Intellectual Property: Gathering Steam

The Indian IP scenario has undergone huge transformation over the last three
decades. Though the IPR regime in the country is far weaker than desired, it's
evolving and awareness among Indian enterprises is increasing. Now realizing the
importance of patenting, companies are creating culture of innovation. For
example, product companies like Ramco, TCS, Infosys, i-flex, Sasken, and Subex
are nurturing and building strong IP cultures. Infosys, for instance, has been
the leader in the pack with 20 filings in the last fiscal. Sasken filed five
patents last year, while Subex and i-Flex filed two and one patents,
respectively. However, the MNC contingent is far ahead when it comes to filing
patents for its India-centric R&D work. ST Micro filed 37 patents last year
while Symantec was granted 16 patents. Microsoft made 70 disclosures in the same
period while Adobe filed 32 applications till date from India.

Today 20% of Ramco's revenues come from licensing. The Chennai-based
company currently holds patents in different areas with respect to Ramco
VirtualWorks. For Subex, the contribution of product licenses on its revenues is
as high as 67%. Sasken, which has filed patents in the areas of DSL, multimedia
and wireless, has seen its IP licensing revenues decline over the years from
around 43% a few years back to 15% in FY 2004-05, and eventually to 9% in the
last fiscal. This is largely because Sasken has moved all contracts into royalty
bearing.

Typically in the telecom environment, it makes long-term business sense to
move to a royalty model where royalty is changed on a per unit basis. Says G
Venkatesh, CTO, Sasken Communication Technologies, “The royalty model ensures
steady revenue generation for IP created by companies like ours. The shift has
been made with an eye on the future.” Typically, license owners earn revenue
whenever their license is sold or used by another company. For example, the
company that has bought the license can use the design or architecture in its
product and the licensee will receive royalty for every product/instrument sold.
Says Srini Koppolu, VP and MD, Microsoft India Development Center, “Filing
patents allows you to engage in cross licensing where you can license your
patent to other companies who may be innovating in the same space.”

The Indian Patent System

India is bound by all the provisions of TRIPs agreement, which oblige the
country to enact and amend relevant domestic laws. Thanks to international
treaties like the agreement on Trade-Related Aspects of Intellectual Property of
the WTO, Indian IP laws were significantly revamped starting in the mid-1990s.
In 1994, the Indian Copyright Act was amended and the law has been called one of
the toughest in the world.

Until recently, patent systems around the world differed dramatically in
terms of what innovations were deemed patentable and how long patents lasted.
This was sensible because social benefits and costs from patents vary according
to the type of innovation and the countries' stages of development. While the
-Indian patent regime has undergone significant changes to become TRIPs
compliant, the process of filing and granting of patents is still a rigid,
bureaucratic process. Says Ganesh Guriswamy, country manager & director,
Freescale Semiconductors, “Rigid and -bureaucratic processes discourage
companies from filing for patents, as technology applied for patent becomes
obsolete by the time companies receive patent rights.” Agrees Venkatesh, “We
file our patents in the US, as the -systems are far more matured and
transparent.” 

The Indian patent system is still at a very nascent stage.
Software has no patent right and protection is available in the way of
copyrights today. The changing technological environment has made it necessary
to provide for patents when software has technical applications in industry in
combination with hardware. Moreover, since there's no international body,
protection of IP becomes geographically bound in many cases. Further, trained
examiners with technology knowledge are required.

Despite the current lacunae, industry experts agree that the Indian patent
system has undergone radical changes in the recent past. Says Ajay Advani,
co-chair, BSA, India Committee, “The current physical infrastructure is
comparable with global standards.” The IT system is evolving and it needs to
develop further. The patent offices use an in-house database and a robust
docketing system. But the databases are not online accessible to public. “The
average examiner is fairly well-trained, but some of them require further
training and expertise in patents. Overall, the system has moved way ahead of
what it used to be and also ahead of that in many developing countries like
Brazil and China,” opines Advani. Agrees Anil Chakravarthy, VP, India
Technical Operations, Symantec Corporation, “Legally, we've a very good
patent system in India, which is comparable with global standards; it's
comparable to the European Patent System.” The US patent system is much too
advanced, which cannot be compared to India or the rest of the world. When it
comes to procedures and enforcement, however, India remains one of the weakest
countries in the world. We lack IP courts and modern patent offices.

Cost Hurdle

A patent application has two components. The first part involves drafting
and filing the application in the US (that is if the USPTO is your preferred
destination for filing patents), which would cost from $10,000-15,000. The
second part involves prosecution of the patent application, which can range from
a couple of thousand dollars to $20,000 or more per application. To keep the
issued application alive, applicants need to pay annuity to the United States
Patent and Trademark Office (USPTO), which amounts to $6,000 (over several
years) and is valid for 20 years. Finally, expenses for filing the same
application outside of the US can add even more to the cost. For example, the
cost of filing a patent in India for Subex is around Rs 62,000. Says Koppolu,
“The cost of filing a patent depends on several factors like the country in
which the patent has been filed, the number of countries in which it'll be
filed and the complexity of the application.”

However, this cost can come down substantially at the drafting stage. Says
Vivek Sharma, EMR vice president and director, India Design Center, ST
Microelectronics, “The way in which patent application is written is very
important for maximizing the returns from the filings. Special focus should be
given to ensure strong litigating proof patents that protect the innovations
properly.”

However, there are KPOs, which offer services similar to that offered by US
patent attorneys at a much lower cost. Outsourcing to a KPO could -substantially
reduce the cost of drafting a patent -application. An application could be
drafted in this way for around $5,000. “Quality can be an issue here,” says
Chakravarthy.

Attorney costs can be controlled by various methods. Says Arun Kumar,
president and MD Flextronics, “If you're interested in a foreign patent but
are not sure of novelty of your patent, you can file for an Indian patent at
such stage. Once you're sure of patentability of your invention, you can file
for foreign patents.” One can claim priority from the Indian application,
which means an application for a foreign patent is filed within 12 months from
the date of Indian application. If the company claims priority from Indian
application, the foreign application will be treated as if filed on the same
date as Indian application.

On the Right Track

India is seeing a rise in orientation toward patents. Says Advani, “The
number of Indian patent applications filed has increased 400% over the past 15
years. Nearly 800 Indian companies submitted international patent applications
to the World Intellectual Property Organization in 2004, more than double the
number applied for in 2000.” This trend is substantiated by the increase in
the number of filings before the Indian Patent Office in recent times. The
government received nearly 23,000 patent applications during 2005-06, as
compared to 17,466 last year. A significant step was the amendments to the
Patent Act last year, which now allow for product patents instead of only for
process. The patent offices all over the country are being modernized and IT
usage to enhance efficiency is bound to have a positive impact on the IP
industry in India and for attracting FDI.

While orientation is definitely on the rise, what India needs today is also a
stronger IP regime. More examiners and better procedures are required. Even MNCs
would stand to benefit from a stronger IP regime in the country. Says
Chakravarthy, “Software companies like Symantec cannot completely benefit from
the existing IP regime, as software patents are not yet allowed in India.
Further, there needs to be stringent laws to curb piracy and copyright
violations in India.”

The Patent Culture

The basic step to creating the right culture is corporate and employee
awareness. While the MNCs are far ahead of the Indian counterpart in this
category, Indian companies are catching up as well. Says Menon,
“Responsibility for IP has to become a basic biological condition that should
permeate the corporation.” This could help create a culture to promote IPR. An
important aspect is that of role models. Symantec, for example, has 92 inventors
in India who filed for patents last year, and this is emulated by newcomers.
Induslogic, a Noida-based offshore product development company, invests heavily
in training its people about IP protection. Says Mukul Jain, CEO and country
manager, Induslogic, “This training is a part of the boot camp.” Induslogic
also assists its customers in the documentation of technology patents.

It has been a slow but steady journey for India in the IPR space. But the
fact that we're moving in the right direction is a reassurance nevertheless.

Bhaswati Chakravorty

bhaswatic@cybermedia.co.in