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Read Part 1 of the series – 5 Important IP Contracts

IP Licensing Agreements – The First in The Series of 5 Important IP Contracts

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Here is the fourth article of the series, 5 Important IP Contracts.  In this article, Varshita Dogra of VIPS discusses Confidentiality or Non-Disclosure Agreements.

Confidentiality or Non-Disclosure Agreements

Much like how a distribution company cannot keep its trucks in the garage to keep them from being involved in an accident on the highway, a startup company cannot keep its ideas locked away from the business partners who can make it a success. The distribution company protects its assets (trucks) with vehicle insurance so that they can use them without exposing the company to financial ruin. A start up company can protect their asset (intellectual property) in several ways, one of which is by entering into a non-disclosure agreement with third parties[7].

A Non-Disclosure Agreement is a legally binding contract signed between parties allowing them to share their confidential information in the form of intellectual property with each other by ensuring that such information is not disclosed to third parties. The purpose of an NDA is the protection of trade secrets, technology, patents, know-how, and other such information which is disclosed during commercial transactions. Restricting the use of such information is also necessary to ensure that the party receiving such information does not take undue benefits from such disclosure. An NDA can be one way, mutual or multilateral, based on the number of parties disclosing confidential information.

Contractually mandating strict confidentiality is probably the most crucial aspect of any agreement that pertains to intellectual property. As technological innovation thrives and competition increases, it is critical for companies to be extremely proactive, take extraordinary security measures, and remain vigilant to potential intrusions or misappropriation of data.

In India, there is no specific statutory enactment for the applicability and enforceability of an NDA, hence it is governed by the provisions of the Indian Contract Act, 1872. As an IP lawyer, you should make sure that you convey to your client, the importance of having a confidentiality agreement. Ambiguity in an NDA should be avoided at all costs. An NDA should be a strong contract clearly imposing a duty to maintain confidentiality with significant consequences on failure to comply, to serve as a deterrent for malicious behavior.

Confidentiality Clause v. Separate Confidentiality Agreement

It is not necessary for the parties to enter into a separate NDA to ensure confidentiality. This purpose can be solved by simply including a confidentiality clause in general agreements. The different types of contracts discussed here, i.e. licensing, franchising, assignment and distribution agreements, generally have a confidentiality clause. A lot of sensitive information about the parties is shared during the term of such agreements. To protect the same, it is essential that every such agreement has a confidentiality clause. It should provide that the obligations with respect to the confidential information would survive even after termination or expiration of term of the agreement so that the parties do not exploit the confidential information after the termination or expiration of term.

Advantages of a Confidentiality Clause

The advantages of having a confidentiality clause instead of a full fledged agreement are as follows :

1. Convenience – Instead of having to draft two separate agreements, you can do it all in one. The parties have to sign only one document rather than several.
2. Streamline – Combining different clauses into a single agreement can help streamline everything. For example, by including confidentiality clause in an employment contract, the company is expressly notifying the employee in the first instance about his duty to keep information confidential.

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Issues and Drawbacks of a Confidentiality Clause

Although, a confidentiality clause can be enough to ensure confidentiality, there are certain issues and drawbacks that usually occur which can be avoided by entering into a separate NDA :

1. Can lead to confusion – The purpose of a confidentiality clause is to prevent disclosure of information, although usually IP agreements deal with the disclosure of information. There is scope of confusion for a person reading the agreement as to the objectives of the agreements. Confusion can also arise with respect to time duration for which such a clause will last. For confidentiality clause, the disclosing party would want an indefinite time duration whereas that won’t be the case with any other clauses in an IP agreement.
2. Risk of invalidating entire agreement – Any breach due to wrongful actions on part of the disclosing party can threaten the validity of the whole agreement. This risk can be avoided by entering into a separate NDA instead of having a confidentiality clause in the agreement. For example: If an employee of the disclosing party treats confidential information carelessly and it gets published in the public domain, the non-disclosure clauses may no longer be valid as the information which was meant to be protected is no longer confidential. This could impact other provisions in the agreement which are dependent on those non-disclosure clauses. Although this situation can also be avoided by including a severance clause in the agreement that protects rest of the agreement even if one party of it is invalidated.

Benefits of a separate NDA

An NDA normally, has specific clauses which may or may not be suitable to be included in any other type of agreement. For example, an NDA could contain a ‘no license granted’ clause which expressly states that sharing of confidential information shall not construe as granting license to the confidential information. Now, such a clause cannot be included in a licensing agreement where confidential information, other than the IP being licensed, is shared. A confusion can arise regarding what IP is being licensed and what is not, and what is to be protected or not as confidential information under the agreement.

Some agreements work better with non-disclosure clauses whilst others can present a conflict. For example, combining an employment agreement with non-disclosure clause is normally a good idea as you’re providing in written form, an implied duty not to disclose confidential information. On the other hand, combining a non-competition and non-solicitation agreement with non-disclosure clause can prove to be highly risky.

Certain points to keep in mind while deciding whether to enter into a separate agreement or to have a confidentiality clause in the main agreement are as follows :

• Main objectives of the agreement, do they conflict with objectives of an NDA or are they in support of the agreement
• Whether the jurisdiction or governing law intended to be used in the main agreement would legally support the objectives of the confidentiality clause
• Whether the particulars of a confidentiality clause can be severed from the rest of the agreement

Some Key Definitions

There are certain terms which are to be necessarily defined under an NDA or a confidentiality agreement in order to avoid disputes in the future between the parties.

• Defining the confidential information

You must ensure that the agreement clearly stipulates what is included in the confidential information to ensure that the parties understand the scope and extent of their duties with respect to protecting the information being provided to them. An itemised list of information such as trade secrets, business plans, customer or supplier lists, inventions, copyrights, software and any other information that should reasonably be recognised as confidential information by the parties, should be included in the agreement. A major reason why litigation relating to confidential information occurs is because it is not clear as to what is or is not included in confidential information. Only the information not available in the public domain and not known to the receiving party before entering into the NDA can be protected under it.

• The obligations and duties of the party receiving the confidential information and the liability for not fulfilling such obligations.

The scope of confidentiality obligation on the receiving party must be set forth clearly. Some of the obligations are as follows :

1. Keep secret the confidential information and documents received and not to disclose the content or object to third parties.
2. Describe the exclusive permitted use for which the information is being shared.
3. Access to other people (personnel, representatives or agents) in confidence for carrying out their duties for the permitted purpose of use with knowledge of the obligations made in the agreement.
4. Assumption of full liability for acts or omissions made by the party’s personnel, representatives or agents
5. In the event of termination of agreement, to hand over or destroy all the confidential information and documents to the disclosing party without keeping any copies or summaries. As handing over or destroying the information or documents has become difficult in today’s day and age, NDAs have a clause stating that the receiving party may retain the information for ‘document retention’ but the same shall not be accessible in the daily course of business.
6. Exclusion from confidentiality treatment – Obligation to disclose confidential information in certain circumstances such as when the administrative or legal authority requires the receiving party to disclose the information.

The remedies available on breach of the obligations and duties under the confidential agreement must be clearly stated. Generally, the party acquires a right to proceed legally in a certain prescribed manner in case of breach. A clause that gives right to injunctive relief can also be included in the agreement. It is essential to specify the legal course to be taken. Arbitration is usually the simplest and cost effective method to resolve dispute, in which case, the agreement shall specify the appointment, power and other necessary information for resolution of dispute. Generally, in cases where there is a confidentiality clause in the agreement, a dispute arising out of failure to keep confidentiality would be resolved in the same manner as any other dispute arising under the agreement.

• The term of the contract

Every Confidentiality Agreement must specify the term for which the information so being shared is to be maintained confidential. In instances where a confidentiality clause is added to commercial contracts instead of a separate NDA, you must ensure that, irrespective of the duration of the agreement, the confidential information is afforded protection from disclosure indefinitely even after the term of the contract ends. The term of an NDA also depends on the industry standard and the type of information being conveyed.

Instances when entering into an NDA would be beneficial

Certain instances when entering into an NDA would be beneficial for the parties are as follows :

1. Before getting into negotiations for licensing or transfer agreement for a new product or technology
2. Research & Development Projects
3. Employer-employee agreement as proprietary information disclosed by the company is private. Usually for such agreements, the company prefers adding a confidentiality clause in the employment agreement instead of separate agreement
4. Presenting innovative ideas, products or technologies with potential business partners
5. Entering into any new business deal such as hiring vendor, supplier, consultant or any sort of collaboration to start a new project

Confidentiality agreements are common in industries where the work is based on intellectual ideas. This would include the entertainment industry and fashion industry.

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Read Part 2 of the series – 5 Important IP Contracts

Assignment or Transfer Contracts – The Second in The Series of 5 Important IP Contracts

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Read Part 3 of The Series – 5 Important IP Contracts

Distribution Agreements – The Third in The Series of 5 Important IP Contracts

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Sample Agreement

CONFIDENTIALITY AGREEMENT

Mutual Non-Disclosure Agreement

One-sided Disclosure Agreement

 

RESEARCH AGREEMENT

This Agreement is made and entered into as of ________________by and between __________a Company incorporated under the Companies Act 1956 and having its office at __________________________, hereinafter referred to as “COMPANY”, of the FIRST PART,

AND

Indian Institute of Technology, Bombay, a research and educational institution in technology and engineering disciplines established by a special act of Parliament of Republic of India having its office at Powai, Mumbai-400 076, India, hereinafter referred to as ‘IITB’, of the SECOND PART.

Company and IITB are collectively referred to herein as ‘Parties’.

Whereas Company is engaged in the business of ______________________.

Whereas IITB is among the premier research and development (R&D) institutions in India and a centre of excellence in higher learning, research and development.

Whereas both Parties hereto have agreed to jointly work on Projects in topics of mutual interest as defined below and develop Products under terms and conditions mutually agreed upon by the Parties and

Whereas the Parties desire to record the broad terms and conditions that are jointly accepted and agreed to in this Agreement as contained hereunder.

1. DEFINITION

(a) ‘Projects’ shall mean and include the individual Projects under the Agreement, the terms and conditions for execution of each of which shall be jointly agreed upon, in writing.

(b) ‘COMPANY know-how’ shall mean and include all know-how of methods, material, software, designs, patterns, formats, proprietary technical literature, and information developed, owned and provided by COMPANY, which are required for the Projects.

(c) ‘IITB know-how’ shall mean and include all know-how of methods, material, software, designs, patterns, formats, proprietary technical literature, and information developed, published or otherwise owned and provided by IITB, which are required for the Projects.

(d) ‘COMPANY Personnel’ shall mean the personnel or research and development engineers of the Company deputed for the Projects.

(e) ‘IITB Personnel’ shall mean the faculty members and / or scientists and / or students and / or staff of IITB deputed for the Projects.

(f) ‘Principal Investigator’ shall mean the individual, employee of IITB, having the responsibility of conducting and supervising the Project(s) under this agreement.

(g) ‘Co-Investigator’ shall mean the individual(s) participating in the Project(s) under the supervision of Principal Investigator, including, but not limited to, students, employees, representatives, and agents.

(h) ‘Project Investigator Team’ shall comprise the Principal Investigator and the Co-Investigators participating in the Project(s) under this agreement.

(i) ‘Products’ shall mean the results, software, hardware or other deliverable generated as a result of work to meet the objectives of the Projects funded by COMPANY.

(j) ‘COMPANY-IITB Research Programme’ shall mean the activities envisaged under this Agreement.

2. ITEMS / AREAS OF COLLABORATION

The parties agree to collaborate in the following said items/areas:

(a) ___________             (b) __________

(c) ___________             (d) __________

3. SCOPE OF AGREEMENT

COMPANY and IITB shall work jointly to carry out Projects in the above said items / areas for developing Products and with specific objectives, terms & conditions to be jointly agreed under the Agreement.

4. ACTIVITIES AND OBLIGATIONS OF COMPANY

(a) COMPANY shall be responsible for providing the funds required for the Projects, as identified in each Project. COMPANY may depute appropriate COMPANY personnel to participate in the Projects, as per mutual agreement.

(b) COMPANY will provide COMPANY know-how, which may be deemed necessary for the Projects.

(c) COMPANY shall take reasonable steps to prevent IITB know-how, which are meant only for the purpose of conducting the Projects, from unauthorised usage or falling into unauthorised hands. COMPANY shall ensure that COMPANY personnel working on projects sign appropriate non-disclosure agreements to prevent unauthorised usage or disclosure of materials or information received under this Agreement.

5. ACTIVITIES AND OBLIGATIONS OF IITB

(a) IITB shall strive to complete the activities in the said items/areas and deliver the Products to COMPANY as per the individual Project objectives and schedules as agreed upon.

(b) IITB shall take reasonable steps to prevent COMPANY know-how,

which are meant only for the purpose of conducting the Project(s), from

unauthorised usage or falling into unauthorised hands. IITB shall ensure that IITB personnel and the Project Investigator Team working on Projects sign appropriate non-disclosure agreements.

6. FINANCIAL AND OTHER ARRANGEMENTS

The consideration payable to IITB for individual Project cost and the schedule of payment would be as mutually agreed upon for each Project. Any other Project related payment will be as per mutual agreement given in writing. Financial arrangements related to Intellectual Property Rights sharing will be as spelt in clause 11.

7. ASSIGNMENT

The Parties hereto shall not transfer or assign any of their rights and obligations under this Agreement to any other party without obtaining prior consent in writing from other Parties hereto.

8. TERM / DURATION

This Agreement shall be initially valid for a period of ____years from the date of signing of this agreement. The Parties may extend the term of this Agreement for additional periods as desired under mutually agreeable terms and conditions which shall be reduced to writing and signed by the Parties.

9. TERMINATION

Any of the Parties may terminate this Agreement by serving a written notice on the other Parties____months prior to the intended date of termination provided that the termination by either of the parties shall not relieve that party of its obligations accrued prior to such termination, under a specific Project.

10. NOTICES

All communications by COMPANY involving financial, administrative and other matters shall be sent to Dean R&D, IIT Bombay. All information of scientific and technical nature may be exchanged directly between the Project Investigator from IIT Bombay and appropriate COMPANY personnel as identified in writing, for the Project concerned.

11. INTELLECTUAL PROPERTY AND COMMERCIAL RIGHTS

(a) Title to all inventions, discoveries or developments made solely by IITB inventors resulting from the Research Programme shall reside in IITB; title to all inventions, discoveries and developments made solely by COMPANY inventors resulting from the Research Programme shall reside in COMPANY; title to all inventions, discovery, development or other intellectual property including but not limited to copyrights, patents and industrial designs made jointly by IITB and COMPANY resulting from the Research Programme shall reside jointly in IITB and COMPANY.

(b) COMPANY will be given the first right to commercially exploit any development, for a period of one year from the date of completion of the Project, resulting out of the research conducted under this agreement. Benefits arising out of such commercialisation shall be shared between IITB and COMPANY under mutually agreed terms given in writing. In the event that COMPANY is unable to commercially exploit the said development within this specific time period of one year, then IITB will be free to assign the development, know how to any other third parties. The benefits accruing from such assignments will be shared between IITB and COMPANY under mutually agreed terms.

(c) In the case of joint Intellectual Property between IITB and COMPANY, neither party may assign any rights to any third parties without the consent of the other party, which shall however not be unreasonably withheld.

(d) Any benefits accruing from assignment of rights to third parties will be shared between IITB and COMPANY under mutually agreed terms.

(e) The sharing of benefits between IITB and COMPANY as spelt in Clause 11 b to d is for the Intellectual Property, arising from the results of the Projects undertaken under this Agreement, being commercialised and exploited in India only. Any commercialisation of results and Intellectual Property arising out of the Projects under this Agreement outside of India, by the COMPANY shall be done with explicit consent of IITB and the benefit accrued from such commercialisation shall be shared between IITB and COMPANY under mutually agreed terms.

(f) Any modification / further development of the Results obtained from the Projects under this agreement, by the COMPANY shall be done with the explicit written consent of IITB.

12. CONFIDENTIALITY

(a) It may be necessary for IITB and COMPANY to disclose to or exchange with each other proprietary information relating to IITB know-how and COMPANY know-how, which are confidential and proprietary. The disclosing party shall advise authorised personnel of the receiving party appropriately regarding the confidential nature of the information disclosed. The Party receiving such confidential or proprietary information shall not, unless specifically permitted in writing by the Party providing the said information, disclose in whole or part any such confidential or proprietary information or divulge any information thereon to any person other than its Personnel for fulfilling the purpose of this Agreement. The disclosure to any such Personnel as aforesaid, of any such confidential or proprietary information, shall be in confidence and only to the extent necessary for carrying out the obligations herein.

(b) The obligations of confidentiality set forth above shall be applicable for two years from the termination of the relevant Agreement

(c) The obligations of confidentiality however shall not apply to information that:

1. is not disclosed in writing or reduced to writing and marked with appropriate confidentiality legend within thirty (30) days after disclosure;
2. is already in the recipient party’s possession at the time of disclosure;

iii. is or later becomes part of the public domain through no fault of the recipient party;

1. is received from a third party having no obligations of confidentiality to the disclosing party;
2. is independently developed by the recipient party; or
3. is required by law or regulation to be disclosed.
4. ARBITRATION, APPLICABLE LAW AND JURISDICTION

(a) Any disputes between the parties shall be resolved by mutual discussions. Unresolved disputes, if any, shall be subject to resolution by a panel consisting of the Dean R&D, IITB, who shall represent IITB, and Chairman / Managing Director, COMPANY, who shall represent COMPANY. If the dispute cannot be resolved by the said panel, the matter shall be resolved by arbitration in accordance with the Arbitration and

Conciliation Act, 1996. The venue of arbitration shall be Mumbai. The decision of the

arbitrator shall be binding on both parties

(b) This agreement shall be governed by the Laws of India and subject to the jurisdiction of Courts in Mumbai.

14. GENERAL

(a) The terms and Conditions for publication of the research results in journals / conferences, and / or patenting or copyrighting the Products shall be mutually agreed upon.

(b) Any addition, deletion and / or alteration to this Agreement may be effected with a written agreement of all the Parties to this Agreement concerning the amendments. A document containing the additions, deletions and/or alterations, and signed by all Parties hereto, shall form an annexure to and be deemed to be a part of this Agreement.

(c) The headings of various clauses herein are inserted for convenience of reference and are not deemed to affect the meaning or construction of relative provisions.

(d) IITB will have the right to continue to utilise the intellectual property generated as part of the R&D work carried out under this project for its research and for teaching purposes.

(e) This Agreement and its Appendices constitute the entire agreement among the Parties’ and supersede all other representations, understandings or communication whether written or verbal, with respect to the subject matter hereof.

15. FORCE MAJEURE

Neither party shall be held responsible for non-fulfillment of their respective obligations under this Agreement due to the exigency of one or more of the force majeure events such as but not limited to acts of God, War, Flood, Earthquakes, Strikes not confined to the premises of the party, Lockouts beyond the control of the party claiming force majeure, Epidemics, Riots, Civil Commotions etc. provided on the occurrence and cessation of any such event the party affected thereby shall give a notice in writing to the other party within one month of such occurrence or cessation. If the force majeure conditions continue beyond six months, the parties shall jointly decide about the future course of action.

IN WITNESS WHEREOF, the Parties hereto have set and subscribed their respect; hands and seal on the day, month and year first herein above mentioned.

FOR AND ON BEHALF OF IITB   FOR AND ON BEHALF OF COMPANY

           

           

IN THE PRESENCE OF   IN THE PRESENCE OF

           

WITNESS           WITNESS

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Here is the third article of the series, 5 Important IP Contracts.  In this article, Varshita Dogra of VIPS discusses Distribution Agreements.

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Read Part 1 of the series – 5 Important IP Contracts

IP Licensing Agreements – The First in The Series of 5 Important IP Contracts

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Distribution Agreements

A Distribution Agreement governs the relationship between a manufacturing firm and its sole selling agent. In terms of IP, an owner enters into a distribution agreement with distributing agents in order to make their property accessible and available in the market. There are a variety of distribution agreements, from a simply royalty sales agreements to a global licensing, manufacturing and distribution agreement. For different type of intellectual property, different strategy would be required in the agreement to protect it, which would also differ in terms of territory of the agreement.

Although, a distribution agreement might explicitly state the retention of ownership over the IP,embedded in the distributed product, with the owner, it must also specify the length of any license to exploit the IP has been granted under the agreement.

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Foreign Companies hiring distributors in India

In order to enter and exploit Indian markets, foreign companies appoint an Indian company to distribute its products, in all or a particular territory in India. In case of such distribution agreements, IP plays an important role as the foreign company would have to license its trademarks, know-how, etc. to the Indian distributor.

Key Considerations while drafting a Distribution Agreements

• Nature of exclusivity

Whether the distribution is exclusive or non-exclusive must be made clear in the agreement, as it can have profound consequences for either of the party. In case of exclusive distribution agreements, the owner should have some effective method of enforcing minimum performance criteria within the territory, such as by using a minimum royalty clause. In the similar contract, to safeguard the interests of the distributor, if he has agreed not to promote competing goods or services, then the agreement should also provide for adequate commitment and support from the owner.

• Territory

The territory in which the distributor shall sell or distribute the product must be clearly specified in the agreement. The owner must make sure, when he has several territory exclusive distributors, that there is no overlapping of territory in agreements for adjoining regions. Consequences of selling goods or service outside the territorial limit as under the agreement shall also be mentioned. The agreement must have provisions covering the issues of sale over the internet (ecommerce) with respect to territory. Usually, if it is a territory exclusive distribution, the distributor must not be allowed to sell or permit sub-dealers to sell goods online. It must be ensured that the goods are sold with methods appropriate to ensure and maintain the image of the brand.

• Pricing

Constraints on pricing of the goods and services are necessary to be present in a distribution agreement, so that the distributor does not take undue advantage. The agreement should provide for the prescribed range of pricing, which must be ensured by the distributor. But the distributor should also be allowed to give discounts, from time to time. The agreed terms between the parties, with respect to this, should be provided for in the agreement.The consequences of breach of such a clause must also be specified, as this is an important clause in a distribution agreement for the owner.

• Improvement, Enhancements and Modifications

In case of distribution agreements where the product is licensed for manufacturing and distributing to the distributor, it becomes extremely necessary to provide in the agreement if the distributor is allowed to make improvements, and to what extent, and who would own the rights to such improvements. This is also important as distributors can often provide with a valuable feedback according to the needs of the market, and allowing him to make improvements would mean creation of new intellectual property, whose treatment must be specified in the agreement.

• Product claims and representations

The market claims that can be made while promoting a product or service can be a significant issue for both the parties in a distribution agreement. From the owner’s perspective, it is often important to control the representations that are made by the distributor for the product. Serious and irreversible damage can be done to the reputation of the brand or product if false claims are made by the distributor, leading to liability on the owner. For a distributor, reliance is often placed on the product testing undertaken by the owner to validate the product claims. It is essential for the distributor to obtain appropriate assurances from the owner that will enable him to prove the accuracy of the product claims, if challenged.

• Non Compete / Restrictive Covenants

Depending upon the type of product for which the distribution agreement is entered into, a non-compete clause in an agreement can prove beneficial for the owner. It can be provided that the distributor shall not engage in manufacture, sale or promotion of other products, competitive in nature to the product of the owner, for a limited period after expiry or termination of the agreement. Non-compete can also be with respect to selling any competitive product during the term of the agreement in the same territory by the distributor.

• Intellectual Property: Scope of use, ownership and infringement

An umbrella clause specifying that all the rights in the intellectual property in the agreement shall remain with the owner, is a must. The agreement should provide for instructions on the usage of intellectual property by the distributor. The distributor may require to use the IP for the purpose of sale and marketing efforts. It can also be stated as a duty of the distributor to inform the owner if there has been any infringement of IP of the owner in the territory of operation of the distributor. Distributors can also safeguard their interests with respect to infringement by including a clause stating the right of the distributor to take legal action against infringement in his territory of operation.

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Read Part 2 of the series – 5 Important IP Contracts

Assignment or Transfer Contracts – The Second in The Series of 5 Important IP Contracts

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Points to note while drafting different types of distribution agreements

1. It is advisable that for a distribution agreement, the owner should not assign the rights with respect to the IP, but license the rights, if required. Such as the proprietor retains ownership of the product design but the distributor has control on the brand/trademark applied to the product in the licensed territory. A license would work better in distribution agreements, as otherwise, it could lead to significant problems when the distribution agreement comes to an end.
2. It is better to have a separate license agreement for Trademark while entering into an agreement with a distributor. This is because, registration of trademarks is specific to territory and it may be required from the distributor to provide the trademark license agreement in the process of applying for the registration of trademark in the territory of his operation.

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Sample Distribution Agreement

DISTRIBUTION AGREEMENTS

Software Distribution Agreement

EXCLUSIVE DISTRIBUTORSHIP AGREEMENT

This agreement made and entered into day of by and between ……………………. INC, a corporation duly organized and existing under the laws of Taiwan with its principal place of business at Taipei Taiwan (hereinafter called Seller )

and

……………………………… LIMITED, a company registered under the Companies Act, 1956 with its principal place of business at ………………………………………. NEW DELHI, INDIA (hereinafter called Distributor ).

Whereas Clause

WHEREAS, Seller is desirous of exporting the products stipulated in article 4 hereof to the territory stipulated in Article 3 hereof and WHEREAS , Distributor is desirous of importing from Seller and selling the said products in the said territory; NOW, THEREFORE, in consideration of the promises and the mutual covenants to be faithfully performed herein contained, IT IS HEREBY AGREED AND UNDERSTOOD AS FOLLOWS:

Article 1. Appointment

During the effective period of this agreement, Seller hereby appoints Distributor as its exclusive distributor and Distributor accepts and assumes such appointment.

Article 2. Privity

The relationship hereby established between Seller and Distributor during the effective period of this Agreement, shall be solely that of Seller and Distributor has no authority to assume or create any obligation in the name of or of any kind on behalf of Seller.

Article 3. Territory

The territory covered under this Agreement shall be expressly combined to entire territory of INDIA. (hereinafter called territory ).

Article 4. Products

The products covered under this agreement shall be expressly confined to Uninterruptedly Power Supply (UPS) (hereinafter called Products).

Article 5. Prices

As applicable from time to time and conveyed by the Seller to the Distributor in writing & Distributor giving its consent in writing to the Seller.

Article 6. Technical Improvement and Patent Application

During the term of this Agreement, Seller shall furnish to Distributor any technical improvements and inventions relating to the Products made by Seller without any delay and free of charge. As Seller has right to apply for the issuance of patents thereon, Distributor agrees to make reasonable efforts to obtain such protection in India. During the term of this Agreement, Distributor agrees to furnish to Seller all technical improvement and inventions related to the Products required by Distributor without any delay and free of charge in consideration of services in Article 6-1 above.

Article 7. After Sale Service

Seller will provide one year full guarantee to Distributor after the shipping date. In case of faulty Products, Seller shall replace the faulty units with new All-in one PCB. Distributor shall send faulty PCB back to Seller for repairing. Whenever Seller has received a complaint as to the products from distributor, Seller shall immediately make investigation and take a proper action.

Article 8. Exclusive Right

In consideration of the exclusive right herein granted, Distributor shall not purchase, import, sell, distribute or otherwise deal in any products competitive with or similar to Products in Territory, and Seller shall not offer, sell or export Products to Territory through other channel than Distributor during the effective period of this Agreement. The Seller shall not provide assist, supply directly or indirectly to the technical details of the products to anyone in the Territory.

Article 9. Minimum Purchase

Distributor shall purchase at least US$ ……………………(U.S. Dollar …………………only ) of product during one (1) year ( 12 months ) during the effective period of this Agreement and its extension thereof, if any.

Article 10. Individual Contract

Each individual contract under this Agreement shall be subject to this Agreement but such contract shall be concluded and carried out by Seller’s sale note or confirmation which shall set forth the terms, conditions, rights and obligations of the parties hereto arising from or in relation to or in connection with such contract except those stipulated in this Agreement.

Article 11. Payment

Payment by either irrevocable letter of credit or remittance by telegraphic transfer through bank. Letter of credit: Within 7 days after the receipt of Seller’s confirmation of order, Distributor shall cause irrevocable confirmed Letter of Credit(s) available by Seller’s sight draft to be established with a prime bank satisfactory to Seller. Remittance by Telegraphic Transfer. Payment shall be received by Seller 7 days prior to shipment effect.

Article 12. Information and Report

Both Seller and Distributor shall periodically and/or on the request of either party furnish information and market reports to each other to promote the sale of Products as much as possible. Distributor shall give Seller such reports as inventory, market conditions and other activities of Distributor.

Article 13. Sales Promotion

Distributor shall diligently and adequately advertise and promote the sale of Products throughout Territory. Seller shall furnish with or without charge to Distributor reasonable quantity of advertising literatures, catalogues, leaflets, folders etc.

Representatives of Seller may periodically visit Distributor and advise Distributor in methods and means best suited to promote the sale of Products throughout Territory.

Article 14. Industrial Property Rights

Distributor may use the trade-mark(s) of Seller during the effective period of this Agreement only in connection with the sales of Products, provided that even after the termination of this Agreement Distributor may use the trade-mark(s) in connection with the sale of Products held by it in stock at the time of termination. Distributor shall also acknowledge that any and all patents, trademarks, copyrights and other industrial property rights used or embodied in Products shall remain to be sole properties of Seller, and shall not dispute them in any way

Article 15. Duration

This Agreement shall become effective on the day appearing at the first above written upon the signing of both Seller and Distributor and shall remain effective for a period of one year. At least three (3) months before the expiration of the term, Seller and Distributor shall consult with each other for renewal of this Agreement.

Article 16. Prohibition of sale outside Territory

Unless prior notice and approved by Seller, Distributor shall not sell or export, nor cause any other person, firm or corporation in Territory to sell or export Products outside Territory during the effective period of this Agreement.

Article 17. Assignment

Neither party shall assign and/or transfer this Agreement in whole or in part to any individual, firm or corporation without the prior written consent of the other party.

Article 18. Observance of Secrecy

Both Seller and Distributor shall keep in strict confidence from any third party(s) and all important matters as to the business affairs and transactions covered by this Agreement.

Article 19. Notice

All notice which may or shall be given under this agreement shall be made by registered airmail or cable to the address mentioned below or to such address as are notified in writing by the parties hereto. If either party has changed its address, a written notice thereof shall be given to the other party. All notices shall also be deemed to have been given on the day when deposited in post.

Article 20. Assembling

To secure regular supplies in the territory, if both the parties agree, the seller shall provide all parts of the product to assemble the product in the territory. If the Seller wish to establish its manufacturing unit in the territory, the Distributor shall be given preference to establish such unit.

Article 21. Governing Law & Arbitration

This Agreement shall be governed and interpreted by the laws of India. In case that any dispute or controversy arises out of or in relation to this Agreement between both parties shall be settled amicably but, in case of failure, these disputes or controversies shall be finally settled in London by arbitration in accordance with International Commercial Arbitration Association where the award shall be final binding upon the parties hereto.

Article 22. Entire Agreement

This Agreement constitutes the entire and only agreement between the parties hereto and supersedes all previous negotiations, agreements, commitments relating to the sale of Products and shall not be released, discharged, changed or modified in any manner, except by instruments signed by duly authorized officer or representative of each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement in English and duplicate to be executed by their respective duly authorized officer or representative as of the day first above written

…………………………………… INC.

[SELLER] ………………………………………. LTD.

[DISTRIBUTOR]

WITNESSTH

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“The only certainty in life is uncertainty.”

When I was much younger, before law school and life happened, I had a 10 year life plan all chalked out for me. The plan was simple – five years of law school, five years of litigation and then become the best thing to happen to the legal industry after Mr. Jethmalani!

I was going to be the Robinhood of the lawyers, giving free legal aid to the poor and educating the common people about their rights.

Over ambitious and naive, huh? I know better now.

I tried to stay the course, but did not last a year on my plan. I attribute it to my unplanned self and lack of real-world knowledge. I took the first job I thought will lead me towards my goal. I was not cut-out for it. Then I planned to work in-house so I interned with a company for about four months. After that, I got a job offer in a media and entertainment company and I worked there for about four years, and simultaneously helped in running my family business. Then I quit that job to work with a legal education startup as a writer!

The point I am trying to make here is that the only thing constant for me has been change and uncertainty. I have come to accept that even with the worst plan in my first year, or a good plan, thereafter, lie some uncertainties. The best thing I have learnt is to adapt and make the best of whatever life throws at me.

This is not true for everyone. I know a lot of people who had a plan and stuck to it until they achieved it. But I also know of several others, who have struggled to get what they want. Some have persisted, while others did not. It does not make their journeys any less significant. It just makes you realise that ‘the plan’ must have enough room for you to adapt to the present situation. It also makes you realise things like, what you really want, your abilities, the importance of financial stability in your life, etc. I have had bare minimum and stable income as well. But then sometimes the job was simply worth doing, so the money did not matter. Other times, money was the only reason for doing a job!

# Show me the money!

I had almost romanticised my vision of legal services as a law student. I felt that since I live an extremely simple life, I could live off my meagre salary. That was only briefly true. But then free legal service is not really as the name suggests. You have to get paperwork done, filings, etc. You can probably waive of your own fees. But there are still expenses to be borne by the clients.

Just like starving artists, first generation lawyers without a solid plan, often have their rose tinted glasses snatched off too soon. The realisation hits that the income has to be supplemented. When this happens, there are only a handful options left.  You can either try and work your way into the law firms or companies, or you can sit for judicial or civil services examinations or, pursue further studies as well. Those who want to stay in litigation may also do a contract drafting course, and start drafting contracts to supplement their income as well as increase their client base. To know more about it read here. A sustainable income is necessary and deserved at this point.

CLICK HERE TO GET FREE MATERIALS!

# To be, or not to be

By the time you have realised how to sustain an income, you may come to the crossroads of what to do with your career in the long term. For many like me, the first year is mostly to find our footing in the legal industry. It is the time to decide whether I am suited for the dream job and can pursue it to the end or not.

As I have mentioned earlier, my ten year plan did not work out at all for me. So then the huge realisation smacked me in the face: what to do? Was I ready to hang my boots or change my dreams? The reality was way different than my expectations of the profession. Mind you, this was the time when I did not know about the online courses which could have helped me with all my troubles. But being ignorant is no excuse in my book. Neither was the being indecisive.

Miraculously, something happened in my personal life, which helped me decide that I want to work for a company. But I had no corporate experience. So I reached out to my contacts and found an internship with a company. It was a great learning opportunity and while the company did not hire me, I got my next job based on the work I did for them. So one thing kind of led to the other.

The takeaway is that, you will come to a crossroad at some point in your legal career where you have to decide: Where do I see myself in the next five years? Then, you make it happen and get there! If that does not work out? Then go to the next plan. But don’t give up. Something will turn the tide in your favour.

# Burden of Choices

I somewhat pride myself on taking the necessary call in my career when I did. It was horrible to shelve my dreams and accept the fact that I had failed. But the thing about failure is that you have to dust yourself and get up. Failing shows that you tried. Could I have tried some more? Perhaps. I did not wait around to find out after I’d made up my mind.

The choices we make, good or bad have consequences. But you know that only once you have taken the risk and made that choice. We all have choices to make. What to do pursue as a lawyer: M&A law, media laws, cyber laws, business laws, labour laws, company laws? There are so many industries and alternatives. We are spoil for choice. But then we do not know how to gain specialised knowledge sometimes. There are online courses to help with that. But you have to make the choice first!

This realisation is what I like to think of as the turning point. This is where we decide to make the change that is necessary. The effect of this choice is usually a little long term. Whatever you choose will shape up your career. You will become an expert in that particular industry or field. This one is a big decision.

CLICK HERE TO PLAN YOUR CAREER!

# Chasing your passion

Once you figure out what you want to do, try and sit with it for a while. Like my boss recently said to me, “You cannot just get good at something. You have to invest time, energy and focus on the job at hand. Only with perseverance and hard work will you succeed.”

It is true. I stayed at my second job for about four years and learnt all that I could. There were no shortcuts. Everyday you learn something new. I also learnt the ropes of my family business when I had almost given up. The key to finding your passion is to do things that you want to, and some more! What you do is only part of the goal. You have to figure out what drives you and where your passion lies, in the course of doing the job at hand.

My dreams have changed since I’d started. I made some tough calls. But I tried remaining on the course long enough to figure out where I want to be. It was not at my previous job. I had learnt all I could and there was no more it could offer me. So I kept at learning as much I could. I did some courses and wrote some articles. All in attempt to figure out what I want to do next.

I realise that there are people who work in the same organisation for years, and I commend them for following their passion. But since my dreams have changed, I know what I want to do. I want to learn as much as possible. Things apart from laws. I want to learn about sales, marketing, writing and more. The crux of my dream remains the same: I want to help people learn about laws, so that they are armed with knowledge.

I have taken a lot of radical decisions in my life, which I was vehemently advised against. But it brought me a step closer to my goal without me realising so. If I had not made the conscious call to leave my first job and move in-house, I would not have landed my first major job. That job inadvertently helped me pursue my passion for writing and learning. I now work with an organisation which has the same goal as me – legal education. Did I make a lot of mistakes on the way to here? Of course, I did. But I also learnt that even if our dream changes with time and reality checks, the important thing is to keep moving forward.

The only way to keep moving forward is to keep learning and improving yourself. If you don’t understand, ask for help. Dreams may change with time, but goals are constant. Figure out your passion, set goals for yourself. Learn what you need to in order to pursue your refreshed dreams and go for it!

Here is the second article of the series, 5 Important IP Contracts.  In this article, Varshita Dogra of VIPS discusses Assignment or Transfer Contracts.

Part 1 of the series can be visited by clicking the link below.

IP Licensing Agreements – The First in The Series of 5 Important IP Contracts

Assignment or Transfer Contracts

An Assignment Agreement is a contract that transfers the whole or part of intellectual property rights by the owner of such IP to the assignee, who acquires ownership over such IP including the right to prevent others from exploiting the rights so assigned. In simple terms, assignment of IP means sale of IP. If the assignor, after assigning the IP uses it, such use will be considered an infringement.

An assignment agreement must be in conformity with the Indian Contract Act, 1872 and if required, must be duly stamped, when required, as per the provisions of the Indian Stamp Act, 1899. Specific laws governing specific forms of IP provide in detail about when, how and to what extent assignment of rights is permitted under the law. Registration of assignment of IP depends on whether the IP is registered or not.

Assignment can either be complete or partial in nature. Partial assignment of Copyright is also possible, as specified in Section 18 of Indian Copyright Act. Assignment can be limited in terms of use or territory as well. The only difference between license and assignment would be that the ownership of the right does not transfer in a license, whereas the ownership changes in an assignment.

Intellectual property created by students in a University Research and Development (R&D) programme can be assigned by the student in the absence of an agreement, as the student is the owner of the intellectual property created. Most universities, however, have policies requiring students to sign pre-invention agreements regarding the same. [3]

Types of assignment:

1. Legal Assignment – An assignment of an existing registered intellectual property is a legal assignment, where the assignee would become the owner of the intellectual property and would acquire all or partial rights with respect to the property.
2. Equitable Assignment – A grant of right before the IP is registered is an equitable assignment, which gives the assignee the right to call upon the assignor when the IP is granted, to assign the same to the assignee. An equitable assignee cannot have his name entered in the register as proprietor of the IP, but he may have notice of his interest in the IP entered in the register.
3. Mortgage – A mortgage is an agreement in which the intellectual property is wholly or partially transferred to assignee in return for a sum of money. Once the assignor repays the sum to the assignee, the rights with respect to the property are restored with the assignor. The person in whose favour a mortgage is made is not entitled to be the owner, but will be called the mortgagee. [4]

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Key Points to remember while drafting an Assignment Contract

• Scope and Object of the Agreement

The first task at hand is to analyse the scope of the assignment, identification of the rights assigned and the extent of the assignment. While defining the scope of the assignment of an IP, it is also important to define the status of the accompanying IP as well. For example, in a patent assignment, the know-how associated with the patent would be the accompanying IP. It is important to remember that only an existing and future right in copyright is capable of assignment. The agreement shall specifically define the ‘intellectual property’ which is being assigned under the agreement.

• The Clause stating the actual assignment of IP

A specific clause stating the conveyance of ownership of the IP must be included in the agreement. This is the defining clause for the scope of the assignment. The right to sue for infringement of IP before the assignment is made, can also be transferred when the IP is assigned perpetually. If any approvals are to be obtained by the assignor, the effect of not being able to obtain such approval must be specified in the agreement.

• Term of Assignment

An assignment can be perpetual in nature or for a fixed definite period of time. The same must be specified in the agreement assigning IP to the assignee. In case the parties have agreed for a process to renew the term of the agreement, the same should be specified in the agreement. In case the assignment is for a fixed period of time, the agreement must also specify the consequences on expiration of such fixed term. For example, who would have the right to sue for infringement for the duration of the agreement. In absence of a term specified in the assignment agreement, the term will be deemed to be the duration of the period under which the intellectual property rights may be enforced under the laws of India.

• Territory of Assignment

The territory for which the assignee has acquired the rights in an intellectual property as an owner is to be clearly specified to avoid confusion. As assignment is transfer of ownership, the assignor will not be the owner of the IP in the particular territory till the end of term of the agreement.

• Future Transfers

Generally, when ownership of IP is transferred, it would mean that the right to make any future transfer is also included. But in case of assignment for a fixed term, the agreement can provide for a restriction on the right of the assignee to make future transfers during the term of the agreement. A future transfer can be made only to the extent of the right, that the assignee has acquired in the IP. It is only effective to the extent it is within the scope of any earlier transfer, under which access to or use of the intellectual property was acquired or authorized.

• Warranties

An assignment agreement must include warranties from the IP owner stating the following 

1. The assignor is the only owner of the IP assigned, and that he has the authority and capacity to assign the IP
2. The IP has not been licensed; or no right, title or interest has been created in the property towards any third party
3. The IP is free from any burdens, such as infringement of third party rights
4. There are no other obligations to any third party that are inconsistent with the rights and obligations set out in the agreement

Such a clause is important for the assignee to safeguard his interests and protect him from future litigation.

Apart from these provisions, most of the provisions used in an IP License agreement can be used in an assignment contract by careful consideration of the same beforehand and making them fit for an assignment contract.

Difference between an IP License Agreement and IP Assignment

The major difference between assignment and license is that the owner retains the ownership over the intellectual property when he grants a license for the same, whereas when an owner of an intellectual property assigns a right or bundle of rights to another person, he himself loses those rights. As assignment transfer the whole interest in the copyright itself, while a license merely grants the permission to do something and not the ownership of the copyright. Usually the difficulty arises, when the question with respect to whether there has been partial assignment or an exclusive license of the right has been granted arises in the Court.

The Hon’ble Supreme Court analysed the difference between assignment and licensing of Copyright in the case of Deshmukh and Co. (Publishers) Pvt. Ltd. v. Avinash Vishnu Khandekar and Others [2006 (32) PTC 358 (Bom)]. It was held as follows :

“ 1. To determine whether a document is an assignment or merely confers a licence, regard must be given to the substance and not to the form of words used. The question usually arises in the context of whether there has been a partial assignment or an exclusive license of the right in question. The distinction is a slender but an important one.

2. Two proposition in respect of commercial contracts are well recognised. Firstly, that there is no presumption in favour of permanence of an agreement. Secondly, if a contract involved mutual trust and confidence in its fulfilment. Normally, courts would not interpret its term to employ permanence.

3. If the consideration consists of payment of royalties or a share of profits instead of a downright payment, then the copyright is not assigned. It would a license to publish and sell. In this case, payment of royalty instead of a sum of money paid down will also weigh heavily against partial assignment.”

Difference between a License Contract and an Assignment Agreement

In some cases, it is mandatory to enter into an Assignment Agreement such as when the employee is making inventions for the employer. Inventions made in the course of employment are by default owned by the employer, however a contract to this effect can save employer from vexatious litigation. The concept of royalties work better with license instead of assignment. This is because, an assignment being a conveyance of title that is irrevocable, as assignee that fails to pay royalties does not have to deal with the risk of loss of right in the IP, since the assignee owns it unconditionally. An assignment may be appropriate where the IP owner prefers to receive a lump sum price, at the time of the assignment, rather than collecting royalties [5].

Technology Transfer and Licensing Agreements

Technology transfer and licensing agreements are entered into for improving own product by using rights owned by others in the form of patent, utility model, or know-how protected by a trade secret [6]. A detailed analysis on drafting such agreements can be found here.

CLICK HERE

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ASSIGNMENT AND TRANSFER AGREEMENT – SAMPLE TEMPLATE

This Assignment and Transfer Agreement (“Agreement”) is made as of _________ __, 20__ (“Effective Date”) between ________________. (“Assignee”), and ________________ (“Assignor”). In consideration of the mutual promises and covenants contained in this Agreement, the parties agree as follows:

1. Definitions

1.1 “Assigned Property” means the property listed in Exhibit A and all Intellectual Property and Intellectual Property Rights forming a part of, embodied, in or necessary for use of the property.

1.2 “Intellectual Property” means all technology and intellectual property, regardless of form, including without limitation: published and unpublished works of authorship, including without limitation audiovisual works, collective works, computer programs, compilations, databases, derivative works, literary works, maskworks, and sound recordings (“Works of Authorship”); inventions and discoveries, including without limitation articles of manufacture, business methods, compositions of matter, improvements, machines, methods, and processes and new uses for any of the preceding items (“Inventions”); words, names, symbols, devices, designs, and other designations, and combinations of the preceding items, used to identify or distinguish a business, good, group, product, or service or to indicate a form of certification, including without limitation logos, product designs, and product features (“Trademarks”); and information that is not generally known or readily ascertainable through proper means, whether tangible or intangible, including without limitation algorithms, customer lists, ideas, designs, formulas, know-how, methods, processes, programs, prototypes, systems, and techniques (“Confidential Information”).

1.3 “Intellectual Property Rights” means all rights in, arising out of, or associated with Intellectual Property in any jurisdiction, including without limitation: rights in, arising out of, or associated with Works of Authorship, including without limitation rights in maskworks and databases and rights granted under the Copyright Act (“Copyrights”); rights in, arising out of, or associated with Inventions, including without limitation rights granted under the Patent Act (“Patent Rights”); rights in, arising out of, or associated with Trademarks, including without limitation rights granted under the Lanham Act (“Trademark Rights”); rights in, arising out of, or associated with Confidential Information, including without limitation rights granted under the Uniform Trade Secrets Act (“Trade Secret Rights”); rights in, arising out of, or associated with a person’s name, voice, signature, photograph, or likeness, including without limitation rights of personality, privacy, and publicity (“Personality Rights”); rights of attribution and integrity and other moral rights of an author (“Moral Rights”); and rights in, arising out of, or associated with domain names (“Domain Name Rights”).

2. Assignment. Assignor hereby perpetually, irrevocably, and unconditionally assigns, transfers, and conveys to Assignee and its successors and assigns, all of Assignor’s right, title, and interest in and to the Assigned Property. Assignor further perpetually, irrevocably, and unconditionally assigns, transfers, and conveys to Assignee and its successors and assigns all claims for past, present and future infringement or misappropriation of the Intellectual Property Rights included in the Assigned Property, including all rights to sue for and to receive and recover all profits and damages accruing from an infringement misappropriation prior to the Effective Date as well as the right to grant releases for past infringements. Assignor hereby waives and agrees not to enforce all Moral Rights and all Personality Rights that Assignor may have in the Assigned Property.
3. Consideration. In consideration for assignments made by Assignor under this Agreement, Assignee will pay Assignor $________ dollars.
4. Confidentiality. Assignor must not use any Confidential Information assigned as part of the Assigned Property except for the benefit of Assignee. Assignor must not disclose such Confidential Information to third parties. Assignor must take reasonable steps to maintain the confidentiality and secrecy of such Confidential Information and to prevent the unauthorized use or disclosure of such Confidential Information. Any breach of these restrictions will cause irreparable harm to Assignee and will entitle Assignee to injunctive relief in addition to all applicable legal remedies.
5. Representations and Warranties. Assignor represents and warrants to Assignee that: Assignor exclusively owns all right, title, and interest in and to the Assigned Property; Assignor has not granted and will not grant any licenses or other rights to the Assigned Property to any third party; the Assigned Property is free of any liens, encumbrances, security interests, and restrictions on transfer; to Assignor’s knowledge, the Intellectual Property that is assigned as part of the Assigned Property does not infringe Intellectual Property Rights of any third party; and there are no legal actions, investigations, claims, or proceedings pending or threatened relating to the Assigned Property.
6. Indemnification. Assignor will defend, indemnify, and hold harmless Assignee, and Assignee’s officers, directors, shareholders, successors, and assigns, from and against all losses, liabilities, and costs including, without limitation, reasonable attorneys’ fees, expenses, penalties, judgments, claims and demands of every kind and character that Assignee, its officers, directors, shareholders, successors, and assigns may incur, suffer, or be required to pay arising out of, based upon, or by reason of: the breach by Assignor of any of the representations or warranties made by Assignor under this Agreement; Assignor’s use of the Assigned Property prior to the date of this Agreement; or Assignor’s failure to perform its obligations under this Agreement.
7. Further Assurances

7.1 Assistance. Assignor will take all action and execute all documents as Assignee may reasonably request to effectuate the transfer of the Assigned Property and the vesting of complete and exclusive ownership of the Assigned Property in Assignee. In addition, Assignor will, at the request and sole cost and expense of Assignee, but without additional compensation, promptly sign, execute, make, and do all such deeds, documents, acts, and things as Assignee may reasonably require:

(a) to apply for, obtain, register, maintain and vest in the name of Assignee alone (unless Assignee otherwise directs) Intellectual Property Rights protection relating to any or all of the Assigned Property in any country throughout the world, and when so obtained or vested, to renew and restore the same;

(b) to defend any judicial, opposition, or other proceedings in respect of such applications and any judicial, opposition, or other proceedings or petitions or applications for revocation of such Intellectual Property Rights; and

(c) to assist Assignee with the defense and enforcement of its rights in any registrations issuing from such applications and in all Intellectual Property Rights protection in the Intellectual Property.

7.2 Power of Attorney. If at any time Assignee is unable, for any reason, to secure Assignor’s signature on any letters patent, copyright, or trademark assignments or applications for registrations, or other documents or filings pertaining to any or all of the Assigned Property, whether because of Assignor’s unwillingness, or for any other reason whatsoever, Assignor hereby irrevocably designates and appoints Assignee and its duly authorized officers and agents as its agents and attorneys-in-fact, to act for and on its behalf and stead to execute and file any and all such applications, registrations, and other documents and to do all other lawfully permitted acts to further the prosecution thereon with the same legal force and effect as if executed by Assignor.

8. Miscellaneous

8.1 Injunctive Relief. A breach of this Agreement may result in irreparable harm to Assignee and a remedy at law for any such breach will be inadequate, and in recognition thereof, Assignee will be entitled to injunctive and other equitable relief to prevent any breach or the threat of any breach of this Agreement by Assignor without showing or proving actual damages.

8.2 Binding on Successors. This Agreement will inure to the benefit of, and be binding upon, the parties, together with their respective representatives, successors, and assigns, except that Assignor may not assign this Agreement without the consent of Assignee.Assignee may assign this Agreement in its discretion.

8.3 Governing Law and Jurisdiction. This Agreement will be governed by, and construed in accordance with, the laws of the State of New York without reference to its conflict of laws provisions.With respect to any dispute arising out of or related to this Agreement, the parties consent to the exclusive jurisdiction of, and venue in, the federal and state courts located in New York County, New York.

8.4 Amendment and Waiver. This Agreement may not be amended or modified unless mutually agreed upon in writing by the parties and no waiver will be effective unless signed by the party from whom such waiver is sought. The waiver by any party of a breach of any provision of this Agreement will not operate or be construed as a waiver of any subsequent breach.

8.5 Severability. If any provision of this Agreement is held invalid by any court of competent jurisdiction, such invalidity will not affect the validity or operation of any other provision, and the invalid provision will be deemed severed from this Agreement.

8.6 Entire Agreement. This Agreement is the entire agreement concerning the subject matter hereof. It supersedes all prior and contemporaneous agreements, assurances, representations, and communications between the parties.

[Assignor] [Assignee]

By:_________________________ By:____________________________

Title:_______________________ Title:__________________________

EXHIBIT A

PROPERTY

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References

[3] “Importance of Assignment Agreements under Intellectual Property Laws in India” written by Sindhura Chakravarty; published in the Journal of Intellectual Property Rights, Vol 14, November 2009, pp 513-522

[4] Article on “To License or to Assign a Patent?” published with PSA legal in issue XV, September 2010

[5] ibid

[6] Article on “Technology License Agreement” by WIPO

We decided to do a series of 5 blog posts which explains in detail, the five most important contracts an IP lawyer must know. Here is the first article of the series. In this article, Varshita Dogra of VIPS discusses IP Licensing Agreements.

The job of an IP lawyer is to assist clients in safeguarding and protecting their interests with respect to their Intellectual Property. Part of the job would be to draft numerous agreements such as selling, licensing, assigning or transferring of said intellectual property. It is a necessary skill for working as an IP lawyer to be able to create well structured intellectual property agreements that best protect the business interests of the owners of such intellectual property.

Although, plethora of sample agreements are found on the internet, it is important to realise that these templates are to be taken as a loose guideline and not copy them verbatim. It is advisable to format the agreement in a way which makes sense for the specific interest of your client to avoid any discrepancy.

What are IP rights?

Intellectual property rights are the rights given to persons over the creations of their minds [1]. There are different kinds of intellectual property, which includes Copyright, Trademark, Patent, Industrial Design, Trade Secrets, Know-How, etc. governed by different statues in India. These laws provides different rights associated with these IPs; where some rights are specific to those with registered IPs, some are available to all owners of IP. These rights with respect to IP are, in simple terms, a way to exploit the IP in terms of its different uses, modifications, enhancements, etc.

In absence of a written agreement, IP rights remain with the creator of the IP, even if you have been paid by another party to create the IP. There is a minor exception to this in case of work for hire in copyright. In case of joint inventions where there is no agreement to cooperate, both the parties can license the IP independently.

In this article, we’ll be discussing the different contracts that an IP lawyer has to commonly draft and various clauses pertaining to these specific contracts.

IP Licensing Agreements

An IP license agreement is entered into between an owner of an IP and a third party to authorise the third party (licensee) to access, use or enjoy certain rights associated with the intellectual property, in exchange for certain consideration or co-licensing of IPs. Such an agreement outlines the ways in which the licensee may or may not use the property owned by the licensor. As an IP lawyer, you must keep in mind to ensure a balance of interests between the licensee and the licensor.

IP licensing can occur only when at least one of the parties owns valuable intellectual property. Owning an IP includes the right of owner to prevent others from using that IP for commercial purposes. Licensing is beneficial for IP owners as it allows them to generate revenue out of their property by making it available to others for a consideration without affecting their ownership over it. Licensing is also beneficial for licensees, as it helps them save resources being spent on research and development and eliminate risks associated with the same.

Specific Clauses to be kept in mind while drafting an IP licensing agreement

Apart from the general clauses of any commercial contract, certain clauses to be kept in mind while drafting an IP license agreement are as follows:

• Scope of grant of license and conditions, if any, for exercising the rights so licensed

The scope of grant of license depends on the nature of the intellectual property being licensed. It is essential to define the intellectual property which is being licensed in the agreement. A licensor can only grant rights which he himself possesses under the law. All or any of the rights that the licensor possesses, can be licensed by him. The scope of license must also be specified in terms of the field and territory of use of the license.

If grant of license includes right to ‘sublicensing’, the same must be specified in the agreement. The right to sub-license can be for all or some of the rights being licensed. For example : A license may be granted for using, copying and modifying a source code and to sell the resultant software with the right to sub-license only the right to sell the resultant software (through distribution channels). The two key definitions which must be present in every IP licensing agreement are :

‘Licensed Product’ – which defines the intellectual property being licensed

‘Use’ – which would define the scope of usage of the licensed IP by the licensee

• Nature of exclusivity or non-exclusivity

Exclusive License

An exclusive license restricts the licensor’s freedom to use the intellectual property and also to do business with other licensees. An exclusive license can be granted for a particular territory or the whole world depending upon the negotiations between the parties. When an  exclusive license is limited by field of use or territory, it is important to carefully state the extent to which the license is permitted to enforce the intellectual property rights. A territory exclusive license is usually granted by foreign companies to Indian companies in order to avoid the risk of entering into a new market themselves but at the same time exploiting it.

An exclusive license is risky for the licensor as the only commercial use of the IP would be by the licensee. In order to cover the risks associated with exclusive license, the licensor can add certain provisions to the license agreement such as a minimum royalty provision. According to the ‘minimum royalty provision’, the licensor may require the licensee to commercialise the IP within the first year or a specific time period. The licensee may also be required to reach a minimum amount of royalty within a time period. If they do not meet the royalty expectations, they could be asked to make up the difference with their own money. The agreement can also provide that if the goal is not reached, the exclusive patent license could be terminated.

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Sole License

A sole license is granted when the licensor wants to enjoy his rights with respect to the intellectual property but also licenses it to only one licensee for a particular territory or the whole world. In such a case, the licensor cannot license his intellectual property to any other licensees.

Non-Exclusive license

A non-exclusive license grants to the licensee, the right to use the intellectual property, and does not prevent the licensor from licensing his intellectual property to others. The licensor is free to exploit his own intellectual property and license it to other licensees as well. Commercial softwares are licensed on a non-exclusive basis. Where license is non-exclusive, it is likely that the licensor will prohibit sub-licensing.

• Enforcement of Rights created under the agreement

The rights created can be enforced by indicating which party would be responsible for maintenance of the registered IP, and which, for the payment of all the fees associated with the registration. Enforcement of rights can involve various contractual remedies like monetary damages, injunction and other equitable remedies, or specific method of dispute resolution (arbitration clause).

• The term for which the license has been granted

As with any type of commercial agreement, an IP license agreement must contain a clause stating the definite term of the agreement. Such a clause must also specify the provisions which will remain enforceable, even after the term of the agreement is over such as confidentiality clause. The term clause must also specify about the terms for renewal of the contract after expiration, such as by giving a notice few months prior to the expiration.

• Obligations of the parties involved

The obligations should be clear and unambiguous. The consequences of “non-fulfilment” of obligations should also be specified to ensure that termination due to the default of one party of its obligations does not lead to liability for the other party.

Positive obligations

Positive obligations are the obligations which secure effective enjoyment of rights so created. On part of the licensor, this would include obligation to disclose; assist in form of training, consulting, or technical support and on part of the licensee would include duty to report infringement; covenant to exploit

Negative obligations

Negative obligations are the obligations refraining the parties from doing an act, which would include duty not to compete with the licensor, not to disclose confidential information to unauthorised persons. It would also include duty not to modify the product in case such a right has not been granted under the license.

• Treatment of improvements, enhancements and modifications

Any further development in the usability, functionality, performance, efficiency or other characteristics of the licensed intellectual property made either by the licensor or the licensee can be said to be an improvement.

As far as their treatment goes, improvements can either be automatically included in the definition of the licensed intellectual property, made available to the licensee on payment of a specific fee, or in any other way negotiated between the parties. Usually for improvements made by the licensee, the licensor would require full disclosure and promptness. Although in cases where the licensee modifies the licensed intellectual property for its own customised usage, the parties could also agree on the licensee retaining the modified intellectual property without interference.

A proper definition for the terms ‘licensed technology’, ‘improvement’, ‘enhancement’ and ‘modification’ and who would own such improvements and all IP that vests, in the same, in order to avoid ambiguity as to their treatment under the Agreement.

• Contract Termination and effects of such termination

There are basically two types of terminations – termination for convenience and termination for cause.

A party with right to termination for convenience usually is allowed to terminate the agreement at any point of time, provided that adequate notice is given to the other party. A licensee typically would not want the licensor to have such a right as it could lead to huge losses.

The clause for termination of agreement for cause may include the following events:

1. Material breach by other party of the terms of agreement
2. Failure of other party to conduct business in the ordinary course
3. Bankruptcy or insolvency of the other party
4. Licensee can have right to terminate in case the intellectual property is found to be invalid or if he is sued by a third party for infringement, particularly, if he does not have recourse of indemnity from the licensor

The agreement must also provide for the consequences of termination of rights and obligations of each of the parties in order to avoid further disputes. Usually the consequence is that the licensor takes over the inventory of the licensee, seeks return or destruction of all confidential information and all material that contains or reflects licensed know-how. It is extremely important to specify the clauses which would survive the termination and for how long they will survive, (Example: confidential information, representation and warranties, indemnity provisions).

• Indemnity Clause

An indemnity clause is included in an agreement to prevent loss or to compensate for a loss which may occur as a result of a specified event. Generally, it is treated as a boilerplate provision, which should not be the case in an IP licensing agreement, as it can have far reaching consequences for either parties. The licensees usually insist on adding an indemnity clause requiring the licensor to indemnify the licensees against risks such as that of infringement, product liability, insurance and more, or atleast over which the licensor has control. This is because the licensor is the one providing the intellectual property and also making money from the transaction. An indemnity clause can also be used by the licensor to cover the risk of damages caused due to acts of the licensee, disclosure of confidential information to third parties or even misuse of the product. Some risks must be indemnified even after the expiry or termination of the contract, which must be provided for under the indemnity clause or the term and termination clause.

• Royalty

The licensor may require fixed or variable fee payments to be paid on a periodical basis called ‘royalties’ which provide a continuous stream of revenue to him. Although the determination of royalty depends upon negotiations between the parties, there must be some reasonable basis for determining the same. The Competition Commission of India has pronounced multiple decisions on determination of royalty rates in order to prevent abuse by licensor due to his dominant position in the market. One such decision of the CCI can be seen here.

• Transferability or Assignment of License

Generally, a licensee’s rights are not assignable unless the license agreement expressly permits assignment or the licensor otherwise consents. A licensor typically opposes free transferability of license rights by licensees as it would lead to diminished control of the licensor on who gets rights to his intellectual property and could also lead to the intellectual property ending up in the hands of his competitor. Every IP license agreement must specify that the license is not assignable at the hands of the licensee, unless otherwise agreed between the parties.

Important considerations while drafting different types of licensing agreements

1. The most common and basic mistake that some IP lawyers commit while drafting licensing agreements is the terminology that they use. While referring to the rights being licensed, the term that should be used is ‘grant of right(s)’ and not ‘assigning the right’. Such a small mistake can lead to litigation wherein the licensee could claim assignment even if the agreement was for licensing of the intellectual property. In order to avoid such a confusion, the agreement must also specifically state everywhere that it is a licensing agreement.
2. Care must be exercised by the licensor that the grant clause does not grant “all rights, title and interests in and to the intellectual property” to the licensee. Such a clause would constitute an “assignment” of the intellectual property rights making the purported licensee the new owner of these rights, even to the exclusion of the purported licensor.[2]
3. It is a common practice in a licensing agreement which includes the grant of right to sub-license, to have a provision allowing the licensor to approve the terms and conditions of the sub-license or, at the very least, to require that the sublicense be on terms and conditions that are substantially similar to those set forth in the licensing agreement. Such a right to the licensor is extremely essential when the IP being licensed includes trademarks, so that the licensor  can ensure that quality standards are imposed on products or services bearing the licensed marks.
4. For a licensing agreement granting rights to use trademark, there must be a provision for quality control to protect the distinctiveness and reputation of the trademark. Such a provision is necessary as, without it, there is possibility that the quality of two products sold under the same mark may vary. It is also important to make such a provision enforceable.
5. Where there are more than two parties involved in a licensing agreement, or especially in the case of cross-licensing, it is advised to avoid using the terms “licensee” and “licensor”, or atleast give proper definition for these terms in the definition clause to avoid any confusion.
6. In case, where there is a family or series of patents being licensed, it is advisable to make a list of all the patents being licensed and specify them in a ‘Schedule’ to the agreement to avoid confusion.

CLICK HERE

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SAMPLE IP LICENSE AGREEMENT

This License Agreement (this “Agreement” of this “License Agreement”) is made and effective as of [DATE] (the “Commencement Date”) by and between:

[LICENSOR.Company], a company organized and existing in [LICENSOR.Country], with a registered address at [LICENSOR.Address] (“Licensor”)

and

[LICENSEE.Company], a company organized and existing in [LICENSEE.Country], with a registered address at [LICENSEE.Address] (“Licensee”).

WHEREAS:

1. Wishes to obtain a license to use [DESCRIPTION OF PRODUCT] (hereinafter, the “Asset”), and
2. Licensor is willing to grant to the Licensee a non-exclusive, non-transferable License to use the Asset for the term and specific purpose set forth in this Agreement.

NOW, THEREFORE, in consideration of the foregoing, and of the mutual promises and undertakings contained herein, and other good and valuable consideration, the parties agree as follows:

1. DEFINITIONS

1.1 “Agreement” means this License Agreement including the attached Schedule.

1.2 “Confidential Information” means information that:

1. is by its nature confidential;
2. is designated in writing by Licensor as confidential;
3. the Licensee knows or reasonably ought to know is confidential;
4. Information comprised in or relating to any Intellectual Property Rights of Licensor;

1.3 “Asset” means the Asset provided by Licensor as specified in Item 6 of the Schedule in the form as stated in Item 7 of the Schedule.

1.4 “Intellectual Property Rights” means all rights in and to any copyright, trademark, trading name, design, patent, know how (trade secrets) and all other rights resulting from intellectual activity in the industrial, scientific, literary or artistic field and any application or right to apply for registration of any of these rights and any right to protect or enforce any of these rights, as further specified in clause 5.

1.5 “Party” means a person or business entity who has executed this Agreement; details of the Parties are specified in Item 2 of the Schedule.

1.6 “Term” means the term of this Agreement commencing on the Commencement Date as specified in Item 4 of the Schedule and expiring on the Expiry Date specified in Item 5 of the Schedule.

2. LICENSE GRANT

2.1 Licensor grants to the Licensee a non-exclusive, non-transferable license for the Term to use the Asset for the specific purpose specified in this Agreement, subject to the terms and conditions set out in this Agreement.

3. CHARGES

3.1 In consideration of the Licensor providing the license under clause 2 of this License Agreement, the Licensee agrees to pay Licensor the amount of the License Charge as specified in Item 9 of the Schedule.

4. LICENSEE’S OBLIGATIONS

4.1 The Licensee cannot use the Asset, for purposes other than as specified in this Agreement and in Item 8 of the Schedule.

4.2 The Licensee may permit its employees to use the Asset for the purposes described in Item 8, provided that the Licensee takes all necessary steps and imposes the necessary conditions to ensure that all employees using the Asset do not commercialize or disclose the contents of it to any third person, or use it other than in accordance with the terms of this Agreement.

4.3 The Licensee will not distribute, sell, license or sub-license, let, trade or expose for sale the Asset to a third party.

4.4 No copies of the Asset are to be made other than as expressly approved by Licensor.

4.5 No changes to the Asset or its content may be made by Licensee.

4.6 The Licensee will provide technological and security measures to ensure that the Asset which the Licensee is responsible for is physically and electronically secure from unauthorized use or access.

4.7 Licensee shall ensure that the Asset retains all Licensor copyright notices and other proprietary legends and all trademarks or service marks of Licensor.

5. INTELLECTUAL PROPERTY RIGHTS

5.1 All Intellectual Property Rights over and in respect of the Asset are owned by Licensor. The Licensee does not acquire any rights of ownership in the Asset.

6. LIMITATION OF LIABILITY

6.1 The Licensee acknowledges and agrees that neither Licensor nor its board members, officers, employees or agents, will be liable for any loss or damage arising out of or resulting from Licensor’s provision of the Asset under this Agreement, or any use of the Asset by the Licensee or its employees; and Licensee hereby releases Licensor to the fullest extent from any such liability, loss, damage or claim.

7. CONFIDENTIALITY

7.1 Neither Party may use, disclose or make available to any third party the other Party’s Confidential Information, unless such use or disclosure is done in accordance with the terms of this Agreement.

7.2 Each Party must hold the other Party’s Confidential Information secure and in confidence, except to the extent that such Confidential Information:

1. is required to be disclosed according to the requirements of any law, judicial or legislative body or government agency; or
2. was approved for release in writing by the other Party, but only to the extent of and subject to such conditions as may be imposed in such written authorization.

7.3 This clause 7 will survive termination of this Agreement.

8. DISCLAIMERS & RELEASE

8.1 To the extent permitted by law, Licensor will in no way be liable to the Licensee or any third party for any loss or damage, however caused (including through negligence) which may be directly or indirectly suffered in connection with any use of the Asset.

8.2 The Asset is provided by Licensor on an “as is” basis.

8.3 Licensor will not be held liable by the Licensee in any way, for any loss, damage or injury suffered by the Licensee or by any other person related to any use of the Asset or any part thereof.

8.4 Notwithstanding anything contained in this Agreement, in no event shall Licensor be liable for any claims, damages or loss which may arise from the modification, combination, operation or use of the Asset with Licensee computer programs.

8.5 Licensor does not warrant that the Asset will function in any environment.

8.6 The Licensee acknowledges that:

1. The  Asset has  not been prepared  to meet any specific  requirements of any party, including any requirements of Licensee; and
2. it is therefore the responsibility of the Licensee to ensure that the Asset meets its own individual requirements.

8.7 To the extent permitted by law, no express or implied warranty, term, condition or undertaking is given or assumed by Licensor, including any implied warranty of merchantability or fitness for a particular purpose.

9. INDEMNITY

9.1 The Licensee must indemnify, defend and hold harmless Licensor, its board members, officers, employees and agents from and against any and all claims (including third party claims), demands, actions, suits, expenses (including attorney’s fees) and damages (including indirect or consequential loss) resulting in any way from:

1. Licensee’s and Licensee’s employee’s use or reliance on the Asset,
2. any breach of the terms of this License Agreement by the Licensee or any Licensee employee, and
3. any other act of Licensee.

9.2 This clause 9 will survive termination of this Agreement.

10. WAIVER

10.1 Any failure or delay by either Party to exercise any right, power or privilege hereunder or to insist upon observance or performance by the other of the provisions of this License Agreement shall not operate or be construed as a waiver thereof.

11. GOVERNING LAW

11.1 This Agreement will be construed by and governed in accordance with the laws of [COUNTRY]. The Parties submit to exclusive jurisdiction of the courts of [COUNTRY].

12. TERMINATION

12.1 This Agreement and the license granted herein commences upon the Commencement Date and is granted for the Term, unless otherwise terminated by Licensor in the event of any of the following:

1. if the Licensee is in breach of any term of this License Agreement and has not corrected such breach to Licensor’s reasonable satisfaction within 7 days of Licensor’s notice of the same;
2. if the Licensee becomes insolvent, or institutes (or there is instituted against it) proceedings in bankruptcy, insolvency, reorganization or dissolution, or makes an assignment for the benefit of creditors; or
3. the Licensee is in breach of clause 5 or 7 of this Agreement.

12.2 Termination under this clause shall not affect any other rights or remedies Licensor may have.

13. LICENSE FEE

13.1 In consideration for the license grant described in this License Agreement, Licensee shall pay the yearly license fee as stated in Item 9 of the Schedule immediately upon execution of this Agreement and upon each anniversary date of this Agreement.

13.2 The license fee and any other amounts payable by the Licensee to the Licensor, under this Agreement, are exclusive of any and all foreign and domestic taxes, which if found to be applicable, will be invoiced to Licensee and paid by Licensee within 30 days of such invoice.

14. ASSIGNMENT

14.1 Licensee shall not assign any rights of this License Agreement, without the prior written consent of Licensor.

15. NOTICES

15.1 All notices required under this Agreement shall be in writing and shall be deemed given (i) when delivered personally; (ii) five (5) days after mailing, when sent certified mail, return receipt requested and postage prepaid; or (iii) one (1) business day after dispatch, when sent via a commercial overnight carrier, fees prepaid.  All notices given by either Party must be sent to the address of the other as first written above (unless otherwise changed by written notice).

16. COUNTERPARTS

16.1 This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute one instrument.

17. SEVERABILITY

17.1 The Parties recognize the uncertainty of the law with respect to certain provisions of this Agreement and expressly stipulate that this Agreement will be construed in a manner that renders its provisions valid and enforceable to the maximum extent possible under applicable law. To the extent that any provisions of this Agreement are determined by a court of competent jurisdiction to be invalid or unenforceable, such provisions will be deleted from this Agreement or modified so as to make them enforceable and the validity and enforceability of the remainder of such provisions and of this Agreement will be unaffected.

18. ENTIRE AGREEMENT

18.1 This Agreement contains the entire agreement between the Parties and supersedes any previous understanding, commitments or agreements, oral or written.  Further, this Agreement may not be modified, changed, or otherwise altered in any respect except by a written agreement signed by both Parties.

IN WITNESS WHEREOF, this Agreement, including the attached Schedule, was signed by the Parties under the hands of their duly authorized representatives and made effective as of the Commencement Date.

[LICENSOR.Company]

[LICENSOR.FirstName] [LICENSOR.LastName]

[LICENSOR.Title]

[LICENSEE.Company]

[LICENSEE.FirstName] [LICENSEE.LastName]

[LICENSEE.Title]

SCHEDULE

Item 1 – License Agreement

THE LICENSE AGREEMENT OF WHICH THIS SCHEDULE FORMS A PART IS DATED AS OF [DATE] AND IS BY AND BETWEEN THE PARTIES REFERENCED IN ITEM 2 BELOW.

Item 2 – Name and Address of Licensor and Licensee

Licensor: [LICENSOR.Company], a company organized and existing in [LICENSOR.Country], with a registered address at [LICENSOR.Address].

Licensee: [LICENSEE.Company], a company organized and existing in [LICENSEE.Country], with a registered address at [LICENSEE.Address].

Item 3 – Other License Terms

Item 4 – Commencement Date

Item 5 – Expiry Date

Item 6 – Description of Asset

Item 7 – Format of Asset

Item 8 – Approved Purpose

Item 9 – License Fee

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References

[1] Article on “What are intellectual property rights? : TRIPS” at the World Trade Organisation website.

[2] “Key Aspects of IP License Agreements” written by Donald M. Cameron and Rowena Borenstein of Ogilvy Renault

This article is written by Mohona Thakur, Team iPleaders

Off late, I started watching the critically acclaimed CBS legal and political drama series called The Good Wife, for the second time around after possibly half a decade. All hail Netflix! I was first introduced to this series by my aunt during my summer vacation in twelfth grade; I’d forgotten how much I loved the series and the role it played in my inclination towards litigation.

The episode I was watching last night showed the firm Stern Lockhart and Gardner going through tough times during recession and showing over half the firm the pink slips. This reminded me of what I saw in an episode from Suits where almost all employees at Pearson Spectre Litt left after Mike Ross took the plea bargain. Such stark contrast.

And this got me thinking. When is it that lawyers start looking out for other jobs? What is the trigger to the ultimate decision of quitting the coveted law firm job? The job-hopping? More importantly, why isn’t attrition ever spoken about? Think about it.

You will definitely find top reasons for law students and lawyers aiming for the law firm job, the statistics on the number of top law firms and their hires every year. In fact, I wrote an article just yesterday about it, you can take a look at it here. However, you will not find material online about attrition and reasons why a number of talented lawyers quit the big law. So, let’s talk about the unwritten today.

Let’s talk about why lawyers quit the fancy, well-paying, stable law firm jobs. Here is what my quick research on LinkedIn could come up with:

• Following the Herd, Instead of Their Passion

Shamnad Basheer, the Founder and Managing Trustee of IDIA, believes that “a number of lawyers end up at law firms because they follow the herd instead of their heart and passion.” Not everyone is cut out for the corporate of law firm job. And yet, it is quite true that most of them are sucked into the cycle due to lure of the money. When there is no passion for the work, one tends to quit sooner rather than later.

We have an in-house example of the very same, actually. Both our co-founders are NUJS, Kolkata graduates who worked with Trilegal for a year before they quit their job and started working at building iPleaders and LawSikho. They were always passionate about legal education and taking it to the masses. Trilegal was definitely not their calling.

As a matter of fact, one of the primary reasons I never wanted to work with law firms (apart from the work-life imbalance) was the fact that everyone seemed to want to work for a law firm, without really knowing what to expect. It was like the domino effect, only with law students here in place of a falling row of dominoes.

Do I know of lawyers who have quit in a year or so? Yes, in fact I do. I had a mentor back in law school, or so I considered, who was possibly the very first lawyer I had come across. He took up a very lucrative offer from one of the Big 6 right out of NLS Bangalore and quit within a year. I still remember how he used to joke about the money he was making, but ultimately his heart was elsewhere. Today, if I’m not wrong, he works in the US in public policy.

• Work – Life Imbalance

Work-life imbalance seems to be one of the primary causes of attrition at law firms. Soumya Shekhar, an independent legal research consultant, agrees with me, “I know people who are happy working in a law firm, people who are sticking it out just to pay their bills and people who swear they will never go back to one. Attrition happens primarily due to work-life imbalance.”

Zero personal life, more often than not leads to dissatisfaction amongst lawyers working long hours daily. And how many years before you finally have your body speak for you with all the exhaustion?

Ahmad Shazeb, a legal consultant, says that the biggest casualty of a law firm job is the lack of personal time that affects one’s own sanity. Unless you have a sorted personal schedule with place activities that don’t include work as such, you are doomed. Pent up frustration eventually start taking a toll and then leads to one giving up.

It is no surprise that working hours at law firms are generally over 12 hours in a day. This is quite obvious due to the number of clients that these law firms cater to. With the work hours that drastically drain lawyers, stress taking over your body and no scope of personal development thanks to paucity of time, lawyers decide to part ways with the job.

I don’t think anyone put it better than Shayonee Dasgupta, who has previously worked with Shardul Amarchand Mangaldas, “You cannot be passionate about your work if you only get to sleep for less than 3 hours a day and expected to put in a 22 hour work day. Slowly, the job becomes a liability that you carry forward because you have other obligations to fulfill. This sense of not having a fulfilling career drives most of us to quit. Paychecks and big bonuses come with an expiry date. The charm slowly fades away leaving you completely drained. Sometimes, your health goes for a toss while you spend all your waking hours to meet unrealistic deadlines set up by people who either have zero experience or do it because of ‘historical oppression’ (i.e. since I have suffered, so will you). Ultimately, a career in law firm, contrary to popular belief, is only one of the career options once you graduate. If you are not passionate about that kind of drudgery, you are bound to quit, sooner or later.”

• Dissatisfaction

Dissatisfaction could arise out of ungodly working hours, from the kind of work that one is doing or for some even from the fact that one is not appreciated enough by the reporting partners.

Abhijeet Shinde, Principal Associate at Cyril Amarchand Mangaldas, says that one of the many reason of attrition at law firms arise out of dissatisfaction amongst associates as they do not like their reporting partners.

This may not be entirely wrong. Ever since I started working for iPleaders, I’ve had to manage a number of employees reporting directly into me. I wouldn’t hesitate to state that I have come across employees who require to be continuously motivated and appreciated constantly for the work that they put in. When that doesn’t happen, they tend to feel dissatisfied and often even question themselves. I can only imagine that the same is expected not only from startups but also law firms.

Dissatisfaction, as I previously mentioned can also arise out of repetitive work. Imagine drafting similar contracts every other hour or drafting the same old SLP every weekend for a filing on Monday morning. When you keep doing one thing for a very long time, irrespective of whether you initially felt that you loved doing it, one would start feeling stagnation and not feel the potential to grow. It is almost like there is no challenge. Very few not only enjoy the work, but don’t mind repetitively doing it.

• Better Opportunities

Now comes the lot that genuinely do want to work with law firms and like the culture. Abhijeet Shinde, Principal Associate at Cyril Amarchand Mangaldass, rates this as the top most reason for why lawyers quit law firms – to hop on to better opportunities. “Good law firms choose very good resources from select law schools. Students from these law schools have become aware that they are in demand and can get jobs as per will. That makes them choosy and they try out different places before they settle.”

A lot of lawyers shift from law firm to law firm in search of better opportunities, better packages or even better profiles. In fact a number of people on my research conducted on LinkedIn said that there is lack of avenues at the senior level or at leadership roles. So basically, as you climb up the corporate ladder, the opportunities seem to decrease. This theory may not be entirely wrong. Take a look at major job portals in India for that matter – maximum vacancies are for associates; you won’t find too many people looking for principal associates or salaried partners or equity partners as often as you would see firms looking out for associates.

However, the way I look at it, these very young-blooded lawyers may actually face a lot of competition looking at the top most jobs with better pay or work profile. Or for that matter work with a reputed partner. They themselves would require to up their skills in relevant areas of law to make it to their desired law firms, maybe even opt for a foreign law firm. They need to not only know the sector and the work, be abreast with laws and the latest developments, but also continuously reinvent themselves. Online courses may be one such way to prepare yourself for a tougher neck to neck competition.

 CLICK HERE

Devashish Jagirdar, practising advocate at the Bombay High Court, added to the discussion on LinkedIn and emphasised on the fact that the growth graph of a lawyer at law firms is a major reason for them quitting law firms. Promotions as well as appraisals depend on the size of the firm. He argued that smaller law firms are closely held law firms, and do not see lawyers quitting very early.

• The Grass is Always Greener on the Other Side

Yes, this is undoubtedly a reason. You could call it a culmination of following the herd mentality, work-life imbalance, the stress of the job, dissatisfaction and the fact that a lot of the lawyers who end up working at law firms do it to gain the financial stability to move on to their passions. Of course, with enough savings in their bank accounts.

After a few years of earning enough money, lawyers tend to look forward to and explore what they are truly passionate about. In fact, today’s digital economy provides for lawyers with not just law firms as a career option, but it has also opened up so many new avenues to jump into. If you are still confused, look at the success of entrepreneurs that started Law School Tutorial (LST) here, legal journalism through LiveLaw, online blogging through iPleaders, legal recruitment through Vahura. Lawyers today aren’t just associates at law firms, they are omnipresent.

Ramanuj and Abhyuday left their law firm job to find their passion in legal education and built some commendable courses that can be found at lawsikho.com, my mentor went ahead and built a career in public policy, I left the law firm job and decided to help law students in need of guidance and information by regularly blogging about issues.

These five reasons that I have mentioned above are not the only reasons that lawyers quit the law firm job. It is far from exhaustive. These are more or less the reasons that lie at the heart of the issue of attrition. If you would like to add to the reasons, please feel free to drop it in the comments section.

We are all humans and we have expectations and standards. Whether we believe it or not, a lot of our actions are driven by these very expectations from ourselves and from what others expect from us.

We all do fight a war with ourselves every day. The reasons differ, that’s all. 

 

This article is written by Ranojoy Mukherjee of Lloyd Law College. The article discusses the findings of the Lodha  Committee.

Cricket in our nation has always been the sport which predominantly dwells in the heart of countrymen regardless of the fact whether the particular one is a cricket fanatic or not. But in return, such amount of love and passions often encounter an unfortunate deformity emanated from the administrative cells of the Board of Control for Cricket in India (BCCI). Such kinds of malpractices within its inner cell can be traced back from the indulgence of their administrative heads into the realms of never-ending controversies. It is pertinent to notice how BCCI every now and then continues to be involved in controversies followed by their large political interference, corruption, match-fixing or betting etc. So far, there have been innumerable debates seething in the favors and against the functioning of the BCCI due to the Indian Premier League ( broadly known as IPL) scam which literally undermined the national pride relating to sporting performance severely.

How it all started

1 May 16, 2013– Delhi police unveils spot fixing and match fixing scams.

2 July 28, 2013– BCCI appointed 2 member probe panel clears India Cements and Raj Kundra.

3 July 30, 2013– Bombay HC rules against BCCI probe panel and declares it illegal.

4 October 7, 2013– SC appoints the Justice Mudgal Probe Panel.

5 Feb 10, 2014– Justice Mudgal Probe Panel submits the report to SC finds Gurunath Meiyappa and Raj Kundra guilty illegal betting in cricket events

6 Jan 22, 2015– SC rules against BCCI’s controversial clause 6.2.4 which allows BCCI officials to have a commercial interest in IPL teams and appoints the Justice Lodha Committee.

7 July 14, 2015– Lodha committee submits the report on Gurunath Meiyappa, Raj Kundra, CSK, RR; recommends lifetime ban for Meiyappa and Kundra and 2 years suspension for CSK and RR.

8 Jan 4, 2016– Lodha committee submits Report on Reforms in Cricket and recommends drastic changes in BCCI.

9 Feb 4, 2016– SC asks BCCI to implements Lodha Committee’s recommendation.

10 March 3, 2016– BCCI files counter affidavit in SC against Lodha Committee’s recommendation.

11 July 18, 2016– SC upholds key recommendations and tasks the Lodha committee to oversee implementation within 4-6 months.

12 Sept 14, 2016– Lodha committee files first Status Report; recommends removal of BCCI Office Bearers and appointment of Panel of Administrator.

13 Oct 7, 2016– SC asks BCCI to cease further disbursement of funds to state associations until they accept Lodha Committee recommendations.

14 Oct 21, 2016– SC directs appointment of auditor fixes threshold value for contracts and instructs BCCI to cooperate with Lodha Committee.

15 Nov 7, 2016– Lodha Committee files second Status Report, reiterating non-compliance by BCCI.

16 Nov 14, 2016– Lodha Committee files third Status Report; recommends enforcement of recommended eligibility criteria and appointment of Mr. G.K Pillai as Observer.

17 Dec 13, 2016– SC releases judgments dismissing review petition filed by the BCCI against judgment delivered on July 18, 2016.

18 Dec 15, 2016– SC hears curative petitions filed by BCCI against judgment delivered on July 18, 2016; reserves judgment for Jan 3, 2017.

In a very unprecedented move, the Supreme court got involved in the functioning of BCCI in the case of BCCI vs. Lodha Committee. The inception of such a move by the apex court can be sensed to be the backwash of the IPL betting scam which shook the foundation of belief in the sanctity of the sport. In the abovementioned case, three cricketers, S. Sreesanth, Ajit Chandila and Ankeet Chavan, who represented Rajasthan Royal in 2013 Indian Premier League, were involved and also arrested by the Delhi Police on charges of spot-fixing. Upon further investigation, few other renowned names like Vindu Dara Singh and BCCI President N. Sreenivasan’s Son-in-law Gurunath Meiyappan came in front as the backbone of such execution resulting which all of them were arrested by the Mumbai Crime Branch. In addition to that the apex court ensuring the fairness of the investigation also suggested the N. Srinivasan to step down from his position as BCCI president else, there could have been a verdict asking him to step down.

But the investigations were still on over the allegations of spot-fixing and betting in IPL. Therefore, considering the intricacies of this matter the apex court appointed a three-member committee, which was known as Mudgal Committee, headed by Justice Mukul Mudgal. The other two members were Additional Solicitor General of India L. Nageswara Rao and former cricket umpire Nilay Dutta. Followed by a stretch of inspection, the Mudgal committee unearthed the discrepancies performed by BCCI chief Srinivasan for being reluctant enough to act upon the accused of betting, IPL COO Sudar Raman, Chennai Super Kings’ owner Meiyappan and Rajasthan Royal’s owner Kundra, despite having the cognizance of the violation. The Supreme Court did agree with the Mudgal committee report but partly acceded to all its recommendations. Due to this fact, the Court felt the exigency of more stringent regulations and thus paved the path for another committee under the supervision of CJI, Justice R.M Lodha.

Lodha Committee

	Lodha Committee
1	Punishing those who are guilty by Mudgal Panel
2	Scrutinizing the role of COO
3	Transparency in the functioning of BCCI

With the advent of Lodha committee, it mainly focused on three major tasks; punishing those who have been found guilty by the Mudgal committee, scrutinizing the role of COO Sundar Raman in the IPL spot-fixing scam and providing more transparency in the functioning of BCCI to avoid further stings. Going by this agenda this committee did impose a lifetime ban on Meiyappan and Kundra and suspended the IPL franchises, Chennai Super Kings and Rajasthan Royals for two years. But the players associated with these franchises were given the liberty to be auctioned for other franchise.

The Lodha Committee further stressing on the issue of providing transparency in the functioning of BCCI, framed questionnaires on exhaustive set of topics such as the role of BCCI’s stakeholders in the board’s election processes, the basis and formation of its various committees, player welfare, conflict of interest and transparency in the IPL’s functioning. With the help of their sent questionnaires, this committee shook the very foundation of BCCI just by introducing its revolutionary reforms within the power structure and functioning of BCCI.  And in addition to that, the functioning of the same had been highly applauded by the Supreme Court resulting which the BCCI had strictly been given an ultimatum to work adhering to the Lodha panel’s recommendations for the overhaul of Indian cricket.

All about Lodha Committee Recommendations

	Lodha Committee Major Recommendations
1	BCCI Office Bearers not more than 2 years
2	President of BCCI not for more than 2 years
3	One Vote Per State
4	Separate IPL Governing Body
5	Legalizations of Betting

The report laid down by the Lodha panel had its two integral parts. The first part of the report entails its objectives only and the second part of the report titled as ‘Getting off the mark’, critically analyses the gaps in the functioning of BCCI and state volumes about the prevalent corruption, lack of transparency, conflict of interest and such other difficulties. To address these issues, the Lodha Committee came up with following recommendations:

1. BCCI office-bearer can work for not more than two continuous terms: This recommendation is accompanied by fixing the retirement age at 70, in order to avoid the management of the sport by elderly who could barely speak, which indeed is the current trend. Also, those administrators who are declared as insolvent, or of unsound mind or charged with criminal charges, or who hold any office or post in a sport or athletic association or federation apart from cricket are to be eliminated.
2. President of the BCCI cannot hold his post for more than two years.
3. There is a proposition of one vote per state and no proxy voting: This recommendation would take away the monopoly of the suppressing states like Maharashtra, which currently exercises multiple votes owing to multiple associations.
4. Separate governing body for IPL with a certain level of sovereignty to be made available to IPL as a governing body. The committee has also suggested forming a players association and has called for a “steering committee”. The intention behind the same is to enforce grass root level change in the structure of BCCI.
5. Legalizations of betting have also been an integral part of such a proposition. It has also recommended that BCCI Officials shall disclose their assets to the boards so that they could be certain about the non-involvement of BCCI officials in betting.

Critical Overview

The board has always been reluctant to show any sort of excitement towards implementing those reforms as it would affect the working of the board to a great extent. The board did accept and promise to take up the reforms but at the same time, they miserably faltered in keeping their promise and implementing these measures. Hon’ble Supreme Court on the other end continues to force the board to implement these recommendations. In a complete resistance to what Supreme Court has stated, BCCI continuously rejected several recommendations of the panel, as in the opinion of the Board such recommendations don’t deem fit and they are subject to criticism.

The committee also recommended a one state-one vote system which cannot properly be implemented in India. The cause of such denials reflects from the instances where some politically stronger states would dominate over the weaker states which with time encourages corruption. Reliance can be placed on one country-one vote system which was adopted by FIFA that led to 2015 FIFA corruption scam in which countries had very little or no football activities were accused of taking the bribe from FIFA officials and countries with more football activity, to vote in a specified pattern. In this way, votes of politically weak states can be tampered by stronger states resulting in an undesirable situation. In the context of India, the votes for politically weak states such as North Eastern states can be tampered by politically strong states such as Gujarat and Maharashtra. Therefore, one state-one vote cannot be implemented in a country like India.  

Among all, the most important recommendation proposed by the committee was to legalize betting in India. Legalizing betting might fetch a lot of revenues to the government and will pull up the GDP of our nation but it will also significantly increase match-fixing in the game of cricket. Even if the government has not legalized betting, it is still prevalent in the nation. As per the recent survey, betting money involved in IPL-7 and IPL-8 were around 7000 crores and 12000 crores, respectively. Hence it is very much evident how the black money earned through illegalization of betting led to flow in the economy.

Furthermore, the exigency of having the Controller and Auditor General (CAG) as a nominee in the managing committee of the society was also felt by the committee. But that proposition, later on, had been termed as contradictory to the constitution of BCCI which does not permit a non-member to be involved in the managing committee meeting of the society. Also, in accordance with the rules of ICC if the governmental representatives are included as a full-time member of the Board then ICC holds the power of derecognizing such domestic cricket board of a country and at a global level, ICC will treat CAG representation as a governmental interference.

The committee also strongly recommended to curb down the frequency as well as the number of advertisement shown on a television during a cricket match live telecast. According to Lodha panel, the advertisement should be telecast only during the drinks break session and unnecessary advertisement after every over and fall of wicket should be avoided. But in reciprocal to that recommendation BCCI was of the view that minimizing the frequency would affect the income of board which would lead to heavy losses. The BCCI being a self-funded organization does not depend on the government for any source of revenue and such an act would hamper its earnings. The revenue earned from such advertisements directly gets invested by BCCI in conducting their various training programs in small towns and villages to search for talented players. Therefore, this recommendation of the committee will restrict the funding of the board and it would be difficult for the board to perform its function.

The Board did not even welcome the proposals of the committee regarding the capping of the age limit to 70 years for the officers of Board. As per the Board, an office-bearer gets elected through a democratic format hence such proposal would give birth to the criticism. In board’s view, if a member attains the age of 70 years that doesn’t make him inefficient to perform the given task by any stretch of an assumption. Therefore implementing such recommendation would lead them to a situation where very few people with good experience will be left in the committee which will further hamper the working of the committee.

Many news agencies, NGOs, and social groups have demanded to include BCCI under the purview of RTI but the board always had the ways to deal with it. The same was also recommended by the Lodha committee in order to make BCCI publicly accountable and also to build public trust in the working of the board. However, the BCCI was of opinion that mere performing public function would not be a sufficient cause to make RTI applicable on it. The board stated that it is a society registered in Tamil Nadu and did not receive any funding from the government.

Suggestive Measures

	Suggestions on the Recommendations
1	Threshold limit for Legalizing Betting
2	Nomination of CAG to be the Managing Committee
3	Advertisements after every 5 Overs
4	Sports Bodies using ‘India’ as the name must come under RTI
5	Separate Body for IPL
6	Participation of Women in BCCI
7	Introducing an Increased Funding Plan
8	Ceiling Limits for BCCI Members

In view of the misconducts executed by BCCI, Indian Judiciary already took the initiative to curb down the monopolistic approach of the Board by strengthening the recommendations put forth by Lodha panel. Apart from the same, there are few suggestions in the following which can be considered in line with Lodha committee’s recommendation to help in improvising BCCI’s working:

1. In terms of legalization of betting in our nation, there must be a threshold limit for a person to limit the amount of betting. Only the registered individuals through their authorized online accounts can have the access to such practices but at the same time, proper rules should be drafted considering the same. Betting shall be legalized except for players, BCCI officials or administrators covered under BCCI and IPL regulations.
2. The nomination of CAG as the managing committee member of the society can be made without affecting any international obligations if no voting rights are assigned to CAG. By this way, CAG can become a member of the Board to ensure that proper books of accounts are being maintained and also India will not violate any international agreement.
3. The advertisements during a live telecast of cricket match shall be allowed after every five overs, fall of the wicket, drinks or lunch, instead of ad breaks given after an over is finished.
4. Apart from it, all the sports bodies which enjoy the right to use ‘India’ as the team’s name should come under the purview of RTI. It is performing a public function of selecting the national and international team to represent the nation on a global front. It regulates cricket in India of all forms at all levels. The decision of Zee Telefilms v. Union of India, (2005) 4 SCC 649 requires some reconsideration on the ground that it performs the public function involving millions of funds and arbitrary using its power in recent past. Therefore, it should be considered State under Article 12 of the Indian Constitution.
5. In terms of managing the affairs of IPL, there should be a separate body which needs to be constituted by a completely different set of rules. And this new committee for IPL should include the members from CAG which will keep the check and balances on the financial transactions.
6. The women must have a representation in BCCI. Also in terms of promoting women empowerment and their participation in BCCI on a larger scale, there must be few seats reserved for women.
7. The board must introduce an increased funding plan for promoting women cricket team and providing them with the proper infrastructure, equipment and experienced coaches for the training. The women team has always been subjected to ignorances which resulted in failing to draw the attention of mass media. The training programs and talent hunts in smaller towns for women cricket team should be encouraged.
8. There must be a ceiling limit for all the members of BCCI whoever are holding the post for multiple terms and various occasions. A stipulated tenure must be framed in order to give chances to the other members. The board must set a complete list of qualification and disqualification for a person to be a member and its removal.

Supreme Court’s observation on the recommendations

Recently on the very date of August 9, the Supreme Court cropped up with its latest iteration in its verdicts on the affairs of the Board of Control for Cricket in India [BCCI]. On a disappointed note, the judgment, delivered by a bench comprising Chief Justice Dipak Misra and Justices DY Chandrachud and AM Khanwilkar, scraped off a few of the more path-breaking recommendations proposed by the Lodha Committee, which the court itself had endorsed in July 2016 and at the same time did endorse few of them. Let’s start with a with the ones which have already been scraped off by the apex court.

	Lodha Committee Recommendations Supreme Court did not uphold
1	One-State-One-Vote
2	Undergo a cooling-off period
3	Modifies number from 3 to 5

One-State-One-Vote

Among other pronouncements, the court has now scrapped the one-state-one-vote policy that the committee had seen as the backbone for a new constitution of the BCCI. In its place, the court has confirmed the voting power of not only all the existing associations in Maharashtra and Gujarat that are the Maharashtra, Mumbai and Vidarbha cricket associations and the Gujarat, Baroda and Saurashtra cricket associations but has also affirmed the votes available to the government bodies, the Services Sports Control Board, the Railway Sports Promotion Board and the Association of Indian Universities.

“To utilize territoriality as a basis of exclusion is problematic because it ignores history and the contributions made by such associations to the development of cricket and its popularity,” Justice D.Y. Chandrachud, who wrote the judgment, reasoned.

Undergo a cooling-off period

Perhaps even more significantly, though, the court has watered down the much-lauded cooling-off period suggested in the draft constitution that the Committee of Administrators appointed by the court had drawn-up. This clause was included at the behest of the Lodha Panel, which had recommended that the tenure of each term for office bearers of the BCCI and the various state associations should be three years and that there should be a mandatory “cooling off period” after each term; that is, an office-bearer who holds a post for three consecutive years would be disentitled from contesting a succeeding election to any post either within the BCCI or within any of the various state associations.

The judgment, authored by Justice Chandrachud, now makes it clear that while the term of office shall be as suggested in the draft constitution, the cooling off period of three years shall apply only when an individual has held the post of an office bearer for two consecutive terms either in a state association or in the BCCI or in a combination of both.

Modifies the number of selectors from 3 to 5

The court introduced a modification in the very number of selectors which has now following such been recommended to be 5 instead of current 3. These 5 numbers of selectors came into being with the realization that a “board based selection committee” was required to push the prodigious talent pool spread across the country.

“The vast territory of the nation, the extent of cricket being played both at the national and international level, the need for selectors to travel extensively to spot talent from the pool of cricketers and the need to encourage both domestic and international cricket, are considerations which persuade us to accept the plea for modification in regard to the number of selectors to five,” Justice Chandrachud observed.

As similar as these changes which can be reckoned as an undermining of the Lodha Panel’s suggestions, we can at the same time stress upon the suggestions proposed by the committee that has been approved by the apex court.

Disqualification of persons from being an office bearer

The Supreme Court has kept alive key clauses suggested by the panel towards disqualification of persons from being an office bearer or a member of the governing council or any other committee, or as a representative to the International Cricket Council.

This now means that persons above the age of 70 years, ministers, government servants and others holding public office, persons serving as office bearers of other sports federations, and persons charged by a court of law of having committed any criminal offence are all disqualified from contesting for any post within the BCCI or any of its state associations. Also disqualified are persons who have served terms as an office bearer of the BCCI or any of the state associations for a cumulative period of nine years. These requirements, the court has held, serve as important safeguards against the development of vested personal interests and against the concentration of power in a few hands, encouraging thereby a “dispersal of authority,” and the creation of a “wider body of experienced administrators.”

• Even before the verdict of August 9 ruling, many of the other suggestions of the Lodha Panel had already been finally approved by the court itself. These incorporate, for instance, recommendations towards the establishment of an apex council of nine members comprising three independent persons, with two from a newly constituted “players association,” and, at least, one woman—overseen by a reputable chief executive officer—to conduct the day-to-day administration of cricket in the country; the creation of a sound set of principles to remove conflicts of interest that had hitherto plagued the sport, including a reduction in the participation of those entrenched in politics; and, crucially, the introduction of a wall divorcing the management of the IPL from the BCCI.

Ending Note

Cricket can no longer be termed as the gentleman’s game as the essence of the gentleman has however been eroded. The existence of IPL might have given fame, success, and money to many upcoming players but it has also introduced avenues for gambling, spot-fixing, and underworld activities in the country. To overcome such problems, Indian judiciary has made several attempts to develop sports law in the nation and one of such attempt was the appointment of Lodha committee. Lodha committee has come up with tremendous recommendations which will not only put checks and balances on the working of the board but will also change its performance. Still, the legality of some recommendations can be challenged and the demand for reconsideration is to be served in order to introduce a better law in the nation.

Opposing the said recommendation is obviously not a viable option for the Board’s point of view instead, they must adopt the necessary modifications for the betterment of cricket in India. The disputes between Lodha committee and BCCI must be addressed by putting emphasis on reforming cricket by removing some necessary evils such as poor governance, match fixing, etc. The report is just a beginning step in reforming the sports and if accepted then will set a benchmark for reforms in other sports.

This article is written by Shreesh Chadha.

The Companies Act 2013 does not define a “director” per se, except as – “a person that occupies the position of a director”[1] which does little to explain the responsibilities of a director. A better definition for this purpose would be-

“ Directors have sometimes been called trustees, or commercial trustees, and sometimes they have been called managing partners, it does not matter what you call them so long as you understand what their true position is, which is that they are really commercial men managing a trading concern  for the benefit of themselves and of all other shareholders in it.” [2]

AS AN AGENT

It is also hereby established that the role, and responsibilities of a director are equated with those of an Agent in the eyes of the law.

“The company has no person: it can only act through directors and the case is, as regards those directors, merely the ordinary case of principal and agent.”[3]

Therefore, as Agents, directors are not liable to anyone, as they are representing the company in it’s transactions, and is such a case, the company is liable.[4]

AS A TRUSTEE

However, a director is also a trustee of the company. It is established that-

“The directors of a company are trustees for the company, and with reference to their power of applying funds of the company and for the misuse of the power they could be rendered liable as trustees, and on their death, their legal representatives.”[5]

However, as regards to their liabilities as trustees, the principle was laid down stating that the directors are trustees of a company only and not of individual shareholders.[6]

Therefore, the above left a lacuna as to the need of disclosure of personal profits from activities such as amalgamation of companies to individual shareholders where their shares were involved. It was later cured as it was established that the directors are trustees of any profit for the benefit of the shareholders. The same has been enshrined in the Companies Act, 2013 as disclosing any profit from amalgamation and other such profits that could have been covered under the earlier Act,1956 .[7] Therefore, in their actions involving the shareholders, the directors are also liable to them as trustees.

This concept of duty of directors towards shareholders, when their interest is involved has cemented its presence through Reliance Natural Resources Limited vs. Reliance Industries Limited[8]. In this case, the relevant factum for our purpose is that a segregation between Reliance Industries Limited ( hereinafter RIL) was decided by way of Memorandum Of Understanding (hereinafter MoU) which was to be included in the company scheme of RIL. Mr. Anil Ambani, the to-be benefactor of the KG Basin Crude Oil Reserve wanted this move to be done without the consent of the shareholders. The Board of Directors of RIL objected to the same, stating that the MoU cannot be binding, as the consent of the shareholders was not given. The Hon’ble Supreme Court held the MoU to not be binding, as the most interested party in such an event would be the shareholders. They upheld the apprehension of the Board of Directors of not having the consent of the owners of the company, the shareholders.

There was an argument afforded by the Appellant of “Doctrine of Identification” which essentially meant that the actions of one or two persons can be attributed as being actions of the rest of the company, in this case the assent of Mukesh Ambani, to be attributed to the whole of RIL, including the shareholders. However, the Hon’ble Supreme Court rejected the same in the case of companies such as RIL which have over 2 million shareholders and held the happening of such a doctrine as holding the shares and preferences of only a group of shareholders ( the Ambani family) over the rest, which is not permissible, as was rightly objected to by the board of Directors, thereby accepting the superiority of the shareholders consideration in the actions of the Directors in the running of a company.

PROVISIONS UNDER THE COMPANIES ACT, 2013

There has been a shift in the duties imposed on Directors as well. In the Companies Act, 1956, there were no specific provisions for laying down the duties of the Director, and their scope could only be viewed with respect to the general power of the Board of Directors.[9]

However, with the advent of S. 166 of Companies Act,2013 the duties of directors has been listed. Even though in principle such provisions of case, good faith, diligence etc. were held to be applicable to directors in the past, S. 166 brought with it a wind of certainty and enforceability. Under the earlier system, Directors of a Company were liable to the company and its shareholders as agents and trustees respectively. However, the new Act,2013 the directors are also to be held liable as “officers” of a company. There is a scheme of “officers in default” which exists to make sure that some liability can be attached to someone when the company is in contravention of the Companies Act, 2013. The scope of such scheme is very wide and includes all whole-time directors, Key Managerial Personnel (hereinafter KMP), persons acting on behalf or on advice from the Board of Directors or KMP, or any director who is aware of any default in terms of the provisions of the Companies Act,2013. However, the Companies Act,2013 even in regards of treating directors as officers of the company is advanced as it makes a distinction between Whole Time Directors, Independent Directors and Non-Executive Directors. It holds Independent Directors and Non-Executive Directors (not KMP) to be liable only is an act or illegality was happening with their knowledge or with their consent.

Therefore, the approach to duties of a director is more dynamic under Companies Act, 2013. Another shift that can be seen in this duty cast upon directors is actually derived from the UK Companies Act, 2006[10]. It is a more general duty that exists even towards non shareholders.

“It is a means of enhancing shareholder value over a long term”.[11]

The above essentially implies to the corporate governance and the fiduciary responsibilities that can be shown as adhered to, to increase the extent of enriching shareholders over a long period of time. This was applied through S. 166 (2), Companies Act,2013 which imposes a duty on the directors to treat even non-shareholders as means to an end. Not only does it encompass members of the company, but also employees and the entire community at large.

The object of S. 166 (2) lies in the good faith principle, which has been defined as-

“The good faith would require that all the endeavours of the directors must be directed to the benefit of the company.” [12]

So much so, that under the Companies Act,2013 it has been interpreted by the Hon’ble High Court of Delhi at a more advanced level, it has been held that even if a director is doing something to promote the objects of the company, in the best interests of the company, its employees and shareholders, there should be no personal interest in the same activity, and if there is then the provisions of S. 166 (7), Companies Act,2013 which is a penal provision will be attracted.[13]

In conclusion, the duty cast upon directors has evolved since the advent of the new Act, 2013 to not only the caretakers, or gatekeepers of the company affairs, but also the representatives and those held accountable in all regards to all involved in the company.

[1] S. 2 (13), Companies Act, 2013

[2] Cola Mining Co,re, (1878) 10 Ch D 450,451-52: 40 LT 287

[3] Ferguson v. Wilson (1866) LR 2 Ch App : 36 LJ Ch 67

[4] Kuriakose V. PKV Group Industries (2002) 111 Comp Cas 826: (2002) 1 KLJ 630

[5] Ramaswamy Iyer v. Brahmayya & Co. (1966) 1 Comp LJ 107

[6] Percival v. Wright (1902) 2 Ch 421

[7] S. 30-32, Companies Act, 2013

[8]  CIVIL APPEAL NO. 4273 OF 2010 (Arising out of S.L.P. (C) Nos. 14997 of 2009)

[9] S. 291, Companies Act, 1956.

[10] Mihir Naniwadekar, Umakanth Varottil “The Stakeholder Approach Towards Directors’ Duties

Under Indian Company Law: A Comparative Analysis” NUS Working Paper 2016/006 ,NUS Centre for Law & Business Working Paper 16/03 (August,2016)

[11] Ibid.

[12] Bank of Poona Ltd v. Narayandas , AIR 1961 Bom 252 at 253

[13] Rajeev Saumitra vs Neetu Singh & Ors CS(OS) No.2528/2015

This article is written by Mohona Thakur, Marketing Manager at iPleaders.

Over the weekend, I have been reflecting on the past two months or so since I was rammed into by a bike while walking to office. I had, in January, shifted to Goa after having left a job at a litigation law firm in Delhi (that went ahead and featured on Vahura’s Best Law Firm Rankings this year). I was only wondering, what would have been the possibilities during the recovery period of the LCL tear on my right knee in case I was still working at the courts.

I came up with two options. I would have probably had to take three-to-four months off possibly without pay or quit the law firm. In addition, bear all medical costs since my medical insurance lapsed. This got me thinking, there are so many considerations that we lawyers and law students have to keep in mind while choosing a job. And quitting a job, but we’ll get to that later.

Let us look at the statistics. I did a simple google keyword search that read as “recruitment stats NLSIU Bangalore 2018” and this is what I found:

I believe the recruitment statistics for arguably the top most law school in India is self explanatory and I needn’t say more. You will find similar search results for other law schools. Don’t believe me? Try it for yourself.

Looking at these numbers, I did some quick research, sent out the word on LinkedIn and found some interesting opinions on why law students prefer working with law firms over pursuing a career in litigation.

Here are five reasons and varying perceptions as to why law students prefer jobs with law firms over pursuing litigation:

The Money is Good

What would you choose? A job that pays better or a job that pays less?

The numbers are always one of the major deciding factor, if given a choice. The mass recruiters or the Big 6 that the top law firms in India are often referred as pay in six to seven digit figures annually, to their freshers. These numbers keep changing, but the digits remain the same. You can give this article, which discusses the Top 10 Law Firms That Pay The Highest Salary In India, a read to get a clearer idea of the pay-scale and work at the top 10 law firms in India.

Naturally, when law students as well as lawyers see the immediate benefit that you derive in terms of money and the financial stability that it come with, they start looking out for opportunities that pay them. However, this is only one aspect.

Let us look at the fee structure at law schools. For instance, the five year B.A. LL.B at NLSIU Bangalore costs over 2 Lakh Rupees annually which would mean over 10 Lakh Rupees spent in 5 years of education. Similarly, Symbiosis Law School at Pune charges 2 Lakh 85 Thousand as fee in the first year. You can do the rest of the math, I’m sure. There are two ways of looking at this; one is that the job that you land must make up for the time and money that is spent towards legal education – five years and ten to fifteen lakhs spent on education is not a joke. And the second in all probability is to pay off student loans.

Majority law students end up deciding to give a shot at Harvey Specter over Alan Shore, looking at the money.

Law Firms Set a Better Platform

Nivedita Tayade, Senior Attorney at Mindcrest had a very interesting take on why law students may choose law firms. “A job on the hand is more like “you know what you want” kind of a situation. The firm is already at par and practicing in areas that you develop an interest in or are interested in. It’s a set platform for you where one just has to excel.”

Of course, law firms are often segregated into various teams such as IPR, M&A and PE, General Corporate, Real Estate, Infrastructure, Baking & Finance, Technology Media and Telecom, and not to forget Litigation. As rightly pointed out by Aman Parekh, Associate at India Law Alliance, “There are law firms who do litigation too; there is often a misconception amongst students that law firms only deal with corporate and company laws.”

The very fact that these law firms have been in existence for a while give you a set platform to indulge in and excel. In addition, the job that one partakes at a law firm may give them a better platform to move on to another law firm. It isn’t new to be using law firm experience to move on to another law firm or even in-house. So, it’s not just a platform where one can perform and excel, but also from where one can move on to better opportunities.

Devashish Jagirdar, a practising lawyer at the Bombay High Court, in response to my query on LinkedIn replied saying the exact same thing, “If your aim is to go independent eventually, or open your law firm for that matter, working with a law firm gives you contacts, and gives you the experience needed of how to be a counsel and what to expect from your attorney.”

Vast Exposure In Terms of Clientele

Both Devashish Jagirdar and Narendran Thyagarajan, practising advocates, admit that working with law firms gives you a bigger playground in terms of clientele. It is a common notion amongst students in law school that law firms have abundant clients, plethora of matters, hence humongous experience and never-ending learning.

This holds a hundred percent true. Law firms gain their business from companies. Whether it’s an acquisition, a legal opinion, or litigation, companies do require support from outside counsels. And they believe in going with firms as compared to individuals simply because they have more man-power, and relevant experience. Unlike in-house legal jobs where your business is your client, law firms deal with multiple clients daily and this gives them exposure in abundance. That exposure isn’t just limited to the number of clientele, but also to the quantity of work that comes in.

By the looks of it, it seems to be a win-win situation for a law student to be working with law firms as they have abundant work and clientele. However, in order to ace your way through law firms that have major corporate clients, you may want to stay ahead of your own game and take up a course on business laws.

This Job is Steady

Like I’d previously mentioned that with money comes in stability, working with law firms also ensure that the job is steady, the money keeps coming in every month and there is a balance. Litigation, more often than not, is not a steady job. One may see themselves running around the corridors of the court minutes before their matter is about to be called out looking for a case law that was asked last minute. And god forbid if you have to be in two different courts at the same time, yes that’s possible.

A lot of people call litigation thrilling as every day at work is a new day, with new possibilities and well, new lessons to learn. It is anything but steady and if you’re not satisfied, you’d be hopping from one advocate or firm to another. And this is exactly why, on a rather lighter note, Narendran Thyagarajan says working with law firms may bring you better marriage prospects than litigation, because not many understand what it is or what it takes to survive there.

Interest Driven Choice

A lot of law students choose to work with law firms purely because their interest lies in the kind of work that the law firms have to offer. For example, a batchmate of mine chose to work for Desai and Diwanji in Bombay right after law school because he always wanted to work on the commercial side of laws. You can watch the webcast where he spoke about the challenges faced by a corporate lawyer here.

There are very many students who end up choosing to work with law firms because they are driven by their passion or interest in business laws, mergers and acquisitions, intellectual property laws, corporate laws, real estate laws, and the likes. And these students are in abundance. Not only do they need to genuinely develop their interest but also show enough skills to be able to ultimately make it to law firms. In fact, anyone who wishes to work for law firms needs to be at the top of their game. You can check out courses at lawsikho.com that prepare you for it, in case you’re interested in that law firm job!

The reasons to why law students do choose law firms over litigation can be perceived in many ways and is multi-faceted. There can be multiple reasons, combinations of reasons why law firms are the top choice. We’ve tried to cover the major reasons here, but do drop by your point of views in the comment section, it would be much-appreciated.

In this article, Kashish Khattar of Amity Law School, Delhi discusses the RBI’s Guidelines related to Payment Banks.

Introduction

Payment Banks (“PB”) are to be registered as public limited companies under the Companies Act, 2013 and are to be licensed under Sec 22 of the Banking Regulation Act, 1949. PBs are to be given the status of scheduled banks under the section 42 (6) (a) of the Reserve Bank of India Act, 1934. However, the words “Payments Bank” have to be used by the companies in their name in order to differentiate it from other banks.

They will be governed by the provisions of the Banking Regulation Act, 1949; Reserve Bank of India Act, 1934; Foreign Exchange Management Act, 1999; Payment and Settlement Systems Act, 2007; Deposit Insurance and Credit Guarantee Corporation Act, 1961; and other relevant Statutes and directives. The guidelines will be reviewed by the RBI regularly. RBI’s main aim to push for payments bank is to serve the need of different banking activities in the rural areas. This has both micro and macroeconomic benefits and serves the general public at large.

History of Payment Banks

RBI on 23rd September 2013 constituted a committee on Comprehensive Financial Services for Small businesses and Low-Income Households that was headed by Nachiket Mor. The committee submitted its report on 7th January 2014 and also recommended the formation of a new category (Payment Banks) among its other recommendations.

Draft guidelines for the license of Payment Banks and their list were released by RBI in February 2015. The license applications were evaluated by External Advisory Committee headed by Nachiket Mor who submitted its report on 6th July 2015 after examining the financial track record as well as governance issue on applicant entities.

On 19th August 2015, RBI gave the in-principle license to 11 entities to launch Payment Banks. The In-Principle License is valid for a period of 18 months and the concerned entities are required to fulfil entities are required to fulfil all the requirements within this period. They are not allowed to engage in Banking activities in this period. After the fulfilment of all the conditions which are required to set up a Payment Bank, RBI will grant licenses under S. 22 of the BR Act, 1949.

The advantage of Payment Banks over Traditional Banks

1. Interest Rates: The interest rate for a commercial bank is between 3.5 and 6 per cent. Payment banks are offering a really good deal in the case of interest rate with the highest being a 7.25%. Payment banks have a statutory limit of Rs. 1L per account from individuals and small businesses.
2. Zero balance account: Payment banks offer a zero balance account or a no minimum balance account without any extra or hidden charge, unlike a commercial bank who levy charges if the customer doesn’t hold a minimum balance in their account.

Small Banks v. Payment Banks

Small Finance Banks (“SB”)	Payment Banks
SBs can accept deposits and can offer loan products.	PBs can open small saving accounts and accept deposits of upto Rs. 1 lakh per individual.
SBs can provide debit card facilities.	PBs can issue debit cards but they are not allowed to provide credit card facilities.
SBs are allowed to set up their own ATMs.	PBs are allowed to set up their own ATMs.
SBs can lend money.	PBs cannot lend any money to the general public.
SBs can accept all types of deposits – fixed deposits, term deposits, recurring deposits etc.	PBs cannot accept fixed deposits, term deposits, recurring deposits etc.
The main objective of SBs is to provide banking services to small farmers, micro and small industries, and the unorganized sector.	The main objective of a PB is to provide banking services to the migrant labour workforce, low-income households, small businesses and other unorganised sectors.

Guidelines for Licensing

Let us now analyse the guidelines for licensing of PBs issued by the RBI to govern the PBs.

The scope of Activities

1. Acceptance of demand deposits: A maximum balance of Rs. 1L per customer is allowed.
2. Issuance of ATM/debit cards. Cannot issue credit cards.
3. Payments and remittance services through various channels.
4. PBs can act as Business Correspondents (“BCs”) of another bank, subject to the Reserve Bank guidelines on BCs.
5. Distribution of non-risk sharing simple financial products like mutual fund units and insurance products, etc.
6. Internet Banking: RBI is open to PBs offering Internet Banking services, they are required to comply with RBI instructions on internet banking and all the other related guidelines.
7. PBs can undertake utility bill payments etc. on behalf of its customers and the general public.

Deployment of Funds

1. PBs cannot undertake lending activities.
2. Apart from amounts maintained as Cash Reserve Ratio (CRR) with the RBI on its outside demand and time liabilities. PBs are also required to invest minimum 75 per cent of its “demand deposit balances” in Statutory Liquidity Ratio (SLR) eligible Government securities/treasury bills with maturity up to one year and hold maximum 25 per cent in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.

Capital requirement 

1. The minimum paid-up equity capital for payments banks shall be Rs. 100 crore.
2. The payments bank will have a leverage ratio of not less than 3%  which basically mean that its outside liabilities should not exceed 33.33 times its net worth (paid-up capital and reserves).

Promoter’s contribution

The promoter’s minimum initial contribution to the paid-up equity capital of the payment bank has to be at least 40% for the first five years after the commencement of business.

Foreign shareholding

It will be according to the FDI Policy for private sector banks which is notified from time to time. The permitted limit right now is 74% out of which 49% can be through the automatic route and the remaining 25% beyond 49% will be through the government route.

Other Conditions

Operations have to be technology and network driven from Day I. Conforming to generally acceptable standards is a given.

PBs should have a Customer Grievances Cell which is able to handle the customer complaints.

Procedure for Application

Applications should be in conformity with Rule 11 of the BR (Companies) Rules, 1949. They should be in the format as given in Form III and should be submitted to the Chief General Manager, Department of Banking Regulation, Reserve Bank of India, 13th Floor, Central Office Building, Mumbai – 400 001.

Procedure for RBI Decisions

1. An External Advisory Committee (EAC) which will consist of eminent professionals like bankers, chartered accountants, finance professionals, etc., will evaluate the applications.
2. The decision to issue an in-principle approval for setting up a PB will be taken by the RBI. The RBI’s decision in this regard will be final.
3. The validity of the in-principle approval issued by the RBI will be 18 months.
4. The names of applicants for bank licences will be placed on the RBI’s website.

Stringent KYC Norms

The RBI has updated the Operating Guidelines for PBs with respect to KYC in the wake of  Airtel Payments Bank rerouting of subsidies by creating Payments Bank accounts for subscribers validating mobile phone numbers.

The updated guidelines stand as follows

“For the purpose of verifying the identity of customers at the time of commencement of an account-based relationship, Regulated Entities (“RE”), shall at their option, rely on customer due diligence done by a third party, subject to the following conditions:

1. Necessary information on such customers’ due diligence carried out by the third party is immediately obtained by REs.
2. Adequate steps are taken by REs to satisfy themselves that copies of identification data and other relevant documentation relating to the customer due diligence requirements shall be made available from the third party upon request without delay.
3. The third party is regulated, supervised or monitored for, and has measures in place for, compliance with customer due diligence and record-keeping requirements in line with the requirements and obligations under the PML Act.
4. The third party shall not be based in a country or jurisdiction assessed as high risk.
5. The ultimate responsibility for customer due diligence and undertaking enhanced due diligence measures, as applicable, will be with the RE.”

This is Section 14 of the Master Directions on KYC from Feb 25, 2016, by RBI which will now be used to regulate the PBs.

The previous operating guidelines for PBs allowed them to utilise the same KYC details as “of the same quality as prescribed for a banking company.” However, the PBs have to follow the RBI Master Direction of KYC, and any amendments made to the same. This update has been mainly done to prevent the piggybacking that was seen in the case of Airtel Payments Bank accounts being opened with no discretion given to the customer. This was done by interpreting the previous guidelines that allowed the reuse of the authentication done by telecom companies by the associated Payments Bank with an intention to simplify account opening.

List of Payment Banks in India

1. Aditya Birla Nuvo
2. Airtel M Commerce Services
3. Cholamandalam Distribution Services
4. Department of Posts
5. FINO PayTech
6. National Securities Depository
7. Reliance Industries
8. Sun Pharmaceuticals
9. Paytm
10. Tech Mahindra
11. Vodafone M-Pesa
12. India Post ( Starts operation by 21 Aug )

*Cholamandalam Distribution Services, Sun Pharmaceuticals and Tech Mahindra have surrendered their licenses.

Conclusion

The primary objective of setting up payments banks was to “further financial inclusion by providing small savings accounts and payments/remittance services to migrant labour workforce, low-income households, small businesses, other unorganized sector entities and other users, by enabling high volume-low value transactions in deposits and payments/remittance services in a secured technology-driven environment.”

Payment banks, which were supposed to be the next big thing, sadly have not lived up to the hype so far. The jury is still out on whether the PBs will ever succeed in the country, but one thing is clear: it won’t be easy for them to survive.