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Regulation of VC funding in India: A critical analysis

This blog post has been authored by Ms. Prerna Kashyap

INTRODUCTION

The venture capital industry evolved in the late 1980s in India. Back in 1973, a committee on Development of Small and Medium Enterprises highlighted the need to foster venture capital as a source of funding new entrepreneurs and technology. The Government of India took a policy initiative and announced guidelines for venture capital funds (VCFs) in 1988 on the basis of a study undertaken by the World Bank. Slowly and gradually various rules and regulations were made to deal with the venture capital funding in India.[1]

VENTURE CAPITAL  

Venture capital (VC) funds start-ups and early-stage emerging companies having significant potential for growth[2] but involves high risk.

Section 2(z) and 2(za) of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) defines “venture capital fund” as an “Alternative Investment Fund which invests primarily in unlisted securities of start-ups, emerging or early-stage venture capital undertakings mainly involved in new products, new services, technology or intellectual property right based activities or a new business model and shall include an angel fund as defined under Chapter III-A” and “venture capital undertaking” as “a domestic company which is not listed on a recognised stock exchange at the time of making investments” respectively.

REGULATORY FRAMEWORK

Securities and Exchange Board of India (SEBI) is the nodal regulator for VCFs to provide a uniform, hassle free, single window regulatory framework. Various regulations such as the SEBI (Venture Capital Funds) Regulations, 1996 (“VCF Regulations”) and the SEBI (Foreign Venture Capital Investor) Regulations, 2000 have been issued on the recommendation of the Chandrasekhar committee fostering growth in the industry. As per the SEBI report relating to activities of VCFs until June this year, a total of Rs. 22,563.88 crores VCF has been raised.[3]

THE SECURITIES AND EXCHANGE BOARD OF INDIA (VENTURE CAPITAL FUNDS) REGULATIONS, 1996 AND SECURITIES AND EXCHANGE BOARD OF INDIA (ALTERNATIVE INVESTMENT FUNDS) REGULATIONS, 2012

AIF Regulations has been brought in order to replace the VCF Regulations and has been notified vide PR no. 62/2012[4] dated May 12, 2012. As per the AIF regulations, the funds registered as VCF under VCF Regulations shall continue to be regulated by the same till the existing fund or scheme managed by the fund is wound up and such funds shall not launch any new scheme after notification of these regulations. VCF may seek re-registration, subject to approval of their investors.[5]

Registration of Venture Capital Fund

VCFs are included in “Category I Alternative Investment Fund”[6]. No entity or person shall act as a VCF unless it has obtained a certificate of registration from the SEBI. Form ‘A’ lays down the instructions for the application for the grant of the certificate. Eligibility criteria are prescribed for the purpose of the grant of certificate to an applicant. Vide Explanation[7] of sub- clause (a) of sub- regulation (4) of regulation 3 of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, states that a VCF can be organized in the form of a trust or a company.

Investment Conditions and Restrictions

The AIF Regulations specify that VCFs shall state investment strategy and any material alteration to the fund strategy shall be made with the consent of unit holders; they shall raise funds through private placement by issue of placement memorandum and may launch schemes subject to filing of placement memorandum. The minimum tenure is prescribed as 3 years. Units of close- ended VCFs may be listed on the stock exchange.[8]

VCFs may invest in securities of companies incorporated outside India subject to conditions issued by the Reserve Bank of India and the SEBI. They shall invest not more than 25% of investable funds in an investee company whereas a large value fund for an accredited investor may invest up to 50% of investable funds in an investee company. They shall not offer their units to other VCFs if they are investing in units of other VCFs.

If a VCF is investing in associates/ units of VCFs managed by manager/ sponsor/by associates, approval of 75% of investors by value for investment is required. The terms of co-investment by a manager/ sponsor/ co-investor, shall not be more favourable than the terms of investment of the VCF. Un-invested portion of investable funds and divestment proceeds pending for distribution to investors shall be invested as prescribed in regulations.

Investment by VCFs in the shares of entities listed on institutional trading platforms shall be deemed to be investment in ‘unlisted securities’ for the purpose of these regulations. They shall invest in investee companies, venture capital undertaking (VCUs), special purpose vehicles, limited liability partnerships (LLPs) in units of other Category I AIFs of the same sub category or in units of Category II AIFs as specified in this regulation. They shall not borrow funds & shall not engage in leverage except for meeting temporary requirements. They shall invest at least 75% of the investable funds in unlisted equity shares or equity linked instruments of VCU or in companies listed or proposed to be listed on SME exchange and this shall be achieved by the VCFs by the end of its life cycle. For the purpose of market making, the VCF is required to enter an agreement with a merchant banker.[9]

Angel fund is a sub-category of VCF that raises funds from angel investors and invests in accordance with the prescribed provisions[10].

VCFs are exempted from certain provisions of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 in respect of companies listed or proposed to be listed on SME exchange.[11]

SECURITIES AND EXCHANGE BOARD OF INDIA (FOREIGN VENTURE CAPITAL INVESTORS) REGULATIONS, 2000
Registration of Foreign Venture Capital Investors

The applicant shall make an application to the Board in Form A along with the application fee.[12] The applicant should be granted the necessary permission by the RBI to make investments in India. Eligibility criteria are prescribed for the purpose of the grant of certificate to an applicant.[13]

Investment Conditions and Restrictions for a Foreign Venture Capital Investor

Investor shall disclose his investment strategy and it can invest all his funds in one VCF.

A Foreign Venture Capital Investor (FVCI) shall make investment in at least 66.67% of the investible funds in unlisted equity shares or equity linked instruments of VCUs or make an investment in not more than 33.33% of the investible funds by way of:

  • subscription to initial public offer of a VCU proposed to be listed;
  • debt instrument of a VCU in which the FVCI already has equity investment;
  • preferential allotment of equity shares of a listed company subject to 1 year lock-in period.[14]
Obligations of a Foreign Venture Capital Investor

FVCI shall maintain books of account and records for a period of 8 years. It shall appoint a custodian for custody of the securities who shall monitor the investment. It shall furnish periodic reports to the SEBI and information as required/ called for by the SEBI.  It shall appoint a branch of a bank approved as designated bank by the RBI for opening of the foreign currency denominated account.[15]

SEBI MASTER CIRCULAR AND CIRCULARS

The SEBI master circular and circulars ensure an effective regulatory framework for VCFs and the SEBI. The SEBI specified guidelines stating that AIFs may invest in securities of companies incorporated outside India subject to the condition that they may invest in equity and equity linked instruments only of off-shore VCUs, subject to overall limit of USD 1500 million and mandating benchmarking of the performance of the VCFs which will help investors in assessing the performance of the VCF industry.[16]

In regard to the validity period of approval granted by the SEBI to VCFs for overseas investment, on recommendation of the Alternative Investments Policy Advisory Committee, it has been decided to reduce the time limit from 6 months to 4 months.[17]

VCFs are required to file an application to SEBI for allocation of overseas investment limit. In relation to an overseas investee company a VCF shall:[18]

  • Invest in such a company, which is incorporated in a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding (MoU) or a signatory to the bilateral MoU with the SEBI.
  • Not invest in a company, which is incorporated in a country identified in the public statement of the Financial Action Task Force.

VCFs shall furnish the sale/divestment details of the overseas investments to the SEBI in the format prescribed and an undertaking for the proposed investment shall be submitted to the SEBI by the trustee/board/designated partners of the VCFs.[19]

SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS 2018

The regulations provide that FVCIs may contribute to meet the shortfall in promoters’ minimum contribution, subject to a maximum of 10% of the post-issue capital without being identified as promoter(s)[20] and contributions made by FVCIs in specified securities shall be locked-in for a period of 18 months from the date of allotment of the further public offer.[21]

SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 2011
Exemption in case of substantial acquisition of shares or voting rights

A VCF or a FVCI registered with the SEBI, by promoters of the target company pursuant to an agreement between such VCF or FVCI and such promoters, who has acquired and holds shares or voting rights(VRs) and exercises 25% or more of the VRs in the target company but less than the maximum permissible non-public shareholding[22], shall be exempt from the obligation to make an open offer[23] to acquire within any financial year additional shares or VRs in the company and exercise more than 5% of the VRs.

A VCF established in the form of a trust/ company/ body corporate and registered under the VCF Regulations is not considered as an investment vehicle for the purpose of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.[24]

INCOME-TAX ACT, 1961
Applicability of Angel Tax

Recently, the Central Board of Direct Taxes has issued an amended Rule 11UA (2) of the Income Tax Rules and it provides that for Section 56(2)(viib) of the IT Act, where a taxpayer is a VCU who has received consideration from the issue of unquoted equity shares to a VCF, the price of such equity shares corresponding to such consideration be taken as the fair market value (FMV) of the equity shares for resident and non-resident investors provided that:

  • the consideration from such FMV does not exceed the aggregate consideration received from a VCF; and
  • the consideration received by the undertaking from a VCF, within 90 days before or after the date of share issuance.[25]
WINDING UP OF A VENTURE CAPITAL FUND

Intimation of the winding up of the VCF should be given to the SEBI. VCF can be wound up in the following circumstances:[26]

If the VCF is set up as a trust, it shall be wound up:

  • When the tenure of the VCF or the scheme launched by the VCF, as mentioned in the placement memorandum is over; or
  • If in the opinion of the trustees and in the interest of the investors the VCF should be wound up; or
  • If 75% of the investors in the VCF pass a resolution at a meeting that the VCF should be wound up.

If the VCF is set up as a LLP, it shall be wound up as per the Limited Liability Partnership Act, 2008. If the VCF is set up as a company, it shall be wound up in accordance with the provisions of the Companies Act, 1956. If the VCF is set up as a body corporate, it shall be wound up as per the statute under which it is constituted.

CONCLUSION

India has come a long way in the journey of venture capital. With the increase in the number of start-ups, more and more investment opportunities are coming up in the sectors such as biopharmaceuticals, software, financial institutions and investors and so on. This shows the significance of flexible and up-to-date regulations incorporating latest developments. The Securities and Exchange Board of India issues various circulars and directions supplementing the current regulations and this helps in regulating and facilitating the influx of venture capital investments made by residents and non- residents in India.

[1] Report of Advisory Committee on Venture Capital.PDF (sebi.gov.in)

[2] Rebecca Baldridge, Understanding Venture Capital, dated 8 June, 2023 https://www.forbes.com/advisor/investing/venture-capital/; accessed on 17 October, 2023.

[3] SEBI | Data relating to activities of Alternative Investment Funds (AIFs), accessed on 14 October, 2023.

[4] SEBI | SEBI notifies SEBI (Alternative Investment Funds) Regulations 2012, accessed on 14 October, 2023.

[5] Sub- regulation (2) of regulation 3 of the SEBI (Alternative Investment Funds) Regulations, 2012.

[6] Clause (a) of sub- regulation (4) of regulation 3 of the SEBI (Alternative Investment Funds) Regulations, 2012.

[7] Explanation.─” For the purpose of this clause, Alternative Investment Funds which are generally perceived to have positive spillover effects on economy and for which the Board or Government of India or other regulators in India might consider providing incentives or concessions shall be included and such funds which are formed as trusts or companies shall be construed as “venture capital company” or “venture capital fund” as specified under sub-section (23FB) of Section 10 of the Income Tax Act, 1961.”

[8] Chapter II, Registration of Alternative Investment Funds of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.

 

[9] Ibid.

[10] Sub- regulation (1) of Regulation 19A of the SEBI (Alternative Investment Funds) Regulations, 2012.

[11] Sub- clause (c) of sub- regulation (3) of regulation 16 of the SEBI (Alternative Investment Funds) Regulations, 2012.

[12] Regulation 3 of the SEBI (Foreign Venture Capital Investors) Regulations, 2000.

[13] Regulation 4 of the SEBI (Foreign Venture Capital Investors) Regulations, 2000.

[14] Regulation 11 of the SEBI (Foreign Venture Capital Investors) Regulations, 2000.

[15] Chapter IV of the General Obligations and Responsibilities of the SEBI (Foreign Venture Capital Investors) Regulations, 2000.

[16] SEBI Master Circular No. SEBI/HO/AFD/PoD1/P/CIR/2023/130 dated July 31, 2023, available at: https://www.sebi.gov.in/legal/master-circulars/jul-2023/master-circular-for-alternative-investment-funds-aifs-_74796.html, accessed on 13 October, 2023.

[17] SEBI Circular No. SEBI/HO/AFD/PoD/CIR/P/2023/137 dated August 04, 2023, available at: https://www.sebi.gov.in/legal/circulars/aug-2023/validity-period-of-approval-granted-by-sebi-to-alternative-investment-funds-aifs-and-venture-capital-funds-vcfs-for-overseas-investment_74979.html, accessed on 17 October, 2023.

[18] SEBI Circular No. SEBI/HO/AFD-1/PoD/CIR/P/2022/108 dated August 17, 2023, available at: SEBI | Guidelines for overseas investment by Alternative Investment Funds (AIFs) / Venture Capital Funds (VCFs), accessed on 14 October, 2023.

[19] Ibid.

[20] Sub-regulation (1) of regulation 14 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018.

[21] Clause (a) of regulation 115 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018.

[22] Sub- regulation (2) of regulation 3 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

[23] Sub- clause (f) of sub- regulation (4) of regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

 

[24] Reserve Bank of India – Master Directions (rbi.org.in)

[25] Alerts: Direct Tax Alert – CBDT notifies amended Valuation Rules in respect of Angel tax, available on Direct Tax Alert – CBDT notifies amended Valuation Rules in respect of Angel tax – BDO, accessed on 18 October, 2023.

[26] Regulation 29 of the SEBI (Alternative Investment Funds) Regulations, 2012.

 

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Ritu Kumar v. Biba

Ritika Private Ltd. vs Biba Apparels Pvt Ltd. 230 (2016) DLT 109

Delhi High Court

Judges: Justice Valmiki J. Mehta

Applicable law: Section 15 of the Copyright Act, 1957

Did you know: In order for the owner of a design to enjoy protection under the Designs Act, 1911, it is necessary that the design be registered under the act.

Effect of Legal Provisions: Section 15 of the Copyright Act states that if a design is registered under the Designs Act, 1911 the copyright in such design will cease. Copyright will also cease even if the design is not registered but is capable of registration and the design has been reproduced more than 50 times.

Where it all began:

  1. Ritika owns the famous brand ‘Ritu Kumar’ and Biba Apparels also owns a famous brand called ‘Biba’. Both produced apparel and accessories using industrial designs
  2. Ritika alleged that Biba had copied the designs of Ritu Kumar and had used them to produce apparel and as such, it had infringed the copyright of Ritika.
  3. Ritika’s designs are not registered under the designs act.

Legal issue: Once the copyrighted works of the plaintiff are applied for the making of dresses, and the production of dresses exceeds 50 in number, whether protection of copyright is lost?

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Ritika’s arguments: there is originality in the garment prints and sketches created by Ritika Pvt Ltd for the dresses/garments. It is pleaded that its ensembles are so designed that each component, such as sleeves, front and back panels etc are delineated and are coordinated with unique features. As such it is entitled to copyright protection.

Biba’s arguments: Because the designs of Ritika are industrial designs, the suit for infringement of copyright is barred because of Section 15 of the Copyright Act.

Judgment in the case:

  1. The court came to the conclusion that the suit was barred by Section 15(2) of the Copyright Act, 1957 as Ritika’s copyright in the said works had ceased to exist.
  2. Ritika’s case fell squarely under Section 15(2) of the Copyright Act, 1957 i.e. the copyright in Ritika’s designs ceased to exist as it had been reproduced more than 50 times by an industrial process.

Significance

The court elucidated the position as to the operation of subsection (2) of section 15 and re-affirmed the view that the bar would apply under certain conditions even if the design is not registered.

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The Himalaya Drug Company vs Sumit 2006

Delhi High Court

Judges: Justice Badar Durrez Ahmed

Applicable law: Copyright Act, 1957

Did you know: ‘Meta-Data’ is like a digital footprint, which allows a person to assess what tools and code have been used to develop a particular website

Where it all began:

  1. Drug Company is engaged in the manufacture and sale of Ayurvedic Medicinal preparations and was established in the trade in the year 1930. Realizing the potential of the Internet as a medium of information, the plaintiff registered its own domain name www.thehimalayadrugco.com’ on 10.6.1998 and developed a website under the said name.
  2. The most important feature of the website is the section titled “HIMALAYAS HERBS”. This section essentially consists of a database of a wide variety of medicinal herbs, arranged in alphabetical order.
  3. Such information is not only comprehensive but is also arranged in a manner that is visually appealing and easy to grasp. It was clear that Himalaya has expended considerable time, labour, skill and money in preparing this database of Ayurvedic Herbs that find mentioned on its website. Himalaya has claimed that the preparation of the database began sometime in June 1998 and took more than a year to complete.

Legal issue: Whether Sumit has infringed the copyright of Himalaya and if so what damages is Himalaya entitled to?

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Himalaya’s arguments: Himalaya noticed that Sumit was operating a website “http://ayurveda.virtualave.net” which reproduced Himalaya’s entire herbal data verbatim. The copying was to such an extent that even the grammatical or syntactical errors that appear on Himalaya’s website have been copied onto Sumit’s website. Moreover, the meta tag of the source code of Sumit’s website includes Himalaya’s trademark “Himalaya Drug Co.”

Sumit’s arguments: Sumit did not appear despite service and the case proceeded ex-parte

Judgment in the case:

  1. The Court held that Sumit had misappropriated the effort, skill and expense that had gone into the creation of Himalaya’s website. Therefore, Sumit had copied the entire herbal database of the plaintiff and had infringed the copyright of Himalaya.
  2. The plaintiff has also been able to demonstrate that the defendants have attempted to pass off its herbal database as and for that of the plaintiff’s and have also violated the “trade dress” rights that exist in respect of the plaintiff’s herbal database. The reason being that the plaintiff’s herbal database is unique and, therefore, any similar herbal database that appears on a different website is bound to create confusion by causing a consumer to associate the website with that of the plaintiff’s.
  3. Because Sumit did not appear in this case it was impossible to assess what kind of profits he had earned from the website and accordingly difficult to calculate damages. Thus the court calculated the costs involved in preparing and putting up the website. Those costs were 7.9 Lakhs and the court granted 7.9 Lakhs as compensatory damages and an additional 7.9 Lakhs as punitive/Exemplary damages.

Significance: The judgment is noteworthy because it has used a novel way of calculating damages and has awarded both compensatory as well as punitive damages.

 

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B.N. Firos vs. State of Kerala and Ors.

Supreme Court of India

Judges: Justice Ranjan Gogoi and Justice Mohan Shantanagoudar

Applicable law: Sections 2(k) and 17 of the Copyright Act, 1957 and Section 70 of the I.T. Act

Did you know: The government is empowered to declare any computer system as a protected system under the IT Act. Such declaration prohibits any person except the government to access such a computer system. This is to enable the government to protect critical IT infrastructure.

Effect of provisions: Section 2(k) defined a ‘Government Work’ and Section 17(d) vests the copyright of the government work in the government. Section 70 of the I.T. Act allows the government to declare any computer system as a ‘Protected System’ and access to such protected systems is barred to any other person except the government

Where it all began:

  1. The State of Kerala entered into an agreement to develop software for one-stop bill payment systems with the software giant Microsoft. Microsoft agreed to do so for free on a pilot basis and engaged a 3rd party M/s B.N. Firos for the development of the same
  2. After successful implementation State of Kerala sought to expand the project to all districts and an MOU was concluded between B.N. Firos and the state of Kerala.
  3. N. Firos alleged that the State of Kerala was transferring essential rights in the software to third parties and it was not allowed to do so.
  4. Both B.N.Firos and State of Kerala sought to be declared as exclusive owners of the copyright of the software.
  5. During the pendency of the dispute, State of Kerala issued a notification under Section 70 of the Information Technology Act declaring the software as a ‘Protected System’.
  6. N. Firos challenged the notification and held that the same was a violation of its rights as  the author of the software under Section 17 of the Copyright Act, 1957

B.N. Firos’s arguments: B.N. Firos argued that the copyright of the software vested exclusively with it and the notification was taking away its said rights

Kerala’s argument: The State of Kerala argued that the copyright of the software vested with the State government and in any case, it had the right to declare any computer system as a protected system

Issue: Whether any computer system could be declared as a ‘protected system’ under Section 70 of the I.T. Act, even in violation of the Copyright Act?

Judgment: The Hon’ble Supreme court held that:

  1. Only government works as defined in Section 2(k) of the Copyright Act could be declared as protected systems and only those systems can be protected which are very important for the functioning of the state.
  2. The power of the government to declare a computer system as a protected system was not unlimited and the provisions of IT Act and Copyright Act have to interpret harmoniously.
  3. As per the MOU signed between the State of Kerala and B.N. Firos the copyright of the software belonged to the State of Kerala.

Significance:  The Hon’ble Supreme Court has resolved the possible conflict between the rights of the owner of a computer system and the power of the government to declare such a system as a ‘protected system’ in the IT Act. It has in this way balanced the interests of the government in protecting critical computer infrastructure and those of individuals who design unique computer systems in collaboration with the government.

 

 

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Role of IP in E-Commerce

By: Syeda Fauzia

Introduction:

What are Intellectual property Rights?

Intellectual Property Rights (IPR) would refer to anything and everything that is the conception of the human mind which creates an exclusive right bestowed upon the person over the creations of their intellect. According to the Oxford Dictionary, “intellectual property is an intangible property as a result of human creativity.” Intellectual Property is of various kinds, few significant ones being Copyrights, Trademark and Patents. IPR also include inventions of a product or process, a start-up business, creating new music or lyrics of a song and many more.

What is E-Commerce? 

Electronic Commerce or E-Commerce as simply told is where commercial transactions are conducted through online mode. These would include conducting or establishing businesses, exchanging goods and services or both primarily over the internet. Examples For E-commerce would include platforms such as: Amazon, Swiggy, Zomato and so forth.

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How are IPR and E-commerce interlinked? Let’s find out!

In today’s world, economies are constantly growing and changing. Internet as such plays a vital role in the development of the same. That being the case, it is necessary to understand that IPR plays a crucial role in the process of conducting e-commerce business and its impact in the virtual world. It is necessary to keep a tab on E-commerce along with the technology infrastructure in such a manner that the value of the intellectual property is not disregarded. It is crucial than ever that there needs to be a constant process of improvement in this technicality of internet access.

The methodology to understand the role of Intellectual Property in E-commerce is based on certain aspects. They are:

  1. Protection of business

IPR plays an important role in safeguarding the core business interest of a company including all its affiliates/subsidiaries, its domain in the corporate world. More fully against unfair competition amongst the businesses. In case there is no application of IPR or the IPR laws are not abided by, it will lead to severe violations of IPR and the consequences will surely affect the goodwill of a Company. That means to say that IPR plays a significant role in the digital economy. Without IPR in place, anything and everything can be pilfered. It may extend from design to software. The Owners may be perplexed by such duplication and stealing and then the same being floated over the virtual domain. The Owners will never be recognized for their unique innovations.

  1. Safeguarding the ownership of the factors involved in the business development.

There would be several factors that enable a company to be structured and with Intellectual Property law in place, especially for the e-commerce transactions helps to safeguard the digital and technical components which are critical to the company. For instance, there can be software that is connected to networks/routers, software designs, software programs, HTML codes etc. All these factors may be available in different forms and may contain an intellectual property right that not only needs to be protected but to be continued to be protected. This will enable E-commerce to run efficiently and smoothly. Thus, the IPR coated E-commerce safeguards these important factors which are essentially the enablers.

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  1. Protection of IPR

Every E-Commerce business recognizes IPR on all such creations/innovations especially the patents, copyrights, marks and trade secrets. A product that is developed by a company or an individual and commercializing the product involves the development of a variety of technologies so as to protect the product in the public domain. In such cases, the companies/individuals turn up to technology providers who will enter into licensing Agreements wherein certain rights are given for a certain period of time and for a specific purpose. The License Agreement facilitates the owner of the product to safeguard his intellectual property rights in his products by way of acceptance of the owner’s standard terms and conditions wherein the IPR protection is deemed a material term of the contract.

  1. Preservation of patent portfolios and trademarks

If a business has to capture the market in the e-commerce arena, IPR creation becomes an impeccable asset to the Company. The Company will own the portfolio of such intellectual property eg: by Patent or trademark registration. This enhances the company’s credibility and of course will lead to significant development in the company’s financial position as the online business world catches the company that shows their business in the light of the preservation of their patent portfolios and trademarks.

IPR and E-Commerce

Several Companies believe in the fact that their intellectual properties are worthy to a great extent such that the protection of the tangible assets owned maybe a secondary priority. This is very much true in the global market and with the recent happening of online businesses because the intellectual property rights and the law that exists with regard to the same enables the companies from keeping their trade secrets protected and disallows any unfair competition.

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IPR plays an important role in E-commerce in today’s digital economy. The laws that govern the IPR has brought businesses globally to function by supporting new creations but also guarding the tedious inputs that are gone into by the creator of such intellectual property. The laws pertaining to Intellectual Property Rights allows the law to block others from stealing the Intellectual property of the owner. So that there is no impact on the financial position of the inventor and their struggle in bringing the goodwill in the b2b market which is available in the electronic network.

Fundamentals of IPR in e-commerce:

E-Commerce is a great enabler of a business. However, it is the owner who is solely responsible for protecting intellectual property rights. If the owner while revealing the intellectual property to the public or in any media through E-commerce fails to protect it beforehand. This becomes fatal and gives scope for the others to use the owner’s intellectual property unfairly much before filing for its protection. There may not be any legal solution that the owner can adapt and also leaving the culprits to walk away freely with no reprimand whatsoever. No trade secrets can be protected once it is in the public domain. The owner loses all his rights against the virtual world. Eg secrets of a Software algorithm if shared, then such software algorithms cannot be protected.

Breach of Intellectual property

Any website that involves transactions that are mostly buying or selling online is a part of E-commerce websites. Companies while doing e-business may knowingly or unknowingly tend to violate the intellectual property rights by displaying the images, designs or even products of other companies. The most common example is that of Chinese products that look similar but are just a duplication of the original product. Such companies should carefully ensure that they do their due diligence effectively to avoid any infringements of the owner’s intellectual property rights and also that they do not violate the laws that protect the intellectual property in the country of origin of the product.  They should be able to show that the sale is on an original development and that the intellectual property owner is well aware and there is permission to sell in the online platform.

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Protection of IPR under E-commerce

IPR in retail and e-commerce deals with buying and selling products through a physical shop and a website, respectively[1]. In retail also a owner needs to protect his intellectual property rights. Iit is no different that is for E-commerce and should various types of intellectual properties. The following states the usual IPR in E-commerce.

Various patent models protects E-commerce like search engines etc. Patent Law or the Copyrights Act depend from country to country and their IPR laws may be divergent in application. Eg. A website design protected by copyright law. The copyright protection is available under the copyright law for the graphics, designs, materials, audio or video clippings, photographs etc. Therefore the companies in e commerce world can protect their database under such copyright laws as applicable in their specific country.

Protection of brands:

Features that are posted on their application and/or their websites under the Trademark Law. the Intellectual Property Rights also encompasses protection of webpages, displays that are computer-generated, graphics, graphical user interfaces. This may also be protected under at the Industrial Design Laws as per the applicability in their respective country.

There would be certain websites which will have hidden characteristics like graphics that are confidential in nature, source codes, flow charts, data structure, algorithms, various technical descriptions, manuals, contents etc to name a few, are entirely protected under various Trade Secret Laws and opens up the various other laws in protection of such intellectual property rights.

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Conclusion:

In today’s world there is no denying of the fact that achievement of fair and ethical compliance of online businesses and practices cannot be accomplished without the effective use of Intellectual Property Laws. The society is more relying on e commerce and not only the E- businesses development wherein the retail activity is drastically reduced. Like the pandemic struck economy wherein the E-commerce led to significant growth in the virtual market. Making it more diverse and dynamic approach of online platforms.

As the growth of online business expands the Intellectual Property Rights facilitates the companies to protect and monitor their trade activities that are especially to maintain secrecy. IP rights in e-commerce also allow IPR owners to claim a share of the company’s profits. The Implementation of intellectual property rights will focus on the features that are exclusive and are unavailable to others and thus making the implementation of E-Commerce activity in the public domain successfully. The Legal protection of intellectual property rights brings in sturdiness in the usage of intellectual property which helps in not only in licensing, contracting, outsourcing but also helps in building strategic relationships, developing new concepts which in return enhances the sales and E-Commerce business by bringing in features that are unavailable to its competitors. This enables a healthy competition in the internet world and bringing in profits to the right owners of the intellectual property. Therefore Intellectual property stands as a guard to the E-Commerce and enhances fair play in the economy while adopting right measures of protection if Intellectual Property Rights.

 [1] What’s the Role of Intellectual Property in Ecommerce? (thebalancesmb.com)

 

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The Chancellor, Masters & Scholars of University of Oxford and Ors.Vs. Rameshwari Photocopy Services and Ors

Delhi High Court

Judges: Justice Pradeep Nandrajog and Justice Yogesh Khanna

Applicable law: Section 52 of the Copyright Act, 1957

Did you know: A reproduction of a copyrighted work by a teacher or pupil in the course of instruction is allowed and is not an infringement of the copyright

Where it all began:

  1. University and Photocopy Shop were photocopying excerpts from the publications of the plaintiffs and were issuing/selling the said compilations in the form of course packs
  2. The world famous publishers alleged that such publication and sale constituted a copyright infringement and filed a case to require the University of Delhi and the photocopy shop to obtain a license.
  3. The Hon’ble single bench of the Delhi High Court dismissed the suit and an appeal was filed by the publishers before the division bench.

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Legal issue: Whether the right to reproduce work by a teacher or a pupil in the course of instruction is absolute or there are any conditions attached to such a right?

Publisher’s arguments: There are restrictions of fair use that apply to reproduction of materials by teachers and pupils and a license is necessary

University’s arguments: There are no restrictions that apply to the right of reproduction ad no infringement has occurred in this case.

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Judgment in the case:

  1. The court held that it only has to be seen is whether the work used was necessary for achieving the purpose of educational instruction- if it is there will be no infringement
  2. There is no adverse impact on the market of the books because the students still have access to the books in the library.
  3. It was held that the phrase ‘course of instruction’ used in the section will not be limited to just teaching in the classroom but will also apply to the entire program of education
  4. Because the university was not engaged in profit-making the activitiy could not be termed a publication.
  5. The appeal was dismissed and it was held that the preparation and distribution of the course packs was permitted and not an infringement of copyright. The case was sent back to the Single Bench for decision on the question whether whether the course packs were necessary for the educational instruction or not. The suit was finally withdrawn by the publishers

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Significance

The judgment in the case is hailed as a big victory for promoting the access to education. Many writers and academicians, many of whom were infact associated with the publishers, from all over the world condemned the filing of this suit and asked the publishers to withdraw it.

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Artificial Intelligence and Copyright Protection of Computer-Generated Works

Copyright is a type of intellectual property which provides the exclusive right to the owner to make copies of a creative work, either artistic, literary, dramatic, musical or otherwise. The creator of such creative work, or “author” has the exclusive commercial rights over the work.

Artificial intelligence has great significance in the realm of creative work. Recent successes have demonstrated that AI can independently learn how to perform tasks, prove mathematical theorems, and engage in artistic endeavors such as writing original poetry and music, and painting original works. AI with and sometimes without human assistance is also able to create artistic or innovative works. Therefore, such interplay of AI with the creation of creative work raises certain concerns in the field of copyright law.

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Before understanding the specific issues pertaining to copyright protection of AI generated work, it is pertinent to understand the difference between AI code and AI’s work product. AI code relates to the computer program or algorithm or the source code per se which constitutes AI. This code is what the programmer inputs into an AI. Such code is provided protection under copyright laws of various jurisdictions as TRIPS agreement provides that “Computer programs, whether in source or object code, shall be protected as literary works under the Berne Convention (1971)”[1]. Therefore, the programmer, or the person/entity which buys such AI from the programmer, is considered as the owner of such AI and enjoys the fruits out of copyright protection. On the other hand, AI’s work product relates to the creative product created by the AI. The major legal issue concerns the copyright protection provided to the work created by AI, either with or without human interference.

As discussed above, the AI’s creative work product can further be bifurcated into two categories, one where there is no human intervention, and the other where the programmer has minimal input into the final product. The legal issue pertains to whether in the former situation, the AI can be given authorship over the creative product, and in the latter situation, whether AI can be considered as a co-author of the creative work.

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With respect to the first issue, the jurisprudence developed in different jurisdictions clarify the situation as they unanimously believe that the creative works generated solely by AI are not copyrightable, if such creation does not involve any input or intervention by a human author.

In the United States of America, human authorship is the basic requirement as the Copyright Office reinforced the decision in New Idea Farm. Equip Corp. v. Sperry Corp[2] by holding that it will not register works produced by a machine or mechanical process if there has been no creative input or intervention from a human. Further, in Naruto v Slater[3], the court has opined that a non-human cannot hold copyright and hence cannot sue for infringement of copyright.

In the United Kingdom, the Copyright Designs and Patents Act, 1988 provides that the author of any literary, dramatic, musical or artistic work created by a computer is the person that made the arrangements necessary for the creation of the work undertaken[4]. A computer-generated work has further been defined by the Act as “work generated by computers without any human author of the work”[5].

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India also adopted a similar approach under Section 2(d) of the Copyright Act, 1957 by providing that “in relation to any literary, dramatic, musical or artistic work which is computer-generated, the person who causes the work to be created.”[6] However, it does not contain any explicit exclusion of interference from human author for computer-generated works.

Therefore, the copyright law regime of different jurisdictions expressly mention that the author of a computer-generated work is the person by whom the arrangements necessary for the creation of the work are undertaken.[7] Therefore, intervention by a human is necessary to render the output of an AI copyrightable.

Therefore, AI cannot be an author of the creative work. However, if we take this proposition into consideration, then the next issue arises as to who would be an author of the work created by AI if no human intervention takes place in the process of such creation?

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Let us consider a situation wherein an AI creates an artistic work without any human intervention and this work is infringing the right of another author of same/similar work. Even though work created by AI without any human intervention is not given copyright protection, however, does it imply that others also lose their right to sue for copyright infringement? To resolve such conflicts and the issue of liability arising out of the works created by AI, it is imperative to understand who should be considered the author of the work created by AI, without human involvement.

A possible solution to this issue is the doctrine of principal-agent relationship. If AI is considered as a mere agent of the person (human) who has a control over it, the issue of liability will be resolved. Also, since AI is created by a programmer and it functions according to the algorithms which have been programmed into it by the programmer, such programmer can be considered a principal, and AI be considered as its agent, as AI performs the specific tasks for which it is programmed. In the course of such performance, if the AI creates a creative work, the principal i.e. the programmer can benefit out of such creation, and also be considered liable, in case of any infringement (as principal is vicariously liable for the acts of agents). Further, though compensation is considered an important factor in the principal-agent relationship, and AI cannot be “paid” by the programmer in practical sense, the AI can be considered as a gratuitous agent as a gratuitous agent acts without a right to compensation from the principal. Furthermore, the gratuitous agent owes the same duties of care and loyalty that it would otherwise owe the principal as if it were a standard agent.

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If the AI is sold by the programmer to a third person/entity, such person/entity becomes the principal and enjoys the benefits and the burdens arising out of the creation of AI.

Therefore, although the copyright law regime globally necessitates human involvement or interference for protection of a creative work, the work generated by AI without such human interference should be given protection because firstly, it would provide incentive for further creations of such nature and secondly, it would provide a remedy to the party whose rights have been infringed by the creative work of AI. Thus, the principle of principal-agent relationship between the programmer and the AI can help in addressing these lacunas.

 

[1] Supra note 3.

[2] Supra note 7.

[3] Naruto v. Slater, 2018 WL 1902414.

[4] The Copyright Designs and Patents Act, 1988, s. 9(3) (United Kingdom).

[5] The Copyright Designs and Patents Act, 1988, s. 178 (United Kingdom).

[6] The Copyright Act, 1957, s. 2(d) (India).

[7] Ireland, UK, New Zealand, South Africa, and India.

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Artificial Intelligence and the Patent Regime

The World Intellectual Property Organisation (WIPO) defines intellectual property (IP) as a creation of the mind. Patent, is a type of IP, provides an incentive to individuals to invent and innovate. The patent holder/owner is given exclusive right to make, use, sell and export an invention for a specific period of time.

With the advent of technology, and artificial technology (referred to as AI hereafter) per se, the world has seen a substantial increase in the number of inventions and technologies, created with the help of AI, owing to its potential to increase productivity and efficiency, as compared to its human counterpart. This is apparent from the fact that between 2010 and 2016, there was a fivefold increase in the number of patent applications relating to AI techniques as compared to scientific publications by tech giants like IBM, Microsoft, Hitachi, Panasonic, Samsung, Siemens etc.[1]

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The interplay between AI and patent law has two implications, the first one relates to the patentability of AI itself, and the second one relates to the patentability of inventions created by the use of AI.

The issue of patentability of Artificial Intelligence

Generally, patentability of any invention is subject to certain conditions, which include novelty, industrial application and patentable subject matter. Certain jurisdictions completely prohibit patenting computer programme or algorithms[2] because they come under the exclusive domain of copyright protection[3]. However, in other jurisdictions, software and computer programmes are patentable, but only if they fulfil specific conditions. For example, in China, software invention needs to fulfil the technicality requirement[4]. Similarly, in the United States of America, traditionally patent protection was not provided to software as they were considered abstract ideas, which was outside the purview of USA’s patentable subject matter under the Patent Act, 1977. However, this bar against patenting software was removed by the Court in Alice v. CLS Bank[5] which held that abstract idea implemented on a generic computer may not be patented, but, if the software in question improves “computer functionality” (i.e. improves computing speeds or reduces the number of computing resources required), or performs the computing tasks in an unconventional way, then it may be patentable.

Therefore, it can be seen that the issue of patentability of AI per se differs from jurisdiction to jurisdiction, wherein few nations are more willing to provide patent protection to certain types of software, while others continue to bring it under the exclusive domain of copyright protection.

The issue of patentability of inventions created by artificial intelligence

Artificial intelligence, in the past decades, has played a major role in assisting humans by performing certain specific tasks, assigned to them, by means of algorithms set by humans. This process also inculcates the use of AI in creating innovations and inventions. However, the way in which AI aids in the creation of such invention, differs. Broadly, there are three ways in which AI can play a role in creating inventions. At one end, AI could simply act as a tool in assisting a human inventor without contributing to the conception of an invention. On the opposite side of the spectrum, as AI is not bound by the limits drawn to it, it could autonomously generate outputs that would be patentable inventions, if created by a human. Alternatively, AI could also fall in between these two extreme ends, for example, it could be used to generate several possible solutions under the guidance of humans who define the problems and select successful solutions.

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The legal regime governing the patent system in different jurisdictions highlight that there is no bar to granting a patent for an invention created or generated by an AI. However, such invention would nevertheless have to satisfy the statutory requirements for being eligible for patentability i.e. novelty, industrial application and patentable subject matter. However, the issue arises at the time of filing a patent application.

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Before understanding the issue, it is important to understand the concept of inventorship and ownership. Inventorship is determined by “conception, or the formation in the mind of the inventor of a definite and permanent idea of the complete and operative invention.”[6] Ownership, on the other hand, lies with someone who exploits the commercial benefits arising out of such invention. Further, patent ownership is generally tied to inventorship, unless another entity has a superior right, such as through employment or contract. Therefore, since the invention is a creation of the mind, and encompasses certain rights and liabilities, all the jurisdictions around the world unanimously agree to the fact that an inventor can only be a natural person/s and not even an artificial person. Further, with respect to ownership, it is considered that both a natural person and an artificial person, like a company, can have ownership rights over the invention.

Taking into account the developments in the field of AI which now enable it to autonomously generate new inventions, serious concerns can be raised about whether AI can be termed as an “inventor”. Recently, both Google and Facebook have seen their respective Al systems develop new languages to perform the assigned tasks, eschewing known human languages in favour of a more efficient one.

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Let us consider the situation where an invention is generated autonomously by an AI (the one side of the spectrum). If such AI is considered the inventor, then by virtue of being an inventor and not being bound by a formal contract of employment, it also becomes the owner of such invention and possesses the rights to sell its invention to other natural persons/companies for profits. However, does AI has the capacity to negotiate terms for commercial purposes and provide consent for such transactions. It should also be borne in mind that the entire premise of the patent is based on the very idea of commercial exploitation of invention for a limited period of time. This provides an incentive for innovation and inventions. Therefore, if the idea of commercial exploitation is subtracted from patent, what remains is charity, and charity does not drive investments into further inventions by the use of AI. This is the very reason why the courts in different jurisdictions are reluctant in interpreting “inventor” as to include AI[7]. Such a step would create a lacuna with respect to firstly, the practical implications of such step, secondly, the idea of incentive under the patent regime and lastly, the issue of attributing rights to AI and liability, in case of any dispute. This situation is beautifully highlighted by the recent case[8] wherein Stephen Thaler applied to the patent offices of the United Kingdom, Europe and the U.S.A. for patentability of an invention invented by the AI machine “DABUS”. Mr. Thaler mentioned “DABUS” in place of the name of the inventor and his name in place of the name of the owner. The patent offices of these jurisdictions rejected this application on the ground that an AI cannot be an inventor as the statutory requirements mandate inventor to be a natural person, and that AI can neither be employed (as Mr Thaler mentioned himself as owner stating that DABUS is his property), nor hold intellectual property rights. Therefore, the situation with respect to the patentability of inventions created solely by AI is clear, i.e. AI cannot be an inventor under the law.

When we consider the situation wherein AI acts just as a tool or plays a more active role in the process of innovation and invention, certain scholars believe that AI could be considered as a co-inventor. However, mentioning the name of an AI as an inventor in the patent application would also be futile as the courts have come to the conclusion that only a natural person can be an inventor.

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However, having said that AI cannot be considered as an inventor, it does not imply that the creation of AI cannot be patented. To address this issue, one of the theories propose that the owner of the AI which created an invention should be considered as the inventor of the inventions created by AI which it owns. However, such patentability would still be subject to the statutory requirements of different jurisdictions. This theory implies that AI is just a mere tool or machine which aids humans to perform specific functions. Since the actions of the AI are prompted by humans, such humans should be considered the real “mind” behind any innovation created by such AI, while performing its functions. This theory seems to work perfectly well as it solves the issue of the inventor being a natural person, the issue of attributing liability, and the issue of negotiating for commercial purposes. This would also imply an increase in investment in AI for creating more of such inventions, in which the owner of such AI is considered the inventor of such invention.

[1] Pankaj Soni, How Is the Patent World Responding to the AI Revolution, 281 MANAGING INTELL. PROP. 48 (2019).

[2] Like Indian Patent Act, 1970, s. 3(k).

[3] Trade related aspects of Intellectual Property Rights, Art. 10 [Source or object code, shall be protected as literary works under the Berne Convention (1971)].

[4] PATSNAP, https://www.patsnap.com/resources/blog/which-countries-allow-software-patents/ (last visited Jan. 29, 2021).

[5] Alice v. CLS Bank Int’l, 573 U.S. 208, 225-26 (2014) [Holding that “the abstract idea implemented on a generic computer” may not be patented]

[6] Townsend v. Smith, 36 F.2d 292, 295; Hybritech Inc. v. Monoclonal antibodies inc., 802 F. 2d 1367, 1376.

[7] New Idea Farm. Equip Corp. v. Sperry Corp., 916 F.2d 1561 (Fed. Cir. 1990) [The court stated that only people conceive ideas and not machines].

[8] Stephen L Thaler v. The Comptroller-General of Patents, Design and Trade Marks, [2020] EWHC 2412 (Pat).

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Role of IP in the Media Industry

By: Ilakkiya Kamaraj

Introduction: 

“Is there anyone who hates entertainment?” The media has never stopped entertaining us. It plays an important role in our lives from fascinating us through films to feeding our brains with up to date information about the happenings in the world. From one corner of the world, we can know the happenings of another part of the world through media. That too in this internet world we can access each and every information or watch films through phones anywhere and everywhere. Media is such a wide area which plays an important role in our lives needs a sort of protection for the work of its people’s work. Such protection can be given to media by Intellectual property. Intellectual property protection is used in various fields. In this paper, we are going to see how IP’s role is important in protecting the works of media.

Intellectual property:

The ownership of any creation of the mind or ideas or designs by a person is known as Intellectual property. IP can be categorized into many types but the most widely used IP are patents, trademarks, copyrights and trade secrets.

  • A right granted to a person for his/ her invention is called a patent. It prevents usage of one’s invention by others illegally. The inventor can sell, use, distribute, create, import or export their invention for over 20 years once his/ her work is patented.

“A person has an entitlement to an invention if that person’s contribution, either solely or jointly with others, had a material effect on the final concept of the invention”.[1]

  • Protection of logos and brand names used on various goods and services is known as a trademark.
  • Copyright is used to protect creators artistic works such as music, films, paintings, technical drawings, computer programs etc.,
  • Any secrets related to a company’s business protected, to avoid its accessible by its competitors is referred to as trade secret.

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Intellectual property is very important for protecting one’s innovation. If IP is not in use there are high chances for many individuals and businesses to lose their rights to their innovation.

Media:

The storage and delivery of information or data through various modes like radio, television, mobile phones, magazines, newspapers, internet etc., are referred to as media. The information is disseminated as films, news, music, promotional messages etc., Since media consists of artistic work from one’s own knowledge, an individual must protect his/ her work through media. There is how IP plays a very important role in protecting the works of media.

IP’s role in media industry:

We all love movies! But to make a scene and combine it into a movie involves many various complicated works. From making movies to shaping every stage of the filmmaking process Intellectual property rights play a vital role.

  1. Copyright in media:

As copyright protects the artistic ideas of individuals it is considered as the lifeblood for media. Copyright guarantees the protection of creative minds without affecting the creation of new media and protects the creators work from the usage of others without their permission. The copyright of the original material is mandatory nowadays, as a lot of competition has emerged in the entertainment industry.

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Benefits:

  • A public record of the work is registered.
  • Provides with economic benefits such as broadcasting the work, making copies etc.,
  • Filing a lawsuit and taking legal action is enabled when copyright is registered. Legal evidence of one’s own can be obtained.

Passing the rights of one’s work is allowed and one can change the form of his/her work.[2]

  1. Trademark in the media industry:

Any symbol, design, word or phrase that differentiates the goods of one company from others is referred to as a trademark. In media, a trademark is used to protect a movie’s brand or merchandise in connection to it. In media trademark law protects every title of a movie, album, music, famous characters etc., For instance, Disney has its own logo, the same goes for Pixar, discovery and many other channels as its logo to stand out from the crowd in the market. Similarly, movie titles like star wars, harry potter can also be protected using the trademark.[3]

Benefits:

  • The exclusive right of the trade can be enjoyed by the owner.
  • There will be no infringement.
  • Big brand names act as a magnet and attract young minds.

Merchandising:

Character merchandising is one of the ways to generate income. In a case where the unauthorised sale of dolls resembling a famous pop singer without their permission injunction was granted for the tort of passing off by the Delhi High Court to the third party.[4]

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  • Patent in media industry:

Just like trademark and copyrights patent also plays an important role in media. Making the film is not an easy task. It needs funding and substantial efforts. It involves lighting, sound effects, editing, special effects etc., Patent is used to protect the innovation of a person which is considered as the eye of filmmaking. By patenting, third parties are excluded from using or selling another person’s product without permission.

Benefits:

  • Restricting the competition in regards to a particular invention.
  • Inventor’s monopoly is been safeguarded with patent registration.
  • The inventor has the right of royalty when he decides to license his product.
  • Patent registration helps in start-ups and small business entities.
  • The credibility of the company in the market increases through patent registration.
  • In media to begin an industry patent registration is necessary.

Laws protecting IP in the media industry:

Therefore copyright, patent and trademark act as a shield for the media industry. Recognition of the rights of the creators and protection against infringement of content are guaranteed through copyright. Whereas the key characters of a film, movie titles and other related elements are protected through trademark. Though there are IP rights for protection, violation of IP rights, trademark and copyright are being infringed as the media industry expands.

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India being a signatory of the TRIPS agreement and other International IP treaties helps in avoidance of misuse and protection of IP. There are certain laws in India in order to prevent such misuse in the media and entertainment industry. They are.,

  • The Copyright Act, 1957
  • The Trademark Act, 1999
  1. The Copyright act, 1957:
  • Section 14 of the Copyright Act, 1957 defines copyright as the right given over a work to do or to authorise to do that work.
  • If the own work of any individual is been infringed in India then the person who infringed would be punished under section 63 of the copyright act, 1957. If a suit is pending before the civil court then the criminal court cannot give a finding on the infringement of copyright.[5]
  • The Bombay High Court held that the act of the infringer will be preposterous if he attributed infringement without knowing that owner of the copyright has registered under section 44 of the Act.[6]

De minimis infringement:

The principle of “de minimis non-curat lex” that is “the law does not concern itself with trifles” applies to copyright. A court has the authority to apply the de minimus principle in a lawsuit if it is of trivial matter. For instance, the De minimus doctrine is used in music sampling where a music w is modified by sound engineers from a small portion of music work and incorporated in new musical work.[7]

In the case of the India Independent News v Yashraj Films Pvt Ltd[8]., the doctrine of De minimus was applied to decide copyright infringement where parts of popular songs were played in a singer’s interview who appeared on a television chat show. It was held that it was not actionable as the alleged infringement was deemed de minimus.

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  1. The Trademark Act, 1999:

Under the trademark act, the name of songs, music albums, movie titles and their famous characters are being protected.

Conditions:

There are few conditions for the protection of titles and symbols under the trademark act. They are;

  • There must be originality of titles and phrases. Titles should be unique; if not the general ones will not be protected under trademark.
  • Single film titles will not be trademarked. Series of films such as harry potter, Narnia and series like F.R.I.E.N.D.S, money heist etc., can be protected under trademark.

Social media and IP:

The Internet has grown so fast with the evolution of time. In the early days, there was only a television mode of media. And therefore the risk of infringement has been less. There are plenty of content creators on online platforms nowadays. For example youtube. Online platforms also follow strict policies such as copyright verification programs, copyright strikes etc.,

The Bombay High Court held in the case of the Marico Limited v Abhijeet Bhansali[9], that the suit constituted by the defendant cannot be taken into legal action has his video was just his opinion.

Rights of celebrities:

Celebrities’ images are used without their knowledge and have been misused. Both copyright and trademark act protect celebrity rights in India. In addition to these, the Universal Declaration of Human Rights also tries to protect celebrity rights.

Under copyright act sections 38 and 39 covers celebrity rights.

Section 38 of the copyright act- the performer’s right is provided to any performer concerning his performance for fifty years.

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Section 39 of the copyright act- a person will be held liable for infringement if he takes the recording of the performance of the performer without his consent.

Conclusion:

IP plays a major role in keeping the media industry running smoothly without any problem. Movies are protected through IP. Everything we experience, hear or see-through media is covered by IP. Intellectual property and media should go hand in hand. If IP is not there media would have been at high risk. Everything from television serials to Netflix series involves huge funds and labour of various people such as cameraman, director, producer, screenwriter, actors etc. Therefore protection of such work from infringement is mandatory. Such a role of protection can be given only by Intellectual property. Therefore intellectual property plays a very important and dominant role in the media industry.

[1] Row Weeder Pty Ltd. v. Nielsen, 39 IPR 400 (1997).

[3]CS Prachi Prajapati, Advantages Of Registering Trademark, LEGAL WIZ (Jul. 31, 2017, 11:15 AM), https://www.legalwiz.in/blog/advantages-of-registering-trademarks.

[4] DM entertainment v. Baby Gift House, MANU/DE/2043/2010.

[5] Cheran P Joseph v. K. Prabhakaran Nair, 1517 CriLJ  (1967).

[6] Dhiraj Dharamdas v. M/s Sonal Info Systems Pvt Ltd, 3 MhLJ 888 (2012).

[7] De Minimus Use, USLEGAL (Aug. 25, 2019, 09:30 AM), https://entertainmentlaw.uslegal.com/intellectual-property/copyright/de-minimis-use/.

[8]  53 PTC 586 (2013).

[9] 1094 COMIP 596 (2019).

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How to file a Patent in India?

By: Ayushee Subhadarshini

As it is said an invention is not your own until it is patented- so what is patent? How do we patent our invention? The simple answer to this is patent is the Exclusive legal right given to the inventor so as to protect its invention. we may say that it is a form of intellectual property. Basically, it is a title given to the owner of the invention for a certain time period which protects and secures the invention from any third party interference. In order to get a patent the inventor in return has to disclose all the information of the product, method, process, research etc of the invention.

Patents can be a three types- utility patent, design patent and plant patent. In utility patent the invention may be a product or process and it can be patented for up to 20 years .For example, engines of automobiles. Design patent it is a kind of registration in which the appearance of a particular design is patented it may be extended for up to 15 years. For example, logo of a brand (Note- design patent only count for appearance and not any functional aspect) .Plant patent is not found in India. In this if a farmer crossbreeds and produces a new variety of plant it may be patented.

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A big question arises on what can be patented- first a process or method can be patented .a new process which may be short, more efficient and user-friendly, which may give good quality products can be patented. Second a composition can also be patented like combination of certain substances or an active ingredient with other substances or mixture of certain elements or chemicals or substances. Therefore any useful composition is patentable. The third one is research .a research on some product process or approach can also be patented because this research might be used while making a product so it is patentable.

There are certain criteria which are needed for patenting. The invention must be new or novel. it should be of total originality ,it should not be found anywhere in the world .it should be an inventive step .either it may have some Technical Advancement some economic significance or both etc. it should be an inventive product the product; should be capable of industrial application in essence it should be fit for use in industries.

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Now there are inventions which cannot be patented.[1] Section 3 and 4 of Indian Patent Act 1970 lists out non patentable subject matter like scientific discoveries ,living beings ,plants ,animals ,organisms, new form of known substances ,mere addictive combination, traditional knowledge ,business methods ,mathematical methods and atomic energy etc.

There are certain procedures which are needed to be followed for getting a patent granted:

First the complete concept or idea of the invention should be written down in detail. it should include what is the invention or Idea, its working mechanism, how the invention helps in solving a problem ,the field of the invention, advantages of it ,elements or objects or composition involved in it ,any competitors of the invention etc.

If the invention includes research then the lab record should also be included. Visual illustrations play an important role- so sketches drawings, charts; diagrams should be designed to explain the working mechanism of the invention. As we know that all inventions cannot be patented so checking upon patentability is a very important step.

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Second step includes the drafting of patent application. as we know that a patent has both technical and legal aspects, for drafting a patent application it requires a lot of skills and practice .filing it on own would be a huge mistake as it might cause hindrance in the opportunity. this being the most crucial step requires a good patent agent or an attorney who will not only file the application but would stay and supervisor in the whole process like till the commercialization phase where the real money comes in by providing license or by selling the patent rights .this step costs depending on the fees of patent attorney or agent and it may require a time period of 8 to 15 working days.

After the drafting and reviewing of application by the inventor the patent is filed in a government office where a receipt is generated with an application number. there are three types of applications which can be filed in the patent office- the first one is the provisional application which is filed at an early stage of the research or development of the invention, it secures the filing date, 12 months is provided for giving the complete specifications and it is low in cost .the complete patent application is drafted when all the necessities and specifications required are available to file a patent. The international patent application provides protection to patent rights outside the country as well because as we know that patents are territorial in nature it can only be secured inside the country.

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Fourth step includes an examination request where an examiner is appointed by the controller to review the patent application only after receiving the request for examination .The examination report is generated after the review .it is a kind of prosecution where the patent application is prosecuted at every step before the grant of patent.

Fifth step includes the response to the objections. Mainly patent applications receive some or the other kind of objection in the examination report .the patent agent or attorney may give a written response to the objections raised. After analyzing it, if the objection is still not resolved then a meeting or communication of any kind is set up between the inventor with the examiner in the presence of attorney to clear up the objection.

In the sixth step the application is placed in order for grant. Once it meets all the patents criteria and is cleared of any hindrance the patent is granted.

There are certain advantages of filing a patent:

  • A patent certainly gives protection to the invention and stops others from copying it.
  • It also helps to protect it from competition at early stages of invention.
  • It can also be used as a source of revenue by selling the patent rights or by providing license one can collect royalties from it.
  • A premium can also be charged for an invention because it is unique and no one else’s making it.
  • It gives more credit profit to an inventor and their company as well.

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Being advantageous at times there are also certain disadvantages of a patent:

  • Makes the invention a public record i.e., information of it is publicly available .rather than keeping it a secret may help to stay afar from competitors.
  • Applying for a patent is time consuming during which the certain invention may become outdated.
  • For filing an application ,patent agent or attorney is required who charge heavy amount .putting money somewhere where the probability of getting the result is not a short is not a good move.
  • Patents are time specific -filing dates, Annual fees all must be checked accordingly or it may get cancelled anytime.
  • The territorial nature of patent provides service to exposure outside the country.

Landmark cases on Patent in India:

[2]Bajaj Auto Limited versus TVS Motors Company – in this case the defendants infringed the patent which concerns the invention of the technology of improved internal combustion engines of the plaintiff.      This case is important as it also includes the doctrine of pith and substance.

[3]Novartis AG vs. Union of India- in this case Novartis filed patent application for its new version of cancer drug that is glivec. The case was regarding the filing of patent application for a new version of a known drug molecule. This is prohibited under Section 3(d) of Indian Patents Act, 1970. since the existing drugs patent has already expired the generic version which is also cheaper in cost is permissible for supply. so the application for leave it is rejected.

[4] F. Hoffmann-La Roche Ltd. & Anr. v. Cipla Ltd-In this case the plaintiff filed a suit for injunction, for curbing infringement and for claiming damages .The defendant argued that the drug was for treatment of cancer and was a derivative of parent drug, the composition was same except for one alternative .This was upheld in the Supreme Court.

Section 118-124 of the Patents Act,1970 provides provisions of penalties.

Section 108 of the Patents Act,1970 provides provisions for relief.

                     Act                                                 Punishment

Contravention of secrecy provisions  relating to certain inventions Imprisonment up to 2years or fine or both
Falsification of entries in register,etc Imprisonment up to 2 years or fine or both
Unauthorized claim of Patents  rights Fine up to 1-lakh rupees
Wrongful use of words “patent office” Imprisonment up to 6 months or fine or both
Refusal or failure to supply information Fine up to 10-laks or imprisonment up to 6 months or both
Practice by non-registered patent agents Fine up to 1-lakh rupees, up to 5 lakhs in second offence.
Offence by companies Liable for proceedings, punished accordingly.

           

RELIEF IN AN ACTION FOR INFRINGEMENT

 

PATENT OFFICES IN INDIA

PATENT OFFICE TERRITORIAL JURISDICTION
Mumbai The States of Gujarat, Maharashtra, Madhya Pradesh, Goa, Chhattisgarh, the Union Territories of Daman & Diu and Dadra & Nagar Haveli

 
Delhi The States of Haryana, Himachal Pradesh, Jammu and Kashmir, Punjab, Rajasthan, Uttar Pradesh, Uttarakhand, National Capital Territory of Delhi and the Union Territory of Chandigarh
Chennai

 

 

 

Kolkata

 The States of Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, Telangana and the Union Territories of Pondicherry and Lakshadweep.

 

Rest of India (States of Bihar, Jharkhand,

Orissa, West Bengal, Sikkim, Assam, Meghalaya, Manipur, Tripura, Nagaland, Arunachal Pradesh and Union Territory of Andaman and Nicobar Islands)

 

 

 

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Conclusion

Patent filing may seem a long and complex process but one should always remember the importance of a patent. Patent would always ensure that no third party can claim your rights without permission and order. Legal bodies are always out there to help people when necessary. An intelligent approach matters the most while filing a patent. With technological and digital advancements patent filing may become easier day by day. Make in India has a real significance over patents. We should not only encourage inventions and grant them patent, it also signifies the product to work in India. This helps in building up of the economy. It helps in more turnover for businesses, more credibility and many more to it.

[1] Indian Patent Act 1970

[2] MIPR 2008 (1) 217

[3] (2007) 4MLJ 1153

[4] I.A 642/2008 in CS (OS) 89/2008