Intellectual Property Rights Contribution for Growth Of Foreign Direct Investment In India

India has become one of the sought after destinations for the investment in recent years due to the growing economy. As per reports, the Indian GDP is still growing at a rate of 6.5 percent in 2011-12 even after the recent slump in the economic growth. Being one of the biggest consumer markets in the world, it is always on the radar of investors and one of the sought after investment hub.

A new and growing brand is always looking for the market wherein its product has demand and India being a consumer market is always the best place to promote a new product. Many brands have established themselves in Indian market and are gaining out of it. Even with all these advantages, Indian markets also have certain challenges in terms of intellectual property rights which are required to be taken care of before entering the market.

Strong IP Regime Helps The Growth Of FDI In India:

A strong Intellectual Property rights regime would certainly lead to good market conditions for inviting FDI in India. The report 'India: International Outlier on IP' by the US chamber of Commerce said if India strengthens its intellectual property regime and increases its score on GIPC (Global Intellectual Property Centre) IP Index by 14.9 per cent, it can reach the level of FDI similar to Brazil, Russia and China. It has also been observed in the report that "India has been less able to attract FDI than its BRIC (Brazil, Russia, China) peers since the 1980s. Also in regards to FDI, India is noticeably weaker than other emerging economies, which started off at similarly low levels of investment and had similar IP rights environments to India's in the 1980s,"

A strong IP regime would certainly include realistic protection to intellectual property rights together with a mechanism for the enforcement of rights in case of misuse of the same. IP assets account for more than one-third of the net value of corporations in the United States and Europe, making protection of valuable IP critical for many would-be investing companies. In India the intellectual property like patents, trademark, copyright, design, geographical indication, plant variety, semiconductor and integrated circuits layout design have protection. Indian does not provide specific protection to trade secrets and also do not have a proper law for the data protection. These two are governed by the trademark law and information technology law and hence there is a requirement of specific law for these two as well in order to create a healthy environment wherein a creator of intellectual property right would feel comfortable to invest further. The current legislation on the IP laws should also be kept similar to the international standards in order to compete with other economies.

Challenges Regarding Intellectual Property Rights:

Trademark infringement/passing-off:

In this electronic age, the brands have acquired altogether a different meaning. Now a brand famous in one country can easily be recognizable in a country wherein the products of the brand have not yet marketed. This feature of modern market has led to the problem of infringement and passing-off of the brands which are known across the world but have not entered a particular market. Local merchant for taking advantages of the established reputation of the international brand, start manufacturing their own products under the same brand. Hence in order to curb this problem international brands can take action against the local merchants under the provision of trademark law wherein trans-border reputation has been recognized as one of the ingredients for taking action against infringement and passing-off.

Indian collaborat or treating the brand as its own:

One of the most common problems faced by the foreign collaborators in India is regarding the misuse of the brands by the Indian counterpart in the collaborations. More often than not in case of collaboration between a foreign corporation and an Indian corporation is regarding the dispute related to brand use. After a period of time Indian party to the collaboration starts claiming the brand of the foreign collaborator as their own even though it is clearly mentioned in the Act that the use made by the licensee of a trademark would always be counted as use of the licensor. Hence it is required by the foreign investor to always be aware of the misuse of its brand and should take timely action against any misuse by collaborator or any third party.

Compulsory licensing:

The recent grant of compulsory licensing to the generic pharmaceutical Natco Pharma has created a lot of wrong publicity to Indian IP environment even though Indian Patent Office had its own reasons to provide the same. As Patent is provided for a limited period of time of 20 years and out of these 20 years only few years are fruitful years for a patent to make money. An environment wherein the investor has the fear of loosing its patent due to compulsory licensing would certainly not improve the FDI in India. There are certain other challenges which an investor would face in India like counterfeiting, piracy, and data theft etc for which there is a need for a strong IP regime. A strong IP regime would help in gaining the confidence of foreign investors for inviting the FDI's.

The Relationship Between FDI And Economic Growth:

The FDI influx is an influential factor for economic growth. With the recent move by the Indian Government to relax the norm FDI norms will help the revival of the economy which was growing at the positive rate during the period of 2005-2010.

FDI involves not only the purchase of capital assets, including mergers and acquisitions, joint ventures, buying property, and investing in plants and equipment, but, perhaps more important to developing countries, FDI can include the transfer of managerial expertise, technological skills, and access to the investing company's global network¹. Technology transfers from developed to developing nations are one of the most important forces behind economic development². Experts argue that FDI is "the most important channel through which advanced technology is transferred to developing countries³."

In a communication to the World Trade Organization (WTO), the Organization for Economic Cooperation and Development (OECD) noted:

Direct investment by MNEs [multinational enterprises] has the potential rapidly to restructure industries at a regional or global level and to transform host economies into prodigious exporters of manufactured goods or services to the world market. In so doing, FDI can serve to integrate national markets into the world economy far more effectively than could have been achieved by traditional trade flows alone. As with private sector investment more generally, the benefits from FDI are enhanced in an environment characterized by an open trade and investment regime, an active competition policy, macroeconomic stability and privatization and deregulation. In this environment, FDI can play a key role in improving the capacity of the host country to respond to the opportunities offered by global economic integration, a goal increasingly recognized as one of the key aims of any development strategy⁴.

The move to allow 100% FDI in telecommunication sector and changes in the preposition of FDI in other sectors is a positive step for inviting the investors to invest in India although for the same, the policies regarding the grant and safeguard of intellectual property rights should also need to be parallel with international standards.

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FDI boosters on cards

The government is considering a series of measures to liberalize the country’s foreign direct investment (FDI) policy.

As part of this, it is looking at permitting 26 per cent FDI in insurance broking through the automatic route, which would mean a nod from the Foreign Investment Promotion Board (FIPB) would not be necessary.

The Department of Economic Affairs has also suggested that activities covered under the non-banking financial company list be enlarged to include financial services such as insurance agencies and services auxiliary to insurance. It is also seeking to allow up to 100 per cent FDI in commodity broking under the automatic route, subject to certain capitalization norms.

Many of these proposals would be incorporated in the consolidated FDI policy, which is modified every six months. The latest version is expected soon.

In a major boost to FDI in wholesale retailing, the government is set to clarify the definition of a group company. Under the definition, group companies would mean two or more enterprises that directly or indirectly are in a position to exercise 26 per cent or more of the voting rights of another company, or can appoint more than 50 per cent of the members of the board of directors.

Walmart had approached the government for a clarification on the definition of what constituted a group.

The government had earlier scrutinized the relationship between Bharti Walmart - a 50-50 joint venture for cash-and-carry between the Bharti group and Walmart - and Bharti Retail - a wholly owned front-end retail company of the Bharti group.

Branded international retail stores in the fashion and jewellery businesses have been stymied from setting up stores through the single-brand retailing window due to a clause that makes it mandatory for these to sell only those products “which are branded during manufacture”. The government is planning to put a clarificatory guideline exempting such firms from this rider.

The government is also looking at permitting a foreign company that has picked up the entire stake in a pharma company to make additional investment through the automatic route, but with a few riders. It can now infuse fresh capital or convert external commercial borrowing in the Indian company into equity without going to the FIPB every time. But the money invested must not be used for acquisition of a domestic pharma company.

Foreign route

ü      What the government is planning

ü      26% FDI in insurance broking through the automatic route

ü      Up to 100%  FDI in commodity broking under the automatic route

ü      Clarify what is a group company in policy on FDI in wholesale trading

ü      Exempt single-brand retailers in jewellery from selling only products “which are branded during manufacture”

ü      Permit a foreign company that has picked up 100% stake in an existing pharma firm to make additional investment through the automatic route, but with a few riders

ü      Warrants and partly paid shares to be allowed as instruments of FDI

Courtesy: Surajeet Das Gupta