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LETTER FROM INDIA
INTELLECTUAL PROPERTY
CORPORATE LAW
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Issue 10 March 2001
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While legal and policy reform has featured high on the Indian Government's agenda, translation of good intent into effective implementation has been a very different story.
New legislations relating to Trade Marks, Designs, Geographical Indications of Goods and Semi-conductor Integrated Circuits Layout Designs have all been passed by the Parliament but still await a formal notification. It is expected that these laws will be made effective some time in 2001. Draft laws relating to Patents and Protection of Plant Varieties continue to be shrouded in controversy and debate.
TRADE MARKS LAW
To recap some of the salient features of the new Trade Marks Law which is pending notification:-
- amplification of definition of trade mark to include registration of a shape of goods, packaging and combination of colours;
- filing of multi-class applications, registration of collective marks and trade marks for services;
- increasing the term of registration and renewal from seven to ten years;
- recognizing the concept of "well-known trade marks". This would prohibit registration of a mark which is merely a reproduction or imitation of a well-known mark - even in respect of different goods or services;
- making cognizable offences relating to falsification of trade marks and application of false trade descriptions. Police are empowered to search and seize goods following certain procedure;
- widening the scope of infringement. For instance, use of a registered trade mark as a part of a corporate name or use of a mark which is identical or deceptively similar to a registered trade mark even in respect of different goods or services will be regarded as infringement of a trade mark.
It is however important to mention that the Government, departing from its past policy, has now decided to permit payment of royalties to foreign companies for use of their trade marks in India to the extent of 2% on exports and 1% on domestic sales.
PATENTS LAW
A Bill under discussion to further amend the Patents Law aims to :-
- enlarge the term of patent to twenty years;
- widen the definition of invention in view of Article 27 of the TRIPS Agreement. The definition proposed is "...a new product or process involving an inventive step and capable of an industrial application";.
- widen the term "chemical process" to include biochemical, bio-technological and micro-biological processes.
- provide for publication of applications after eighteen months. At present an application is substantively published only after examination and acceptance of the complete specification;
- provide for examination of an application only upon request. A period of four years is provided for making the request. Upon failure to request examination, the application shall be treated as withdrawn;
- shorten the time for putting an application in order for acceptance subsequent to its first examination to twelve months. The present law provides for a maximum of eighteen months;
- provide for importation of patented article to constitute a valid defence in revocation proceedings initiated for not working the patent.
India has been cautious in complying with the bare minimum requirements of the TRIPS Agreement and though the definition of invention has been enlarged, other provisions in the Act, e.g. Black Box filings, have been retained thereby effectively ruling out an early product patents regime. In effect, India contemplates utilizing the entire transition period (till December 31, 2004) available to it under the TRIPS Agreement.
CORPORATE LAW
Some of the key developments in Corporate Law and in the area of Foreign Investment in particular :-
The Government has, subject to a few exceptions, now made it possible for foreign investors to invest freely on an "automatic" basis up to 100% in Indian companies in most sectors without having to obtain its prior approval. Foreign investors now need to only comply with simple post facto reporting requirements.
Proposals which require prior Government approvals are those :
- which envisage investment in certain specified sectors (e.g. civil aviation, defence);
- which exceed sectoral foreign equity caps (banking 40%, advertising - 74%, trading - 51% etc.);
- where a foreign investor has a previous venture / tie-up in India through investment or technical collaboration or trade mark licence agreement in the same or allied field;
- which involve purchase of shares from the existing shareholders of an Indian company;
- which envisage investment in activities requiring industrial licence or are reserved for small scale sector.
Prior to examining a proposal from a foreign investor having a previous tie-up, the Government insists on a "no objection certificate" from the existing / erstwhile Indian partner. This requirement has become a thorny issue for the foreign investors who have not taken too kindly to this protectionist practice. However, in a significant move, the Government has now done away with this requirement in respect of investments in the Information Technology sector. It is expected that the rigours of this policy will be diluted further.
Information Technology - While foreign investment is freely permitted in the Information Technology sector, e-commerce has been a controversial area. The Government after much vacillation on this issue has decided that foreign investment up to 100% in e-commerce activities will be permitted on an automatic basis provided that the Indian company (a) engages in "business to business" e- commerce and not retail trading and (b) divests 26% of the foreign equity in favour of Indian public in 5 years if the company is listed in other parts of the world.
Insurance
The State monopoly in this sector has been abolished. Private sector companies are now permitted to undertake Life and General Insurance businesses. Apart from certain minimum capitalisation norms, foreign equity cap of 26% applies to this sector.
The Companies Act
The new law has introduced some landmark changes, such as:
- minimum capitalization requirements for private and public companies have been raised;
- the fiction of "deemed public companies" has been dropped;
- the concept of "shelf prospectus" and "information memorandum" for financial institutions issuing securities has been brought in;
- specific provisions relating to appointment of debenture trustee, creation of security and debenture redemption reserve have been included;
- equity shares can be issued with differential rights as to voting and dividends;
- listed public companies can now have their shareholders vote by postal ballots.
Foreign Exchange
- A new law came into force on June 1, 2000 with the laudable intention of simplifying the transactions on current and capital account and moving the focus away from control to management of such transactions. Unfortunately, several regulations issued pursuant to this law in a piece meal manner have been riddled with ambiguity.
Some interesting legislative developments on the horizon are :
- Convergence Bill to integrate laws relating to telecom, information technology and broadcasting.
- Competition Bill to consolidate and codify anti-trust regulations.
- New law to facilitate foreclosure and enforcement of securities by financial institutions
- New comprehensive legislation on Securitization.
- Amendments to Labour laws to facilitate exit, without Government permission, by companies employing less than 1000 workers and to enable risk
- free outsourcing of work.
Various Government initiatives heralding the second generation of economic reforms are steps in the right direction but do require reality checks. Political stability at the Central Government is going to be a key factor in converting this "movement" into actual "progress" !
© Remfry & Sagar
March 2001
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"Letter from India" is intended to provide our clients and associates with information of general nature on legal issues and recent developments in the areas of intellectual property, foreign investment and corporate laws. It should not be relied upon as legal advice or opinion.
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