In my post on Planning for TechnologyTransfer I had discussed the various aspects that need to be considered while
planning transfer of technology from one firm to another. One of the major
aspects which influence the arrangement for transfer of technology is the
Intellectual Property Right (IPR) Regime in the host country of the technology
receiver.
In a nut shell, intellectual property
refers to creations of the mind. These may be inventions, literary and artistic
works, symbols, names, images and/ or designs used in commerce. The
intellectual property rights are rights that the originator of the intellectual
property has over his/ her creation. They cover bundle of legal instruments which provide
protection to the originator against use of their creations by other people. Each
of these rights are different in scope, duration and have different purpose and
different effects. However, the common feature of IPR is that these instruments
delineate exclusive rights to innovators over the use of his or her creation
for a certain period of time.
So why
do we need IPR. Well, there instruments allow the owner to disclose their
creation to the world without the fear of loss of control over their use. This
helps in the dissemination of new creations and is very important for
development in the technical field.
The IPR
may either deal with industrial properties like patents, industrial designs,
trademarks or geographical indicators or may deal with literary or artistic
properties like copyrights.
Let’s
take patents to explain the rights. A patent is an exclusive right granted to
the inventor for an invention. This invention may be a product or a process
that provides a new way of doing something. It can also be something that offers
a new technical solution to an existing problem. So what does this protection
provide? Patent protection prevents the commercial manufacture, use,
distribution, or selling of the patented invention without the patent owner's consent. Patent provides the protection to
the inventor for 20 years. Once the patent expires, the protection provided ends,
and the invention enters the public domain wherein other people can freely use
the invention for commercial purposes. A Patent provides the following rights
to the Patent holder:-
- A patent owner has the right to decide who may, or may not, use the patented invention.
- The patent owner may give permission to, or license, other parties to use the invention on mutually agreed terms.
- The owner may also sell the right to the invention to someone.
Every
country in the world has an IPR regime. These are basically laws enacted by
individual countries to provide the protection to the inventors. Once the laws
are enacted, following things can happen:-
- Firstly, the laws could be very strict providing maximum protection to the inventor, or they may be lenient laws.
- Secondly the enforcement could be strict or lax.
If the
laws are lenient, they would give lee way and provide loopholes to exploit to
the counterfeiters and people involved in piracy. Hence lower level of protection is provided
to the inventor. On the other hand even if the laws enacted are
strict but the enforcement is lenient, then again the protection provided would
be minimal as the counterfeiters and pirates would not get prosecuted. So we
land up with the following four situations:-
- Laws are strict and enforcement is strict providing maximum protection to the inventor.
- Laws are strict but enforcement is lax, this would reduce the protection accorded to the inventor. However, when a case is reported, he/ she can be assured of getting necessary respite.
- Laws are but enforcement is strict. In such a case, some protection is provided to the inventor.
- Laws are lenient and enforcement is also lax. This becomes a high risk scenario where the invention can be copied and the inventor cannot expect much respite also.
Another
very important factor that comes into play in protection of the IPR is the
capability and capacity of the host country to copy the invention. Because, if
the economy is not technically advanced enough, then even if the IPR laws are
lenient and the enforcement is lax, the risk of losing control over
the invention is minimised.
We have
seen that the inventor or the transferring company can transfer the technology
in exchange for monetary benefits. This exchange can take place in the form of
equity in receiver company, lump sum payment by receiving company or periodic
royalty payments by the receiving company. So what is the methodology that the
transferring company should use?
My further discussion assumes that the
receiving economy has the capability and capacity to copy the invention. I shall
discuss the matter purely from point of view of the risk due to the IPR regime
in the host country of the receiver and not the risks of product failure, risk
of competition etc. Also, I assume that at least 15 years are left before the
patent expires. So what are the options for compensation to the transferring
company?
If the laws
are strict and enforcement is also strict, the transferring company’s
technology is well protected and may not even face much competition for a few
years. In such a scenario the transferring company must go in for royalty
payment related to the sales of the product.
In case
the laws are strict but enforcement is lax, the protection accorded to the inventor
reduces and chances of piracy and competing products coming into the market
increase. In such a scenario, the transferring company may opt for an annual fixed
royalty to counter the threat of piracy and protracted legal proceedings to
counter the piracy. In addition, part royalty may be linked to the sales of the
product.
In
countries where the laws are lenient but enforcement is strict, there is a risk
of piracy and hence additional competition. In such a scenario, the
transferring company may opt for a lump sum payment to counter the threat of
piracy and protracted legal proceedings to counter the piracy. In addition, royalty
may sought linked to the sales of the product.
The
worst case scenario are countries where the laws are lenient and enforcement is also lax. Here the
transferring company has hardly any protection accorded to it from piracy and
counterfeiting. In such cases, the best option may be to sell the technology to
the receiving company for a lumpsum payment. Additionally, the
transferring company may wait to transfer the technology close to when the
patent is expiring.
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