LETTER FROM INDIA
Issue 9 April 2000
We have to report considerable progress in the area of intellectual property law and radical changes in Government's policy on foreign investment.
A bill to further amend the Patents Act was introduced in the upper house of the Parliament and thereafter referred to a Select Committee comprising members of various political parties. The bill proposes seventy-two amendments. The salient features of the proposed amendments are:-
- To establish an appellate board to review decisions by the Controller.
- To 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".
- To interpret the term "chemical process" to include biochemical, bio-technological and micro-biological processes. Such processes as yet remain unpatentable.
- To publish applications after eighteen months. At present an application is substantively published only after examination and acceptance of the complete specification.
- To take up examination of an application only upon a request. A period of four years is provided for making the request. Upon failure to request examination, the application shall be treated as withdrawn.
- To 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.
- To enlarge the term of patent to twenty years.
- To delete provisions regarding "licences of right".
- To provide for importation of patented article to constitute a valid defence in revocation proceedings brought for not working the patent.
- To reverse burden of proof in a case where the product obtained by the patented process is new.
The bill reflects the government’s efforts to provide stronger patent protection at par with other jurisdictions of the world. Significant amendments have also been proposed to streamline procedure. 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 that effectively rule out product patents have been maintained. In effect, India contemplates utilizing the entire transition period available to it under the TRIPS Agreement.
The Designs Bill, 1999 is at present being reviewed by a Select Committee.
The new bill has been drafted to balance various interests and to make the system of protection of industrial designs more efficient.
The highlights of the bill are:
Introduction of definition of "original" and amplification of the scope of "article" and "design".
Widening of the scope of "prior publication".
Introduction of international system of classification.
Making provisions for restoration of lapsed design.
Providing for publication of registered design open for public inspection.
TRADE MARKS LAW
The Government of India finally managed to push the long awaited legislation on Trade Marks through the Parliament and it has received the Presidential assent as well. However, the date from which the Trade Marks Act, 1999 ("the Act") shall come into effect has not yet been notified by the Government. According to current indications, it may take another five to six months for the Act to formally come into force. Some of the salient features of the Act are:-
- Amplification of definition of trade mark to include registration of shape of goods, packaging and combination of colours.
- Permitting filing of multi-class applications, registration of collective marks and trade marks for services.
- Increasing period 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 reproduction or imitation of a well-known mark - even in respect of disparate goods or services.
- Enlargement of definition of "permitted use" to include use of a registered trade mark by an unregistered licensee.
To permit assignment and transmission of an unregistered trade mark with or without the goodwill of the business concerned.
- Making offences relating to falsification of trade marks and application of false trade descriptions cognizable. Police are empowered to search and seize goods or other instruments involved in committing an offence. However, it will be mandatory for the police to obtain the opinion of the Registrar on facts involved in the offence relating to the trade mark.
- Creation of an "Intellectual Property Appellate Board" for hearing appeals against orders and decisions of the Registrar of trade marks for speedier disposal of cases.
- 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 disparate goods or services will be regarded as infringement of a trade mark.
- Allowing a suit for infringement or passing off to be filed in the court within local limits of whose jurisdiction the plaintiff resides or carries on business or works for gain.
- The efforts of the Indian Government to be TRIPS compliant insofar as the realm of trade marks is concerned are laudable. Nevertheless, the Trade Marks Act, 1999 has not been without its critics. The constitution and creation of the appellate board have been criticised. The empowerment of the court in the plaintiff's domicile to decide a suit for infringement or passing off is a shift from the general principles embodied in the Code of Civil Procedure. The requirement of the Police obtaining the opinion of the Registrar in the matter of search and seizure, could prove to be time consuming.
An amendment to the Copyright Act, 1957, the Copyright (Amendment) Act, 1999 has recently come into force. In compliance with Article 14 of TRIPS it extends copyright protection to performers from the present twenty-five years to at least fifty years computed from the end of the calendar year in which the performance took place. It further empowers the Government to extend the provisions of the Copyright Act to broadcasts and performances made in other countries provided those countries extend similar protection to broadcasts and performances made in India.
The liberalised industrial policy was announced on July 24, 1991 in pursuit of diverse objectives which included acceleration of industrial development, attracting greater foreign investment and integration with the global economy. However, despite the Government's efforts in streamlining regulations for foreign investment and transfer of technology, the international community has not been too euphoric about investing in India. The general feeling was that the Government had not gone the whole hog in the liberalisation process and that its policy lacked transparency.
In order to give further impetus to its measures of economic reforms, the Government has, subject to a few exceptions, now made it possible for overseas companies to invest on an "automatic" basis up to 100% in Indian companies in most sectors without the need for obtaining prior approval from either the Foreign Investment Promotion Board or the Reserve Bank of India. Here are some of the salient features of what has been termed as "second phase of the economic reforms":
Under the automatic route, foreign investment of upto 100% of capital of an Indian company will be permitted for manufacturing or indeed any other activity. However, in respect of certain sectors, there is an upper ceiling beyond which investment can be made only with the Government's prior approval. Some of these sectors along with their caps are Trading Activities - 51% (subject to some conditions) Telecommunications - 49% ; Drugs & Pharmaceuticals - 74% in case of bulk drugs, their intermediates and formulations (except those produced by the use of recombinant DNA technology); Hotel & Tourism - 51%; Mining - 74% for exploration and mining of diamonds and precious stones and 100% for exploration and mining of gold and silver and minerals, metallurgy and processing ; Advertising - 74%; Film financing, production, distribution, marketing and associated activities, subject to certain conditions-100%. Investment beyond the sectoral caps will be subject to approval of the Indian government.
The automatic route will not apply to:
Non-resident investment exceeding approx. US$ 140 million.
13 areas of activities which include banking, civil aviation, venture capital fund and venture capital company, defence and strategic industries, print media and broadcasting.
Proposals where the investing non-resident entity has a previous venture/tie-up in India through investment or technical collaboration or trade mark agreement in the same or allied field.
Purchase of shares from the existing shareholders of an Indian company - as opposed to fresh issue of shares
In case of proposals falling under the automatic route, the only formalities to be complied with are filing of a report in a prescribed form within 30 days from the date of remittance of share application money by the foreign investor and filing another report within 30 days from the date of issuance of shares to the foreign investor.
The somewhat disconcerting feature is the highlighted portion above. This is bureaucratic finesse at its very best. Firstly, it deprives an investor of the benefit of the automatic route even if he had entered into a technology licence agreement in the past with some Indian party. What is worse is the onus is on the investor to provide justification to the Government that the new proposal would not in any way "jeopardize the interests of the existing joint venture or technology/trade-mark partner or other stakeholders". According to an official press note it will be at the sole discretion of the Government to "either approve the application with or without condition or reject it in toto duly recording the reasons for doing so”.
Insofar as regulations concerning transfer of technology are concerned, an application will have to be filed with the Reserve Bank of India and approval will be granted on a near-automatic basis within two weeks of filing of the application provided the following limits of compensation are adhered to:
Lump sum payment of up to US$ 2 million;
Royalties of 5% for domestic sales and 8% for exports, subject to a total payment of 8% on sales over a ten year period.
The period for payment of royalty should not exceed 7 years from the date of commencement of commercial production or 10 years from the date of agreement, whichever is earlier. The payment of lump sum and royalties can be net of taxes.
Exclusive payment for use of trade marks is not allowed, although such payments may be subsumed as part of the lump sum or royalties.
The near automatic approval route will not be available if the technology provider had "previous venture/tie-up in India through investment or technical collaboration or trade mark agreement in the same or allied field".
Apart from the foregoing, the following may be of interest:
Non-residents holding shares of a company incorporated in India no longer need approval of any governmental authority for transferring these shares to another non-resident.
The aggregate ceiling for portfolio investment by foreign institutional investors registered with the Security Exchange Board of India is proposed to be raised to 40%. Previously, it was 30%.
© Remfry & Sagar
"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.