India: Licensing In The Boardroom 2009

Last Updated: 28 January 2010
Article by Taapsi Johri

This article first appeared in Licensing in the Boardroom 2009, published by Intellectual Asset Management (IAM) magazine, www.iam-magazine.com

A. INTRODUCTION: LICENSING AS A BUSINESS STRATEGY

The importance of Licensing as a strategy for business alliance has increased over the years as a consequence of increased industrialization of which the fallout is diminishing real estate resources and increasing infrastructure costs. Building tangible assets now requires not just more effort and greater investment but far higher risk. Businesses therefore have to adapt by development or acquisition of intangible assets and exploit these as alternate or additional sources of wealth. With time, collaborations and alliances involving licenses of strong intellectual property have become critical to the success of business.

The importance of Licensing can also be attributed to the increasing competition in different industry segments and across product categories, the incentives to expand beyond domestic markets and convergence and harmonization of quality standards across the world due to globalization.

Often, an innovator company or individual does not have sufficient funds and resources to commercially exploit its intellectual property hence collaboration with other entities who possess these requisites becomes a logical choice to reap economic benefits from the untapped intellectual property. By way of example, an inventor may develop a new cell phone technology, which contains various components that are protected by means of patents, designs and copyrights. The manufacture of each requires separate infrastructure, technology and skills which the inventor does not by himself possess. Thus, licensing becomes a critical tool to commercialize the technology and earn profits in return. Similarly, creative fields like music, art, movies etc. thrive on licensing arrangements.

Corporations invest huge amounts of money in developing resources that can either be licensed out or resources necessary to identify new innovations in the market and work on favorable options of acquiring the same. Corporate teams undergo intensive training and acquire skills that help them interpret license terms, how to negotiate favorable license terms and avoid legal pitfalls.

Reasons to license:

Reasons not to license:

  1. Control product & market development
  2. Increases competitors costs with burden to pay royalty
  3. Enter product market without having to take the risk of product development.
  4. Expand into new markets – geographic, new fields etc.
  5. Obtain rights in return for some of own (cross-licensing)
  6. Build a reputation as an innovator
  7. Common way to end litigation is to grant license agreements.
  1. Lose control over product or market as licensees develop own improvements etc
  2. Losing contact with customers
  3. Lose incentive to grow as licenses substitute this
  4. Licensees may get better exploitation than anticipated & not receive all
  5. Piracy & unauthorized use is increased

 



 

At the end of the day licensing is essentially a business decision and adopted as a strategy after weighing all pros and cons. A clear cut and well monitored licensing program can ameliorate many common licensing related problems.

B. LICENSES UNDER INDIAN IP LEGISLATIONS:

Licensing IP as a business strategy has seen a steady rise in India post 1991 as a result of lifting of various government imposed bans or restrictions on trade, reduced administrative hurdles, clearer guidelines by way of legislations and involvement in international agreements and treaties. More multinational companies have ventured into the Indian markets than ever before and are doing thriving business through their licensees and authorized dealers. Rise in technology and scientific research centers in the country have also led to research collaborations and licensing of innovations developed through such research.

According to the International Intellectual Property Alliance, even though India's IP laws are strong, the country still suffers high piracy rates and inadequate enforcement mechanisms. In the software sector a number of companies devise strategies having licensing schemes at their core to rein in infringers and as a significant means of controlling piracy.

Indian legislations have set out clear guidelines in the body of the Acts, specifically: the Trademarks Act 1999, the Copyright Act of 1957 (last amended 1999), the Patents (Amendment) Act 2005; and the New Designs Act 2000. While these legislations lay down the specific requirements for licensing, basic laws of contract also determine the scope and context of any IP license. Among the international agreements, India acceded to the Bern Convention for the Protection of Literary and Artistic Works as early as on January 31, 1975. On September 7, 1998, India acceded to the Paris Convention for the Protection of Industrial Property, the Patent Co-operation Treaty and Trademark Law Treaty. The Paris Convention lays down basic international principles governing the protection of patents, trademarks and industrial designs and as a result of being a signatory to the Paris Convention, India is obliged to extend reciprocal intellectual property arrangements to all countries party to the convention. Further, in February 2007 India ratified its accession to the Madrid Agreement on Trademarks.

While the finer details can be found in each of the Acts pertaining to trademarks, copyrights, patents and designs, we have tabulated below the main provisions contained in the respective IP legislations concerning licensing:

1. GRANT OF A LICENSE

TRADEMARK

COPYRIGHT

PATENT

DESIGN

Section 38. Notwithstanding any thing in any other law to the contrary a registered trade mark shall, subject to the provisions of this Chapter, be assignable and transmissible, whether with or without the goodwill of the business concerned and in respect either of all the goods or services in respect of which the trade mark is registered or of some only of those goods or services.

 

Section 30. Licenses by owners of copyright.- The owner of the copyright in any existing work or the prospective owner of the copyright in any future work may grant any interest in the right by license in writing signed by him or by his duly authorized agent:

Provided that in the case of a license relating to copyright in any future work, the license shall take effect only when the work comes into existence.

Section 70. Subject to the provisions contained in this Act relating to co-ownership of patents and subject also to any rights vested in any other person of which notice is entered in the register, the person or persons registered as grantee or proprietor of a patent shall have power to assign, grant licenses under, or otherwise deal with, the patent and to give effectual receipts for any consideration for any such assignment, license or dealing:

Section 30 (4). The person registered as the proprietor of a design shall, subject to the provisions of this Act and to any rights appearing from the register to be vested in any other person, have power absolutely to assign, grant licenses as to, or otherwise deal with, the design and to give effectual receipts for any consideration for any such assignment, license or dealing:

2. RIGHT TO SUE

TRADEMARK

COPYRIGHT

PATENT

DESIGN

S.52. Right of

registered user

to take

proceedings

against

infringement

(1) Subject to any agreement subsisting between the parties, a registered

user may institute proceedings for infringement in his own name as if he were the registered

proprietor making the registered proprietor a defendant and the rights and obligations of such

registered use in such case being concurrent with those of the registered proprietor

(2) Notwithstanding anything contained in any other law, a registered

proprietor so added as defendant shall not be liable for any cost unless he enters an appearance

and takes part in the proceedings.

S.45 provides who is a Registered user (assignees, licensees etc.)

S.54. Definition – For the purposes of this Chapter (CIVIL REMEDIES), unless the context otherwise requires, the expression, "owner of copyright" shall include-

(a) An exclusive licensee

S.55. Civil remedies for infringement of copyright - (1) Where copyright is any work has been infringed, the owner of the copyright shall, except as otherwise provided by this Act, be entitled to all such remedies by way of injunction, damages, accounts and otherwise as are or may be conferred by law for the infringement of a right.

S.61. Owner of copyright to be party to the proceeding – (1) In every civil suit or other proceeding regarding infringement of copyright instituted by an exclusive licensee, the owner of the copyright shall, unless the court otherwise directs, be made a defendant and where such owner is made a defendant, he shall have the right to dispute the claim of the exclusive licensee.

(2) Where any civil suit or other proceeding regarding infringement of copyright instituted by an exclusive licensee is successful, no fresh suit or other proceeding in respect of the same cause of action shall lie at the instance of the owner of the copyright

S.109. Right of exclusive licensee to take proceedings againstinfringement (1) The holder of an exclusive license shall have the like right as the patentee to institute a suit in respect of any infringement of the patent committed after the date of the license, and in awarding damages or an account of profits or granting any other relief in any such suit the court shall take into consideration any loss suffered or likely to be suffered by the exclusive licensee as such or, as the case may be, the profits earned by means of the infringement so far as it constitutes an infringement of the rights of the exclusive licensee as such.

(2) In any suit for infringement of a patent by the holder of an exclusive license under sub-section (1), the patentee shall, unless he has joined as a plaintiff in the suit, be added as a defendant, but a patentee so added as defendant shall not be liable for any costs unless he enters an appearance and takes part in the proceedings.

S.110. Right of licensee under section 84 to take proceedings against infringement

Any person to whom a licence has been granted under section 84 shall be entitled to call upon the patentee to take proceedings to prevent any infringement of the patent, and, if the patentee refuses or neglects to do so within two months after being so called upon, the licensee may institute proceedings for the infringement in his own name as though he were the patentee, making the patentee a defendant; but a patentee so added as defendant shall not be liable for any costs unless he enters an appearance and takes part in the proceedings.

A mere licensee is not a proprietor of the design and cannot by himself file a suit for infringement but he may join the proprietor as co-plaintiff. An Exclusive licensee can institute a n infringement suit by joining the proprietor either as co-plaintiff or in adding the proprietor as a defendant. Such defendant shall not be liable for any costs of the proceedings.



C. UNDERSTANDING THE ESSENTIAL LEGAL CLAUSES OF LICENSE CONTRACTS AND AVOIDING LEGAL PITFALLS

Licensing arrangements often run into anti competition issues as they sometimes impose restraints that adversely affect competition in markets resulting in market division or price-fixing. Antitrust/competition concerns may rise when a licensing arrangement harms competition by affecting the prices, quantities, qualities or varieties of goods and services either among existing competitors or likely potential competitors in a relevant market. In India, Courts tend to determine such effects by asking whether the agreement is in undue restraint of trade and if so, whether the restraint is reasonable. India has witnessed very few anti trust / restrictive competition cases on the scale seen, for instance, in the United States. It is imperative to note that each license is specific to the parties and the nature of collaboration between them and the provisions will vary from transaction to transaction. Some of these scenarios are discussed below:

  • Exclusive licenses: Licensing arrangement may involve exclusivity if licensor grants an exclusive license which restricts the rights of the licensor to sub-license or possibly the use of the IP itself. Another form of exclusivity is exclusive dealing, which arises when a license prevents or restrains the licensee from licensing, selling, distributing or using rival technologies. Such restrictions may shut out access to or increase competitor's costs of obtaining, important inputs, or facilitate coordination to raise price, etc. and are likely to be held anti-competitive.
  • Cross-licensing: Agreements whereby owners of different IP, example, patents or know-how agree to license rights to one another commonly referred to as "cross-licenses". Generally they are viewed as pro-competition. However they must be scrutinized to determine the purpose of the cross-license. It is important to understand whether the arrangement creates a monopoly power in the relevant market beyond that existing prior to the agreement.
  • Grantbacks: These arrangements can be pro-competition because they permit the licensor to license the technology without any risk that it will be foreclosed from the market. However, such arrangement can have anti-competitive effect if it substantially reduces the licensee's incentive to indulge in research and thereby reduce competition. The key factors considered in evaluating a grantback provision are:
  1. whether the grantback is exclusive or non-exclusive, if exclusive
  2. whether the licensee retains the right to use the improvements;
  3. whether the grantback precludes, permits or requires the licensor to grant sublicenses
  4. whether the grantback is limited to scope of the licensed patents or covers inventions which would not infringe the licensed patent
  5. the durations of the grantback
  6. whether the grantback is royalty free
  7. the market power of the parties
  8. whether the parties are competitors; and
  9. the effect of the grantback on the incentive for developmental research.
  • Field of use restriction: Licensing arrangements sometimes restrict the use of licensed IP to a particular field (product or geographic) even when there are other distinct fields in which it is useful. This is the field of use restriction. These types of agreements can promote competition, because they provide licensees with strong incentives to develop the market by focusing on a particular field. It is important to analyze and weigh the degree to which the restriction restrains competition with the legitimate goals it may produce. Geographic restrictions are permitted by patent law. The only exception being when it furthers market division among competitors.
  • Agreements that deter research: Agreements that deter or discourage research and development are usually held to be anticompetitive as they retard innovation and adversely affect development. For example, a pooling arrangement that requires members to grant licenses to each other for current and future technology at minimal cost may reduce the incentives of its members to engage in research and development because members of the pool have to share their successful research and development and each of the members can free ride on the accomplishments of other pool members.
  • Agreements that result in price fixing: A license can be challenged as being anti competition if it indulges in naked price fixing or market division.
  • Tying arrangements: such arrangements are "per se" illegal if it is established that :

a. the products or services tied are unrelated ;

b. the sale or agreement to sell one product or service is contingent upon the purchase of the other product or service ; and

c. the licensor uses his market position and dominance to impose such arrangements upon the purchasers to restrain trade in the market.

  • No challenge clause: No-challenge clauses have been held to be anti-competitive. In an attempted monopolization case, proof that the patents were bought as part of a scheme to acquire or maintain monopoly power may be anti-competitive as this results in the licensee paying royalty even if the patent is invalid.
  • Term extending the payment of royalties beyond the time of the patent: Such a clause is most likely to have a potential anti-competitive effect. For example - if a licensor sold a patented machine for a fixed price and an annual minimum like a royalty pay, the patentee's use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se. Use of such patents to maintain or extend the power inherent in the patent beyond the term of the patent is anti-competitive.

D. CONCLUSIONS

There have been instances of licensing arrangements running into trouble after, both, long term and relatively shorter term cooperation. There are also instances of long term, enduring licensor-licensee relations that give hope for the success of this model of business. Examples can be cited from different industry segments where licensing arrangements went sour and reached the courts: Ziff Davis Inc., owner of the well known PC MAGAZINE, and Vogel Media International GmbH, owner of the well known CHIP magazine, had misadventures with their Indian licensees nearly a decade back. In the Ziff Davis case, the court firmly upheld the principles of licensee estoppel and emphasized that a licensee having acknowledged the proprietary rights of a licensor over the licensed trademarks cannot deny these subsequently. Other examples of cases that had a licensing history and went into litigation were from the manufacturing sector involving medical equipment (Synthes AG), electrical equipment (Telemecanique S.A.), garments (Hang Ten), software (Executrain, Inc.), education courses (Kaplan, Inc.) etc. Interestingly all these cases involved an intellectual property violation and ended well for the licensors and resulted in the licensee being restrained from misusing the licensed intellectual property or voluntarily undertaking in the court proceedings to refrain from doing so.

In nearly all cases, the reasons for the collapse of licensing arrangements boil down to (i) mistrust or breakdown of personal relations between the contracting parties, (ii) monetary issues such as division of profits and allocation of budgets for and sharing of advertisement and promotion costs (iii) better business projections or sweeping change in the business vision or market environment coupled with a good equation with a potential partner; and (iv) breach of the agreement by misuse of the licensed intellectual property by the licensee. These factors may sound suspiciously analogous to the factors that also make a marriage work or fail - unsurprisingly because the relations are contractual in essence. Thus while a number of safeguards can be built into licensing agreements to plug all foreseeable loopholes there will at any point of time also be factors that cannot be envisioned and the test will be the fundamental strength of the relations between the contracting parties.

Binny Kalra is a Senior Partner at Anand and Anand and heads the Litigation Department of the firm. She is a senior attorney with over 18 years of IP litigation practice involving a diverse range of subjects in highly contested matters. She has in-depth experience of multi-dimensional intellectual property issues and their treatment in courts and an expertise in strategic advice and planning for litigation.

Taapsi Johri is an Associate with Anand and Anand's Litigation department. She has experience in drafting and litigating law suits involving patent, trademark and trade secrecy issues and related IP disputes. She was admitted to the Bar in 2006. She earned an LL.M in Intellectual Property Laws from George Washington University, Washington DC in 2007, and has been working with Anand and Anand since November 2007.

Footnotes

1. ABA Section of Antitrust Law, Intellectual Property and Antitrust Handbook (2007) at page 420 quoting 569 F.2d 1084, 1101-02 (9th Cir. 1978)

2. Jane K. Winn & Benjamin Wright, Law of Electronic Commerce (4th ed. 2002)

3. J.K. Jain v. Ziff Davies, Inc. 2000 PTC 244 (Del) DB

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions