Patents, Leather or Fake?
India will have to decide whether it wants to get serious about R&D by taking IPR seriously
On April 26, we will celebrate World Intellectual Property Rights (IPR) Day as marked by the World Intellectual Property Organisation. As the global economy slows down and India’s economic hopes rise, it’s time to reflect where we are with respect to the IPR environment.
In a theoretical world, IPR should aid in the development of a country’s endogenous capabilities in domestic innovation and manufacturing. So, it should drive long-term economic growth. It would be instructive here to assess this using a focused lens on India’s cellular phone market, one of the fastest growing in the world.
Do Indian domestic firms contribute at all in terms of patents and technology in India’s vast phone market? Unfortunately, the answer is a no. A sizeable volume of mobile phones that are being consumed in the country are only assembled in India.
Prime Minister Narendra Modi seems to have recognised this fallacy when he initiated the ‘Design in India’ initiative so that Indian manufacturers can move up the value chain and create IPRs as China has done. This is important as higher local value-add would mitigate outflow of precious foreign exchange, increasing exponentially due to import of electronic equipment and services (also foreign IPR) — an expense that is likely to surpass the oil import bill by 2020 (estimated at $400 billion).
The current value addition of pho- nes assembled in India remains only 1-2%, mostly on account of packaging and testing of modules imported from China. To alter the situation, the government needs to first correct the inverted duty structure between finished handsets at 12.5% and printed circuit boards (PCBs) at 2%.
The PCB of a phone contains the maximum opportunity for research and development (R&D) and design. Why would anyone set up manufacturing units for PCBs if imports are allowed at marginal duty rates?
Frand in Need
The other driving force will be in preserving the neutrality of IPR, so that value of innovations are protected, leaving local manufacturers with enough incentives to spend on R&D and design. Indian courts and the Competition Commission of India (CCI) have been tussling on licensing since litigation between Ericsson and Indian companies in 2009.
The department of industrial policy and promotion (Dipp) has recently come out with a consultation paper inviting stakeholders to comment on regulatory issues around standard essential patents (SEPs) that are critical for innovation in the sector, and fair, reasonable and non-discriminatory (Frand) licensing fees between innovators and implementers.
It is a surprise that the Dipp is stepping into a dispute that is purely commercial. That too when SEPs have never been a barrier to Indians enjoying the fruits of innovation: smartphone prices here are the lowest in the world. And this is despite the IPR burden and associated costs that were always bundled into the phones imported and sold locally.
Most of the issues raised by the Dipp was recently discussed in the Telecommunications Standards Development Society, India (TSDSI). The TSDSI is the official standards- setting organisation (SSO) of India — the way the European Telecommunications Standards Institute (Etsi) is for Europe and the Institute of Electrical and Electronics Engineers Standards Association (IEEESA) for the US.
The TSDSI recently formulated its IPR policy after deep industry-wide consultation. The policy was finally passed unanimously by a voice vote in the general body meeting (GBM) on October14, 2014. The GBM had wide representation from local manufacturers, the department of telecommunications (DoT), Department of Electronics and Information Technology (DeitY), the IITs, the IIMs, the Centre for Development of Telematics (C-DoT), the Centre for Development of Advanced Computing (CDac), the Indian Cellular Association (ICA), the Cellular Operators Association of India (COAI) and foreign manufacturers.
It is curious that the Dipp has ignored some key issues raised: such as unwilling licensee or patent holdouts in the list of 13 questions that it is seeking response from the industry. These issues were discussed and accepted by the DoT as part of the Indian patent policy during the deliberation in the TSDSI.
Instead, the Dipp has included controversial and market-related issues like regulating Frand rates and linking royalty rates with the smallest saleable component.
These issues were recently tested in the IEEE — which works on Wi-Fi technology and is responsible for the global standard setting of phones — and its IPR policy was changed recently, some allege, undemocratically, by a small group of companies ignoring the majority view. However, the result has been a slowdown of the IEEE’s standardisation work.
Shuddh Desi Design
Many companies no longer contribute new SEPs to the IEEE and have pulled out SEPs agreed under a previous balanced IPR policy regime. If the Dipp aligns with the IEEE, it will not be far-fetched to forecast that it will demolish India’s vision of elevating technological capabilities, as Indian manufacturers will not invest in R&D and design and own IPR.
A few days away from World IPR Day, the question then becomes: is this what our policymakers want? Or will they walk their talk about make and design in India? As of now, one can only wait and watch.
The writer is assistant professor, IIM-Bangalore
Design — and accessorise — in India