NECESSITY OF INTELLECTUAL PROPERTY RIGHTS IN CORPORATE SECTOR BY - SAMRUDDHI GHUMARE
NECESSITY
OF INTELLECTUAL PROPERTY RIGHTS IN CORPORATE SECTOR
AUTHORED BY - SAMRUDDHI GHUMARE
49/4 Janak Apt., Anand Park, Lane no
3, Aundh, Pune 411007
Samruddhig28@gmail.com
ABSTRACT
The intellectual property rights
(IPR) are intangible in nature and gives exclusive rights to inventor or
creator for their valuable invention or creation. In present scenario of
globalization, IPR is the focal point in global trade practices and livelihood
across the world. These rights boost the innovative environment by giving
recognition and economic benefits to creator or inventor. The lack of IPR
awareness and its ineffective implementation may hamper the economic, technical
and social developments of nation. Hence dissemination of IPR knowledge and its
appropriate implementation is utmost requirement for any nation. The present
paper highlights various terms of IPR such as patents, trademarks, industrial
designs, geographic indications, copyright, etc. with their corresponding
rules, regulations, their need and role especially pertaining to Indian
context.
KEY WORDS: IPR, Patents, Copyright, Trademarks
INTRODUCTION
In today's competitive environment, innovation is the mainstay for every
business that leads to development of intellectual property. Identifying,
developing, and leveraging innovation provides competitive edge and aids in
long term success of the company. Intellectual property is not limited to
technology companies, but is valuable for every business which invests huge
sums in research and development for creating indigenous products and services.
The Intellectual property rights
safeguards or acts as a binder to the creator of ideas in a particular sector
or field wherein these rights bind the maker with the creation lawfully,
wherein infringement can be considered unlawful. Over the years the value of
intellectual property has grown tremendously and it is now a vital element to
business. The important forms of intellectual property are copyrights, patent,
trademark, geographical indications and industrial designs. Apart from these
there is one more form known as trade secret. A trade secret is any information
that allows you to make money because it is not generally known. A trade secret
could be anything such as formula, process, method or non-public information.
One of the famous examples of trade secret is of the giant fast food chain KFC
which has a trade secret of not disclosing its ingredients of its delicious
chicken.
Intellectual
property (IP) is the backbone of any modern organization. IP protection acts as
both a shield and a sword for businesses: helping them secure their long-term
revenue streams through IP licensing and enforcing patent rights. Therefore, IP
needs to be sufficiently protected from duplication as it can threaten the
market position of an organization and affect its business growth.
The forms of Intellectual Property
allow you and your products to be distinguished individually from others. They
are a seal of authority in respect to the quality, product, services and
expectations put forth by the buyer or the user. Intellectual Property is a
wealth creating machine which gives you legitimate ownership with image of a
trustworthy organization. Every business house relies on intellectual property
rights, spending millions of dollars to secure their intellectual properties.
Intellectual property rights is an
important intangible asset in any company. It gives competitive edge in the
market and protects from hackers and pirates. India is fast growing economy and
innovation is becoming priority for Indian firms and Government. This
innovation needs protection and for this Intellectual Property is necessary.
[1]According to WIPO, an understanding
in Intellectual Property can help your business become more competitive and
manage intellectual property related risks.
The Intellectual property system has
an important role to play in helping us:
·
Protect
innovative products and services;
·
Increase
the visibility, attractiveness and value of your products on the market;
·
Distinguish
your business and its products from the competition;
·
Access
technical and business information and knowledge;
·
Avoid
the risk of unknowingly using third party proprietary content or inadvertently
losing your own valuable information, innovation or creative output.
The forms of Intellectual Property
allow you and your products to be distinguished individually from others. They
are a seal of authority in the respect to the quality, product, services and
expectations put forth by the buyer or the user. IP is a wealth creating
machine which gives you legitimate ownership with image of a trustworthy
organization. Every business house relies on intellectual property rights,
spending millions of dollars to secure their intellectual properties.
With IPR you have the legal right to file a suit against anyone who uses your idea or logo etc without your permission, you can franchise or give copyright of your work to someone and get royalties over it. Nowadays every country realizes the importance of IPR and so , almost every country has statutes providing guidelines regarding it. In India some of the important statutes regarding this are like The Patents Act 1970, The Trade Marks Act 1999, The Copyright Act 1957 etc. The provisions of these act have to be followed and any person infringing can be punished.
IPRs is an important intangible asset in any company. It gives competitive edge in the market and protects from hackers and pirates. India is fast growing economy and innovation is becoming priority for Indian firms and the government, this innovation needs protection and for this IP is necessary.
With IPR you have the legal right to file a suit against anyone who uses your idea or logo etc without your permission, you can franchise or give copyright of your work to someone and get royalties over it. Nowadays every country realizes the importance of IPR and so , almost every country has statutes providing guidelines regarding it. In India some of the important statutes regarding this are like The Patents Act 1970, The Trade Marks Act 1999, The Copyright Act 1957 etc. The provisions of these act have to be followed and any person infringing can be punished.
IPRs is an important intangible asset in any company. It gives competitive edge in the market and protects from hackers and pirates. India is fast growing economy and innovation is becoming priority for Indian firms and the government, this innovation needs protection and for this IP is necessary.
[2]Intellectual property rights is one
of the sources of security for intangible properties which are still open to
the public and which can be quickly replicated by anyone.
·
Patent – A patent is used to prohibit the use or
selling by another party, for a defined period of time, of original production.
In brief, a sovereign authority awards the inventor the intellectual property
right after an examination of its viability.
·
Copyright – It is the right that protects a tangible
form of expression like book, painting, etc. It protects the mannerism in which
the idea is expressed.
·
Trademark – It refers to the protection of logo or
design that an individual or company uses. The distinguished logo or design
helps the customers to connect with the brand value and thereby ensure trust on
the goods and services.
TRADE
SECRETS
The Important forms of intellectual
property are copyright, patents, trademarks , industrial designs. Apart from
these there is one more form known as Trade Secret. A trade secret is any
information that allows you to make money because it is not generally known. A
trade secret could be a formula, process, method other non-public information.
One of the famous example of trade secret is of the giant fast food chain KFC which
has a trade secret of not disclosing its ingredients of its delicious chicken.
North American Free Trade Agreement
(NAFTA) defines a trade secret as “information having commercial value, which
is not in the public domain, and for which reasonable steps have been taken to
maintain its secrecy.”
The Trade Related Aspects of
Intellectual Property Rights (TRIPS) lays down three essential conditions which
are to be fulfilled by any information before it can be considered undisclosed
information (trade secret), they are: -
·
Such information must be secret, i.e., not generally
known or readily accessible to "persons within the circles that normally
deal with the kinds of information in question."
·
the information must have commercial value because it
is secret and,
·
the information must be the subject of reasonable
steps by its owners to keep it secret.
The Uniform Trades Secrets Act, 1970[3] also provides for the definition of
trade secrets, which is as follows: -
“Information, including a formula,
pattern, compilation, program device, method, technique, or process, that: (i)
derives independent economic value, actual or potential, from no being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy”.
Significance of Trade Secrets
Trade secrets in the industrial
economy have increased greatly in the past few years, for a number of reasons.
There are mainly two reasons for that, one among them is that other forms of
intellectual property like Patent, Trademark and Copyright have an element of
uncertainty as compared to Trade Secret. Secondly, trade secrets have gained importance
because, in many fields, the technology is changing so rapidly that it has
surpassed the existing laws intended to encourage and protect inventions and
innovations.
Another significant factor which has
enhanced the value of trade secrets is the relative ease of creating and
controlling trade secret rights. There are no bureaucratic delays and no
multiyear waits for government grants, such as those for patents. Trade secret
rights, in contrast, can be established by the explicit conduct or agreement of
the interested parties. A trade secret right starts upon the creation of the
idea in some concrete form, and continues as long as secrecy is maintained.
Protection of information such as ideas or information which does not qualify
to be protected as intellectual property within the legal framework
Intellectual Property Laws of the land can be protected by Trade Secrets. They
also have the advantage of being lasting forever, again, as long as secrecy is
maintained.
Of course, trade secrets have
negative aspects. They are a volatile form of property, and they terminate when
secrecy is lost. Also, they require constant vigilance to protect them.
Nevertheless, trade secrets play a major role in protecting innovations and
establishing rights to use new technology. It is thus important for the
intellectual property practitioner to be alert to the intricacies of this large
body of trade secret law.
In any developing country, protection
of intellectual property is one of the most significant tasks, as it encourages
foreign investment in many fields. India does not have any proper laws for
protection of Trade Secrets, we still depend on the old traditional Common Law
Principles for Protection of Trade Secrets; these Common Law Principles have
lost their significance in the scenario of the developing economy. There is a
dire need for a Proper Policy Frame work to regulate Protection of Trade
Secrets. There are a lot of Companies, especially chemical companies who prefer
Trade Secrets as a form of protection for their Intellectual property; these
companies are reluctant to invest in India just because India cannot offer
proper protection for their Trade Secrets. India is losing on a lot of Foreign
Direct Investment because of this.
Protection of Trade Secrets in India
Trade Secrets seems to be a neglected
field in India, as there is no enactment or policy framework for the protection
of trade secrets. This form of intellectual property is a new entrant in India,
but is nevertheless a very important field of IP. Protection of trade secrets
is a very important and one of the most challenging tasks for the Indian
government as this will enhance the foreign investment in India giving a boost
to the Indian economy. Foreign investors have to be assured of the protection
of their trade secrets, so that they can do business with our country. A proper
policy for trade secret protection will further enhance the security in our own
industry. Almost all the countries in the world have a policy for the
protection of trade secrets and India also being a signatory to the TRIPS is
under an obligation to amend its laws or create a new law in order to safeguard
the trade secrets of various businesses. So a proper policy for the protection
of trade secrets in India is the need of the hour in order to provide a sense
of security among the foreign investors and the local businessmen regarding
their trade secrets which will further boost the Indian economy.
As mentioned above, in India, no
substantive authoritative text or case laws are available to determine the
nature or ambit of trade secrets. But the Indian courts have tried putting the
trade secrets of various businesses under the purview of various other
legislations in order to protect them and also, they have tried to define what
a trade secret is in various cases, some of them are as follows: -
American Express Bank Ltd. v. Ms.
Priya Puri Delhi High Court[4],
in this case defined trade secrets as “… formulae, technical know-how or a
peculiar mode or method of business adopted by an employer which is unknown to
others.”
[5]Michael Heath Nathan Johnson v.
Subhash Chandra and Ors and John Richard Brady And Ors v. Chemical Process
Equipment P. Ltd. And Anr [6]took
note of the contentions of the counsels who referred to English decisions to define
trade secrets
Mr. Anil Gupta and Anr. v. Mr. Kunal
Dasgupta and Ors[7] the
Delhi High Court held that the concept developed and evolved by the plaintiff
is the result of the work done by the plaintiff upon material which may be
available for the use of anybody, but what makes it confidential is the fact
that the plaintiff has used his brain and thus produced a result in the shape
of a concept.
The legislations which are having a
connection with the trade secrets can be summed up as:
1.
Copyright
Act, 1957[Section 51,55 and 63]
2.
The
Designs Act,2000
3.
The
Information Technology Act, 2000[Section 65, 72]
4.
Indian
Penal Code [Section 408, 415]
5.
The
Indian Contract Act [Section 27]
6.
The
Competition Act, 2002 [Section 3]
7.
Civil
Procedure Code
8.
Criminal
Procedure Code
BENEFITS OF
INTELLECTUAL PROPERTY RIGHTS IN CURRENT TIMES
·
Innovative idea is a means to earn profit - ideas have little to no worth on
their own. Intellectual Property has great untapped potential to turn
innovations into products and services which are commercially viable. The
registering of copyright and patent will result in a constant stream of fee and
increased income that will boost the overall market result.
·
Export Business Opportunities – The productivity of a company in the export market is also
improved by intellectual property. An Intellectual Property rights holder may
use these logos and designs to sell products and services in foreign countries
and obtain a franchise arrangement with the overseas of corporation or export
the proprietary products.
·
Encourage the ideas by securing them – There will still be people who will attempt to
duplicate a unique idea or concept or development for monetary benefit. It is
therefore, necessary to protect the Intellectual Property properties from
unlawful infringement from a third party. For all forms and sizes of companies,
Intellectual property security maybe implemented.
·
Business growth
– For ensuring the growth and profit, it is important for enterprises, more so
in case of small-scale business to shield their exclusive goods or services
from the rivals who may snatch away their market share. Losing market share in
the initial phases of business cycle can be dangerous in the long run to an
enterprise death.
Strong intellectual
property rights help the consumers make an educated choice about the safety,
reliability and effectiveness of their purchases. Enforced intellectual
property rights ensure products are authentic and of high quality that
consumers recognize and expect. Also, intellectual property rights foster
confidence and ease of mind that consumers demand and markets rely on.
[8]According to Economic times, a
company should be proactive in implementing Intellectual property solutions to
identify novel innovations and increase revenues. A well-defined intellectual
property goal can result in achieving business objectives and help position the
business as a leader in the marketplace. With the growth in business revenues,
the intellectual property strategy can include protecting the unique aspects
and foster innovations to explore new geographies. This can be achieved through
licensing or joint ventures to create novel solutions that satisfy the needs in
the market.
A company must elevate its existing
intellectual property to determine whether it is in line with business
objectives. This helps the company to identify new ways to leverage the
intellectual property through licensing opportunities. Successful companies
must look for new avenues to expand their product offerings, increase their
sales revenue, and foray into new markets.
An organization’s patent portfolio is
vital for its future success along its various intellectual property assets as
designs, trademarks and copyrights. Thus, organization should ensure the
maximum realization of its existing portfolio which can be done through
effective portfolio management. Also, the organization should understand the
patent portfolio in tandem with its competencies and market opportunities
available. There is need to identify white spaces where the organization can
license its patent portfolio or divest to gain financial returns. A clear and
effective patent strategy can aid the organization to manage its patent
portfolio.
RISKS
INVOLVED IN INTELLECTUAL PROPERTY RIGHTS IN CORPORATE WORLD
In the King IV Reports[9]
which presents good corporate governance guidelines for companies, the term
‘Intellectual Property’ does not feature. Yet, it is perhaps the single most
important and valuable aspect of any modern business. The mismanagement of IP
assets introduces massive commercial risks for shareholders and directors
alike. In instances where a company does not have the luxury of having an
expert IP counsel on board, it is imperative that the directors are guided by
the expert advice of outside IP counsel.
Where companies are concerned, the
management of IP rights and assets are often left to mid- level managers and
general legal counsel who are not necessarily experienced in IP law. Monthly
reports are typically presented to the relevant board of directors and in many
instances decisions on how to proceed in matters relating to the formalization
of IP acquisitions and the implementation of statutory IP protection and
enforcement programs are not necessarily directed by the board, but rather at a
mid-management level. Important IP considerations such as transfer pricing,
exchange control regulations, appropriate valuations and IP due diligences are
often not addressed properly before commercial transactions are entered into.
IP laws differ from country to country and with South African companies
entering more international and indeed other African markets, the effective
strategic management of IP assets is dependent upon expert advice on pertinent
legal aspects in each jurisdiction concerned by expert IP counsel. It is
important that IP assets are valued, recognized and managed by the top
management level of a company to reduce commercial risks and ensure that the
company’s IP development, protection and commercialization strategies are in
line with the commercial strategy and objectives of each company and group of
companies (for larger organizations).
INTELLECTUAL
PROPERTY WITH STARTUPS
Traditionally,
IPRs were not critical to Mergers & Acquisition deals except for Intellectual
Property intensive industries such as the pharmaceuticals. Under a broad range
of Mergers & Acquisitions transactions, IPRs were considered to be
intricately woven to the business and its revenues and therefore were not
evaluated separately. Moreover, the onerous task of valuing it added to the
reasons due to which IPR did not have a major role to play in Mergers &
Acquisition.
However,
IPRs have evolved to become one of the most significant assets of M&A
deals. The enhanced liquidity, encouraging transactions in the patent market
and the sophisticated system of patent evaluation, have added to the importance
of IPR in M&A. IP adds value to a company as it signifies ownership and, in
most cases, it represents exclusivity in terms of right to use a unique idea or
creation. IP becomes the means of maximising returns and also reflects the
inventions and innovations of a company which could potentially be a
sustainable advantage over the competitors. Especially in case of high-tech
companies, its primary and most cherished assets are their ideas and the IPRs
that protect their ideas such as patents, design, copyrights and trademarks.
IP acts as a major
negotiating factor for start-ups to leverage the best deal possible when it
comes to M&A. The longer the list of IP registrations in one's name, the
higher are the chances of bringing in the big bucks. Acquisition of Indian
online travel booking company Yatra by Ebix through a merger deal of whopping
337.8 million dollars in 2019 forms a prime example of the same. It gives the
start-up, an unfaltering competitive edge as IPRs are the embodiment of
inherent uniqueness and creativity present within the company. A company's
prudence and skill to create and maintain IP, mirrors its potential to become a
desirable acquisition for an investor. The desirability and the competitive
edge then further add to the value of the start-up. A strong base in IP for any
start-up, projects a promising market value that it can attain in the future.
In a report
published by the World Intellectual Property Organisation (WIPO) in 2017[10],
it was revealed that "1/3rdof the value of manufactured products traded
around the world comes from "intangible capital", such as branding,
design and technology." Therefore, IP is a crucial asset and an
all-encompassing stimulus for investors.
Brand
Finance's Annual Global 500 report of 2020[11], ranks
Amazon as the most valuable brand at a staggering 220 billion dollars followed
by Google and Apple in the second and third positions at highly impressive
figures of 160 billion and 140 billion respectively. The cherry on top is the
fact that there is no upper limit on how valuable a trademark can be and is
fairly proportional to how well a company is doing in the market. Likewise,
other IPRs such as copyrights, design registrations, patents etc. also result
in value addition where patents are inherently valuable and do not even depend
on the performance of the company to ascertain its value.
Companies
whose products enjoy IPR protection have obvious benefits such as augmented
sales and profits on account of its novelty. Protection provided by IPR
prevents disintegration of the company's individuality and lowers risks and
losses that may occur due to it. Moreover, owing to the fact that, protection
of one's brand, idea and creation through IPR reflects a certain level of
prudence and intelligence, it is completely safe to make the assumption that
such start up owners will make for highly reliable partners.
Given the
current scenario, investors look to put their money in start-ups that are
distinct and innovative with a competitive edge. The same is achieved through a
broad range of Intellectual Property Rights (IPR) that consolidate all the
protection the start-up requires, in order to make its intellectual property a
Unique Selling Proposition. Therefore, as Warren Buffett once famously said
"In business, I look for economic castles protected by unbreachable
'moats' ". The term economic moat popularised by Mr. Buffett is nothing
but a competitive advantage that a company possesses where IPR then invariably
becomes a strong contender. Hence, simply put, IPRs deserve all the protection
they can get. Securing IPRs in a timely manner can positively improve the
chances of attracting investments and hence pave the way for major returns in
the name of the company.
CONCLUSION
/ SUGGESTIONS
From the
cases discussed we can clearly see that in India trade secrets have been
protected using common law principles like equity and fraud. In most cases of
these they have been refereed under Section 27 of the Indian Contract Act.
Relief claimed in these cases, are enforcement of Non-Disclosure Agreements
between the employee and the employer. The courts have been very reluctant to
enforce covenants, which put post-employment restrains on the employee. The
courts have seen these cases as a clash of two interests, the right to
livelihood of the employee and right to make profit of the employer. So it is
quite clear from these cases that the courts have try to protect the interest
of the employees rather than the employer and in all these cases the court has
taken a different stand in the circumstance of the respective case there is no
uniform rule. This is where the problem starts when there is no uniform rule
you cannot be sure of in which direction the court may lean on, this
apprehension discourages development of ideas and Investment by companies in
areas where they can protect their Intellectual Property through investment but
if we have policy like a legislation this will give a uniformity for protection
of Trade Secrets then the courts will have to be bound by the legislation.
[1] wipo.int
[2] mondaq.com
[3]
https://www.wipo.int/edocs/lexdocs/laws/en/us/us034en
[4] (2006)III LLJ 540(Del)
[5] 60(1995) DLT 757
[6] AIR 1987 Delhi 372
[7] 97 (2002) DLT 257
[8] m.economictimes.com
[9]
https://kpmg.com/za/en/home/insights/2016/10/king-iv-report-on-corporate-governance-for-south-africa-2016.html
[10]
https://www.wipo.int/edocs/pubdocs/en/wipo_pub_941_2017.pdf
[11]
https://brandfinance.com/wp-content/uploads/1/brand_finance_global_500_2020