Lex Orbis
Manisha Singh Nair
manisha@lexorbis.com

The space of IPR in business partnerships

Companies wanting to tap into the huge Indian market potential invariably want a well-connected partner with profound knowledge of the local market rather than going alone. The partnership or collaboration runs smoothly or is relatively simpler and easier when such cooperation is carried on a purely contractual basis and no strategic know-how is involved. The risks associated with such a type of cooperation are fairly limited and easy to manage, however in situations where there is a transfer or supply of technology and know-how between the business partners then there arises a need that the associations should be planned and managed very thoroughly. The instance of technology transfers between partners in business cooperations, either involving equity participation or a client-vendor relationship, calls up for a strategic placing of the key factor – intellectual property rights (IPRs). The IPRs previously owned by either of the partners and/or any IPRs developed during the continuance of the business relationship must be specifically provided for with respect to their ownership and usage.

Legal framework for protecting IPRs must be used

India operates a system of registration of IPRs and is a signatory to various international IPR treaties. Thus the avenues available to a foreign company to protect their IPRs are typically the Indian legal and procedural framework on registering and enforcing the IPRs. A step that can be taken by a foreign investor is to conduct an audit to identify what of its IP will be exposed to the Indian market and then taking appropriate measures, including the registration of their IPRs with the Indian authorities and also mentioning it through a properly-worded clause in the joint venture or service-level agreement. Separate documentation ancillary to the ‘agreement’ may also be executed, such as a name and logo licence agreement (also known as a registered user agreement). In cases where the foreign partner contributes or licences IPRs to a joint venture or to any cooperation, a no-challenge clause may be considered whereby the licencee undertakes not to challenge the validity of the intellectual property right either directly or through any affiliated enterprise. Further, where there is no specific statute such as for trade secrets and/or know-how, contractual penalties and non-use obligations may be agreed in case of a breach of confidentiality. All such obligations should survive the termination of the agreement where possible.

Defence of intellectual property in unequal battles

IPRs are the driver of businesses in today’s knowledge economy. An oversight in protecting IPRs may result in ‘cold expropriation’. This is relevant when companies show bad faith in treatment of their business partner’s intellectual property in their home market and particularly in circumstances when the stand-off becomes a particular David versus Goliath match where there is every likelihood that skill and enterprise of the smaller firm may get eclipsed by the size of the bigger corporation. In the area of overseas outsourcing, which is an immense popular strategy to cut costs and refocus on the core competencies, vendor companies (often small firms) as they move up the value chain deliver services that frequently require them to deploy and develop software solutions. Depending on how well their client (the outsourcer) contracts clarify the subject, the software solutions developed for delivering business solutions could turn into bones of contention between the developers and the client, once the contract period is over.

One such incident was lately reported about a small Indian software company locked in a legal battle with an overseas outsourcer company over latter’s use of some proprietary software developed by the Indian firm. The overseas company had outsourced its IT needs to the Indian firm. The nub of the dispute between them is the piece of software developed by the Indian firm and licenced to the overseas company. This proprietary software of the Indian firm was modified by it to develop a document management software system- Quality Management Documentation (QMD) for the overseas outsourcer. Now that QMD can run only by using the modified version of the proprietary software of the Indian firm, the overseas company claims that since it paid for the development of QMD, modification of the software is automatically paid for while the Indian firm maintains that the software was separately licenced and the overseas outsourcer is obliged to pay a licence fee for the continued use of QMD using the modified version of the licenced software. The dispute, as reported, is now in the court abroad to decide upon the declaratory suit filed by the overseas company clarifying that it had nothing to pay as license fee to the Indian firm.

The success of a business relationship depends upon a clear, precise, and highly-detailed contract, which along with specifying financial terms also allocates risks, lays out quality benchmarks, anticipates potential problems and clearly establishes ownership of the pre-existing IP as well as intellectual property that is developed or improved during the course of the business relationship.

Need of a policy

Defined and clear-cut affirmative representations and warranties to safeguard IP in a business partnership is imperative. However, in situations where two organisations, pitched against each other in a fight over ownership of an IP are unequal in size and capabilities, then a space is apparently created for a policy that would let the smaller firms have an appropriate recourse against violations of their IP.