India’s rise in the Global innovation index ranking

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The Global Innovation Index (GII) released the Global Innovation Index 2017 in June 15, 2017, in which India stood at the 66th rank. The GII 2017 lists 127 countries according to various aspects that are responsible for innovation. It is co-published by Cornell University (New York), INSEAD graduate business school (France), and the World Intellectual Property Organization (WIPO, an agency of the United Nations).

The GII focuses on innovation and uses a broad variety of information and sources for capturing data to develop the Index. The GII collates information related to seven sub-indexes, which comprises five input indexes and two output indexes. The five input indexes are: (1) Institutions, (2) Human capital and research, (3) Infrastructure, (4) Market sophistication, and (5) Business sophistication. The two output indexes that capture actual evidence of innovation outputs are (6) Knowledge and technology outputs and (7) Creative outputs.

India’s Department of Industrial policy and Promotion (DIPP) set up a ‘Task Force on Innovation’ which was tasked with assessing innovation creation and suggesting measures to enhance the innovation ecosystem in India in order to improve India’s GII ranking. The Task Force comprises government officials and experts from private organisations and academia. This team published an in-depth report after studying the Global Innovation Index 2017. The report compares rankings from 2015 and 2016, giving a clear-cut picture of how we have progressed in this time duration, and provides recommendations of various schemes and plans that can be implemented.

In particular, the output index ‘knowledge and technology outputs’ includes several indicators belonging to Intellectual Property. The ‘knowledge and technology outputs’ index comprises three sub-pillars, namely Knowledge creation, Knowledge impact and Knowledge diffusion, resulting in fourteen individual indicators altogether. The following tables showcase our rankings based on data collected in 2015 and 2016 (the GII 2017 report ranks nations based on 2016 data).

We witnessed an improvement in the ranking of the knowledge and technology outputs index. 2016 saw an overall improvement in all three segments, and a particularly commendable improvement seen in the knowledge impact indicators, wherein our rankings rose by 36 ranks.

GII-1Knowledge Creation

The knowledge creation sector did not see much of a rise in rankings. Further, it is worth noting that while the ranking for ‘Scientific and technical articles/ bn PPP$ GDP’ has remained the same, the score for the same has decreased from 7.5 to 7. The report mentions Uchchatar Avishkar Yojana (UAY) and Impacting Research, Innovation, and Technology (IMPRINT), both of which are Government programs that may aide intellectual property creation.  

Gii-2

            Further suggestions stress on the importance of improving the availability and quality of education. There needs to be a focus on higher education, namely graduate programs and higher programs, while stressing upon research in fundamental as well as applied knowledge.

            Another point to note here is that these indicators only capture data created by formal systems. However, there are numerous innovations occurring informally, at various levels. There is a requirement for a bridge linking formal knowledge as well as informal. Including this informal, unaccounted data would greatly benefit the Government as well as the people, along with increasing our rankings in this area.

Knowledge impact

The knowledge impact sector witnessed a considerable rise in rankings from the 84th rank in 2015 to the 48th rank in 2016. The major cause for this is the increase in rankings of ‘Growth rate of GDP per person engaged (constant 1990 PPP$)’ from the 38th rank to the 6th rank in the world.

Gii-3In case of knowledge impact, there is a need to create awareness on various opportunities available through the State and Central government. Proper knowledge must be imparted to the public with respect to any available benefits and schemes so that interested people or organizations may put them to good use.  

The report also mentions that programs and initiatives like Make in India, Start Up India, Smart Cities across the country, Industrial Corridor etc. would give a positive impact to the GDP growth in India.

Knowledge diffusion

The improvement in the knowledge diffusion sector was driven mainly by the ‘FDI net outflows, % GDP’, which saw a rise in ranking from the 92nd rank to the 60th rank. FDI net outflows is defined as the “net outflows of investment to acquire a lasting management interest (10% or more of voting stock) in an enterprise operating in an economy other than that of the investor.” It is also important to note we rank 1st in the world for ICT (Information and Communication Technologies) services exports, which was retained from 2015. 

GII-4

There is definitely a need for increasing a general awareness of IP among the public. Such awareness is especially required among Micro, Small & Medium Enterprises (MSMEs), since they are creating innovation but aren’t protecting it or utilising existing IP laws to gain the best benefits possible. IP protection in India must be improved.

Another indicator that concerns IP can be found in the ‘Creative outputs’ index, in which India’s rank improved by 1 from a ranking of 95th in 2015 to a ranking of 94th in 2016.

In particular, the ‘intangible assets’ sector concerns trademark applications and industrial designs, as shown below.

GII-5

            An increase in awareness regarding the identification, recognition and registration of trademarks and industrial designs among public, start-ups and MSMEs must be implemented. Further, Intellectual Property Facilitation Centres (IPFCs) should be strengthened and further replicated in all the districts; IP Cells need to be established in all Universities in India. This can result in higher IP filings that result in an improvement of our ranking in these sectors.

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            Overall, India witnessed a commendable rise in the Global Innovation Index Rankings, jumping from the 81st rank in 2015 to the 66th rank in 2016. The GII-2017 report states, “India is a good example of how policy is improving the innovation environment”. Schemes such as Start-up India, IMPRINT, UAY, Make in India and Industrial corridor, among many others, provide an encouraging view on improving innovation and industry. We hope that with the proper planning and implementation of such schemes, India may finally live up to its potential for Intellectual Property.

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Trademark protection of architectural design

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A discussion on trademark protection of architectural design will typically begin with the Empire state building. It is because the building owned by a private firm secured its trademark early in 1931 and has enjoyed various economic benefits through the trademark protection for almost 80 years. Followed by the building, few other famous constructions like Eiffel Tower (at night when the lights are aglow) in Paris and Opera house in Sydney have also secured the trademark protection for their architectural design. However, India with numerous architectural marvels that are owned by an individuals or companies have not gained any trademark protection for architectural design until recently.

On June 19th, the Indian Hotels Company Ltd (IHCL) that owns The Taj Mahal Palace was granted a trademark for the hotel’s unique architectural design such as the red-tiled Florentine Gothic dome and the grand exterior. The Taj Mahal Palace is the first building of its kind in India to secure a trademark for its architectural design. India’s iconic luxury hotel, The Taj Mahal Palace that was built in 1903, has hosted numerous famous personalities and dignitaries from different parts of the world and is highly recognizable throughout India. Acquiring trademark registration was not cumbersome as the hotel already met the various prerequisites. In the backdrop of this registration, we discuss various aspects of Trademark protection of an architectural design. 

How can a building secure Trademark protection?

  • The first and foremost rule to apply for a trademark protection for an architectural design is that the building should be either owned by an individual or a company.  
  • The building should be distinctive which means that the building should be easily recognizable by many people.   
  • The building should represent a brand that associates a product or service to a source.

Once trademark protection is secured, the building or architecture can enjoy many economic benefits and prevent others from exploiting the architectural design and take advantage of it.

What can be called a trademark violation of an architectural design?

There are few aspects to judge a trademark violation:

  • The use of the trademarked building should be non-editorial. A building’s image published on a newspaper wouldn’t violate trademark. Whereas, an image of a building used to advertise another product could violate the trademark.
  • The use of the trademarked building to endorse identical or deceptively similar goods or services by third party may be considered infringement. Mc Donald’s in its advertisement for promoting burgers, cannot use an image of a KFC restaurant in the advertisement as it may lead to confusion among consumers.

Economic benefits of trademark protection: Empire state building vs NYC beer –  A case study

A building with a unique and a widely recognizable architectural design can apply for a trademark to prevent others from exploiting the economic benefit of the architectural design. For example, in the year 2016, ESRT Empire State Building LLC who owns the trademark of Empire state building since 1931, filed an opposition for the grant of trademark that was filed by NYC Beer for its alcoholic beverages.

 

NYC beer

The opposition application filed by ESRT Empire State Building LLC was based on the grounds of trademark dilution, likelihood of confusion and false suggestion of a connection with Empire state building. According to US law, the trademark dilution is proved and accepted if the trademark is recognized and famous. As a result, ESRT Empire State Building LLC was successful in winning the opposition as the building attracts millions of tourists and visitors every year and is easily recognizable by public. Also, the building management stated that, a gift shop in the building also sells few alcoholic and non-alcoholic beverages as a souvenir for the visitors. So, the NYC beer may be confused by people with the ones that is sold by the gift shop. The trademark protection, helped the Empire state building to hold its recognition and prevent any misuse of it by any other companies.

Scope of trademark protection of architectural design of a building

Sydney’s Opera House, the Empire State Building and The Taj Mahal Palace hotel could easily secure a trademark protection, as they fulfil all the prerequisites and are owned by private entities.

For some, it might be surprising that how Eiffel tower being a public property, managed to secure a trademark. Surprisingly, the Eiffel tower does not hold a trademark for its architectural design but for the lighting design. The Société d’Exploitation de la Tour Eiffel, the organization managing the structure defends the trademark protection saying that the lighting is an artistic work which is separate from the structure itself. Thus, an architectural design need not necessarily be a structural, instead it can be any other possible architectural design.

For example, Apple, the world’s famous and recognized electronic gadget manufacturer secured a trademark for its “architectural design of Apple stores” from USPTO on January 24, 2013. It is to be noted that every Apple store cannot be structurally same as they are in various places under various space constraints. However, the trademark protection is not for the structure but for the store’s layouts, with their open spaces and symmetrically arranged displays. The trademark protection of “architectural design of Apple stores” helps Apple to legally act against duplication of the “look and feel” of its stores by any of its competitors.

The Trademark protection of an architectural design helps many private firms protect the various aspects of their buildings and structures. It is good to see that Indian firms are also understanding the benefits of trademark protection and trying to get benefit out of their architectural designs.

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The end of Roche vs. Cipla infringement lawsuit

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The tussle between Roche and Cipla that started in the year 2008 has come to an end with a compromise announced on 30th May 2017 between the parties.

Roche has an Indian patent over a drug, “Erlotinib hydrochloride”, for treating lung cancer. In the year 2006, Roche launched the drug in India under the name “Tarceva”. It was reported in January 2008 that Cipla is planning to launch a generic version of “Erlotinib” under the name “Erlocip”. Roche followed by initiating infringement proceedings against Cipla in January 2008.

Roche’s plea for interim relief by way of injunction was rejected by single judge with an opinion that injunction against Cipla’s manufacture was against public interest. Notably, Tarceva costed around INR 140,000 (~USD 2300) for a month’s dosage, whereas Elrocip costed only INR 48,000 (~USD 800). Subsequent appeal by Roche was mostly unsuccessful.

The turnaround in the case happened in 2015, when the case was moved to the Divisional Bench of the Delhi High Court where the judgement was in favour of Roche. The Divisional Bench held that Cipla was infringing Roche’s patent.

Followed by the judgement, Cipla filed a Special Leave Petition (SLP) requesting for appointing a technical expert, which was accepted by the Apex Court in 2016 after which the matter was adjourned. After almost decade long legal proceedings, on 30th May 2017 both the pharmaceutical companies finally came to an agreement and reached a settlement. In June 2017, Cipla moved the apex court seeking to withdraw the Special Leave Petition (SLP) filed against the DHC divisional bench’s decision given in 2015.

The case which is considered to be significant in the Indian pharmaceutical industry has come to an end after shedding light on various aspects of laws pertaining to patent protection of pharmaceutical products.

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Far reaching repercussions of connecting zero GST provision with Trademark Registration

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The Goods and Service Tax (GST), which is hailed as one of India’s biggest tax reforms came into effect on July 01, 2017. The implementation of GST has impacted almost every sector that is part of the Indian economy, including intellectual properties. The tax rates on some items are linked to their trademark status.

Items for which GST rate is linked to trademark status

The GST rate schedule provides a list of items on which tax under GST will not be applicable. However, the schedule comes with a caveat, wherein some of the items (mostly food items) in this list will attract 5% GST if such items are put in unit container and bears a registered brand name. The items that will attract 5% GST in view of said caveat are listed below.

Under chapter 4 (Dairy produce; bird’s eggs; natural honey; edible products of animal origin, not elsewhere specified):

  • Natural honey, chena or paneer 

Under chapter 10 (Cereals):

  • All goods, wheat and meslin, rye, barley, oats, Maize (corn), rice, grain sorghum, buckwheat, millet and canary seed; other cereals such as Jawar, Bajra and Ragi 

Under chapter 11 (Products of milling industry; malt; starches; inulin; wheat gluten):

  • Cereal groats, meal and pellets; aata, maida, besan, flour of wheat or meslin flour, cereal flours other than of wheat or meslin i.e. maize (corn) flour, rye flour etc.

Under chapter 22 (Beverages, spirit and vinegar):

  • Tender coconut water

Under chapter 31 (Fertilisers):

  • Tender coconut water

There were confusions generally as to what would be considered as “registered brand name”.  On 5th of July, the Ministry of Finance issued a statement (presented below) addressing the confusion.

“In this context, the notification… clearly defines ‘registered brand name’ as brand name or trade name, which is registered under the Trade Marks Act, 1999. In this regard, Section 2 (w) read with section 2 (t) of the Trade Marks Act, 1999 provide that a registered trade mark means a trade mark which is actually on the Register of Trade Marks and remaining in force.” “Thus, unless the brand name or trade name is actually on the Register of Trade Marks and is in force under the Trade Marks Act, 1999, CGST rate of 5% will not be applicable on the supply of such goods”

As can be interpreted from the above statement, any listed product that is sold under a trademark, which is registered and remains in force under the Trade Marks Act, will be levied CGST at 5%. For example, there will be no CGST on natural honey sold under a trademark that is not registered. However, natural honey sold under a registered trademark will attract 5% CGST.

Consequence

The items to which this provision applies are basic food items, towards which consumers are highly price sensitive. Hence, the choice for companies, large, medium and small, is to either maintain a registered trademark and have the consumers incur 5% addition cost, or sell under unregistered trademarks. In our view, considering the price sensitive nature of the goods, and consumers in general, the choice for the companies would be obvious. Companies are likely to refrain from applying for trademark registration covering such items, and if they have already registered, then they may apply for cancellation of registration. It has come to our notice that some of the largest players in this sector have applied for cancellation of registration.   

Going forward, we anticipate that trademark applications covering such item will be few and far in between. Also, there will be requests for amendments or cancellation of registered trademarks covering such items.

In the medium to long term, we anticipate increased instances of smaller players introducing such items into the market, bearing trademarks (of course unregistered) that are identical or deceptively similar to large reputed companies. Such activities will dilute the goodwill, and may also negatively impact the reputation of established companies. Such established companies will find it difficult and expensive to stop such players from riding on their goodwill, since enforcing an unregistered trademark is far more complicated compared to enforcing a registered trademark. Although companies may appreciate the risk involved, they would be willing to take this risk considering the pricing pressure discussed earlier. Therefore, in the medium term, we see an increase in trademark litigation in this space.

While we have elaborated on the tentative risks faced by companies, in our view, ordinary consumers are the most exposed. As discussed earlier, there will be relatively more players (as compared to the conditions currently) in the market, trying to ride on the goodwill of reputed companies, and one cannot really expect products of superior quality from such players. Now considering that items of this nature are bought by anyone and everyone, literate and illiterate, there is a high possibility of consumers being deceived into buying such items thinking that it originates from a reputed source. Such confusion is highly undesirable especially in connection with food items, which are brought on a regular basis, and consumed largely on a daily basis.

Conclusion

The Government appears to have introduced the provision of nil GST on some items that are sold under unregistered trademarks to incentivise small traders. However, established companies are positioned to nullify the incentive, and most likely will, by either refraining from applying for trademark registration or cancelling registration. Additionally, the Government’s move may negatively impact the culture of intellectual property protection, which the Government is rigorously trying to foster.

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Guidelines of 2017 for Examining Computer Related Inventions in India

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Patentability of software inventions, which are generally referred to as Computer Related Inventions (CRI), is a topic of constant debate, not just in India, but around the world. India has been trying to introduce objectivity to this topic, which is subjective by nature, by way of amendment to the Act, and by introducing guidelines for examining CRI over the years. The latest among these efforts, is the introduction of guidelines by the office of the Controller General of Patents, Designs and Trade marks, India (generally referred to as Intellectual Property Office – IPO). The guidelines came into effect from June 30, 2017, and replaces previous guidelines for examining CRI. The guidelines can be downloaded here. 

The merits of such guidelines being binding on the patent applicants are questionable, since they neither supersede the Act nor caselaw. However, one can argue that these guidelines may be binding on the patent examiners (acting on behalf of the Controller). Nevertheless, these guidelines will have significant practical implications. The examiners are expected to follow these guidelines while examining CRI. Therefore, their rational while issuing examination reports, granting or rejecting patents to CRI will likely be in line with these guidelines. Further, these guidelines, if nothing, are at least an indirect reflection of the governments stand on patentability of CRI. Hence, there are several compelling reasons for discussing these guidelines in greater detail.

At the outset, it is worthwhile to point out that the guidelines (“new guidelines”) are favourable towards grant of patents for CRI, as compared to the outgoing guidelines (“earlier guidelines”). The notable difference between the two guidelines is the ouster of a “three stage” test, reproduced below, prescribed in the earlier guidelines to determine patentability of CRI.

(1) Properly construe the claim and identify the actual contribution;

(2) If the contribution lies only in mathematical method, business method or algorithm, deny the claim;

(3) If the contribution lies in the field of computer programme, check whether it is claimed in conjunction with a novel hardware and proceed to other steps to determine patentability with respect to the invention. The computer programme in itself is never patentable. If the contribution lies solely in the computer programme, deny the claim. If the contribution lies in both the computer programme as well as hardware, proceed to other steps of patentability. (emphasis added)  

As per the test, a novel hardware had to be present, irrespective of how inventive the software is, for a patent to be granted. In other words, if the inventiveness lies only in software, then the same is not patentable. Such a stance goes against the legislative intent, which in fact clarified its position by introducing an amendment in 2002. The amendment excluded “computer programme per se”, instead of just “computer programme”, from being considered as patent eligible subject matter. The legislative intent to attach suffix per se to computer programme is evident in the view, presented below, expressed by the Joint Parliamentary Committee (JPC) while introducing the amendment.

In the new proposed clause (k) the words ''per se" have been inserted. This change has been proposed because sometimes the computer programme may include certain other things, ancillary thereto or developed thereon. The intention here is not to reject them for grant of patent if they are inventions. However, the computer programmes as such are not intended to be granted patent. This amendment has been proposed to clarify the purpose   

The JPC states “the computer programme may include certain other things, which may qualify them as inventions, and hence be awarded patents. Computer program cannot certainly “include” hardware. Therefore, the three stage test prescribed previously went against the legislative intent while dealing with CRI.

On the other hand, the debate is, what can a computer program “include” that is “ancillary thereto or developed thereon”, which make it an invention. In our view, computer program can include “technical manoeuvres”, again expressed as computer program, which nudge CRI from being categorized as “computer programme per se”.

The new guidelines do not deal with what “other things” the computer program can include that is “ancillary thereto or developed thereon”, which makes it an invention. Hence, the clarity one may desire in the guidelines while examining CRI is still largely absent. However, on a positive note, the guidelines offer stuffiest scope to the examiners to exercise discretion while examining CRI, and to the applicants to argue their case based on the Act, legislative intent and caselaw, without knocking the doors of the Intellectual Property Appellate Board (IPAB).

In conclusion, we welcome the new guidelines to the extent that the three stage test has been ousted, and offers scope for software inventions to be critically examined, without depriving them of patents for want of novel hardware.

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Case of copyright infringement by former employees

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There have been Intellectual property disputes between the recently launched English news channel Republic TV, and Bennett, Coleman & Co Ltd (BCCL), the owner of Times Now TV channel. Their bone of contention began with disputes over trademarks. Previously, the two organizations were challenging each other over the usage of the phrase ‘the nation wants to know’ and ‘nation wants to know’. 

In a recent development, on 16th May 2017, Bennett, Coleman & Co Ltd (BCCL) lodged a complaint against Arnab Goswami, the founder of the Republic TV, and journalist Prema Sridevi for infringing its copyright. BCCL alleged offenses of theft, criminal breach of trust, misappropriation of property and infringement of IPR by using the same on Republic TV in several instances on May 6 and May 8, 2017.

On May 6, Republic TV broadcast information related to Lalu Prasad Yadav. This broadcast included audio tapes of telephone conversations between Lalu Prasad Yadav (former Bihar Chief Minister) and Shahabuddin (a criminal turned politician). May 8 saw a broadcast on Republic TV of information related to the late Sunanda Pushkar (wife of politician Shashi Tharoor), including a recording of an interview between Sridevi (in her capacity as an employee of Times Now) and the now deceased Sunanda Pushkar.

BCCL alleged that these audio tapes and research were accessed by Goswami and Sridevi while they were employed by Times Now. It is to be noted that Goswami was the president and the editor-in-chief of news channels Times Now and ET Now until November 01, 2016.

The second hearing of this case took place in the Delhi High Court on Friday, the 26th of May. According to BCCL, the procurement and the use of information belonging to BCCL without their knowledge and consent amounted to a breach of terms of the employment contract of Goswami.

In their defense, Republiv TV submitted that they did not violate the clauses of the employment agreement and had no intention of doing so. They also denied all allegations of intellectual property infringement. Further, they submitted that these allegations were levelled against them by Times Now due to a fall in their ratings and a loss of viewership due to the spectacular launch of Republic TV.

The Delhi high court restrained Times Group and Republic TV from quoting or broadcasting the details of the court proceedings against each other in the ongoing case of theft and copyright infringement. However, Justice Manmohan clarified that the restriction is not applicable against third parties. He also added that the two channels could continue to broadcast and report on any judicial order or judgment in the case. The next hearing of this case is scheduled on 31 August.

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Facebook’s systematic plan for Peer-To-Peer mobile payments market in India

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FACEBOOK has filed a patent application in India, which attempts to protect a technology that enables making and receiving payments using a messaging applications. The patent application envisages peer-to-peer payment between users of a messaging application, such as WHATSAPP. Selected figures from the patent application indicates the intended use of the technology.

facebook patent 1 facebook patent 2facebook patent 2

This Indian patent application is based on a US patent application, which was filed in December, 2014, after FACEBOOK acquired WHATSAPP. Interestingly, in April of this year, WHATSAPP announced that it would be introducing digital payments in India.

One could argue that WHATSAPP is positioned to corner a significant share in the digital payment market in India. For starters, WHATSAPP has a huge consumer base in India and is popular even among those who are not so digitally savvy. Adding to that is the convenience factor in making payments using a chat application. To top it all, the patent application, which might eventually be granted a patent, considering that there are several patents related to payments granted in India. As an example, EBAY was granted a patent (patent number 242805) covering certain technology that facilitates micropayments between parties. A patent grant to FACEBOOK will enable WHATSAPP to monopolize key aspects of the technology that enables peer-to-peer payments using messaging application.

The patent application and WHATSAPP’s digital payment initiative may be the first big bet by FACEBOOK to directly generate revenues from WHATSAPP since its acquisition.

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WIPO Technology and Innovation support centers in India

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What is TISC?

In April 2009, the member states of World intellectual property organization (WIPO) directed the organization to commission “Technology and Innovation Support Centers (TISCs)” as Pilot programme to facilitate the national offices for intellectual property in developing countries, especially Least Developed Countries (LDCs), as well as their regional and sub-regional intellectual property organizations to access specialized databases provided by WIPO.

According to WIPO, the TISCs will provide the following services:  

  • Access to online patent and non-patent (scientific and technical) resources and IP-related publications;
  • Assistance in searching and retrieving technology information;
  • Training in database search;
  • On-demand searches (novelty, state-of-the-art and infringement);
  • Monitoring technology and competitors;
  • Basic information on industrial property laws, management and strategy, and technology commercialization and marketing

Since the launch of the programme till 2016, about 519 TISCs have been established throughout the world out of which about 280 TISCs are established in African continent.  It is acknowledged that through access to specialized databases and capacity building provided by TISCs, the innovation index and intellectual property has improved considerably in these nations.

India’s Pact with WIPO on TISC

Followed by the success of TISCs majorly in LDCs, On 13th November 2016, Department of Industrial Policy and Promotion (DIPP), Government of India (GOI) made a pact with WIPO to establish TISCs in India. According to the statement released by DIPP, “TISC will give an impetus to Knowledge sharing, sharing of best practices among the TISC’s, capacity building, generation and commercialization of IPs” which will help India to improve its IPR infrastructure.

IPR infrastructure in India

The Indian government has continuously taken initiatives to enhance the IPR infrastructure. For example, during the 11th Five Year Plan, GOI established an institution named “National Institute of Intellectual Property Management (NIIPM)” which focuses on training the examiners of Patents, Designs, Trademarks and Geographical Indications, IP professionals and IP managers. It also aims to impart basic education to user communities, government functionaries and stake holders involved in creation, commercialization and management of intellectual property rights (IPR). Recently the Cell for IPR Promotion and Management (CIPAM) announced a scheme called “Creative India, Innovative India” which was expected to commence by April, 2017. The scheme at an expense of around INR 30 crores (approximately USD 5 million), aims to create awareness and educate various user communities which are involved in innovation and commercialization of IPR. On the other hand, India has numerous techno-legal IPR firms that works for several decades in the field and offers high quality IPR services.

If institutions like NIIPM and schemes like “Creative India, Innovative India” work to fulfil and deliver their respective agendas, India will acquire all benefits that are claimed to be delivered by TISCs. Hence, the establishment of TISCs will replicate the same benefits that will be achieved through foregoing schemes and also seriously affects the growth of Indian IPR firms that have been diligently working to make remarkable improvements in the field for several decades. Not to forget, Indian IPR firms have been providing IP services, specifically patent services, to firms in US and Europe.

It may be fair to conclude that India has significant knowledge and resources in the field of IPR and has infrastructure to further improve IPR services within the country. Hence, India may utilize the home-grown institutions and firms to strengthen IPR, and introduction of TISCs may only dilute the resources available for the cause.

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VAT on McDonald’s trademark licenses

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The last few decades have witnessed an influx of many international consumer brands in India. These multinational corporations license their intellectual property to regional organizations, which can subsequently become franchisees of the International brand. International brands license their trademarks and patents to regional organizations that pay fees in the form of royalties. The Delhi High Court passed judgement in an interesting case concerning the taxation of such royalties of the following companies: McDonald’s (the Appellant), Bikanerwala, GlaxoSmithKline Asia and Sagar Ratna (the Petitioners).

            The abovementioned companies owned trademarks and licensed their brands in franchise agreements. GSK Asia had issued trademark licenses of their powdered beverage, ‘Horlicks’, to SmithKline Beecham Consumer Healthcare Ltd. for sale in India, Nepal and Bhutan. All licenses were non-exclusive, and the Petitioners received royalties made up from a percentage of the revenue earned from the sale of the trademark-bearing products, namely burgers, health drinks, biscuits, etc.

            The Constitution states laws related to Sales tax and Service tax in the Articles 246, 268A and the Seventh Schedule. The Union List (a list of items given in the Seventh Schedule on which the Parliament has exclusive power to legislate) provides for ‘92C. Taxes on services’, while the ‘54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92A of List I.’ is included in the State List. Generally, according to the stated excerpts, an IP transaction would be taxed ‘Service Tax’ by the Union if it is taken as a rendering of a service and would be taxed ‘Sales tax or VAT’ by the State if it is taken as a sale of goods.

            There have been several situations wherein organizations tried to bypass either of the taxes by reasoning that the nature of their IP transaction was not taxable by the concerned authority. After several litigations and constitutional amendment, the law related to IP transactions can be summarized as follows:

  1. Composite contracts that include elements of both sale and service cannot be taxed twice. (State of Madras v. Gannon Dunkerley). Sales tax (or VAT) and Service tax are mutually exclusive taxes.
  2. Transfers of the right to use goods (TRUGs) are considered sales. IP is considered as goods.
  3. A mere permission to use IP is not considered to be a sale.

Now, it is to be noted that when an IP transaction is considered to be a sale, the respective State(s) may levy sales tax on the resulting royalties. Hence, it is not a surprise that time and again, several States claimed that IP licenses are considered as TRUGs, due to which the States can levy sales tax on the transaction.

The main question here was to identify the circumstances where the licensing of IP rights amount to a sale of goods, and the circumstances in which they would amount to the rendering of a service. In BSNL v. Union of India (2006), Justice Lakshmanan delivered five criteria that had to be fulfilled for a transaction to qualify as a TRUG:

  1. There must be goods available for delivery;
  2. There must be a consensus ad idem as to the identity of the goods;
  3. The transferee should have a legal right to use the goods – consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee;
  4. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor -this is the necessary concomitant of the plain language of the statute – viz. a “transfer of the right to use” and not merely a licence to use the goods;
  5. Having transferred the right to use the goods during the period for which it is to be transferred, the owner cannot again transfer the same rights to others.

      In this case before the Delhi High Court, the crux of the matter was whether sales tax had to be levied on the royalty payments received by the licensors in the trademark licensing.

            In the assessment year 2005-2006, the Delhi Value Added Tax authorities gave a notice to McDonald’s that royalty payments were to be taxed as they were related to the transfer of rights to use the trade mark "McDonald's". On 17th March 2006, the Value Added Tax Officer issued a letter alleging that McDonald’s had a sale turnover from trade mark and patents in the form of royalty received from its franchisees; and thus, attracted a levy of sales tax under the provisions of the Delhi Sales Tax on Right to Use Goods Act, 2002 (DSTRTUG Act).

Subsequently, McDonald’s filed a reply wherein it resisted the levy of sales tax under the DSTRTUG Act and submitted a copy of the Master License Agreement (MLA) executed between the Appellant and McDonald’s India. However, the Value Added Tax Officer treated the McDonald’s system as goods and sent McDonald’s an order with a demand of Rs. 13,44,684 charged as Sales tax.

Aggrieved, McDonald’s appealed to the Joint Commissioner of Trade and Taxes, who upheld the order given by the Value Added Tax Officer. In response, McDonald’s appealed to the Appellate Tribunal in September 2008. The Tribunal, however, dismissed the appeal. As a final resort, McDonald’s filed an appeal at the Delhi High Court.

In a similar manner, the petitioner Sagar Ratna Restaurants Private Ltd paid Service tax to the Central Government at a rate of 12.36% for the related fiscal year, but received an order passed by the Value Added Tax Officer stating that its received franchisor fee is subject to DVAT levy. Additionally, Bikanerwala Foods Pvt. Ltd and GlaxoSmithKline Asia Pvt. Ltd. have entered into franchise agreements similar to that of McDonald’s and Sagar Ratna Hotels, earn royalty for rendering such services and accordingly pay service tax on the same. They were also served notices regarding the payment of VAT.

McDonald’s argued that the franchise agreement only confers the right to use the McDonald’s systems in a restaurant, and royalty is paid as a percentage of gross sales. Further, according to one of the clauses in the licensing agreement, the licensee is not allowed to use any name, mark or other related intellectual property except in connection with the operation of the restaurant.

McDonald’s applied the five-point criteria of BSNL stated above, and stated that there were no goods which were deliverable at any stage and there was no transfer of right to use any trade mark. Thus, they argued that the levy of sales tax/VAT was without jurisdiction and contrary to the relevant statutory provisions

The franchise agreements signed between the Petitioners and their respective franchisee parties were drafted in a similar manner, wherein the licensees were not given the exclusive right to use the respective trademarks and were only permitted to use the trademarks for the limited purposes provided in the franchise agreements. Thus, the Petitioners gave an argument similar to that of McDonald’s.

When the Delhi High Court examined the McDonald’s Master License Agreement, it found that the agreement was a composite franchise agreement which included trade secrets, know-how, recipes, training, etc. along with the trademark to the franchisee. The High Court determined that a limited right to use the composite system of a business is not a transfer of the right to use goods. Subsequently, the Court held that any such composite contract that non-exclusively provided a bunch of services could not be levied Sales tax.

The Delhi High Court’s judgement in this case cleared the confusion caused by several contradictory judgements passed in prior cases. However, it seems to be too little, too late, considering the introduction of the Goods and Services Tax (GST) from 1st July 2017, which is bound to change the game altogether.

We hope this article was a useful read. 

Please feel free check our services page to find out if we can cater to your requirements. You can also contact us to explore the option of working together. 

Best regards – Team InvnTree   

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Japan Patent Office invites Indian IPR Practitioners for training

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The Japan Patent Office (JPO) is known for hosting training programs that are well received and respected. The JPO in co-ordination with Japan Institute for Promoting Invention and Innovation (JIPII) and The Overseas Human Resources and Industry Development Association (HIDA) is organizing training program for Indian IPR practitioners in Japan. One of the training programs focuses on patents, while the other focuses on trademarks.

The training program focusing on patents will be held between August 22 and September 07, 2017. JPO is inviting patent attorneys, IP lawyers, patent practitioner and persons working at Japanese enterprise to apply. The training program is designed to cover topics ranging from IPR enforcement under the TRIPs regime to License negotiation for Standard Essential Patents.

The training program focusing on trademark will be held between December 04 and December 15, 2017. JPO is inviting patent/trademark attorneys and IP lawyers involved in trademark practice, employees engaged in trademark practice in private business, and persons working at Japanese enterprise to apply. Note that you will notice discrepancy in dates when you refer to the detailed training schedule and the date initially mentioned. You may cross check with the concerned authorities before applying.

The application should be sent to the office of the Controller General of Patents, Designs and Trade Marks (CGPDTM) before May 15, 2017. The office of the CGPDTM will initially scrutinize the applications and send their priority list to JPO, who will take a final call on shortlisting of candidates. Most of the expenses, including air tickets are taken care of by the JPO.

The application form can be downloaded here and the details of the training program can be found here.

We hope this article was a useful read. 

Please feel free check our services page to find out if we can cater to your requirements. You can also contact us to explore the option of working together. 

Best regards – Team InvnTree   

This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License