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INTELLECTUAL PROPERTY IN INDIAN SOFTWARE INDUSTRY
In clusters of modern low-and high-rise office buildings set amid acres of lush greenery here, thousands of engineers are hard at work, writing software for the latest telephones, designing next generation microprocessors, and developing wireless broadband technology. Innovation in software products can be protected as intellectual property, usually either through the use of copyrights or patents. Both patents and copyrights are devices that are intended to protect a firm’s or individual’s innovation from misuse by others, although they are quite different devices for doing so. Copyrights, generally, protect the expression of an idea. That is, copyright protection extends to a specific work, but cannot be applied to the ideas contained in such work. The application of copyright protection for software products was firmly established internationally via the World Trade Organization’s (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs).Under Article 10 of the TRIPs agreement, WTO members are required to treat computer programs, whether in object or in source code, as literary works as defined in the Berne Convention. Copyright protection thus extends automatically to software code once the code has been written and recorded in a medium (i.e., hard drive of a computer). A copyright holder may use his or her right to prevent others from using, making, selling or distributing unauthorized copies of the work. The protection of intellectual property was of little interest to Indian software companies in the past. In part this lack of interest is explained by the small “new knowledge” content of Indian software services-there was not much intellectual property to protect. Indian companies did not own the customized intellectual property they might have created since their work product fell under work for hire standards or ownership was explicitly transferred to the hiring company. But even if India companies created software services that had new knowledge value, they did not seriously take steps to protect it.
Intellectual property outputs were small. Among the Indian firms in the top 100 software firms in India, only three percent had any patents awarded in the US in the 1996-2003 periods while one-third of the foreign-owned software firms had US patents awarded in this period.
Copyrights are a more frequent though less effective method than patents for protecting intellectual property in software. In the 1996-2003 time periods, 18% of the top Indian software firms had registered software copyrights in the US. More foreign-owned software firms in India registered copyrights in the US than Indian firms.
Why Intellectual Property Outputs Were Small
The small amount of new and valuable intellectual property creation credited to the Indian software industry is due in part to the fact that most of the software services work that Indian firms did was at the entry level of the software services value-addition hierarchy. This work required technically educated labor, but not advanced skills.
Intellectual Property Protection in the Past
India has had a bad reputation for the protection of intellectual property because of reasons unrelated to software (e.g., lack of product patents in pharmaceuticals, and a slow judicial system), but also because of high piracy rates of software packaged products. But this did not discourage the growth and development of the Indian software services industry-instead it may have hastened it. It was not important to protect intellectual property in software in India because there was not much to protect. However, this will not be true in the future
India does not award patents for software because under Indian law, software tends to fall into established unpatentable subject matter (i.e., business method, algorithm or pure mental act). However, software that has a technical effect and is part of a physical system is patentable. Discussions at high levels in India about pure software patenting are taking place. The issues include the extent to which social benefit would be impeded by software patents, the usefulness of 20-year patents in an industry with rapid rates of technological obsolescence, and the extent to which software patent applications can meet the non-obvious criterion. A change in Indian software patent policy may occur in the future, but not immediately.
Indian protection of software copyrights meets international standards in some respects but not others. In particular, Indian law does not prevent a properly registered software package from being copied for use on multiple computers, and does allow multiple copies of software to be made for non-commercial uses. High level discussions now taking place may reverse these two differences from international standards and bring India into full TRIPs and WIPO compliance. A more serious weakness in software copyright protection is its enforcement. Deterrence for copyright infringement is weak because proof is difficult and penalties are small. Conviction rates are low because the judiciary is understaffed and under qualified, and delays are too frequent and too long. Here also improvement might occur in the future in the form of proposals for the creation of special intellectual property courts. Indian Software and Intellectual Property in the Future.
Indian Software and Intellectual Property in the Future
The business model for the Indian software industry in the past will change in the future. To be the low-cost vendor of entry level customized software services will not be the main basis for competing by Indian software companies. The historical Indian advantage of labor that is abundant, low-wage, low-cost, technically educated, and English-speaking is being eroded. Indian wages are rising as demand catches up with supply, and other countries, especially Ireland and Israel in Europe, and China and the Philippines in Asia, are developing their own competitive labor pools. income tax relief on export earnings from the government and marketing assistance from non-resident Indians in the US, will be less important in the future.
Shifts in Company Strategies
The Indian software industry is seeking to move downstream along the value chain toward more complex tasks of design, systems integration, and consulting that require more customer contact, more domain knowledge, more innovation, and more project management. There is also an attempt on the part of some companies to develop mass-marketed packaged software products, although so far these efforts have met with only modest success. The basis for competing in these segments is advanced technology, highly skilled labor technical labor, and managerial and marketing skill. These new competitive requirements mean, among other things, that the Indian software industry must create new and valuable intellectual property in the future. Intellectual property is more valuable if it is more innovative, which yields bigger margins, and if it is reusable or has a wide range of uses, which yields more licensing revenue without increasing cost proportionately. The implications for intellectual property are clear: Indian software firms must create new, advanced intellectual property, and they must protect it.
Best Practices to minimize the risk of offshore Intellectual Property loss
The following Best Practices will help minimize the risk of losing Intellectual Property in conducting business offshore.
1. Understand the Intellectual Property rights The first and foremost step is to get an overview of the different Initiatives and laws undertaken by the offshore country to protect the Intellectual Property.
2. Set up an Internal Intellectual Property protection team Intellectual property protection is an ongoing business responsibility and not a one-time act. This makes it very critical to have a team in the company that is responsible for monitoring their Intellectual properties, violations etc.
3. Examine the work entities that can be copyrighted/patented An ongoing evaluation of the company’s work entities to identify copyright protection/patents is very critical. While copyrighting, it is important to make sure that such a protection will be valid in the country of offshore activity/development.
4. Offshore vendor history If the company is planning to enter into a vendor relationship with an offshore entity, extreme caution has to be exercised in understanding the vendor’s history with respect to any Intellectual property violations.
5. Define IP violation clause In executing a contract with the offshore vendor, define a separate Intellectual Property Violation clause and define the consequences of Intellectual property violation (Some companies sign the contract with the onsite entity of the offshore vendor as it gives them more leverage to take any legal action if they have to).
6. Seek a reference check for all the team members It is not only important to look at the resumes of the offshore team but also very important to seek the appropriate references to make sure there is no IP violation case history behind the individual.
7. Pay Attention to use of unauthorized software/third party products As the saying goes, ‘Practice what you Preach”. Heavily discourage the use of unlicensed software or products both by the onsite and the offshore team.
8. Enforce Central Repository Enforcing a central repository for all the code and documents can not only improve the overall efficiency, and will also avoid numerous placeholders for critical documents and code.
9. Perform Periodic IP Audit Perform a periodic IP audit and examine any new work that can be copy righted, remove all the unauthorized software/product, reiterate the importance of IP, look into all the place holders of the code/documents, assign appropriate ownership to the critical documents and update any change of ownership to patents.
10. Enforce the use of References In all the company meetings/presentations make sure the appropriate references and credits are given to the owner of the work (be it internal or external). Making this practice a habit will raise the standards of the employees to acknowledge and respect and protect other people’s work.
11. Develop Awareness Protecting the Intellectual property can be greatly enhanced if all the employees of the company and the offshore team are on the same page as to how much attention the company pays to protect Intellectual Properties. In some companies IP protection is made as a part of the performance plan for each employee and reviewed periodically.