The fact that the Information Technology (IT) industry is the “sun-shine” industry of India, credited with putting India on the global map as far as software services are concerned, is wellacknowledged. This success story is attributed to a variety of factors. The1980s saw the formulation of a vision statement for promotion of the software industry, while the 1990s and 2000s witnessed the emergence of software technology parks and establishment of Ministry of Information Technology, respectively. These concerted efforts of the Government backed by private initiatives and public-private partnerships ensured the consolidation of the industry. In the early days, the IT industry came up as a purely services industry, the prime focus being on servicing the developed world. Soon India became a preferred destination for global companies looking to offshore their IT functions. The low-cost advantage in combination with the business environment and the availability of skilled work-force ensured the success of this model. India began to be referred to as the “Call Centre of the World” in reference to the Information Technology Enabled (ITES) Services or Business Process Outsourcing (BPO) Services. The subsequent maturing of the Indian software industry was enabled by a supporting government policy coupled with innovation in technologies. These changes favoured the domestic enterprises which were engaged in providing programming services. Eventually, the IT industry graduated from being a mere “support activity”. These sweeping policy and technological changes later encouraged entry of transnational players and led to higher value-added output for the industry.
India’s most prized resource in today’s knowledge driven economic order is its vast technical work force. India has the second largest English-speaking technical professionals in the world, second only to USA. This immense talent pool in the IT sector is demonstrated by the fact that every major MNC has set up an R&D facility in India. Efficient utilization of the skilled labor force has certainly helped the Indian IT sector in achieving its meteoric rise. Domestic entrepreneurship has been another
critical factor for evolution, survival, and innovation of the Indian IT industry. The initial start-up costs in the IT sector are invariably low and “economies of scale” are not crucial. The low entry barriers have helped a number of technical professionals to “start up” on their own. Infact several leading software enterprises were started by first generation entrepreneurs. For instance, Infosys, Mastek, Polaris, among several others, were started by software professionals and engineers at modest scales. In this connection, the contribution of Indian Diaspora in facilitating entrepreneurship in Indian IT sector is also worth mentioning. Recent studies indicate that entrepreneurs located outside the “software hubs” in India rely significantly on diaspora networks for business leads as well as financing. Although, it has to be remembered that benefits from the diaspora accrue to only those entrepreneurs who have lived abroad and returned to India. With the cost-advantage and the vast pool of skilled professionals having driven the success of Indian IT Industry, time has now come to focus on how to maintain this growth. The players in the IT sector will have to concentrate on innovation in order to remain competitive and to continue to move up the value chain.
The question which arises is as to what is the role of Intellectual Property (IP) Rights in ensuring the future growth of the Indian IT sector? Needless to add, IP Rights have a significant role to play in a cross-section of industries by protecting innovation and encouraging further innovation for the future. The ideas and products emerging from the R&D laboratories have to be effectively protected and converted into valuable IP assets. Effective protection and management of IP rights (patents, trademarks, industrial designs, copyright) is the key to survival and growth. Consequently, IP management has emerged as a major area of business competence. It is as critical as understanding technology, marketing, finance, corporate governance and other critical functions. Thus, the case for incorporating ‘IP strategy’ in the over-all business strategy has never been stronger! There are two chief mechanisms of IP protection for the software industry, viz., copyright and patents. While patents protect the software code, copyrights protect the expression of the code as “literary work”. These two are the ‘Primary IP Rights’ as far as IT is concerned. Simply stated, the copyright laws prevent copying of the software, and patents prevent making, using, selling of the invention, albeit for a limited period.
The global product industry is immensely dependent on IP rights. Be it pharmaceuticals; consumer products; textiles; or entertainment, IP protection affects myriad sectors. The global IP system was designed to ensure a creator’s or inventor’s monopoly on the use and sale of the creation or invention. The purpose is to enable the inventor to benefit from the monopoly for a certain time period, after which the property falls into the public domain. Different jurisdictions have defined different parameters for patentable and non-patentable software. The US Patent and Trademark Office (USPTO) comes across as most flexible when it comes to granting of software patents. The European Patent Office (EPO) considers computer implemented inventions patentable if they provide a “technical contribution to the prior art”. The UK and Japan also allow patents for software innovations.
Coming to the issue of privacy, in 1980, the OECD issued guidelines on international policy for the protection of privacy in computerised data processing. The privacy guidelines, otherwise known as Guidelines on the protection of Privacy and Transborder Flows of Personal Data were adopted because of OECD Council’s recommendations keeping in mind the three principles of: democracy, respect for human rights, and open market economies. This was recently followed by the Ministerial Declaration on the protection of Privacy on Global Networks at the 1998 Ottawa Conference. As a matter of fact, India was the 27th nation to join OECD in 2001.
In the year 1967, WIPO was formed to centralise the world’s patent and copyright information. Additionally, WIPO has the mandate to promote adherence to IP rights amongst member countries. Not surprisingly, it is seen as the “global champion” of IP protection. With the formulation of the TRIPS Agreement in
1994, WIPO’s position was strengthened. The TRIPS Agreement introduced IP law into the international trading system and for the first time the member countries acknowledged that the protection of IP rights is central to ‘free trade’. However, the issue of patentability of software under TRIPS Agreement has been a subject of debate, particularly whether software and computer-implemented inventions can be considered as a field of technology.
For protection of software-related inventions, the Patents Amendment Act 2002 was enacted, which came into force in May 2003. The said Amendment Act introduced section 3(k), which for the first time indirectly made certain aspects of computer program related inventions patentable. Section 3(k) of the Patents Act reads: “A mathematical or business method or computer programs per se or algorithms are not patentable”. This provision has given rise to open-ended debate on software patents. A plain reading of this provision raises the question that if a computer program per se or by itself is not patentable, then what should be incorporated in order to make it patentable? However, the debate is without teeth if you look at the legislative history behind section 3(k), even in the absence of any case law. The Joint Parliamentary Committee chose to insert the phrase “per se” to address the patentability of inventions relating to computer programmes to emphasize that it is not the intention to exclude the other things which are “ancillary thereto” or “developed thereon” with respect to computer programmes. It is evident that the Indian Parliament was not in favor of rejecting software technology inventions in totality, but only wanted to distinguish such inventions from the underlying computer programmes per se. Therefore, the answer to this is that software per se other than its technical application is not patentable. Thus, software can be registered as a patent in India, only if it is in combination with hardware, is novel, has a technical effect (solves a problem), and has an industrial application. This interpretation also makes India compliant with article 27 (1) of TRIPS. of patenting of software is growing, and increasing number of IT companies in India are investing in R&D to develop patents, in particular the software product companies now have an IP business strategy in place.
The Indian copyright law is one of the most modern copyright protection laws in the world. Traditionally, software has been protected as a literary work under copyright, which prevents illegal copying of the software. The licensee is granted a license to use the software subject to certain conditions. It should, however, be borne in mind that copyright is available only for expressing the creative work, and not the concept! Thus, the copyright protection of software will depend on the software code or the source code used and the methodology adopted in creating the software. There is no restriction on creating a new source code. Essentially, copyright infringement will occur in the means of copying the software and distributing the copyright work.
The Copyright Act 1957 contains special sections dealing with software protection. The Act defines “computer” and “computer programs”. The expression “Literary work” is defined as that which includes computer programs, tables and compilations, including computer databases. “Author”, in relation to literary work which is computer generated, is the person who causes the work to be created. Therefore, copyright subsists in a computer program, provided sufficient effort or skill has been expended to give it a new and original character.
The last decade of the twenty-first century was a particularly successful period for the software and related entities in India. However, despite the capabilities, resources and experience, the Indian IT industry’s global share is not encouraging! From a purely legal perspective, there are several challenges facing the Indian IT Industry.
Studies suggest that a large proportion of the Indian population is unaware of the concept of IP Rights, IP infringement, and IP related legislations. As a consequence, most Indians are involved in IP infringing activities. On the face of it, this issue can be addressed by channelizing more resources towards imparting public education on the significance of protecting the IP Rights. This will entail conducting more workshops, seminars and other interactive programs to enhance public awareness. Once public awareness and attitude towards the protection of IP Rights improves, the IT industry as well as the economy in general will be strengthened. Interestingly, the level of IP awareness, in particular of patents, among software companies in India is also very poor. This awareness is said to be limited to the legal/IP division of the company. Consequently, there is a need to educate the employees as well about the importance of IP so as to leverage the same for the business!
Today IP is a valuable corporate asset as well as a strategic tool. The Indian IT sector can take a cue from the transnational corporations who actively manage IP as a key driver for building and sustaining competitive advantage. This calls for putting in place a strong IP strategy, encompassing a two-fold approach viz., creating IP; and monitoring IP. Creating IP pertains to using all the possible IP tools (patents, copyrights, trade-secrets); spreading IP awareness amongst the employees; utilizing talent pool and cash reserves to innovate and create IP. Next comes monitoring IP, which pertains to carrying out regular IP valuation and auditing. In fact this includes not just monitoring own IP, but also of others’. While the former helps in bringing in awareness about possible IP infringements by competitors, the latter provides useful insight into the IP strategy of competitors, thereby generating ideas for further innovation.
With the advent of information technology, counterfeiters and those indulging in piracy have acquired sophisticated skills thereby extending their reach beyond national boundaries. Piracy and counterfeiting are now a global phenomenon, requiring global action. According to global organization Business Software Alliance (BSA), India’s piracy rate for 2009 stood at 65%, a drop of 3% points from the year 2008, causing a loss of over USD 2 billion (approx. Rs. 9000 crores). NASSCOM defines software piracy as that which “involves the use, reproduction or distribution without having received the expressed permission of the software author”. Broadly speaking, software piracy is of five types. The first is ‘end user piracy’ which occurs when software users install the software on more machines than they are authorized to in terms of their license agreements. The second is ‘hard disk loading’ which occurs when computer dealers install illegal copies of software onto computers prior to their sale. The third is ‘software counterfeiting’ which involves illegal reproduction and subsequent sale of software in a form that is substantially similar to the original product. The fourth is ‘retail piracy’ which involves sale of pirated software on a retail level. The fifth is ‘Internet piracy’ which occurs when individuals place unauthorized copies of software on the Internet for downloading. Piracy is described as a menace since it is beneficial to none! On one hand, the users, individuals as well as corporates are exposed to the legal, financial and security risk due to piracy and the mitigating costs; on the other hand, the industry loses its valuable R&D investments, the Government loses an opportunity to collect taxes, not to mention the loss of new IT Jobs, impacting the overall contribution of the IT Industry to the GDP.
It cannot be denied that individuals and companies fuel the piracy market. Since pirated software is cheap or free, it is difficult for certain individuals and entities to pass the opportunity. In countries like India, there exists a basic cultural indifference bordering on contempt for the “rights of creators”. Respect for IP in software products will certainly go a long way in developing a secure environment for the IT players in the country.
The Indian IT Industry needs to focus on creation and protection of IP in order to sustain its phenomenal growth. In fact, it can gain competitive advantage by implementing the necessary mechanism to protect IP. Additionally, the IT industry should focus a lot more on the transformation of new ideas into commercial successes which is vital for the economy to achieve greater global competitiveness. Hence, special emphasis must be given to the technological factors of innovations. There are a few international legislations like ‘Directive on Personal Data’ and ‘Protection of E-privacy’ from which India can learn and also adapt certain technical aspects. A regime which maximises the incentives for protection of IP by the IT companies is the need of the hour. This would provide a strong, supportive and comprehensive policy environment for better commercialization as well. Having said that, the government too needs to encourage innovation as well as ensure better enforcement. Though few government organisations have their own IP cells, it is desirable that the Government comes up with a state-aided central forum which would work exclusively on IP awareness. Encouraging programmes and workshops to train IT professionals involving experienced members of the legal fraternity would certainly help in this direction.
There are some more significant issues which need to be urgently addressed. For instance, compliance with the international obligations concerning IP laws; identifying the role of custom authorities in controlling IP rights infringements; encouraging civil litigation to counter infringements; and the use of computer evidence to track and prosecute IP offences, to name a few. The representatives of IT industry are coming forward and sharing their perspectives on the enforcement of IP infringements. But we still have a long way to go! The significance of creating and sustaining an environment where IP owners do not suffer as a consequence of infringing activities cannot be over-emphasised
Developing software in IT industry is the creative input and output of the software developer. In the developed jurisdictions, they have developed a kind of “common sense” that the plaintiff’s rights are to be protected and this common sense is attributable to vision, imagination and breadth of view that we could adopt all good practices of various jurisdictions. That has been the most fundamental achievement of our system at the conceptual level. If we go to the lower level, there has been a time revolution and a remedy revolution. The former is the fact that five years ago, a law suit used to take ten years and it would be rare to say that a law suit would take anything less than five years. Today, there are about twenty orders passed by the Delhi High Court where the court orders that the entire evidence be recorded within 3-4 months. The courts have also gone ahead and limited the hours of cross-examination. However, we must remember that we need to sustain this i.e. it has to continue. Also, the remedies have undergone a revolution.
Employers and employees in the IT industry need to be taught that the creative process has to be respected. At the same time, it is also important for the citizens of the country to respect it. Respect someone who has developed a particular software and do not detest him for making money. Perhaps that is where the fundamental flaw exists in our system. Throughout the world, it is only practical to believe that the State plays a very limited role in creating awareness of IP. At the end of the day, it is for the private parties and the IT industry associations who are the owners of the IP Rights to shoulder the responsibility of promoting awareness in the IT industry and beyond.
For the Indian IT Industry to grow and maintain its competitiveness, domestically and globally, moving beyond the services model to the software product model is crucial. This in turn will be hugely dependent upon their ability to innovate and generate intellectual property (IP), to actively protect the innovations under the laws, and to use IP as a strategic business asset & tool. IP is one currency which undeniably opens up the doors of newer markets, provides a level playing field with larger players, fosters collaboration and technology transfer, and gives an opportunity to reap back the R&D investments by way of economic benefits. It is a fact that majority of the IT companies are not aware that software (computer programmes) are patentable under the patent laws of India. Most of them have a misconception that the Indian laws prohibit protection of software technology in “totality”. The scenario started to change around 5 years back when the realization dawned that the valuable software innovation was indeed protectable, albeit upon fulfilment of certain conditions and criteria of patentability. However, much work needs to be done to enable patenting as a way of business growth and strategy in the domestic IT sector. Currently, the Indian software product market size is only USD 1.64 billion, although the potential and opportunity is far larger. The lessons learnt from the size of global software product industry and the value of IP have majorly contributed to the industry’s growth and success and this is no secret. With protection of IP in software comes the need for enforcement in order to prevent violation. Software piracy remains a huge threat to the domestic IT industry and the nation as whole. It is clearly in the economic interest of India to focus on reducing software piracy in a systematic way and to incentivize local innovation. As per the IDC-BSA Study, reducing the 65% software piracy rate in India (as estimated in 2009) by 10 percentage points over four years would create over 59,728 high-tech jobs, USD 4.6 billion in new economic activity, and close to USD 512 million in new governmental taxes by the year 2013, with 76 percent of those benefits expected to remain in the local economy. This study clearly demonstrates that a slow pace in software piracy reduction affects the overall economic growth of the IT industry in India and de-incentivizes local product companies’ innovation efforts. Needless to say, use of genuine software is in the benefit of all and there must be a concentrated effort by Government, consumers and the industry to reject, prevent and attack piracy!
In the IT industry, confidential information is stored as information which comes with the confidence of the creator or inventor that it would not be used for a purpose other than for which it has been entrusted. Therefore, whenever there is a breach of this trust, the consequences of breach of trust known to the statutory law and the common law will be triggered. Therefore, in case of data or electronic information, if it is at par with the movable property, any intentional misuse or negligent use of that property will visit with both civil and criminal consequences apart from tortious liability.
Yes, there is a need for a specific legislation, but it will have to be a focused exercise and that would be essential for a particular class of persons, for e.g., the IT industry. A single legislation would definitely be a good idea because then the industry would have to look at only one law, and not a variety of laws.
What do you think about the enforceability in matters where IP is concerned, particularly in the context of Alternate Dispute Resolution? Traditionally speaking, Intellectual Property Rights are registered and protected nationally as per the respective jurisdictions. However, when a party starts using Intellectual Property Rights, they often go cross-borders. One then needs to see the difference between the national character of the enforcement of the Intellectual Property Right on one hand and that in relation to commerce internationally, on the other. Now, the question that arises is how do you do the prevention? You can think about staying out of court by using methods like mediation and arbitration, in which case you do not have to go to one or even more courts which can take a lot of time and in some cases create uncertainty. Hopefully, you can find Dispute Resolution Models which are close to Business Models themselves, which, in other words, look for business and efficiency rather than long drawn justice.
Well, I think that the information about the legal options has become increasingly important. In my view, it is critical to demystify the legal procedure and the substantive law. Commerce is crossing borders and today it includes increasing numbers of smaller companies, individuals, small and medium enterprises, companies from emerging and developing economies and also companies from large jurisdictions. Hence, it becomes more important to democratize the means of legal communication of these parties and as you rightly note, communication about the information as to what is the available option plays a pivotal role. I think that the critical responsibility for any legal system, government and the lawyers themselves is not to make the legal options look so complicated that the parties are prohibited or discouraged from enforcing their rights. I also think it is very important that the world of Intellectual Property, courts, legislation are simplified so that instead of speaking the legal language we translate whatever is relevant in “legal terms”. To give an example, when we talk about the use of mediation and arbitration clause in an agreement, we should not merely say what is meant by arbitration, but we should also provide a simple “model clause”. The courts can also help by saying “Would you parties who have come to me as the judge like to try for mediation and this is what mediation means and this is how you do it” instead of looking to “battle out” everything in the court. The courts can indeed help themselves as well as the parties by offering and facilitating a lighter way of resolving the dispute which need not be the long term expensive justice, but which comes much closer to the needs of the parties and helps them to get on with the business!
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