ISSUE II : IPR ownership in joint development

INTRODUCTION

With the shrinking of global boundaries, expanding businesses, the protection of Intellectual Property Rights (IPR) has assumed a considerable significance while negotiating collaborations and joint venture agreements for technology transfers and the use of trademarks, copyrights and patents. For the modernization and upgradation of intellectual property administration and for encouraging acquisition of technological capabilities in various sectors of the industry, technical cooperation programmes are undertaken by the Department of Industrial Policy and Promotion in conjunction with WIPO1. Foreign technology induction is facilitated both through FDI and through foreign technology collaboration agreements that are approved either through the automatic route or by the government.

This Bulletin deals with ownership of intellectual property issues involved in joint development work and technology transfer. It is important to underline that the term “technology” not only refers to technical machinery and equipment i.e. “hard” technology, but also to the notion of “soft” technology, that is technological information or know-how. Technology generally comprises of the know-how relating to process, design, engineering, manufacturing, application and management.

1. Joint Development

IPR has an important role both in Research and Development and in the transfer of proprietary technology. Access to modern technology aids in improving the quality of the product. The motivating factor for a joint-development arrangement is that each of the parties brings a needed piece of the technology puzzle to the table. For example, one company may have excellent basic research, but not the practical development expertise needed to launch a successful product. Consequently, there is an increasing trend in present day’s competitive world towards the joint development of technology. When wealth is generated by the commercialization of intellectual property, the sharing of the generated wealth depends upon the intellectual contributions made for the generation of the intellectual property.

The critical issue pertaining to joint development arrangement is the ownership of any intellectual property rights arising out of joint development. For instance, in a classic joint venture coupled with a transfer of technology, two different entities may work together to create and enhance an existing technology. The issue of IPR ownership is debatable since the law is not clear on this and this is frequently a road block during negotiations in technology transfer contracts. The following case study will assist in explaining the issues.

2. Hypothetical Case

A US company (A) executes a joint venture agreement with an Indian company (B) and a new entity (JVC) is formed that engages in the business of manufacturing switches. Company A (the Licensor) transfers proprietary new technology to the JVC that includes trade mark/name, patents and trade secrets. Using this technology, the JVC further improves the existing proprietary technology of the Licensor. The

issue  arises  who  shall  own  the  proprietary  rights  in  that  improvement/modification  by  the  JVC.  While negotiating on this contentious issue, the parties should ensure that the contract spells the ownership rights in case of improvements made by the Licensee. Generally, the Licensor reserves such right of ownership. However, in some cases, the Licensee may make payments to the Licensor, for technical know-how, design, drawings and engineering services besides royalty and may retain the ownership rights in the resultant improvement involving innovation. On the other hand, if for any reason, the agreement is silent on the issue regarding ownership of improvement/modification by the JVC, the same can be resolved by determining whether further modifications are an “innovative step” and, hence, patentable or not.

3. Indian Patent Law and Judicial Precedents

Patents in India are governed by the Patents Act 1970 as amended by the Patents Amendment Act 2005 (Patents Act) and the Act specifies inventions and improvements that are patentable.

A patent is an absolute monopoly granted by the government to an inventor over his invention for a limited period of time. It consists of an exclusive right to manufacture the new invented article or to manufacture an article according to the invented process for a limited period. It confers certain exclusive rights on the inventor of the invention for which a patent is granted. The rights granted are – making, using, exercising, selling and distribution of the invented product. A patent is granted for 20 years from the date of filing of the application. Upon expiry of the duration for which the patent is granted, anyone can make use of the invention. The validity of patent is the same in India as in the US. However, this is subject to the payment of the prescribed renewal fee every year.

A patent in law is a proprietary right and hence may be inherited, gifted, sold, assigned, or licensed. As the right is conferred by the state, it may revoke this right under special circumstances, even if the patent has been assigned or sold. A patent is also territorial in nature. Therefore, investors and assignees have to file separate patent applications in countries of their interest.

The basic requirement for an invention to be patented is that it should be novel and should not have existed before, and should be such that it can be utilised and manufactured industrially. Therefore, any new and useful art, process, method or manner of manufacture, including any useful improvement, may be patented under the Patents Act.

Section 2 (j) of the Act states that an invention means a new product or process involving an inventive step and capable of an industrial application. Inventive step is a step forward in the process of manufacture that involves novelty, utility and distinctiveness in a way that the resultant manufactured article has not been used before. However, the test of inventive step must stand the scrutiny of one who is skilled in the art to which the invention relates2. Any further improvement in or modification of another invention is also patentable3 subject to its qualifying the test of invention or inventive step. The following Indian judgments shed light on what amounts to an improvement or modification.

In Bishwanath Prasad Radhey Shyam vs. H.M. Industries (AIR 1982 S.C. 1444), the Supreme Court held that in order to be patentable an improvement should be more than a mere workshopimprovement and must independently satisfy the test of invention or an improvement or the combination must produce a new result, or a new article or a better or cheaper article than before.

In Thomson Brandt vs. The Controller of Patents and Designs (AIR 1989 Delhi 249), the court held that whether a particular process of manufacture involves novelty and inventive step so as to qualify as an invention would be a mixed question of law and fact and would depend mainly upon the circumstances of each case. No uniform tests can be laid down to determine it. Nevertheless, some tests can be whether the process was (a) known previously, (b) used or practiced in any form, or (c) whether it was mentioned or described in any book or publication in the country before the claim of the patent. If not, it would be a novelty and, thus, an invention under the Act.

In Press Metal Corporation Ltd. vs. Noshin Sorabji Pochkhanawalla and Anr. (AIR 1983 Bombay 144), the court observed that in considering whether the claim made by the inventor is an invention will have to be assessed by looking whether such an invention is obvious in which case it will not be an invention. Obviousness is to be judged by the standard of a man skilled in the art concerned. If the invention is obvious, there can be no inventive step whatsoever.

In Shining Industries and Anr. Vs. Shri Krishna Industries (AIR 1975 All 231), the court held that minor addition in manufacturing old locks by another person cannot be treated as an invention. Not every improvement is invention. There must be something more than a mere carrying forward or more extended application of a known principle or an original idea of another. An improvement of old device or method is not patentable merely because it permits a product to be produced more cheaply or is more compact or efficient4.

4. Application of Case

Applying the statute and the case-law to the hypothetical case mentioned above, it is essential to examine whether modification in the manufacturing of switches by the Licensee tantamounts to an “invention” in the light of the above judgments. The Licensee improves the existing technique of manufacturing switches in such a way that it shows a unique light indicator and the switch works by remote control. Presuming that the improvement in or modification of the proprietary invention of the Licensor results in further improvement by the Licensee involving an inventive step, it would be patentable. The issue remains who shall own the proprietary rights in such improvements? The options available are:-

  • Licensor retains the ownership to improvements and compensates the Licensee. This is most common since the argument would be that improvement in the product is based on the original invention of the Licensor and would not have been possible without the original technology. Nevertheless, depending on the negotiating skills of the parties, the Licensee may successfully endeavor to seek compensation for its efforts leading to the resultant improvement of the product.
  • Licensee retains the ownership and pays a mutually agreed compensation for a pre-determined period. The compensation may be lump sum and may include royalty as well.
  • The JVC files for a joint patent assuming the nature of improvements be classified as inventive. In that situation both Licensor and the Licensee shall be entitled to equal undivided share in the patent of improvement and shall have proprietary rights for their exclusive benefits without accounting to other5. However, neither can grant or assign share in the patent to a third party without obtaining the consent of the other.

All the three options are normally explored fully in any transfer of technology arrangement and the eventual choice is linked to various factors described above.

CONCLUSION

Essentially, the ownership of modifications continues to be a contentious issue in all technology transfers. As Indian companies go increasingly global with enhanced, engineering prowess the ability of Indians JV partners to negotiate ownership rights in modifications become stronger. Eventually, a lot depends upon the strength of the original technology, the extent of innovation in the improvement leading to creation of an “inventive step” enabling a new patent and the respective financial and engineering skills of the two partners.

1 World Intellectual Property Organization.

2 Section 2 (ja) of the Patents Act, 1970.

3 Section 54 of the Act.

4 Corpus Juris Secundum Volume 28, page 268, para 54.

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