LETTER FROM INDIA

INTELLECTUAL PROPERTY CORPORATE LAWS

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Issue 7 October 1998

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PATENTS LAW

India's accession to the Paris Convention and Patent Cooperation Treaty marks a radical change in the present Government's approach to the issue of intellectual property protection. Effective December 7, 1998, India will under the terms of accession become a member of the International Patent Cooperation Union.

Earlier under the TRIPS Agreement, the previous Indian Government had undertaken to overhaul the Patent Law. As a recap, mandatory interim measures such as provisions for Black Box applications and exclusive marketing rights were initiated not by an amendment to the Patents Act, 1970 ("the Act") but by a Presidential Ordinance in December 1994. The ill-fated and ill-timed Ordinance lapsed since the Government could not obtain the required approval of Parliament.

WTO dispute settlement body's decision against India on the issue of intellectual property protection, more specifically on patents, and the need for increased foreign investment seems to have prompted the present Government to be pragmatic. It is expected that the Government will revise the entire law early next year instead of waiting until the year 2004 permitted under the TRIPS Agreement.

Several amendments are contemplated in the Act. One important area which will be of interest to companies marketing novel products in India is a possible extension of definition of 'working' to specifically include imports into India. Under the present law, the patent must necessarily be actually worked by manufacture or by license therefor in India. There is also a possibility that the definition of "invention" and "patentability" will be changed and the term of patents enlarged to conform to the terms of the TRIPS Agreement.

Furthermore, the new law would enable a PCT filing to be treated in the same manner as a national level filing and also provide for its pre-acceptance publication. Under the present law, an abstract of the invention is published and the whole application is open for public inspection only after acceptance. It is expected that an International Receiving Office will be set up in India. It is unlikely though that a search and examination office will be established. The Indian Patent Rules, 1972, are being revised to include, inter alia, a mechanism for prosecution of PCT applications filed in India, or elsewhere designating India. The Government is also likely to notify the expanded list of convention countries to include the members of PCT and Paris Convention. At present only five Commonwealth countries with whom India has reciprocal arrangements and 72 original signatories to TRIPS are notified as convention countries.

Another interesting development is a proposed legislation to provide for protection of traditional systems of medicine by indigenous communities and the plants used in such systems. We believe that this legislation will provide for royalties to be paid to the community. An interesting debate has arisen between indigenous community representatives and the Government on the issue of the definition of 'community' and of 'traditional systems' as well as of 'plants used by the community'. Efforts are also on to introduce a bill for plant variety protection and protection of farmers' rights sometime early next year. An amendment to the Designs Act is also expected. On the whole patenting in India appears to be a brighter prospect with possibly a speedier disposal of applications by a partly rejuvenated Patent Office.

TRADE MARKS LAW

The new Trade Marks Law is awaited and should come into force by early next year. The new law will, inter alia, provide for registration of service marks, increase in duration of registration and subsequent renewals from the current 7 to 10 years and give better protection for internationally well known trade marks.

It is encouraging that even in the absence of the new law, the Indian Judiciary has been fairly pro-active in protecting the intellectual property rights of foreign proprietors. Some noteworthy judicial developments in the area of trade marks and copyrights are summarised below:

The Calcutta High Court has delivered an interesting and landmark judgment in what is popularly referred to as the "Eden case" wherein the plaintiff, SmithKline Beecham Consumer Healthcare GmbH, sought to restrain the defendant from manufacturing tooth brushes with a design almost identical to the one on the plaintiff's tooth brush. Even though the plaintiff could have claimed rights in the design in its tooth brush, it chose to claim copyright in the mould out of which the tooth brushes are manufactured. The Court recognised that a mould could be the subject matter of copyright as an "artistic work" and restrained the defendant from infringing plaintiff's copyright in its mould. In effect, the Court seemed to confirm that a dual claim of two types of intellectual property rights in the same item was possible and not forbidden by law.

In another judgment delivered by the Supreme Court in an appeal, it directed that the proper thing for an appellate court to do is to dispose of the appeal itself early rather than to delay its disposal and stay the operation of the injunction order under appeal. This decision has again emerged as a landmark judgment and has been successfully used in subsequent appeals before the High Courts of other States, which, following the Supreme Court judgment, departed from the normal practice of admitting an appeal for hearing and instead disposed of the appeal at the first hearing itself. This has been found particularly useful in trade mark cases where injunction had been granted by the trial court.

CORPORATE LAW

The process of liberalisation of the Indian economy which commenced in July 1991 continues but (disappointingly) the momentum seems to have slowed down. Apart from the international factors, this could be partly attributed to a somewhat volatile political climate. It is hoped that once the bickering amongst various political factions is over and political stability is achieved, foreign investors will have more confidence in investing in India. Thereafter more time and attention could be devoted towards streamlining the current procedures governing foreign investment and transfer of technology and lending greater transparency to Government's policy.

Some of the significant developments that have occurred since we last reported in Issue No. 6 of our "Letter from India" are summarised below:

- Fresh guidelines had been issued by the Government for consideration of foreign investment proposals in the Non-Banking Financial Service sectors. This includes, inter alia, Merchant Banking, Financial Consultancy, Asset Management and Lease and Finance. Foreign equity in such sectors is permitted upto 100% subject to certain minimum capitalisation norms. In case of a 100% foreign owned non-banking financial company, it can act only as a holding company with specific activities to be undertaken by a "step-down subsidiary".

- 100% foreign equity participation is allowed on automatic basis in projects for electric power generation, transmission and distribution provided foreign equity in any such project does not exceed approx. US$ 350 million.

- Government now permits foreign investment upto 100% for manufacture of cigarettes. This has generated considerable controversy.

- Foreign investment procedures have been further simplified as a consequence of which Indian companies holding SIA/FIPB approval or under the automatic route, can issue shares to foreign investors and merely file a declaration in a prescribed Form with the Reserve Bank of India (RBI)

- our exchange control authority - within 30 days from the date of issue of equity shares instead of seeking prior RBI approval in respect thereof.

- As against the earlier ceiling of 24%, Foreign Institutional Investors are now permitted to invest upto 30% in primary and secondary markets in paid up equity share capital. This is subject to the approval of the Board of Directors as also by 75% shareholders of the Indian company. The ceiling on holding by any single Foreign Institutional Investor in an Indian company has been increased from 5 to 10% of the total paid up equity capital of that company.

- After years of monopoly in the Indian insurance sector by Government companies, India is gradually paving way for private insurance companies, both Indian and foreign, to do business in India. There is some speculation with respect to the level of equity participation that will be allowed for foreign companies. According to current indications it likely to be 20% or 26%.

- The Government has somewhat modified the import policy by making it possible to now import 340 items - mostly consumer goods which were formerly in the category of restricted imports.

- The exchange control regulations continue to be dismantled on a piece meal basis. Generally speaking, in spite of the slow down of reforms, viewed against the backdrop of the crisis plaguing many of the South East Asian countries, India appears to be doing rather well with an economy which though not very buoyant is certainly resilient.

© Remfry & Sagar

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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.