. observed that in the absence of a specific provision regarding intangible assets, the well-accepted principle of ‘mobilia sequuntur personam’ would have to be followed. The situs of the owner of an intangible asset would be the closest  approximation of the situs of an  intangible asset. This is an internationally accepted rule, unless it is altered by local legislation. Since there is no such alteration in the Indian context, the situs of the trademarks and intellectual property rights, which were assigned pursuant to the ISPA, would not be in India. This is so because the owner thereof was not located in India at the time of the transaction.The Court held that the income accruing to the petitioner from the transfer of its right, title or interest in and to the trademarks in Foster’s brand intellectual property is not taxable in India. [CUB Pty Ltd. (formerly known as Foster’s Australia Ltd.)  v.  Union of India, 2016 SCC OnLine Del 4070, decided on July 25, 2016]