In India, licensing is still at a nascent phase. We often get confused as to what is IP infringement or the legal hassles associated with licensing.

From a legal point of view, intellectual property (IP) encompasses software, patents, patent disclosures, trademarks and service marks, logos, get-up, trade names, internet domain names, rights in designs, copyright and moral rights etc.

Licensing Corner caught up with Amit Aggarwal, Co-Founder and Director of Effectual Services to understand more legalities associated with licensing in India.

Effectual Services provides end-to-end intellectual property and business and market research support. Aggarwal also won the IP Gem of India 2018 award by Questel Orbit which is awarded individually as well as the IP excellence in India 2018 award by Questel Orbit to an organization. He has also been individually recognized to be among the world’s leading IP strategists by IAM in 2018.

Read the full interview below:

Give a brief introduction to the licensing scenario in India.

Licensing in India is in a nascent phase, mainly the larger companies having a focus on IP and having big in-house legal departments take up the licensing work seriously. With the change in IP regime, i.e. India becoming completely compliant to TRIPS agreement in 2005, pharma was the first sector to take up the patent licensing seriously. Eventually, as the courts become more and more efficient in disposing of patent infringement matters quickly, the patent licensing will gain further momentum.

Licensing still is not a very familiar term. Could you please identify the different forms of license agreements that exist in Indian jurisdiction?

It’s basically an agreement between a patent owner and a licensee. There are no prescribed formats or types by the statute, but generally, there are two types of licenses that are commonly used:

1. Exclusive license: which means that the licensee gets exclusive rights to manufacture, use or sell the products based on the patent. No party other than the licensee can make the products based on the patent. At times, even the patent owner can be barred from making the products himself, but this depends on mutual agreement. Needless to say, that the patent owner gets more money in this case, as compared to other
2. Non-exclusive: in this case, the licensee can be one of many licensees. In other words, the licensee may not be the only one making the product even after he gets a license. The patent owner is free to license the patent to other interested parties.

What are the major challenges for operating licensing in India?

The patent enforcement is currently the biggest challenge. The courts are slow in deciding, and also, some of the courts do not have necessary technical expertise to understand the technical nature of the patent, thus proving a violation of a patent license by a third party is made difficult. Also, people in India seem to have a limited understanding of patents, and consequently, they do not bother to check whether they are infringing on someone’s validly licensed patent.

Could you please shed some light on the growth of patent -IP sector in India?

India became compliant to TRIPS in 2005, the immediate impact was on Pharma sector wherein the generic medicine manufacturers could no longer manufacture generic medicines for which a patent is held by someone else. Eventually, there were patent litigations in other industries. There have been many patent wars since then, for example, TVS vs Bajaj in the automobiles sector, then there was Ericson Vs Micromax in Telecom sector. Cases such as these have made technology companies aware that patents are serious business in India now. International companies having R&D centers in India were quick to respond by increasing Patent filing in India, but off late many technology startups have started filing patents in India as it helps them raise capital from VCs. The government has also encouraged filing by small startup companies by reducing the filing fees.

What are the legal angles that we need to keep in mind while licensing a product patent?

Actually, it’s the patents that are licensed. While licensing a patent, one should check for:

1. The validity of the patent – it should be valid and enforceable
2. Any other patents that are closely related to the patents that are being licensed? If there are any, what is the likelihood of infringement of those patents by a product based on the patent which is being licensed.
3. Remaining life of the patent. If it’s at the end of the term, a licensee might just want to wait for the patent to expire, rather than taking a license.
4. The scope of claims, if it’s a very narrow patent, other companies may design around the patent and still make the same product
5. What portion of the product (which a licensee intends to manufacture) is protected by the patent.
6. Whether the terms offered by the patent owner are fair, reasonable, and non-discriminatory (FRAND) terms. Whether a lump sum fee is demanded, or a periodic payment or royalty on sales volume of the product
7. Ownership to the improvements made to the patent via filing of additional patents, i.e. if the patent owner files more patents on the invention, will those patents be separately licensed or they will be included in the base license?
8. Restrictions on use of the patent, for e.g. patent is to be used only on a particular model, and not every product model which it can be incorporated in.
9. Termination clauses in the License.
10. Specifically, in cross-border scenario – what will be the governing law.
11. Applicable mode of redressed, Arbitration, Mediation or courts (if courts, applicable jurisdiction)

What repercussions can a licensee/licensor have for not patenting their inventions?

Actually, an inventor files a patent that may be licensed by any second party. Repercussions for not patenting by an inventor is that their idea can be used by any company without taking a license from the inventor.

What pre-contractual disclosure must a licensor make to prospective licensees?

There is none prescribed by statute. But the parties may have questions to ask of each other. Basically, it’s an agreement between two parties and is mainly governed by the Indian Contract Act. But it’s advisable for a patent owner to sign a non-disclosure/Confidentiality agreement before exposing any licensor to their proprietary technology. Generally, before going ahead with the license, the licensee should technically evaluate the merits of the technology which she intends to license, to ensure that the license will actually be worthwhile.

Does legislation directly govern the creation, or otherwise regulate the terms, of an international licensing relationship? Describe any such requirements.

Licensing patents that are standard essential – this is pretty straightforward. Organizations like IEEE dictate the patent owners the terms that are Fair and reasonable (FRAND), the licensing agreement is pretty standard (non-exclusive) for every licensee, and is generally available on the website of such organizations (IEFT, IEEE etc.)

Licensing patents that are not standard essential – the terms and conditions in such an agreement are negotiated by the patent owner and the licensee, but once an agreement is really a contract between parties so is governed by Contract laws. In cross border entities, the parties may choose to select the governing laws.

Any tips for those who are planning to foray into the world of licensing.

Whether you are in-licensing a patent (i.e. you are a licensee) or you are out-licensing (i.e. you are a patent owner), its recommended to hire a good attorney who has in-depth knowledge of contracts and patents, and is preferably expert in patents. He will have the necessary knowledge and end to end expertise to finish the licensing deal. Also, refer points 1-11 above.