Intellectual Property Protection In India – The Key To Robust Commercial Agreements
Intellectual property rights (IPR) enable authors, artists, designers, inventors, and other IPR users to benefit when others use their creations and inventions. Intellectual property rights promote innovation and creativity, which in turn generates jobs and improves competitiveness. An attractive, affordable, and efficient intellectual property rights system is required globally to compete. This is particularly important for small and medium-sized enterprises, who do not have the same resources to manage their IP portfolio as bigger companies.
International Aspect of IP protection
As per the United States Trade Representative (UTSR) 2023 special 301 report India remains on the Priority Watch List in 2023. The report emphasizes concerns about copyright protection in India, urging the need for amendments to implement the WIPO Internet Treaties fully. Stakeholders report issues like unauthorized file sharing, signal theft, and circumvention of protection measures. It highlights about the challenges in trademark examination quality in India and the absence of specific laws addressing trade secret protection. It highlights the need for legislation on trade secrets and improvements in trademark opposition proceedings.
However, according to the UTSR report, over the past year, India made meaningful progress in promoting IP protection and enforcement in some areas and took steps to improve long-standing issues with trademark infringement investigations and patent pre-grant opposition proceedings. India has also made progress in engaging on its copyright provisions given commitments under the WIPO Internet Treaties. The expansion of Intellectual Property Divisions at the High Courts also had taken place. The Delhi High Court established an Intellectual Property Division to handle matters related to IP in July 2021. This was followed by the Madras High Court establishing an Intellectual Property Division in April 2023 and the Calcutta High Court notifying draft rules in December 2023 to establish an Intellectual Property Division shortly.
In March 2024, India addressed various stakeholder issues, including the costs and time associated with pre- and post-grant oppositions, complicated criteria for applying for divisional patents, and expensive patent reporting requirements. These concerns were addressed by finalizing the Patents (Amendments) Rules, 2024. Although some concerns remain, the revisions are intended to improve the efficiency of the patent system and reduce the current constraints on patent applicants. The United States has expressed its intention to monitor the implementation of these amendments closely, particularly regarding Form 27, which pertains to the working of patents. The U.S. encourages India to continue advancing these and other reform efforts to further reduce patent pendency times and improve the overall patent system for all users. This monitoring and encouragement highlight the importance of international cooperation in strengthening intellectual property systems globally.
Development in India regarding the IP protection:
In 2016, India adopted its first National Intellectual Property Rights policy. Today, the Department for Promotion of Industry and Internal Trade (DPIIT) oversees the portfolios of Patents, Designs, Trademarks, Copyright, Geographical Indications, and Semiconductor Integrated Circuit Layout Design. The DPIIT’s Cell for IPR Promotion and Management is in charge of carrying out India’s National IPR Policy. It leads the Indian government’s efforts to streamline IP processes, raise IP awareness, encourage commercialization, and strengthen enforcement.
DPIIT, in collaboration with the Federation of Indian Chambers of Commerce and Industry, has launched an IPR enforcement toolkit to assist police in dealing with intellectual property crimes, particularly counterfeiting and piracy. The Maharashtra IP Crime Unit (MIPCU), formerly the Maharashtra Cyber Digital Crime Unit (MCDCU), was formed in August 2017 as a public-private collaboration to allow industry to collaborate directly with state authorities to combat IP theft on digital platforms, including digital piracy. The Unit is a viable model for digital enforcement that other Indian states can follow and replicate. [i]
The Ministry of Education’s Innovation Cell has also taken initiatives to encourage innovation and increase intellectual property literacy and awareness in classrooms nationwide.
Some businesses are more innovative and have more creative ideas than others. Intellectual property (IP) protection is critical for any organization or business, regardless of size; when IP is protected and handled properly, it can become a significant commercial asset. This includes significant inventions and patents, as well as copyrighted original works like written works, trademarks, logos, etc. When intellectual property is shared with outside parties, it risks being misused or infringed. For example, sharing your company logo with a third party may result in the third party misusing the emblem and harming your brand. Even if you believe a third party would use your IP in good faith, IP protection through IP clauses is critical in commercial agreements.
Need of Intellectual Property Clause (IP Clause) in Agreements
Protecting intellectual property through commercial agreements is critical for preserving its value, maintaining competitive advantages, preventing misappropriation and infringement, and preserving brand reputation. Businesses become confident that their intellectual property assets will be safe by inserting strong IP protection clauses in their agreements.
It is very crucial for the contracts involved in businesses of creation, use, or transfer of IP such as Joint Venture Agreement, Non-Disclosure Agreements (NDA), Technology Licensing Agreements, Trademark Licensing, Copyright License Agreements, Invention Assignment Agreements and Software Development Agreements, etc. Thus, neglecting to include robust and thorough IP-centric terms creates grey areas and loopholes, potentially resulting in serious IP misuse (both deliberate and inadvertent) as well as enforcement issues against defaulting parties.
Advantages of IP protection clause:
IP protection clause in commercial agreements provides security to the business for trade and expansion without fear of infringing. Further, it provides competitive advantages as intellectual property tends to be what distinguishes the company from the competition and provides a competitive advantage that can propel the business forward. Creating a brand and/or product that people come to admire and recognize will keep them coming back for more, thus it helps to maintain customer loyalty. The ability to control and license intellectual property offers up new revenue sources and ways of doing business, while also allowing businesses to maintain control and enhance their reputation. Intellectual property, like any other asset, can be used as collateral to get funds for business growth, thus it also helps in raising funds.
There are various types of IP Clauses to protect IP in commercial agreements:
These clauses outline the rights, obligations and constraints relating to the use, ownership, and protection of intellectual property.
- IP ownership clause: Identifying who owns intellectual property developed or utilized under an agreement is crucial. This may include indicating whether the intellectual property rights belong solely to one party or are jointly owned. IP terms regarding ownership can also prevent issues around newly developed intellectual property under a commercial agreement.
- License Grant clause: It is critical to specify the scope, duration, geographical area where the IP can be used, and limitations of any intellectual property licenses provided through commercial agreements.
- Confidentiality and NDA clause: It ensures that any confidential information, including intellectual property, discussed between the parties remains confidential and is not divulged to third parties. It often includes parties’ obligation to secure the information and terms of confidentiality obligation.
- Assignment of IP clause: It ensures that if a business party transfers its intellectual property to another, the assignment must be documented and follow all necessary formalities to be legal. Otherwise, the assignment of IP could be ineffectual and create long-term damage.
- Audit and Monitoring Clause: It grants one party with the right to audit the other party’s compliance with the agreement, notably regarding the use or protection of intellectual property (IP). Audit rights enable the company to determine whether the other party is utilizing IP in accordance with instructions and not for any other purposes.
- IP Infringement Indemnity clause: It defines the indemnification obligations in the event that the party uses the other party’s IP, leading to infringement claims. It ensures that the indemnifying party is obligated to defend against infringement claims and the process for handling infringement claims
- Dispute Resolution clause: It ensures the procedures to be taken in the event of an intellectual property infringement or dispute. It could include rules for dispute resolution processes like arbitration or mediation, as well as remedies or fines for violating intellectual property rights. This paragraph specifies the resolution process for intellectual property disputes.
Common IP centric issues in commercial agreements:
- Ambiguous ownership of IP- The ambiguity of intellectual property ownership is a common source of disagreement in commercial agreements. When parties collaborate, they may create new IP or alter existing IP. Without explicit terms, disputes over ownership of these new or changed assets may occur. Uncertainty in ownership can lead into legal battles, restricted use of critical intellectual property, and hampered corporate operations.
Thus, Agreements should explicitly identify who owns the intellectual property developed during the collaboration. This involves identifying who owns any new intellectual property and what rights each party has to utilize and market it.
- IP registration by Partners– In some circumstances, local partners may register the IP under their own names beyond the scope intended by the franchisor and without the franchisor’s permission. This activity, known as “IP hijacking,” has the potential to seriously harm the rights of the original owner. The franchisor may lose control of its intellectual property, potentially leading to market exclusion and costly legal challenges to restore their rights.
Therefore, the agreement should expressly ban illegal registration. Franchisors could also consider pre-emptively registering their essential intellectual property in appropriate jurisdictions to avoid such complications.
- Unauthorized use of IP– Unauthorized usage of intellectual property is another common issue. This occurs when one party uses the other’s intellectual property beyond the scope agreed upon in the contract. Unauthorized use can reduce the brand’s value, generate market confusion, and result in serious financial and legal consequences. Detailed clauses in the agreement are required to avoid such unauthorized usage of IP. These should describe allowed applications, clearly define misuse, and outline sanctions for illegal use.
In Yves Saint Laurent (‘YSL’) Vs. Brompton Lifestyle Brands Private Limited (‘Brompton’) and Ors, the Plaintiff, Yves Saint Laurent (YSL), seeks an injunction against Defendant No. 1, Brompton, for trademark and copyright infringement and passing off. Defendant No. 2, Beverly Luxury Brands Limited (‘Beverly’), had entered into a Franchise Agreement with YSL on April 19, 2019, granting Beverly a non-transferable right to operate a “Saint Laurent” boutique at The Chanakya Mall, New Delhi. This agreement has been terminated, yet Brompton continues to operate the boutique using YSL’s brand.
Brompton, not a party to the Franchise Agreement, claims authorization based on a Supply Agreement with Beverly. The Supply Agreement granted limited rights to Brompton to use the YSL marks, contingent upon the Franchise Agreement. The court found that Beverly had no right to transfer these rights to Brompton without YSL’s consent, which was never obtained. Thus, Brompton’s continued use of the YSL marks is unauthorized.
The court held that Brompton is not a “permitted user” of the YSL marks. The Franchise Agreement explicitly prohibited Beverly from sub-licensing or transferring its rights without YSL’s prior consent. As the Franchise Agreement has been terminated, any rights Beverly had to use the YSL marks have ceased, and Brompton’s use of these marks constitutes infringement under Section 29(1) of the Trade Marks Act.
The Hon’ble Court concluded that a prima facie case of trademark and copyright infringement and passing off is made out against Brompton. The balance of convenience lies in favor of YSL, and if Brompton is not restrained, it would cause irreparable harm to YSL. Therefore, an interim injunction was granted, restraining Brompton.[ii]
The franchise agreement, which included the IP-centric provisions, strengthened YSL’s case, even in relation to a sub-franchisor with whom it had never directly entered into an agreement, and allowed for a simpler and more straightforward enforcement without the need to prove or disprove knowledge of the additional supply agreement.
- Inadequate IP Protection Measures- Many agreements lack particular measures to protect intellectual property, such as secrecy clauses or monitoring procedures. This neglect leaves intellectual property exposed to theft or misuse, resulting in significant financial and reputational loss.
- Unclear Licensing Terms- Vague or too wide licensing terms can lead to misunderstandings regarding the rights provided, perhaps leading to misuse or overuse of intellectual property. Misunderstandings and potential legal problems over the scope of IP usage rights.
- Handling of IP upon Termination– Agreements sometimes lack explicit arrangements for how IP will be handled when the contract expires, resulting in confusion and litigation. Conflicts over the use and return of intellectual property assets may jeopardize corporate operations and relationships after the termination. To mitigate such issue, specify the method for surrendering or destroying intellectual property materials, as well as any continued rights or limits after termination. This promotes a smooth transition and reduces the likelihood of confrontation.
In Lakme Lever Pvt. Ltd. (‘Petitioner’) vs. Annapurna Enterprises and Ors. (‘Respondent’), Respondent continued to use of IP including trademarks, artworks, signage, outlet layouts etc., despite termination of the franchise agreement. Though, the franchise agreement contained explicit provision as to what is to happen upon termination such as to cease operations of the salon, to cease using the Standard Operating Procedures, to cease holding itself out of as a franchisee, and to stop using all the Petitioners’ various valuable brand names, logos, devices, marks, insignia, procedures and methods. They were also to remove all items and materials with the Petitioners’ trademarks and destroy all signs, advertising materials, stationary, invoices, forms etc. Thus, the Hon’ble Court was of the view that there was ample prima facie case and the balance of convenience is undoubtedly with the Petitioner. The Hon’ble court directed the Respondent to deposit the sum equivalent to the outstanding dues as significant prejudice and injury has been caused to the Petitioner.[iii]
- Technology changes and Update- Agreements that are not updated to reflect technical improvements or changes in IP may become obsolete and ineffective. Outdated terms that do not safeguard the present state of the IP, making it vulnerable to new hazards. Such issue can be avoided by including provisions for periodic review and update of the agreement to reflect changes in technology or intellectual property legislation. This guarantees that the agreement is still relevant and effective.
Conclusion
To protect intellectual property assets and allocate risks effectively, commercial agreements must include robust IP clauses. An intellectual property (IP) protection clause provides critical security for businesses, enabling them to trade and expand without the constant fear of infringement. This protection is critical since it protects the company’s unique creations and ensures they are not illegally utilized by competitors. Such security creates an atmosphere in which firms can confidently innovate and develop.
IP protection provides major competitive advantages. Intellectual property is frequently one of the distinguishing features that differentiates a company from its competitors. These components, such as brand names, logos, patented technologies, or exclusive designs, give businesses a competitive advantage. This uniqueness not only attracts clients, but also moves the company forward by emphasizing its innovative capabilities. Creating a distinctive brand or product that people admire and trust is essential for retaining their loyalty. Strong intellectual property protection guarantees that the company’s brand identity and goods remain unique, preventing competitors from undermining the brand’s value or confusing customers with comparable offerings. Customers are more likely to remain loyal to a trusted brand, resulting in repeat business and long-term success.
Moreover, being able to control and license intellectual property creates new revenue streams and opportunities for business. Businesses can create revenue from their ideas by licensing intellectual property rather than directly manufacturing or selling things. This flexibility can lead to strategic partnerships and increased market reach while preserving control over how the intellectual property is used.
However, there is no one-size-fits-all solution for designing intellectual property clauses in commercial contracts. IP clauses in a commercial agreement must be customized to each project’s unique IP aspects, taking into account the importance of IP and potential dangers. It plays an important role in large strategic collaborations, which also help the parties involved generate revenue. It is widely acknowledged that technology cannot exist in isolation; rather, it requires a combination of several other contributing components to make the ultimate result. As a result, intellectual property contracts serve as a tool to enable such transactions. A detailed grasp of the type of arrangement that a party wishes to enter into is important in assessing the liabilities that will be assumed by them. For businesses, particularly small enterprises and alliances, it is critical that the legal resource has a thorough understanding of the agreements and contracts that define ownership, assignment, and authorization of the intellectual property they develop or hold.
IP protection in commercial agreements is a cornerstone for business security, competitive advantage, customer loyalty, revenue diversification, and financial growth. It not only safeguards a company’s unique assets but also empowers it to innovate and expand confidently.
[i] India – Protecting Intellectual Property (trade.gov)
[ii] https://indiankanoon.org/doc/71333812/
[iii] https://indiankanoon.org/doc/19930116/