The creation or absorption of new technology has become a vital component for companies to improve or maintain their competitive position in the market place. Companies operating in sectors where competition takes place on the basis of price alone, such as the extraction or commercialization of raw materials, may rely on new technologies to improve their efficiency in the extraction of raw materials by improving their productive processes or acquiring new machinery and equipment. They may also use new technology to better commercialize their products or to improve their management structure, control and communication. In other sectors, where the market evolves continuously as new products with new functions or designs appear on a regular basis, companies are forced to innovate by acquiring or developing new technologies. Technological innovation is therefore a crucial element of the competitive strategy of any enterprise, big or small, hightech or low-tech. Foreign companies are also showing an avid interest in India for trade in technologies and services as a result of which intellectual property rights issues have gained significant importance. The ongoing integration of domestic and international markets through continuing deregulation and liberalization of markets has enhanced competitive pressure for all firms, and especially increased the technological needs of small enterprises worldwide while also improving their access to new technologies and capital goods.
While investing in technology creation may be expensive and risky, as there are many uncertainties linked to the innovation process, it has the advantage of preventing technological dependence on other companies and enables the company to enhance its technological capability and to innovate according to its own specific needs. Companies have to decide whether to develop technology in-house or to obtain it from others.
Technology transfer is the process by which a technology, expertise, knowhow or facilities developed by one individual, enterprise or organization is transferred to another individual, enterprise or organization. Technology transfer is the term used to describe the processes by which technological knowledge moves within or between organizations. Technology transfer may happen from country to country, from industry to industry or from research laboratory to an existing or new business. Technology transfer results partners in pooling their expertise to enter new markets, commercialization of a new product or service or improvement of an existing product or process and to get faster marketing of their products and services1.
The sale and purchase of the exclusive rights to a patented technology or of the permission to use a given technology or know-how, takes place through legal relationships between the owner of the exclusive rights or the supplier of the know-how, called the "transferor", and the person or legal entity which acquires those rights or that permission or receives that know-how, called the "transferee."
The legal relationship between transferor and transferee is essentially contractual in nature, which means that the transferor of the technology consents to transfer and the transferee consents to acquire the rights, the permission or the know-how in question. There are various methods and legal arrangements through which technology may be transferred or acquired i.e. by way of Sale or Assignment of IP Rights or License Agreement.
Intellectual Property Rights
The law in India relating to intellectual property and to the protection of the rights of its exploitation and use are contained in the Patents Act, 1970 ("Patents Act") (as amended), Trade Marks Act, 1999 ("TM Act") and Copyright Act, 1957 ("Copyright Act"). The rules of transfer of intellectual property rights are determined by statute as laid down in the Patents Act, TM Act and Copyright Act.
Under the Patents Act, the creation of any interest in a patent, including an assignment or license is not valid unless it is reduced to writing in a document embodying all the terms and conditions governing the rights and obligations between the parties and an application for registration of such document is filed with the Controller of the Patents.
Under the TM Act, a registered trademark can be assigned or transmitted with or without goodwill of the business concerned. An assignment of a trademark must be in writing. No specific form has been prescribed. Registration of assignment is necessary to establish title to the registered mark.
Under the Copyright Act, an author assigns the whole or part of his rights to others to exploit economically for a lump sum consideration. Assignment of copyright is valid only if it is written and signed by the assignor or by his duly authorized agent. There is no prescribed form for assignment. Registration of the assignment is not necessary for its validity. The deed of assignment should contain the following i.e. the identity of the work; the rights assigned and the duration and territorial extent of such assignment; and the amount of royalty payable, if any, to the author or his legal heirs during the currency of the assignment.
Competition Commission of India (CCI) established by the Competition Act, 2002 is mandated to prohibit anticompetitive agreements that cause or likely to cause appreciable adverse effects on competition in markets and also prohibits abuse of dominance by enterprises. Technology holder has every right to restrain the infringement of any of his rights or impose reasonable conditions only necessary for the protection of any of his intellectual property right (Section 3(5) (a) to (f ) of the Competition Act, 2002).
The goal of competition law is not to prohibit monopoly. Instead, the goal is to prohibit anti-competitive conduct. An industry that achieves a monopoly without entering into anticompetitive conduct will not violate the principles of competition law at all. Intellectual property is a grant of monopoly by the state as a reward for innovation. Mere monopoly does not reflect adverse effect in the competition. But the monopoly granted to a holder of an intellectual property right can create barriers to entry and give rise to market power, the abuse of which is prohibited by competition law.
Any technology transfer agreements which lead to an abuse of a market position by imposing unreasonable conditions or other than essential for protection of such intellectual property rights would be considered as anticompetitive. Following instances of technology transfer agreement may be called anticompetitive, such as: (1) Patent Pooling wherein two or more companies come together and cross license the technology relating to a particular technology to each other so as to restrict others to acquire it. (2) Tie in arrangements to tie a product with other product which is patented so that the acquirer has to get the other product also from the patentee. (3) Prohibiting licensee to use technology from rival company. (4) Prohibiting licensee from challenging validity of intellectual property rights. (5) Price-fixation for the licensee to sell the licensed product, etc. These types of clauses imposed in the technology transfer agreements by the intellectual property right holder or licensee are called anticompetitive for the market, hence shall be void2.
Some of arrangements described above in technology transfer agreements are likely to affect adversely the prices, quantities, quality or varieties of goods and services will fall within the contours of competition law as long as they are not in reasonable juxtaposition with the bundle of rights that go with intellectual property rights. Therefore the unreasonable conditions are not covered under the protection given by Section 3 (5) of the Competition Act 2002 and therefore Competition Commission of India may be called upon to take note of anti-competitive agreement under Section 19 of the Competition Act 2002 and such agreements can be declared void.
There are various types of contractual relationships through which technology may be transferred. Businesses and institutions will need to evaluate on a case-by- case basis which type of relationship will be more suitable and negotiate the specific terms to be included in the agreement. A number of market factors as well as factors that are internal to the recipient or specific to the technology in question will influence what type of agreement is reached between the two parties. In terms of intellectual property, it is important to bear in mind that intellectual property rights represent a pro-competitive monopoly and their owner should not exercise his right by abusing his monopoly, for example by imposing anticompetitive obligations on the licensee.
1. Overview of the Contractual Agreements for the Transfer of Technology, http://www.wipo.int/export/sites/www/sme/en/documents/pdf/technology_transfer.pdf , (last accessed on 20 February 2014)
2. Technology Transfer Agreements in High Tech Industries: A Competition Law Analysis http://cci.gov.in/images/media/ResearchReports/Technology%20Transfer%20Agreements%20in%20High-Tech%20Industries%20_A%20Competition%20Law%20Analysis.pdf , February 2103, (last accessed on 20 February 2014
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.