Intellectual Property Rights and Innovation

Data Source: Global Innovation Index

Introduction

Despite garnering accolades for becoming the world’s fastest growing economy, India has yet to fulfill its potential in the field of innovation. This year, The Global Innovation Index’s 2014 report dropped India ten places to 76th  while every other BRICS country climbed in the rankings. Even with the Indian government’s campaigns to encourage domestic innovation, an unsubstantial commitment to research and development (R&D) has thwarted these efforts.

Innovation in India

At Hudson’s March 2014 conference, Robert Shapiro argued that R&D is a critical driver of indigenous motivation, yet India only allocates .76% of its overall GDP to this sector. This is a meager disbursement when compared to investments by the United States and even the other BRICS (Brazil Russia India China and South Africa) nations. India’s economic growth is further impeded by the government’s domination of R&D activities through a “bureaucratic and rigid” system. In addition, weaknesses in higher education and the absence of private venture capital limit businesses’ ability to stimulate domestic innovation. In 2007, the Indian government accounted for 62% of all R&D investments, while businesses accounted for just 34 percent. In order to further economic development and become more competitive on the global scale, India must increase its commitment to innovation and R&D. 

India boasts a number of institutes of higher learning especially in the areas of science and technology. However, there are insufficient resources and support available for a majority of these institutions and their scientists and experts. The solution is foreign investment in Indian R&D. However, in order to ensure this investment, foreign actors need to be assured that intellectual property (IP) rights will protect them from local imitations and ensure a sizable market. Studies demonstrate that it is far more costly for developing countries to ignore IP rights than protect them. A recent World Bank study pointed out that, “the world’s greatest economic gains have been achieved by developing nations that have both protected IP rights and have aggressively opened their economies to foreign technologies and business methods.” Countries with weak IP rights receive relatively less foreign direct investment (FDI) and less technologically sophisticated investments. Stricter laws could enhance modernization and indigenous capacity for economic innovation. 

Modi Administration

Over the past year, Modi has worked to improve the climate for innovation in India. In April 2015, while speaking at a three-day Global Exhibition of Services, Modi stated that “India must also work on intellectual property rights guidelines to match global standards.” He further asserted that “if we (India) don’t work towards bringing our intellectual property rights at par with global parameters, then the world will not keep relations with us. If we give confidence to the world on IPR, then we can become a destination globally for their creative work.” This is in contrast to the views expressed by Commerce and Industry Minister Nirmala Sitharaman that India is fully aligned with international intellectual property rights standards and that “there is no need for anyone to question us.”

The government’s Make in India program is designed to increase investment, innovation, skill development, and protect intellectual property, while also building manufacturing infrastructure. The government has also attempted to improve infrastructure to support IP administration and aims to strengthen the IP regime’s services. In November 2014 the government announced the creation of a six-member intellectual property rights think tank within the Department of Industrial Policy and Promotion (DIPP) to draft India’s National Intellectual Property Rights (NIPR) Policy and to advise on IPR issues. In December 2014, the think tank submitted a first draft of the National IPR Policy and sought feedback from the public. The policy is comprehensive in nature; it seeks to raise IP awareness, strengthen the innovation ecosystem, recommend legislation, review all IP rules, and create an IP exchange that can be integrated into national policy. Finally, it calls for a high level body to oversee the development and implementation of India’s IP laws. Despite making the IP regime better understood, this policy has the potential to languish at the fringe of bureaucracy. As early as August 2014, Mark Schultz argued that any new NIPR (National Intellectual Property Rights) policy must go “hand in hand” with India’s ‘Make in India’ policy to provide substantial gains.

In June 2015 the Department of Industrial Policy and Planning released a multifaceted strategy to strengthen the IP regime and transform the IP Office. These changes include an addition of 1033 employees to address backlogged patents and trademarks flowing through a transparent, centralized server and online e-filing system. The e-filing system provides a 10% rebate on online submission and allows the use of debit cards, credit cards, and internet banking to complete payment transactions. Micro, small, and medium enterprises receive a 50% fee reduction. The plan encourages international cooperation by operationalizing the Madrid Protocol to protect trademarks in 90 countries and recognizes the International Search Authority and the International Preliminary Examining Authority. These changes address many of the suggestions covered in the NIPR think tank’s draft publication, but their success relies upon the strength of the judicial enforcement.

Data Source: Global Innovation Index

US & India

A survey of US-based multinational firms demonstrated hesitation to do business in India due to its failure to protect IP rights. Intellectual property rights have become a bargaining chip in India-US trade negotiations and have sparked fears that foreign multinational companies will monopolize local economies and horde technology from others. India’s weak IP laws are holding three sectors back in particular: technology, entertainment, and pharmaceuticals.

Over the last two years, the Indian government has attacked foreign pharmaceutical companies aggressively. In March 2012, firms were permitted to make generic copies of a kidney cancer drug still patented by Bayer AG. Pfizer’s patent on Sutent, a tumor and kidney cancer drug, was revoked later that year. Gilvec, a leukemia drug, was denied patent protection in early 2013 and Roche relinquished rights to the drug Herceptin after warnings that the Indian government would challenge the patent in court. Meanwhile, the Business Software Alliance reported that India’s piracy levels are at 60% and US $2.9 billion worth of software was illegally installed in 2013.

A first step in bilateral collaboration between the United States and India on IP rights came in September 2014 during Prime Minister Modi’s official visit to Washington. Modi appealed to the Indian-American community to invest in India, pledging to repeal obsolete laws. True to his word, 125 meaningless Appropriation Acts were rescinded by May. He also met with multinational corporations to discuss corporate sector procedural reform and enhanced investment incentives. Obama and Modi issued a joint statement declaring commitment to the promotion of a positive business environment. The leaders established an annual high-level Intellectual Property (IP) Working Group which will hold “appropriate decision-making and technical-level meetings” as part of the Trade Policy Forum.

According to the United States’ ambassador to India, Richard Verma, success of “Make in India” is dependent on the overall economic and investment climate and “a high-standard BIT (bilateral investment treaty) would further enhance investor confidence and send an important signal to US investors, especially infrastructure investors, that India is open for business.”

In late April, the US Trade Representative’s Office report placed India on the US priority watch list for IP rights violations, but it acknowledged signs of progress. Modi’s recent demands for a stronger IPR regime, a new bill increasing the limit on foreign investment in the insurance sector, and a new five-year foreign trade policy provide substantive progress towards implementation of the WTO Trade Facilitation Agreement.

Challenges and Opportunities

India’s low gross domestic expenditure on Research and Development as a percentage of GDP (.76%) and government domination of research and development provide poor support for domestic innovation. The country’s weak intellectual property regime discourages foreign direct investment and technologically complex investments. This combination creates obstacles in the technology, entertainment, and pharmaceutical sectors. India has the opportunity to leverage its new NIPR policy in conjunction with the “Make in India” campaign to overcome these challenges. The DIPP think tank’s draft and subsequent changes to the IP regime, as well as the reorganized IP office, promise better protections and heightened innovation.