Patents, Leather or Fake?

In­dia will have to de­cide whether it wants to get se­ri­ous about R&D by tak­ing IPR se­ri­ously

The Economic Times - - Breaking Ideas - Chi­ran­tan Chatterjee

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

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