This article has been written by Harishchandra Namaji Sukhdeve pursuing a Diploma in International Contract Negotiation, Drafting, and Enforcement Course from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

I still remember a very innovative advertisement from yesteryear by Tata Steel. While showing visuals of daily household life, it used to say, ‘We touch every aspect of your life.’ It would end with a banner, ‘We also make steel’!

It’s the same thing about technology. It impacts every aspect of business and of our lives too, especially after the advent of information technology, which made data crunching super simple and yet effective.

Technology drives all aspects of businesses, from company management systems to CRMs to marketing strategies, from product design to development to commercial production.

And, in the current economic scenario, innovations in and driven by artificial intelligence are happening in a big way.

Even the enterprises that do not appear to be technology-based are impacted by technology in some way or another.

Technology is the new form of property, the intellectual property (IP). The TTAs are meant to safeguard the rights in IP. Intellectual property comes in four broad categories: patents, trademarks, copyrights, and trade secrets. 

Nations of the world rose, well in time, to realise the impact of technology on world trade. They swiftly moved from GATT (General Agreement on Tariffs and Trade) to TRIPS (Trade-Related Aspects of Intellectual Property Rights Agreement) in 1995.

The World Trade Organisation (WTO) was formed to negotiate and enact various covenants to regulate world trade with a level playing field. The main concerns are about certain minimum standards for the protection of intellectual property.

Significance of technology transfer

Technological innovation and adaptation are crucial elements in maintaining a competitive edge for any business. Technology transfer, which involves the sharing of knowledge, trade secrets, expertise, or facilities between entities, often accompanied by limited or exclusive rights in patents, copyrights, and trademarks, plays a pivotal role in this process.

The motivations behind technology transfer are diverse. For some businesses, the goal is to increase production capacity, while for others, it’s about developing innovative products and processes or refining existing ones. Technology transfer can also be leveraged to boost sales or simply to remain viable in a competitive market.

In an increasingly globalized and interconnected world, the ability to effectively transfer and adapt technology is more critical than ever. Businesses that can successfully harness the potential of technology transfer are better positioned to thrive in the face of rapid technological advancements and evolving market demands.

Technology transfer helps foster economic growth through collaborative usage of technology for commercial activities and expansion in market reach.

It accelerates the commercialisation of technology for the developers and owners of intellectual property.

Every business enterprise, be it an MSME or a large conglomerate, even start-ups depend upon some kind of technology from third-party providers so that they need not have to divert their focus from their core business to develop technology or know-how.

The technology transfer arrangement can take care of their needs for better processes and informed strategies for business growth.

Technology transfer facilitates the optimum usage of resources for the greater public good.  

Significance of TTA

Unlike other business agreements, the TTAs have to be constructed to be dynamic and fluid because of the fast speed of advancements in technology necessitating continuous updates and adaptations.

The technology transfer is a highly complex process. Many legal, commercial, and geographical considerations need to be taken care of. 

The complex nature of TTAs necessitates special attention to certain aspects to safeguard the interests of the transferor and transferee, to minimise disputes, to comply with regulations and taxation laws, and to conform to global business ethics.

The TTA defines the rights and obligations of the parties regarding ownership, usage, and protection of the IP.

It could be an instrument for the exchange of ideas for more innovations. Whatever form it takes, it will always precede with extensive negotiations between the parties concerned.

While the broad aspects might be handled by the parties, the final negotiations and drafting of the TTA will need to be handled by professionals with in-depth knowledge of contract laws and specialists in the subject matter of technology under transfer.   

Types of TTAs

The Technology Transfer Agreement, singly or in combination, may result in the assignment of intellectual property rights directly or as part of a sale or merger.

It could be a bilateral or multilateral joint venture agreement, a franchise agreement, or a licensing or usage agreement.

With the advent of information technology, geographical barriers are shattered. Therefore, international technological collaborations must fulfil the FEMA (Foreign Exchange Management Act, 1999) requirements and obtain Reserve Bank of India (RBI) approvals.

There is an automatic approval route for certain international collaborations. Where it is not, it should pass the evaluation from the Project Approval Board (PAB) of India.

Technology Transfer Agreements cover a wide range of legal contracts used to facilitate the sharing and commercialisation of technology, knowledge, and intellectual property between parties. These agreements are important for promoting innovation, collaboration, and economic growth. Some of the most common types of technology transfer agreements include:

• Technology transfer licensing agreements: These agreements grant one party (the licensee) the right to use, manufacture, and/or sell a technology owned by another party (the licensor) in exchange for royalties or other compensation.
• Assignments of intellectual property rights: In these agreements, one party transfers ownership of intellectual property rights, such as patents, copyrights, or trademarks, to another party.
• Confidentiality agreements: Also known as non-disclosure agreements (NDAs), these agreements protect confidential information shared between parties during technology transfer negotiations or collaborations.
• Collaborative research agreements: These agreements establish a framework for joint research and development projects between two or more parties, outlining the scope of work, ownership of intellectual property, and allocation of costs and benefits.
• Consultancy agreements: These agreements engage one party (the consultant) to provide expert advice or services to another party (the client) in a specific area of technology or expertise.
• Sponsored research agreements: These agreements provide funding from one party (the sponsor) to another party (the researcher) to conduct research in a specific area, with the sponsor often retaining rights to the research results.
• Material transfer agreements: These agreements govern the transfer of physical materials, such as biological samples or chemicals, between parties for research or commercial purposes.
• Contract research agreements: These agreements outline the terms and conditions for one party (the contractor) to conduct research on behalf of another party (the sponsor), including the scope of work, deliverables, and ownership of intellectual property.
• Academic spin-off agreements: These agreements facilitate the creation of new companies (spin-offs) based on research and technology developed within universities or research institutions.
• Joint venture agreements: These agreements establish a new business entity jointly owned and operated by two or more parties to pursue a specific technology-based project or business opportunity.
• University research-based start-up agreements: These agreements support the creation of start-up companies based on research and technology developed by university faculty, students, or researchers, often providing access to university resources and intellectual property.

These agreements play an important role in fostering innovation, driving economic growth, and facilitating the transfer of technology from research institutions to the marketplace. By clearly defining the rights, responsibilities, and obligations of each party, these agreements help to mitigate risks, protect intellectual property, and ensure a fair and equitable distribution of benefits.

Challenges to be addressed in TTA

The development and implementation of new technologies is a complex and expensive process fraught with uncertainty. Research and development costs can be exorbitant, and the outcome of such endeavors is never guaranteed. Even after a new technology is developed, it may require extensive modification to meet the specific needs and capabilities of the end user.

Furthermore, the development of innovative, first-of-its-kind products is hampered by a chronic shortage of experts with the requisite skills and knowledge. The costs associated with patenting and protecting new technologies from pirates, infringers, and unethical competitors can be substantial. Legal remedies for intellectual property theft are often time-consuming, costly, and ineffective.

Technology transfer in certain fields like pharmaceuticals, agriculture, defence, mineral or space exploration, and communications could be highly complicated and regulated.

These aspects need to be addressed carefully by the owner of the intellectual property to safeguard his income and business reputation.

At the same time, the buyer should also conduct due diligence on intellectual property. The ownership of patents, trademarks, copyrights, and trade secrets and their validity and enforceability should be verified.

It should also be verified if there are any third-party rights in the IP and associated infringement risks, if any.

Components of TTA

While the basic components of TTA will be as those of any standard contract, certain special components will have to be elaborated with utmost clarity.

The TTA may consist of many agreements as annexures and appendices to address the peculiarities about the nature of technology transfer.

Definitions should be clear and consistent to the intent of the contract without any scope whatsoever for two contradictory meanings.

It should be clearly stated whether the technology transfer is for “contract manufacturer” or otherwise based on the OECD guidelines (Organisation for Economic Co-Operation and Development Guidelines, 2022).

Specific unique features of the technology under transfer be clearly defined with the obligations of the owner and end user.

The mode of supply of technology could be in the form of expertise, on-site specialists, or products or services with or without remote support by way of updates and adaptations. These aspects should be clearly spelt out in the TTA.

The extent of rights given to intellectual property by the transferor to the transferee should be elaborated with consequences for breaches.

Aspects related to terms of licence period, events of termination, automatic or with notice, post-termination support, period, and how long, if any, should be taken care of.

Obligations as to liabilities, warranties in the event of data loss or other damages, incidental costs involved in the usage of technology, etc., should be clearly spelt out.

Responsibility for taxes and duties such as GST (Goods and Services Tax), Customs Duty, Transfer Pricing, etc., should be clearly understood in the light of court judgements and Organisation for Economic Co-Operation and Development Transfer Pricing (TP) Guidelines for Multinational Enterprises and Tax Administrations.

The governing law and arbitration process in the event of disputes should be clearly specified.

The TTA should conform to the provisions of the Competition Act, 2002. The Competition Commission of India is empowered to invalidate the anticompetitive agreements to prohibit abuse of dominance by enterprises.

The TTA will be deemed anticompetitive if the owner of IP abuses his dominant market position and imposes unreasonable terms. The following technology transfer agreements may be deemed anti-competitive and thus null and void:

1. Patent pooling, in which two or more businesses join and cross-licence the relevant technology to prevent others from purchasing it.
2. Tie in arrangements that require the acquirer to purchase both the patented product and the other product from the patentee.
3. Forbidding the licensee from using technology from a competing enterprise.
4. Restricting the licensee’s ability to dispute the legality of intellectual property rights.
5. Fixing the price at which the licensee will sell the licenced goods, etc.

Relevant legislations in India

Main Legislations Governing TTAs in India

• The Indian Contract Act, 1872: This foundational legislation encompasses all facets of contracts within India, laying out the essential elements for a valid contract, such as offer, acceptance, consideration, and the capacity of parties. It also addresses issues like breach of contract, remedies, and the enforceability of contractual terms.
• The Patents Act, 1970 (as amended): This Act governs the protection and enforcement of patent rights in India. It defines what inventions are patentable, outlines the process for obtaining a patent, and establishes the rights and obligations of patent holders. Amendments to the Act have aimed to align India’s patent regime with international standards and promote technological innovation.
• The Trademarks Act, 1999: This legislation deals with the registration and protection of trademarks, which are distinctive signs used to identify goods or services. It sets out the criteria for trademark registration, the rights conferred by registration, and the remedies available for trademark infringement.
• The Copyright Act, 1957: This Act protects original literary, dramatic, musical, and artistic works. It grants copyright holders exclusive rights to reproduce, distribute, perform, and display their works. The Act also provides for exceptions and limitations to copyright protection, such as fair use.
• The Competition Act, 2002: This Act aims to promote fair competition in the marketplace and prevent anti-competitive practices. It prohibits agreements that restrict competition, abuse of dominant market position, and mergers that substantially lessen competition. The Competition Commission of India is the regulatory authority responsible for enforcing the Act.
• The Foreign Exchange Management Act, 1999: This Act regulates foreign exchange transactions in India. It governs the flow of foreign currency into and out of the country and aims to facilitate external trade and payments. The Act is administered by the Reserve Bank of India.

Additional Considerations:

While these are the primary legislations governing TTAs in India, other laws and regulations may also be relevant depending on the specific nature of the technology transfer and the industry involved. These may include:

• The Information Technology Act, 2000: This Act deals with electronic commerce, cybercrime, and data protection.
• The Environment Protection Act, 1986: This Act regulates activities that may have an impact on the environment.
• Sector-specific regulations: Depending on the industry, sector-specific regulations may apply, such as those governing pharmaceuticals, telecommunications, or biotechnology.

Key Considerations for Drafting TTAs:

When drafting TTAs in India, it is crucial to ensure compliance with all applicable laws and regulations. It is also important to consider the specific needs and objectives of the parties involved and to address potential risks and challenges. Seeking legal advice from qualified professionals is highly recommended.

Conclusion

The Technology Transfer Agreements emanate from the TRIPS Agreement of the WTO to safeguard the rights of enterprises in intellectual property. There are four broad types of IP: patents, trademarks, copyrights, and trade secrets.

The key idea behind TTAs is to foster global economic growth through the collaborative use of technology with the necessary safeguarding of the interests of the parties concerned.

However, the parties concerned must carry out extensive negotiations about the availability, suitability, and affordability of the technology. The buyers should carry out due diligence on IP through appropriate specialists. 

The owner and buyer both should carry out due diligence about the extent permissibility of technology transfer as per the laws of respective countries. Due diligence is also necessary to assess the risks of infringement and the robustness of the legal framework of the country for risk mitigation.

In any technology transfer, several legal acts of the respective countries may be involved. Even in bilateral technology transfer within the country, the third-party IP rights may involve regulations of the foreign country.

The TTA should take care that none of its clauses violate the laws of the land. 

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