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Make In India vs Design In China: IPR Race

Published on Sat, May 23,2015 | 12:14, Updated at Mon, May 25 at 20:02Source : CNBC-TV18 |   Watch Video :

Earlier this month, the office of the US Trade Representative published its annual Special 301 report, in which India and China were yet again placed on the ‘priority watch list’ for their lax attitudes towards enforcement and protection of intellectual property laws. But, don’t India’s intellectual property laws adhere to global IP standards? And over the years, what has China done to address their IPR problems? Also, as these two rising Asian powers continue to develop, is your IP safer in India or in China?  Aayush Ailawadi finds out...

India inherited an IP regime from the British in 1856, and in 1970, abolished patents on pharmaceutical products to boost growth in the sector. But, when the government wanted WTO membership and access to the global market, it signed the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), introducing product patents for a duration of 20 years.

Although, China only jumped onto the IPR bandwagon in the 1980s by enacting patent and copyright laws, it hasn’t taken its foot off the gas ever since. Today, China is a signatory to nearly all major international IP treaties and China’s Patent Office reviews the world’s highest number of patent applications in a year.

While the Indian government is pitching ‘Make In India’, China seems to have moved on to ‘Design In China’. And though the general perception is that piracy is rampant in China, China insists its IP laws are TRIPS compliant and conform to global IP standards.

Coral Toh
MD, Ella Cheong (Hong Kong & Beijing)
“Internationally, China is a member country of TRIPS and the Paris convention, the Berne convention, the PCT which is the Patent Cooperation Treaty, those are the main ones that most of the developed countries would follow for most of the patents and industrial designs.”

Shamnad Basheer
Founder, SpicyIP.com
Specialises in IP Law
 “Our patent regime to a large extent is based on the Iyengar committee report. It was a report fashioned in the 60s by this judge, which pretty much said that if you’re a developing country and a net importer of technology, then you’re better off with a weaker IP regime, where you promote a bit more imitation and then you move to a very strong IP regime.”

While that used to be China’s approach as well, China has now shifted its focus on creating intellectual property. According to the World Intellectual Property Organization (WIPO)- over the last few years, China has ranked the highest in terms of patent applications filed, beating the US, Japan & Germany. Last year more than 800,000 patents were filed in China, but, IN CONTRAST Chinese applicants filed only around 30,000 applications abroad!  So, the real question is- are more patent applications an indicator of more innovation?”

Coral Toh
MD, Ella Cheong (Hong Kong & Beijing)
“A part of it is because it is subsidised and encouraged by the local Governments because they use patent statistics as a benchmark of innovation. But, that has been criticised because there are three types of patents in China—there are invention patents, utility model patents and also design patents and a large number of these patents have been developed by China or Chinese applicants. Actually, utility models or design patents, these are called petty patents and other countries have them like Japan, Taiwan or Germany or France, these countries have petty patents. These kinds of patents are very cheap to file. There is no substantive examination, you just examine the formalities, meaning you have the applicant’s name and address correct, you have the proper documentation, you have the supporting documents and that’s it, it is approved. So the quality of this kind of patent is suspect or will always be a challenge in infringement action and so a large number of patents is indicative but not conclusive of innovation or the rise of innovation degree.”

Prathiba Singh
Senior Advocate
“In India, the way I look at it, in trademarks, if you have mapped the filings, 80% of the filings are by domestic businesses which is very encouraging, according to me because that just means that Indian businesses are very conscious of their brands. But, then when you go to patents, the number is exactly the opposite- 80% foreign filing and 20% domestic filing, out of the 45000-50000 patents that are filed every year. This needs to change in my view. There is a lot of ingenuity and innovative mindset within every Indian and I think we are not providing the right IP driven, innovation driven environment. So the minute we provide that, the filings in India by the domestic companies would increase and filings in general would also increase. Though in my view, my own feeling is, we should be more focused on qualitative patents rather than quantum of patents.”

Shamnad Basheer
Founder, SpicyIP.com
Specialises in IP Law
 “I think globally, now, there is a growing recognition that patents and innovation, the link is a very contested one. The earlier assumption that patents lead to more innovation is being questioned by everyone today. Economists have shown that there is no empirical data to prove that patents lead to more innovation, I would question anyone who would tout that as the gospel truth! I think India’s on a good wicket when it says that we are going to be cautious on the grant of patents because globally, even in the US, there are people and leading economists and scholars that have shown how more IP rights can act as a stumbling block to innovation! And more does not necessarily mean more innovation!”

The Chinese government invests heavily in R&D. According to the OECD, China will be the world’s top R&D spender by 2019. Another reason for the increased patent applications in China, is that the State provides financial incentives to support more patent filing by Chinese companies. Foreign companies are also seeking more IP protection in China so that they can protect themselves from any potential IP infringement by Chinese companies.

Coral Toh
MD, Ella Cheong (Hong Kong & Beijing)
“For companies that deal with technology, they receive a very strong support from the Chinese government in terms of holding patents. They have subsidies, they have bank loans, they are able to pledge their patents in exchange for cash to do more research, to file more patents, so in that sense, it is not only the IPR laws but also the IPR support around the laws that are important to these kind of companies.”

Prathiba Singh
Senior Advocate
“The issue is not about funding in my view. I think there needs to be funding towards creation of IP assets. There should be auditing of R&D expenditure. The minute you tie the expenditure to the IP asset creation, that is when you see the accountability for the fund that is actually spent. Right now that is not happening! The Indian government and even the private establishments - there needs to be more of a public-private partnership in research.”

Shamnad Basheer
Founder, SpicyIP.com
Specialises in IP Law
“Japan did the same thing, much later on, they incentivized to file patents. China is doing the same thing now, it’s giving subsidies and lot of incentives for domestic corporations to file and that’s why you see these fantastic numbers. Just on patent numbers, it’s way superior! China is doing 800,000 patent apps in a year, whereas in India we barely get about 50,000. But, the question to ask here is that does that really drive more innovation? Or is it a bit of the chicken and egg story. Are these countries patenting more because they’re just more innovative and anyway have more technological knowhow or is the fact that because they are patenting more, they are getting more innovative!”

China has also focused its efforts on IP enforcement. The country boasts of 3000 IP judges, and in the last year it has set up 3 specialized fast track courts in Beijing, Shanghai and Guangzhou. Experts say that in China, trials in IP cases usually reach a verdict within a year, whereas in India it can take nearly 3-4 years.

Coral Toh
MD, Ella Cheong (Hong Kong & Beijing)
“Well, the specialized IP courts were only set up at the end of last year, November, so it remains to be seen what the biggest impact of these IP courts is. Whether they will clear the cases faster or whether it’s more for the quality of the judgments. I suspect it’s the latter because IP trials in China do not take as long as the public perceives.”

Prathiba Singh
Senior Advocate
“There are many advantages and there are many advantages of not having specialized judges. For example, if I give my own experience in the Delhi High Court, where we do a large number of patent cases in the High Court, we see about 600-700 suits filed on IP every year. And I believe that the minute you start having specialized judges, it may result in delays. Because, at the moment we have 4-5 courts dealing with IP matters regularly. Every 3rd case that comes in the High Court in the original side is an IP case. I’m sure by allowing a large number of judges to decide on IP cases, I think that you create a larger pool of knowledgeable judges in IP. But, if you have very specialized courts, then the expertise also gets limited in that sense.”
 
Despite all these differences, the one thing China & India have in common is that the US brands both countries as IP violators. Is it the lack of transparency or protectionism that worries MNCs in these domestic markets?

US concerns about India’s IP regime range from the need for cam-cording legislations to counter video piracy; to the compulsory licensing case involving Bayer and decisions like the one in the Novartis case relating to ever-greening of patents under sec 3(d) of the Indian Patents Act.

Shamnad Basheer
Founder, SpicyIP.com
Specialises in IP Law
“Now, the US has been against Section 3(D) for the longest time and India has been maintaining that, look there is flexibility, TRIPS only says that you have to only grant a patent to something that is inventive but what is inventive is left to the country in question and just the same way that the US has said - inventiveness means X which is different from what Europe deems inventive as. You’ll find that the same drug that gets a patent in Europe may not get a patent in the US or vice versa. There are several examples because countries apply these standards very differentially.”

Prathiba Singh
Senior Advocate
“I think India being such a large democracy, I think as a lawyer, the complete distinction between the Government and the judiciary is well maintained. India can boast of being one of the most fair and impartial judicial systems in the world. I don’t think anyone can raise a finger on the Indian judicial system because irrespective of whether you are an MNC or a domestic company, contrary to the perception in the media, the Indian judicial system is extremely fair. These are borne out by statistics, which show that, in the case of MNCs and domestic companies which have litigated on IP, the percentage of cases that have gone in favour of the foreign companies is almost the same or in fact more than the number which have gone in favour of the domestic companies.”

China’s IPR laws were tested by none other than Apple! In 2012, Apple had to pay $60 million to Shenzhen based Proview Technology to settle a prolonged legal dispute over the iPad trademark in China, because Proview claimed to have registered the trademark in China in 2001. In the same year, another Shanghai based firm claimed that Apple infringed its Chinese patent with Siri, its voice recognition software. But, in 2013 Apple won this case after appealing in a higher court.

Coral Toh
MD, Ella Cheong (Hong Kong & Beijing)
“Actually, the Apple case is very typical of the kind of publicity there is around IP in China. There are all these IP in China type cases where people jump up and down and get very excited about it. But the Apple case in China has actually very little to do with our legal grounds or legal system. The system is there for what’s for a basic assignment of a trademark so, this happens in pretty much every country that has the IP system. A party owns a trademark and can assign it to another party and now in Apple’s case what it didn’t do probably was that they didn’t make sure the party assigning it was the party who owned the trademark. There was no big issue of fraud or anything. It was that this company that was assigning it had separate subsidiaries and the party that actually signed the documents was not the party on record as the owner of the trademark. So, it was kind of like an administrative oversight almost and because of that, the whole assignment was not upheld. So, what Apple had to do to skip through all these layers of litigation was just basically to buy the trademark back. So, it’s not a reflection of China’s lack of IP protection. It’s not a reflection of how effective or ineffective China’s IP system is. It’s just a reflection of Apple and the other Chinese company did their transaction. But, it was sensational because of the 60 million dollars paid.”

Shamnad Basheer
Founder, SpicyIP.com
Specialises in IP Law
“The allegation against China is that China is favouring the domestic players—at the cost of the foreign multi-nationals coming into China and I think again there is some truth to it. But almost every country does it. The United States does it. When Apple had a problem with Samsung, I think that was a very clear indication that the US had an implicit bias in favor of Apple.”

It’s interesting that while India’s had an IP system in place for over a century, China has managed to get its act together within just thirty years of enacting its first intellectual property law. In 2015’s GIPC IP index, China ranks higher than India, yet again. But, with the Indian government’s plans to formulate a national IP Policy, let’s hope that India can catch up with China in the race to become the next innovation centre of the world.

In Mumbai, Aayush Ailawadi

 
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