Thursday, 22 September 2011

Standards and Patents

If your company plans to manufacture products or deliver services that are required to comply with certain standards it is advisable to become familiar with the IPR or patent policy of the relevant standard making body. Any company, large or small, that plans to adopt a standard for its products, processes or services, should first and foremost verify if there is/are any “essential” patent(s) for which a license is required and the broad terms and conditions under which the license will be granted to your company. If there is a need to obtain a license from a holder of an essential patent to meet the industry standards, it will generally be necessary to contact the patent holder directly and sign a license agreement under negotiated terms and conditions that are acceptable to both the parties. Ignorance of this knowledge may put your company in a difficult situation because you may be sued for infringement of a patent while your company thought that it was following a standard! Extending it further would also imply that you have to choose your vendors very carefully.
 
Standards of any kind are aimed to ensure that consumers of products receive products, which meet certain specification related to dimensions, properties, performance, safety and other parameters. Standards influence the food we eat, the drugs we take, means of communication, electric gadgets and endless other activities. Almost every product available in the market has been developed in accordance with some voluntary or mandatory standards. A product usually incorporates many components and each component is a product by itself. In a larger product the interconnectivity and interface of components is equally important as the components themselves. This is very true in IT. If components are not properly related (connected) and do not talk to each other the manner in which are expected to, the product may not be acceptable in the market. However, if components and the product are so designed that they could establish uniform, consistent and reliable performance then it is easy to win the allegiance of market place. This allegiance is easier to attain if the products and components are designed according to some standards either already existing or established for the product in question. Take the example of power supply in different countries. In India the power supply follow 220V-50 Hertz system whereas in USA it is 110V-60 Hertz system. Appliances such as hair dryers and electric irons designed for the Indian market will not work in USA without an adapter. Similarly, take the sockets, which hold electric bulbs. There is a standard followed for the design of the bulb in terms of dimensions, electrical properties and design. Bulbs are manufactured by different companies to fit the standard sockets even if there are differences in manufacturing techniques, materials etc. If this was not the case, each manufacturer of bulbs would be marketing their own sockets. There would be so many different types of sockets in the market, a situation difficult to comprehend today.


In a more complex product such as a personal computer which is a combination of hardware and software and which has to talk to many different outside systems such as its connection with internet, maintaining standards becomes challenging. Each component like Intel microprocessor or Window 2003 has been designed to some standards, which are practised and accepted practically all over the world. All such components have a strong element of inventiveness built into them and would usually have strong IP protection through one or more forms of IPR. In the absence of standards it would be very difficult, in most cases impossible, for competing firms to develop compatible or interoperable products.


Standards are rules that define the ways in which a product performs. They provide a basis of reuse, inter-networking, cooperation and portability. Standards are specified by a large number of formal and informal organizations. Some standards are never formalized but become de-facto standards due to market dominance of a particular product or service. Mandatory standards generally pertain to health, safety or the environment and are set and enforced by, or on behalf of, the relevant government. Most standards are voluntary, however. The International Organization for Standardization (ISO) defines a formal standard as “a document, established by consensus that provides rules, guidelines or characteristics for activities or their results.” A standard, therefore, is generally a set of characteristics or qualities that describes features of a product, process, service, interface or material. A standard may also describe how properties are measured, the composition of a chemical, the properties of an interface, or performance criteria against which a product or process can be measured. Apart from health, safety and environmental concerns, standards are important for a number of other reasons. For example, the existence of standards makes it possible to develop compatible or interoperable products by competing firms.


        De-facto standard is a convention, product or a system that has achieved a dominant position in the market by public acceptance or market forces. These standards are often but not always proprietary. QWERTY system for layout of letters on a typewriter or a keyboard is a universally adopted convention and it was not designed to any existing standard because there was no standard at that time for this purpose. QWERTY system has become a de-facto standard and no typewriter or keyboard follows any other system for layout of letters. Many competitive systems were designed based on a different layout but none could replace the QWERTY system. VHS format for video recording and play replaced Betamax system completely due to superior marketing tactics. These standards also emerge in response to an immediate industry needs. They gain in use and popularity through market dictates. They are usually maintained and managed by the company or the group of companies that originated them and they do not undergo any community review. These standards are not approved by any standard organization. They are widely used by the industry. It could be seen that these standards tend to be narrower and designed for specific use.
           The intricate relationship between standards and patents is least understood by most people because it appears so distant as standards have nothing to do with monopolistic rights. The development of standards more and more frequently anticipates technology rather than following it, leading to conflicts between standards and patents. MPEG-2 standard for visual and audio compression is covered by about 100 patents.
© R Saha

Intellectual Property Rights and Competition Law

The relationship between IP rights and competition has been a subject matter of debate in many countries and has undergone changes from time to time. Major changes have taken place since the WTO came into existence; some countries promulgated new laws and some made changes in their existing laws. The question which very often occupies the minds of people is - “Are IP rights anti-competitive by its very design?” The answer to this question is not a universal truth and therefore, varies from country to country and real life situations attracting attention to this question.


IP laws are intended, to start with, to encourage innovation leading to economic growth. As the IP reaches the market place, usually in a complex form, the issue of competition comes into play. Hence an IP right in its basic form is not anti-competitive. It is not necessary at all that IP rights would always lead to a situation creating a competitive or non-competitive environment. If one were to come to a conclusion that IPR are anti-competitive with out examining the context, one would tend to erode the incentive to innovate. IP system rests on the idea of long term incentives for innovation and this basic theme cannot be lost sight of. IPR do not necessarily generate the ability to raise prices in the market. It is common knowledge that different patented drugs are available in the market for the same medical indications but they compete with each other on price. The development of IP for new technological solutions does not eliminate the capability to use the older solutions and it does not even cause the older solutions to be withdrawn from the market. On the contrary it increases competition. However, if consumers on their own reject the older solutions a need to understand the causes of rejection exists.


In the case of Illinois Tool Works Inc vs Independent Ink Inc, the US Supreme Court held in March 2006 that IP rights cannot be presumed to create market power. In other words IPR cannot be equated with market power per se. This jurisprudence is different from what was generally accepted in USA in the pre 1995 period. It is to be understood that competition laws are normally concerned with activity that creates new choices and IP laws allow creation of new choices. What is important to consider is whether the effect of IPR in specific situations should attract the provisions of competition laws or not. It would be advisable to carry out an effect based analysis to determine the anti-competitive impact of IPR.


The Indian Competition Act 2002 as amended in 2007 addresses the topic of IPR and its relationship with the Act. The Competition Commission of India has issued the Advocacy Booklet on IPR under the Competition Act highlighting basic features and guidelines for better understanding. However, many conditions and practices which may lead to anti-competitive practices are covered neither in the Act nor in the Advocacy Booklet. The focus is mainly on the licensing of IPR. Following practices are likely to be considered anti competitive where the competition laws may become operative.


1. Patent pooling is a restrictive practice. This happens when the firms in a manufacturing industry decide to pool their patents and agree not to grant licences to third parties, at the same time fixing quotas and prices. They may earn supra-normal profits and keep new entrants out of the market. In particular, if all the technology is locked in a few hands by a pooling agreement, it will be difficult for outsiders to compete.


2. Tie-in arrangement is yet another such restrictive practice. A licensee may be required to acquire particular goods (unpatented materials, e.g., raw materials) solely from the patentee, thus foreclosing the opportunities of other producers. There could be an arrangement forbidding a licensee to compete, or to handle goods which compete with those of the patentee.


3. An agreement may provide that royalty should continue to be paid even after the patent has expired or that royalties shall be payable in respect of unpatented know-how as well as the subject matter of the patent.


4. There could be a clause, which restricts competition in R&D or prohibits a licensee to use rival technology.


5. A licensee may be subjected to a condition not to challenge the validity of IPR in question.


6. A licensee may require, to grant back to the licensor, any know-how or IPR acquired and not to grant licenses to anyone else. This is likely to augment the market power of the licensor in an unjustified and anti-competitive manner.


7. A licensor may fix the prices at which the licensee should sell.


8. The licensee may be restricted territorially or according to categories of customers.


9. A licensee may be coerced by the licensor to take several licenses in intellectual property even though the former may not need all of them. This is known as package licensing which may be regarded as anti-competitive.


10. A condition imposing quality control on the licensed patented product beyond those necessary for guaranteeing the effectiveness of the licensed patent may be an anti-competitive practice.


11. Restricting the right of the licensee to sell the product of the licensed know-how to persons other than those designated by the licensor may be violative of competition.


12. Imposing a trade mark use requirement on the licensee may be prejudicial to competition, as it could restrict a licensee’s freedom to select a trade mark.


13. Indemnification of the licensor to meet expenses and action in infringement proceedings is likely to be regarded as anti-competitive.


14. Undue restriction on licensee’s business could be anti-competitive. For instance, the field of use of a drug could be a restriction on the licensee, if it is stipulated that it should be used as medicine only for humans and not animals, even though it could be used for both.


15. Limiting the maximum amount of use the licensee may make of the patented invention may affect competition.


16. A condition imposed on the licensee to employ or use staff designated by the licensor is likely to be regarded as anti-competitive.


Penalty provisions


The Commission is empowered to inquire into any unreasonable conditions attached to IPR agreements and can impose penalty upon each of such right holder or enterprises which are parties to such agreements or abuse, which shall be not more than ten per cent of the average turnover for the last three preceding financial years. In case an enterprise is a `company’, its directors/officials who are guilty, are liable to be proceeded against and punished. (Source: Advocacy Booklet Intellectual Property Rights under the Competition Act 2002, published by Competition Commission of India)

© R Saha

Harmonization of patent systems - A global challenge

            The new IPR environment has become very dynamic and complex. The harmonization of IPR systems and the success of a multilateral system depends heavily on formulation and practicing of common rules. One of the major challenges faced by companies from developing countries is the understanding of the laws of different countries, and also using them correctly to their own advantage.
Introduction
            Multilateralism and globalization are co-producers of each other. The synergy between the two is so intense that one is today witnessing the development of a new world order.  In a borderless economy the competition has become severe and companies, corporations and R&D institutions must search for new solutions to beat problems that may have an adverse and immediate impact on their competitiveness and a long term impact on their survival. These are comparatively new issues being faced by developing countries which are trying to move up the value chain and are breaking off from the closed economy to enjoy the fresh air of open economy. It is now well understood that solutions to problems and challenges emerging out of globalization will be found in developing innovations in strategies, products, processes, marketing, business methods and so on.
            Companies from developing countries have to learn the rules of the new game as they do not have the necessary experience of handling global trade and commerce. It is clear that the new environment has become very dynamic and complex. One of the major challenges faced by them is developing an understanding of the laws of different countries, and also using them correctly to their own advantage. The success of a multilateral system depends heavily on formulation and practicing of common rules.
            On one extreme it could mean that the laws and their enforcement would be common to all countries opting for harmonization. In other words the uniqueness of the laws of individual countries would merge into a common framework. To some it may mean only working out of common procedures and administrative practices. To others it could mean stipulation of common minimum standards to be followed in domestic laws. It may be safe to assume that the degree and extent of harmonization would actually decide the success or failure of the harmonization exercise. The process of harmonization of IPR systems started with the Paris Convention and is continuing today. Harmonization of IPR systems among nations cannot be dispensed with by any nation interested in having a share in the global trade. Some countries may have a vision of a truly global patent system, with one central office issuing patents valid in any country in the world. The question, however, remains as to what should be the extent, scope and degree of harmonization, which would be acceptable to all and not interfere with the sovereignty of nations.                                                                                             
Process of harmonization is not new
            The IPR system has many different forms of protection, which are independent of each other and governed by separate laws. These are patents, copyrights, industrial designs, trademarks, protection of IC lay-out designs, protection of undisclosed information and geographical indications. Sui generis systems for protection of new plant varieties is a form of protection not covered under the above headings. In fact, there may be a few more topics like databases, domain names and traditional knowledge which may not be directly covered by these headings. It is very often seen that debates on harmonization tend to concentrate on patents, and other forms of protection are not given enough attention. Therefore, for the sake of completeness it may be desirable to spend some time on all the forms.
            The foundation of IPR harmonization was laid with the Paris convention for protection of Industrial property, in 1883. The Convention applies to industrial property in the widest sense including patents, marks, industrial design, trade names, utility models, geographical indications and repression of unfair competition. The Paris Convention commits its signatories to the principle of national treatment, patent independence and a system of international priority. It is interesting to note that the Convention did not attempt to interfere with laws of members but concentrated on facilitating obtaining patents in different countries and created an atmosphere of fair competition.
            In the area of industrial design the noteworthy treaties are The Hague Agreement concerning Deposit of Industrial Design (1934) and the Lacarno Agreement establishing an International Classification for Industrial Design (1968). In addition to the Paris Convention, there are other treaties which were designed to facilitate obtaining of trademarks and trade names simultaneously in different countries. These are the Madrid Agreement (1891), the Nice Agreement concerning the International Classification of Goods and Services for the Purpose of the Registration of Marks (1957) and the Trademark Law Treaty (1994).
            The other example of harmonization is the Berne Convention for the Protection of Literary and Artistic Works which came into existence in 1886. The Convention also enunciated the principle that it was not necessary to register a work for obtaining copyright protection. The Berne Convention has been followed by the Rome Convention for Protection of performers, producers of Phonograms and Broadcasting Organization (1961), WIPO Copyright Treaty (1996) and the WIPO Performers and Phonogram Treaty (1996).
            Following The World War II global changes to the international patent system proceeded at an accelerated pace. Numerous new treaties now provide inventors with a network of possibilities to obtain rights in many countries. In 1960s, Europe was heading toward a European Economic Community which led to discussions on a uniform patent system for the EC. Following adoption of uniform patent classification system, European states agreed to the 1963 Convention on the Unification of Certain Points of Substantive Law on the Patents for Inventions. This was called the “Strasbourg Convention” which ultimately led to the European Patent Convention (EPC). The EPC allows an applicant to file a single patent application at the European Patent Office which may mature into a number of individual national patents. A similar model in the form of ARIPO was evolved by some African countries. The other well known treaty which was adopted was the North American Free Trade Agreement (NAFTA) which included aspects of IPR. It may be noted that these regional systems could evolve only in the backdrop of identified economic and political needs and agreement to achieve some common economic goals in an environment of mutuality and sharing of benefits.
            The Patent Cooperation Treaty (PCT) formed in 1970 was a landmark step towards wider harmonization. India joined the PCT in 1998 and the Indian institutions have been utilizing the system quite extensively. The advantages offered by the PCT system are not in terms of grant and enforcement of a patent but are in terms of claiming priority in member countries and deferring decision on entering the national phase by 18 months to 30 months. The implied advantage is that an inventor’s decision to go in for national phase is based on better search reports and preliminary examination. However, countries having well established facilities for patent and non patent literature searches may not benefit much.
            The most important agreement in the process of harmonization is the Trade Related Aspects of Intellectual Property Rights (TRIPS) which has brought about substantive reforms in the laws of the member countries. It provides uniform and minimum legal standards for all forms of IPR. However, there is enough space available for the member countries to frame their own implementation and enforcement mechanisms.
New Developments
The post TRIPS days have seen the birth of a new treaty called the Patent Law Treaty (PLT), piloted by the World Intellectual Property Organization (WIPO). The treaty was adopted on June 2, 2000 after the initial discussions toward patent law harmonization started in 1985. Forty seven countries are members of the PLT. The treaty aims at simplifying and harmonizing administrative practices and procedures among national and regional IP offices. The key results would include simplification of requirements for obtaining a filing date, harmonization of requirements that can be requested by national offices with respect to form and content of an application, possibility of extending the priority period and simplification of procedures for transfer of ownership. It is to be noted that the treaty does not interfere much with the domestic laws of the member countries. 
            As a next step to the PLT, the WIPO has been spearheading a new treaty called the Substantive Patent Law Treaty (SPLT) which would deal with substantive matters related to patents like what can  and cannot be patented, definitions of novelty, inventiveness and industrial application, grace period for determining novelty and associated aspects. The SPLT is expected to raise the standards of patenting. For example, there may be a ban on putting additional patentability criteria. The present concern of developing countries about misappropriation of biological materials and traditional knowledge through patents and their preservation and insistence of introducing new disclosure criterion would fall on deaf ears if the SPLT was in place.
            Concepts of novelty, inventiveness and industrial application are retained on the same lines as stipulated in the TRIPS. However, the phrase “ in all fields of technology” has been eliminated. It has been reported that the USA has proposed that this phrase as it appears in the TRIPS, may be replaced by “in any field of activity”. One can clearly relate the proposal with the present US practice of awarding patents to business methods and new plant varieties. It may be noted that business methods were not granted patents until recently.
            The notion of industrial application / utility may undergo some changes. An invention would be industrially applicable if it can be made or used in any industry or it can accomplish a practical application in any field of art. Thus there could be a major departure from the traditional meaning of the word. If the present expression is accepted, it may include all sorts of industries which may not necessarily lead to advancement of scientific and technological knowledge which have been the invisible force driving the patent system.
Problems in the path of harmonization
            There are already many situations in which the developing countries find themselves disadvantaged. Such situations may become very serious if common laws are to be followed which have been designed from the perspective of few developed countries. Some examples of such situations are discussed here.
Difference in interpretation of the same invention by different patent offices
            Differences in interpretation of the same invention by different patent offices are commonly observed in many aspects. Similarly, different offices allow different claims which may be attributed to interpretations dependent on the local laws and practices. Sometimes, the element of subjectivity also comes into play. For example, an invention related to aryl and hetero aryl compounds preparation by selective dehalogenation was given different IPC (International Patent Classification) codes:
EP  825173A1                                                C07C-067/317
AU 9733211A                                                C07B-031/00
CA 2212958 A                                               C07C-069/76
            Obviously, if some one were to search a patent through the IPC codes, it may be difficult to come to the same invention. Such differences may not be only due to variation in the understanding of the classification system but may be also be due to the variation in the understanding of the most crucial part of the invention. It may appear surprising, but it is true that written expression of an invention may not be very objective at times, thus leaving room for interpretation.
            While allowing claims, one patent office may differ from the other. As an example, take the case patents related to the “nap hal”, a wheat land race from India, awarded to Unilever by the EPO and USPTO. The claims allowed by the EPO are very wide and cover wheat varieties similar to “nap hal”, whereas the US patent only allows claims related to “nap hal”. Believers in complete harmonization would argue that such differences would not exist if a global patent office was in place. However, the questions to be addressed are who will man such an office? What would be the compatibility of decisions of such an office and the enforcement laws of various countries? Would the differences in the understanding of novelty, inventiveness etc. be tilted in favour of a few?
Differences in understanding of language and problem of translation
            English is the most common language used in patent applications. Inventors from countries like India are conversant with the language but still may not be familiar with the nuances of various usages. Hence, use of correct words in claims becomes important. Let us not forget that these inventors do not have English as their mother tongue or first language. It is known to the practitioners in this area that claims are dependent on the acceptable usages of words. The use of the word “comprising” provides a very wide coverage to the claims whereas the word “consisting” provides a narrower coverage, although these two words have the same dictionary meaning. Therefore, inventors not knowing the correct use of words are likely to be on a weaker ground when it comes to fighting legal battles. This situation has been in existence for many years and would continue to exist. No solution is in sight. Inventors will prefer to file their application in their own language to avoid disadvantage in a possible legal dispute. This may not be conducive to a global patent system.
            The PCT system provides for translating patent applications in different languages and filing them in designated countries. How does an applicant ensure that the translation carried out under the aegis of WIPO is the true translational of the original application and it will stand the scrutiny of the courts in that country in the event of any dispute arising during the term of the patent? This issue has not been addressed in any substantial manner even 23 years after the installation of the PCT!
The question of disclosure
            The developing countries have been advocating that a patent application dealing with biological materials must disclose the source of the material and the associated knowledge with it that might have been obtained from a community residing in a particular country. One of the basic objectives of this demand is to minimize the piracy of biodiversity and traditional knowledge by those who only believe in trade and do not want to share benefits with the holders and preservers of that knowledge. The Biodiversity of each country belongs to that country and is not property to be exploited by others. The subject matter has been under discussions in WTO, TRIPS Council, WIPO and UNCTAD for the last many years. The Inter-governmental Committee (IGC) set up by WIPO has produced a large number of excellent studies on the subject but without any conclusions. The IGC has now been allowed to work in an exploratory mode for a few more years. The WTO has not been very receptive to the above demands. The draft Substantial Patent Law Treaty (SPLT), if it is any indication of the thought process of the developed countries, signals a non- acceptance of these demands. It states that in respect of the disclosure, no requirement additional to, or different from, those necessary to carry out the invention by a person skilled in the art should be imposed. In other words, the information regarding biological materials (suggested by developing countries) to be provided as disclosure will not find any place in the scheme of things. Such restrictions will not allow me to practice laws, which are in the interest of preservation and sustenance of my country’s biodiversity, even with in my own country. Such developments would lead to interference which will not be acceptable to most countries whether developed or developing.
Enforcement
            Enforcement is a resource intensive activity. Larger resources are required if we want to implement higher standards provided that non compliance of standards leads to higher risks to the society. To the extent that enforcement costs are high and budget constraints are tight, laws will be implemented in a different manner by a resource starved country as compared to what would be done by a resource rich country. Therefore, cross country differences in enforcement are bound to exist.
Fast changes
            Technology is changing very fast and laws are finding it difficult to cope with developing technology. In this context developing countries have a distinct disadvantage. Take the case of new plant variety protection. The USPTO had maintained a dividing line between Plant Breeders Rights (PBR) and patents by stipulating that sexually reproduced plants would not qualify for patents. In a recent judgment by the US Supreme Court, it has been held that there cannot be a dividing line as stipulated by the USPTO as the US laws do not differentiate between sexually and asexually reproduced plants for the purpose of patents. In other word, patents will be granted to all types of new plant variety. What happens to UPOV in that case? Chances are that countries following the PBR system would be persuaded to switch over to the patent system in the foreseeable future. Would not such developments force developing countries to apply the criterion of food security and make a fresh assessment of the emerging situation? Similar situations in terms of patentability have been observed in respect of software, biotechnology, genetic material etc. By introducing a global harmonization, there would be tremendous pressure on developing countries to accept, adopt and follow what really does not belong to them and what is not within their scheme of things. A fundamental question bothering many would be: what would be the impact of harmonization on the civil laws of a country?
            Of late, the IPR system has been pursued with a single minded goal to utilize the system for trade and commerce. Other aspects, which are of long lasting nature, like encouraging innovations in human society and excluding discoveries like scientific principles from patentability are being diluted. It would be interesting to recall that the English Parliament while enacting the Statute of Monopolies in 1624 declared that letters of patent and grant of privilege would be valid for a maximum of 14 years and the invention would be worked within the country. Prior to this statute, the term was longer and the Crown had a history of awarding importation franchises and other exclusive rights. There would be many examples of similar nature, when States had to take corrective action in public interest by enacting new laws. The protagonists of unified system had themselves followed the path of sovereign liberty to make domestic laws to suit their own needs. This freedom is relevant even today for both developed and developing countries. The spirit of safeguarding public interest cannot be diluted for the sake of trade interests. The Cancun meeting did not succeed mainly because the interests of developing countries were grossly neglected. Apparently, the situation became serious enough for the developed countries to signal that they would start opting for non-multilateral systems. Whether it will ever happen or not, is difficult to predict. However, multilateral system will benefit all, provided aspirations and needs of all are looked after.
Conclusions
IPR regimes should accommodate the progressive maturation of a production and innovation base. As each country may have its unique innovation system and this could be at different stages of development in different countries. There is a need to understand that uniform IPR system may not suit the needs of many countries. Changes in IPR system should not be unidirectional or patterned after an individual model, namely that of countries that are at the frontier of property rights legislation and enforcement. Further, there would be little acceptance of a system which promotes convergence in order to provide better level of protection for developed countries. Major differences in the level and scope of protection have been removed among countries which are signatories of the TRIPS Agreement. However, there are differences in enforcement and the way violations are penalized. These aspects are generally defined by the socio-economic needs, political compulsions, need for promoting technology at a lower cost and many other factors specific to a country. It is meaningless to emphasize that the laws of a country seek to provide maximum benefits to its people and society. Extreme positions may not assist in finding solutions to problems arising out of multilateralism because none will help the cause of such a system.  A balanced approach is called for which would perhaps demand that the harmonization of IPR system should be based on the following principles:-
  1. It should be driven by the spirit of facilitation of trade and not by the desire of  controlling and monopolizing trade.
  2. It should honour the mutuality of interests.
  3. It should help in avoiding unfair competition and providing a near level field to all.
© R Saha