India: A Probe On The Proposed National Innovation Act, 2008

Last Updated: 14 October 2008

The draft legislation on the National Innovation Act of 2008 has been released by the Dept. of Science and Technology. The Government in the pursuance has invited comments to the same. The proposed legislation, aims at giving a push to innovation and exploitation of technology bridging the gap between innovation and the lack of it in the present Patent Law. Defining and dealing with "new inventions" satisfying the criteria of novelty, non-obviousness, utility and industrial applicability, the Patent Act does not allow innovations to be exploited under its provisions.

The Preamble to the NIA elucidates the objective of the Act to aid innovators and researchers exploit the fruits of their innovations to the maximum possible extent. The preamble reads:

An Act to facilitate public, private or public- private partnership initiatives for building an Innovation support system to encourage Innovation, evolve a National Integrated Science and Technology Plan and codify and consolidate the law of confidentiality in aid of protecting Confidential Information, trade secrets and Innovation.

Describing what aims to be included in the ambit of "Innovation", the draft legislation states innovation to be "a process for incremental or significant technical advance or change, which provides enhancement of measurable economic value, and shall include:

  1. introducing new or improved goods or services
  2. implementing new or improved operational processes; and
  3. implementing new or improved organizational / managerial processes"

The explanation appended explicates that a measurable value enhancement or economic significance would include:

  1. increase in market share;
  2. competitive advantage;
  3. improvement in the quality of products or services;
  4. reduction of costs.

The proposal provides a clarificatory note that states that the limitations imposed upon the definition of Innovation are intentional to include only processes directed towards achieving technical advance. Further, innovations are stressed to be distinctive from new and innovative technology or advance achieved as a consequence of the Innovation. Care has also been taken to state that new products or new processes arising out of innovative technology, which are protectable under the prevailing IPRs would not fall under the ambit of the present statute.

The Act proposed, seems to be an addendum to the existing Patent law in India, providing incentives for "Angel investors" which include any person or entity that provides risk capital to start up ventures that facilitate and encourage Innovation. However, the Act provides that such "Angel investors" would not involve themselves in the management, but would add value providing access to commercialization of products and services through its social, professional or business networks and expertise. In other words, the resources of the investor would be put to use to encourage innovation, while on the management aspect, the innovating entity and the angel investor would be distinct of each other.

The quid pro quo offered to angel investors are certain lucrative incentives such as waiver of stamp duty on issue of equity capital (irrespective of shares being issued in physical or dematerialized form,) and on transfer of physical shares, indirect and direct tax benefits as well as capital gain waiver on several types of investments including that in universities, centres of excellence and institutions engaged in sciences, technologies, mathematics and engineering or finance, management, law, and legal services with the principal object of supporting Innovation under Special Innovation Zones and Innovation Parks. It is also suggested that Special Innovation Zones and Innovation Parks be identified to enable clustering of enterprises engaged in specific areas, and in turn stimulate innovation. However, the specifics of the same have not been dwelled upon in the legislation.

As regards, "Misappropriation", the draft clearly defines what would squarely fall under its purview. This includes acquisition and disclosure or use of confidential information by various means. Defining a "Misappropriator", the Act seems to include a willful offender, an accomplice or abettor as well as a receiver of Confidential Information who omits or neglects to conduct investigation as may be reasonable with respect to ownership and claim of title in respect of the Confidential Information. The inclusive definition of Confidential Information helps restrict the scope of the legislation.

However, the legislation is made fool-proof by appending certain exceptions to the acts of Misappropriation which include information being available in the public domain, the information being derived independently or by a third party, from whom the information was allegedly received, as also a disclosure in the interest of the Court of law. "Good faith" is another defence that has been cited in the draft. The draft law provides for injunction as a remedy as also damages on breach of confidentiality.

The Act also suggests that special measures for low cost technologies be implemented by the appropriate government, as also the creation of a market place to trade innovation, which may be either electronic or physical in nature.

While the Act appears to be an attempt at consolidation of technical expertise and cashing on developments in the field of science and technology, the legislation is centered around building a scheme to facilitate so. The draft while elaborating upon the incentives to investors, trading of innovations and commercial exploitation of the innovations, the innovator's perspective is somewhat ambiguous in as much as the protection of innovation is restricted to Misappropriation. Unlike the Patent law, where specific exclusionary rights are assigned to patentees, the Innovation Act centers around commercialization of the innovation, being silent on allied aspects. The Act seems to have investors and innovators being driven solely by contractual obligations. The Act also explicitly excludes invention, in as much as stating that processes or products formulating the subject matter of IPRs would not fall under its umbrella.

The Draft law however is silent on certain areas of operatibility as regards the Special Innovation Zones, Innovation Parks and Markets for innovation trading. While the Act conceptualizes these trading mechanisms, the operation, appending regulations and nuances require deliberation. Still being at the proposal stage, after due consideration of recommendations, the draft law will be put to test on the floor of the Parliament. The outcome therein and consequent enactment, will largely determine the future of Indian science and technology driven ventures.

© Lex Orbis 2008

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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