This article is written by Venkat Ramaiah Chavali, pursuing a Diploma in Business Laws for In-House Counsels from LawSikho.

Introduction and scope

Defining “Technology Transfer” is as difficult as defining ‘money’. Obvious but elusive to be captured precisely and in a single definition. The best and interesting explanation offered as the definition for money – ‘Money is what money does’ – suits well for technology transfer too. Technology transfer is where engineering, science, business, law, and sometimes government meet and cross each other. Nevertheless, here are some near-definitions gathered from unknown sources:

“Technology transfer” includes a range of formal and informal cooperation between developers of technology and seekers or users of technology. In addition, technology transfer involves intellectual property, the transfer of knowledge, physical devices/equipment and of course technical knowhow.

“Technology transfer” is the process by which existing knowledge, facilities or capabilities are exploited for fulfilling public or private needs. 

The technology transfer process can be simple or complex and involves: 1. a technical resource like business or government institute of R&D, 2. an interested user in the technology and, 3. some interface connecting these two. The interface (3) which facilitates the process is the agreement, used in the sense of making it legally binding, a contract. 

The scope of this article is limited to give a quick overview of what is meant by technology transfer and its rationale, followed by an “Introduction to Some Legal Aspects” related to Technology transfer and “Legal Regime in India”. 

Why technology transfer

There are several reasons. Fundamentally growth and civilization became possible because we learnt to share, transfer and benefit from each other’s experience and knowledge, were it not for which, each of us were to individually learn that fire burns by touching it. Put differently we would have continued to remain as Neanderthals. Some reason for and benefits of technology transfer (TT) are:

• We do not have to rediscover a wheel every time.
• Progress is possible by sharing, cooperating, and coordinating with others with complementary capabilities out of goodwill or for a consideration.
• New frontiers of science and technology develop by using the accumulated and available knowledge as stepping stones for greater utility and application.
• Figuratively our vision and reach increase when we can climb on other’s willing shoulders – with or without consideration. 
• TT provides a basis and platform for intellectual property (IP) holders and entrepreneurs/businesses to gainfully engage with each other.
• It enables and assists faster growth of the economy and civilization.
• To give a boost to and spread awareness of intellectual property for philanthropic or commercial reasons as we are in the information age.

Meaning and rationale of TT

Having got an idea of TT and the why of it let us probe a little more for its meaning. It is a process comprising or consisting of marketing, technology, patenting, licensing with an aim to:

• Further improve an existing business, and/or
• Assist another business develop or improve for a consideration or on goodwill.
• To monetize – make more money from – technology that will soon or likely to get obsolete (due to planned obsolescence) as in computer, electronics & communication fields.

Simply put, TT permits the flow of technology* from a source to a receiver.

[*Science is knowledge per se. Engineering is putting this scientific knowledge to use; the which, where, when, what and who of it. The actual doing, the application of engineering – the how part – is technology. The easy way to distinguish and remember the difference between engineering and technology is: Have you heard of the five Wives and one Husband mnemonic? The wives are Who, When, Where, What and Which and the husband is How! The wives constitute engineering and the husband stands for the technology. In general usage the borders between engineering and technology are getting blurred.]

In business particularly, the rationale is that when a business knows that it can earn returns from transferring technology by licensing – with or without equity participation – the business (licensor) would like to use it and maximize its earnings. More so given:

1. Technology changes amazingly fast and one must make hay when the sun shines.
2. The proprietary (including patent) rights in a number of cases are short.

About TT agreements

Basically, TT relates to Intellectual Property (IP) or some proprietary details that need confidentiality. Property is a bundle of rights and with rights come duties and responsibilities. If rights are transferred without a proper and legally binding agreement, firstly they are prone to misuse and abuse; secondly the liability for any wrong doing on the part of the receiver lies with the owner. Since the property is intellectual, it is different from other types of property and calls for different and additional rights and obligations to be covered by the agreement. 

For want of standards for technology transfer (do refer to discussion under ‘Introduction to Some Legal Aspects’ infra) one is advised to consider the following steps in reaching an agreement:

• Initiating the discussions
• LOI (Letter of Intent)
• Signing the NDA (Non-disclosure Agreement)
• Technical discussions
• Terms sheet/MOU (Memorandum of Understanding)
• Negotiations and finalization of:

• Technology being transferred (Deliverables)

1. Technical knowhow
2. Providing special tools and machinery
3. Technical assistance as required including training and handholding

• Licensing
• Royalties
• Equity participation if any (Joint ventures)
• Exchange and training of personnel
• Apportionment of transfer and training and hosting costs
• Knowledge transfer of improvements in product during the term of agreement

• Involving the legal team at appropriate stages to draft the final TT agreement incorporating the above and including: Term, competent jurisdictions, applicable laws, dispute resolution, etc. as they deem fit. (Refer to Model checklist to follow)

Model checklist for TT Agreement:

• Parties
• Recitals
• Defining and interpreting the terms like ‘Technology’ being transferred, guarantee of ‘quality’ of technology (for guarantee purposes to the transferee), etc.
• Clauses/Articles

1. Object 2. Territory 3. Technology

4. Exclusivity 5. Access to future improvements 6. Obligations of the Licensor 

7. Confidentiality 8. Obligations of the Licensee 9. Front end Fee

10. Royalties 11. Payments, currency, mode 12. Taxation

13. Sub-licensing 14. Sub-contracting 15. Product liability

16. Force majeure, etc. 17. IP Rights & Registrations 18. Naming licensor

19. Right to injunction 20. Damages 21. Effective date and term 

22. Termination 23. Applicable laws 24. Dispute resolution method

• Annexures
• Signatures
• Appendices, Attachments, Drawings, Process Sheets & SOPs, Reports, Notes, etc.

A technology transfer agreement can be between parties within India (Domestic), or between India and another country (International). 

Businesses that enter a TT Agreement typically have a licensor-licensee relationship but in India, they additionally enter a collaboration or joint venture (equity participation) agreement too. For example, L&T Ltd. (India) and Poclain S.A (France) had a collaboration agreement, while Maruti and Suzuki (Japan) had a joint venture agreement. There was a time when attracted by the huge Indian market potential on one hand and restricted by laws like Conservation Of Foreign Exchange and Prevention Of Smuggling Activities (COFEPOSA) Act and FERA (Foreign Exchange Regulation Act) many foreign companies had joint ventures with Indian businesses. Some examples were DCM-Toyota, Alwyn-Nissan, Swaraj-Mazda, Hero-Honda, etc.

The growth of a country and its economy – particularly developing and underdeveloped countries – is accelerated by agreements of TT. Globalization helped the process in a big way. TT agreements result not only in the mere transfer of technology but also flow of skills, management, methods, procedures/processes, investments in cash and kind. Consequently, it ushered in a significant change in the Indian legal regime. 

For proper understanding, an “Introduction to Some Legal Aspects” is given first followed by “The Legal Regime in India”. 

Introduction to some legal aspects

As stated early in the introduction technology transfer involves technology, business, law and sometimes government(s), while law is a common factor for all agreements. Thus, TT agreements are linked to law in more ways than one. Yet, there is no single law or standard governing technology transfer agreements; probably because of its vastness and variety combined with its elusiveness to be captured in one definition.

Nowhere the ‘consensus ad idem’ – the meeting of minds, an essential requirement for a valid contract – is more relevant than as in TT agreements, for the property is all in the mind! The challenge to the lawyers is to capture such meeting of minds into precisely worded legal clauses to avoid ambiguity or exceeding the brief that results in dispute and litigation. Added, the transferor insisted the transfer to be only for a limited period and purpose (without giving away much) while retaining the ownership and the transferee demanding to possess the right exclusively in his territory and for the term of the agreement understandably pose a further challenge to the lawyers. In agreement drafting specific attention is to be paid to the following clauses:

PATENTS: When transfer involves patented IP to a third party in a country other than where it has patent protection, it is important to register for patent in the country of the third party – Patents are territory specific. The agreement should clearly and fully capture this aspect. Failure to do so will cause irreparable loss with no remedial recourse. 

CONFIDENTIALITY: Loss of confidentiality will be tantamount to loss of property. Therefore, Confidentiality clause covering in detail the damages in case of loss of information by negligence or otherwise on the part of the transferee as well as a right to obtain an injunction by the transferor should be considered and incorporated. 

PRODUCT LIABILITY: Another important aspect is the product liability. Who shall be responsible in case of a product liability claim by consumers? Many try to ignore or are silent about this aspect wishing away the prospect. A prudent thing to do is carry out a risk assessment and if the risk probability calls for, both the parties should decide on a modus vivendi to be followed in such an eventuality and capture it in the agreement. 

‘Class actions’ and ‘mass tort-lawsuits’ are common in the United States of America, against injury caused by a single thing to many different people. In India, however, there is no known class action provision. In rare cases courts have taken up Suo Motu to provide a class remedy. For instance, in: 

• Dr. Virendra Pal Kapoor Vs. Union of India & Ors.
  [Writ Petition No. 8879 (M/B) of 2013 decided on May 29, 2014 by High Court of Judicature at Allahabad Lucknow Bench]

Dr. Kapoor is a retired senior citizen (aged 72 years) who invested Rs. 50,000/- in SBI Life for five years. The proposal form contained an option – to tick in the boxes for either 125% or 625% SP of the sum assured (SP: single premium). Dr. Kapoor signified his option by ticking 625% box. He survived the period and received just Rs.248/- (Yes! in words Rupees Two hundred forty-eight only against investment of Rupees Fifty Thousand after five years!). The proposal form instead of a clear declaration had couched in the appended text a statement that where more than 125% is opted, monthly deductions would be made (for the surviving period). The SBI argued that it is as per IRDA (Insurance Regulatory and Development Authority) guidelines and in fact approved by it. Finding sufficient force in the submissions of Dr. Kapoor the Hon’ble Court held that the terms of the ‘SBI Life Unit Plus II-Single’ policy to be unconscionable and declared it to be illegal and void; ordered to return the invested amount (with interest) to Dr. Kapoor and, the IRDA is directed to reexamine each and every policy even if it has been approved by it.

ACCESS TO FUTURE IMPROVEMENTS: The risk analysis exercise on product liability paves the path for an important clause – more so for the transferee – on sharing of product improvements during and after the term of agreement, particularly where safety considerations are involved.

Equipped with the above background information on TT agreements and the legal aspects let us look at the ‘Legal Regime in India’ associated with TT agreements. 

The legal regime in India

The single overarching law in India governing agreements is The Indian Law of Contract, 1872. This is complemented with laws specific to the nature of agreement. 

In the case of TT Agreements:

• Where IP is involved the related Acts are:

1. The Indian Patent Act, 1970 
2. The Copyright Act, 1976
3. The Trademark Act, 1976

• Controlling Acts like COFEPOSA and FERA.
• The other Acts which supplement like the Arbitration and Conciliation Act, 1996 being the internationally preferred method over court litigation.

The International Connection 

With the advent of globalization in late 1990s some of the aforementioned laws were amended to synchronize with the international covenants like GATT (General Agreement on Trade and Tariff) with WTO (World Trade Organization). For example:

• The Trademark Act, 1999 was repealed in 2009 and is reenacted as Trademark Act, 2009 with amendments to consolidate the laws relating to trademarks. It was repeatedly amended in 2016, 17,18 and 2019. The 2019 Act provides more extensive provisions.
• The Copyright Act, 1975 was amended in 2012 and again in 2016
• The Patents Act, 1970 was amended once in 2005 and then in 2016 and the Rules were amended and revised as recently as October 2020.
• COFEPOSA and FERA are now kind of replaced with FDI (Foreign Direct Investment) Regulations and FEMA (Foreign Exchange Management Act).

The United Nations Conference on Trade and Development (UNCTAD) strives to bridge the gap between the developed, developing, and underdeveloped countries. TT is a major tool used by UNCTAD particularly to improve the economy of developing countries. However, there are no internationally accepted standards for technology transfer. 

To attract participation of foreign business into Indian trade and commerce, investment-friendly laws, regulations, and amendments to existing laws are made. Examples being FERA is replaced with FEMA, FDI regulations are introduced instead of using the same COFEPOSA Act, 1975 for all. 

It is interesting to note that Part II of Arbitration and Conciliation Act, 1996 exclusively deals with foreign awards namely:

• Chapter I of Part II relates to ‘New York Convention Awards’
• Chapter II of Part II relates to ‘Geneva Convention Awards’

As to Product Liability it was mentioned earlier that there was no provision for class action in India. In fact, there is no mechanism for the affected parties to know about each other and collectively finance the litigation and there is no organized effort to bridge this gap. No doubt the Code of Civil Procedure, 1908 allows representative suits to be filed by one or more persons on behalf of all those who have a common complaint or interest. But representative suits have limitations. For example, in:

• Ambrish Kumar Shukla vs. Ferrous Infrastructure

It was said by the National Consumer Dispute Redressal Commission (NCDRC) that it would not permit only 10 persons out of a representative class of 100 who wish to litigate. In other words, those who represent should form a sizable percentage of the total number they represent. 

The recent Consumer Protection Act, 2019 (CPA, 2019) in contrast to the earlier Act –  which permitted a group of people belonging to a class to file a complaint in a Consumer Commission for selling by – created a new CCPA (Central Consumer Protection Authority) and assigned it with powers to protect and enforce consumer rights when affected as a class (Refer to Section 17 of CPA, 2019).

Classification of Countries on the Basis of Economy – from Globalization Perspective

To assist, protect and create a level field for all countries to join the global market the Development Policy and Analysis Division (DPAD) of the Department of Economics and Social Affairs of the United Nations Secretariat prepared a report based on the economy and poverty levels of member nations. It distributed the countries broadly into three classes, namely: 1. Developed, 2. Developing and 3. Least Developed nations.

The ability to develop technology is mostly lying with developed countries. To effectively transfer and maintain the available technology (information, know-how, skills, tools, equipment, etc.) to other classes of countries a mutually acceptable mechanism that safeguards the interests of all was put in place, continually reviewed, and improved. Towards this United Nations’ organizations like WHO, WTO, WIPO, UNCTAD, etc., hold conventions as necessary and come to certain arrangements based on majority assent. Those who wish to join will sign the agreement, those who do not, do not have to.

India being a member of many of these organizations (including WIPO – World Intellectual Property Organization), is a signatory to most of the conventions. But there are instances where it did not – the recent example is RCEP (Regional Comprehensive Economic Partnership) agreement signed by 15 countries on 15th November 2020, but India did not.

Signing international covenants is only an indication of intent and not a confirmation to abide by it. Their effect at best is recommendatory. When the signatory country repeals, amends, or enacts a Municipal (domestic) law to align with the understandings signed with the convention it becomes legally binding on that country. This explains why some of the laws aforementioned were modified or reenacted by India.

For the benefit of those looking for International arrangements on transfer of technology the link to the compendium on selected instruments of technology transfer prepared by UNCTAD of the United Nations is provided under “References”.  

Leveraging the regime

 RBI gives automatic approval to foreign collaboration agreements where:

• The lump sum payment does not exceed two million USD
• Royalty is limited to:

1. 5% of domestic sales, and
2. 8 % for exports, 

subject to a total payment of 8% over a period of ten years. 

Those agreements outside the automatic approval route are considered case by case on merit basis by the PAB (Project Approval Board) under DIPP (Department of Industrial Policy & Promotion), Ministry of Commerce and Industry.

Like India, China is a huge market place. The Chinese regime stipulates that joint ventures are compulsory in exchange for market access in designated sectors like cars, railway locomotives and rolling stock. Approval may require providing specific technology. This has resulted in phenomenal growth of Chinese economy, that today it is vying with America for the first place. Not just that, now China has displaced America as a country that has filed for the maximum number of patents. The moot question is what can India learn from China?

The Indian market is flooded with Chinese products from festival lights and trinkets to most advanced and miniaturized electronic sensors and processors at prices that leave no room for competition. 

With the Government of India (GOI) emphasizing ‘be vocal on local’ it is time India should genuinely invest in R&D – not for name sake or to avail tax benefits. If there is a will there’s a way. This is amply demonstrated by the businessmen during the recent Diwali festival season. Angered by the Chinese aggression, the businessmen and citizens by and large decided not to use the aggressor’s products. Result: Indian traders recorded Rs.72,000 crore sales on Diwali giving China an expected loss of Rs.40,000 crore – Zee Media report. 

The decision of GOI to ban over a hundred Chinese Apps – in three pronouncements so far – should encourage young entrepreneurs to design Apps to fill the void created – India has the largest pool of coding (software-writing) engineers. 

Technology transfer is good but not a panacea

Let no one think that TT is an all cure. They can either make or more the economy and progress of a country. Consider the following examples. 

EXAMPLE WHERE IT HAS DONE GOOD

Biovac, a Cape Town-based biotech company just announced – on 19th Nov’2020 – production of Hexamine, a six-in-one pediatric vaccine, in TT partnership with French pharmaceutical company Sanofi Pasteur. It is a virtual launch with representatives from both companies in attendance. The keynote address was given by Minister of Science and Innovation Dr Blade Nzimande, who said that “ this capacity is going to put us in good standing in South Africa in terms of future production of vaccines, even possibly down the line, a Covid-19 vaccine.”

EXAMPLE WHERE IT HAS MIRED THE ECONOMY

In Ghana to promote industry, improve foreign exchange reserves and economy Special Economic Zones (SEZs) are created by fiscal incentives which are grounded in laws and treaties (trade, tax, … from technology transfer agreement and remittance of proceeds from sale of any …) is turning into a mixed bag than a blessing because of mushrooming of SEZs, irregularities in administration and not reviewing and repealing/reenacting laws long after the purpose of fiscal incentive is served and the need for making the economic development model to go hand in hand with a clear industrial policy with tighter and appropriate trade, finance, investment and technology policies. 

In other words, technology transfer agreements are not a panacea for progress and economic growth, like medicine they should be titrated to suit the patient’s malady and not to be universally administered.

Summary and conclusion

• Technology transfer (TT) agreements enrich the transferor and the transferee apart from contributing to the economy of a nation.
• The agreements help maximize the utility and spread of the available technical knowledge.
• The transnational TT agreements need the legal regime to align municipal laws with international arrangements.
• While it is true that TT agreements and FDIs play a vital role in improving the lot of developing countries, unbridled and erratic implementation leads to corruption and syphoning out of the wealth of a nation. 
• The mood of the Government and the large-scale overhauling of the regime should spur indigenous growth to boost Indian economy from a developing to a developed economy.

The growth in technology and planned obsolescence are necessitating continuous investment in R&D on one hand and shorter life spans for a given technology on the other hand. The need for TT agreements has become a global norm to defray the development expenses and to maximize the utility and earnings from technology. At the same time, the importance of developing the core skills of a nation apart from imbibing from others and evolving on its own cannot be overemphasized. A technology transfer agreement should be and is like grafting of a plant that enables quick reproduction and blossoming without going through the stages of seeding, germination, and growth. At the same time, the grafted plant should be capable of separating out from the supporting plant at the right time and live on its own without life-long dependency. Technology transfer agreements work well where there is symbiosis.

India is the world’s largest tractor and motorcycle manufacturer. It is the largest supplier of bulk drugs and vaccines to the world. India is a human resource for doctors and computer-engineers world over. Indeed, it is time for India to graduate from the ‘know-how’ – the screw-driver-technology – stage to Know-why – the ability to build from core knowledge – stage and be a provider of technology to other developing and least developed countries. Amen!

References

[1] Global Development Research Center (GDRC)

[2] The Leap Blog (By Karan Gulati and Renuka Sane) 3/May/2020

[3] Technology transfer Agreements in India – Seth Associates

[4] Compendium of International Arrangements on Transfer of Technology: Selected Instruments https://unctad.org/system/files/official-document/psiteipcm5.en.pdf

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