Where does India stand on intellectual property rights in the digital economy?

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Within the IP space, it is surprising to note that in some instances, the RCEP draft imposes stricter obligations than the TPP.

ORF Online | 16 Aug 2016

Where does India stand on intellectual property rights in the digital economy?

Balaji Subramanian

Several recent bilateral and regional Free Trade Agreements (FTAs) appear to be exporting standards of IP protection that extend well beyond those prescribed by the Agreement on Trade-Related Intellectual Property Rights (TRIPS). These FTAs include the Trans-Pacific Partnership (TPP), the Trade in Services Agreement (TISA), the Regional Comprehensive Economic Partnership (RCEP) and the Transatlantic Trade and Investment Partnership (TTIP).

In this piece, I have scrutinised the TPP, TISA and RCEP that deal with IP and the digital economy vis-a-vis the current Indian legal standard for compliance with their provisions. For most of the IP section, I have assumed that the current Indian standard is TRIPS-compliant (e.g. with respect to data exclusivity), and therefore used the TRIPS standard interchangeably with the current Indian position. Below, I have discussed those provisions in these agreements that generate new international obligations for India. These include obligations that Indian legislators have already foreseen and complied with (such as the legal backing for TPMs), as well as obligations that would require a modification of the prevailing Indian standard.

Summary of findings

E-commerce

TPP TISA RCEP TRIPS/Current Indian Standard
Zero customs duty on digital products Similar to TPP TPP-compliant
Non-discrimination for foreign digital products Government procurements exempt None, as far as government procurement of software is concerned
Personal information protection Similar to TPP TPP-compliant
Cross-border information flow Similar to TPP, unless HK proposal is accepted by negotiators Possibly non-compliant with TPP, depending on an interpretation of “legitimate public policy objective” in TPP Article 14.11.3 and TISA E-commerce Annex Draft Art. 2.4. Indian law requires the data recipient to comply with Indian data protection standards as a bare minimum.
Prohibition on server localisation Similar to TPP, may be more expansive if “or investing in its territory” is accepted by negotiators None

Intellectual property

TPP TISA RCEP TRIPS/Current Indian Standard
Commitment to accede to the WCT/WPPT/Beijing Treaty/UPOV N/A
Non-visual trade marks Similar to TPP, with opposition for scent marks TPP-compliant in respect of sound marks, possibly non-compliant in respect of smell marks. RCEP-compliant if IN opposition is accepted by negotiators.
No rights for prior users of registered marks Prior users protected TPP non-compliant; RCEP-compliant.
Expansive definition of patentable subject matter Similar to TPP, but may have changed in a more recent draft TPP non-compliant — specifically with respect to evergreening and software patents.
Patent term adjustment for processing delays, and specific term adjustment for pharmaceutical marketing approval Similar to TPP TPP/RCEP non-compliant
10 year data exclusivity for agrochemicals TPP non-compliant
Five year data exclusivity for drugs Identical to TPP TPP non-compliant
Eight year data exclusivity for biologics TPP non-compliant
Patent linkage TPP non-compliant
Life plus 70 copyright term TPP non-compliant
Anti-circumvention measures Similar to TPP Possibly TPP non-compliant — mens rea requirement
Presumption in favour of patent/trademark/copyright validity Possibly TPP non-compliant, especially with respect to patents
Criminal sanctions for trade secret misappropriation TPP non-compliant

“Who cares?”

This piece flags the most concerning elements of these treaties as they stand today, in terms of the IP obligations that India would import as a consequence of signing up.

But first — why must we concern ourselves with the implications of FTAs that we are (barring the RCEP) not even a party to?

There exists a three-fold answer: first, there is a growing perception that international standard-setting, at least in the IP space, is increasingly moving away from traditional multilateral regimes such as the TRIPS, and entering the turf of treaties styled as investment or free trade agreements. A passive approach to FTAs (especially those that bind significant portions of the world’s economic muscle) is today equivalent to a passive approach to international IP norm-setting. Line-drawing exercises in international law inherently entail distributive effects, and therefore are bound to benefit the interests of participants in these processes.

Second, accession to these FTAs is never out of the question. Nor is the possibility that parties to existing FTAs may require equivalent commitments in bilateral negotiations with non-parties such as India. It would be extremely convenient, for instance, for the US to ask India to accept a data exclusivity commitment in a hypothetical future India-US FTA, simply by pointing out that a similar provision exists in the TPP, which regulates trade between the US and many other Asian countries.

Third, the risk of being required to absorb TPP-equivalent standards as a pre-condition in bilateral negotiations is much higher for still poorer countries, who need the TRIPS flexibilities more than India.

Methodology

Of the treaties surveyed, the only one whose final text (pertaining to IP and e-commerce, the focus of this piece) is available in the public domain is the TPP. A draft leaked in October 2015 is the latest text available for the RCEP, while the latest TISA documents were leaked in May 2016. In addition, the RCEP does not propose to legislate on e-commerce, meaning that only its effects on IP norms can be measured, while the TISA’s IP chapter is yet to be leaked, meaning that only its effects on e-commerce can be examined. I will be examining the impact of the TPP, and (where feasible) the RCEP and the TISA on IP and the digital economy. I have only highlighted those instances where these agreements create significant new international obligations for India, if we were to accede to them.

E-commerce

While an important element of the TPP’s Digital Two Dozen (D2D) core principles is the removal of customs duties on all digital products (Article 14.3), this does not create any new international obligation for India. This is because India is a party to the 1996 WTO Information Technology Agreement, which appears to already mandate this. The TISA contains a provision (Draft Art. 10 of the E-commerce Annex) that mirrors the TPP standard.

The TPP also requires, in Article 14.4, that parties practice non-discriminatory treatment of digital products originating from any other party. Draft Article 1.6 of the TISA’s E-commerce Annex contains a non-discrimination provision, but the crucial difference between the two obligations is that the TISA appears to provide a flexibility for government procurement, while the TPP limits exceptions to Article 14.4 to subsidies, grants and other government-sponsored benefits. To the best of my knowledge, India has no explicit non-discrimination legislation, but such a law would be redundant, since India would be compliant with Article 14.4 merely by virtue of refraining from treating foreign digital products discriminatorily. In addition, government policies such as preferential adoption of the Bharat Operating System Solutions (BOSS) Linux distro may fall foul of the TPP standard, given that mere adoption would not amount to a grant or subsidy.

Article 14.8 of the TPP and Art. 4 of the TISA draft both mandate the protection of personal information online. While it can be argued that these legal standards can be independently imposed on India through instruments such as the International Covenant on Civil and Political Rights, these will represent the first time India accepts a concrete international obligation to actualise the right to privacy over the internet.

Article 14.11 of the TPP mandates the free flow of information across national borders. This provision may have huge implications for businesses that base their revenue generation on big data and targeted advertising, and the thrust of Article 14.11.2 is that parties must allow businesses to transfer information (including personal information) across borders through electronic means. However, Article 14.11 is subject to two significant carve-outs. First, Art. 14.11.2 is only applicable to covered persons, a term that has been defined to exclude financial service providers. Second, Article 14.11.3 permits derogation from the free flow obligation to achieve “legitimate public policy objectives”, provided that measures derogating from the obligation are non-discriminatory and least-restrictive in nature. The TISA draft, in Article 2.1, contains a similar provision to Article 14.11 of the TPP. However, it is unclear whether the TISA definition of “service supplier” mirrors the TPP definition of “covered person.” If it is, then financial service providers will be similarly excluded from the TISA obligation. Otherwise, the TISA obligation would be wider than the one in Article 14.11 of the TPP. In the latest TISA draft, Hong Kong has proposed a lengthy prefix to Article 2.1 of the E-commerce Annex which exempts all measures taken by parties to protect the privacy of individuals from the cross-border data flow obligation. Indian compliance with the TPP obligation is doubtful, and would turn on an interpretation of the words “legitimate public policy objective” in Article 14.11.3. This is because under Rule 7 of the Information Technology (Reasonable security practices and sensitive personal data or information) Rules 2011, cross-border flow of personal information is permitted only in situations where the recipient of the information complies with Indian data protection standards as a bare minimum. Similarly, India would almost certainly be non-compliant with the TISA draft unless the Hong Kong proposal is incorporated into the final text of the agreement.

Article 14.13 of the TPP contains a prohibition on parties against conditioning the conduct of business in their territory on the localisation of computing facilities such as servers and storage devices. This requirement is conditioned by the same carve-outs as Article 14.11, with Article 14.13.3 being identical to Art. 14.11.3. In addition, Article 14.13 also applies only to “covered persons”, and excludes financial institutions from its protection. The corresponding TISA draft article, Article 8, contains a similar obligation. However, the TISA obligation may end up becoming significantly broader than the TPP provision, since only Colombia currently opposes a draft that expands the prohibition on server localisation to investment in the country’s territory by a covered business. Further, the difference between the TPP’s “covered person” and the TISA’s “service supplier” may mean that the TISA is nevertheless broader than the TPP. This researcher is unaware of Indian law that contravenes the prohibition on server localisation, although provisions of the Information Technology Act on surveillance may be interpreted as granting such powers to the government.

Intellectual property

One of the more troubling features of the RCEP is Draft Article 1.7.6, which contains a commitment to accede or ratify a number of TRIPS+ agreements, such as the WIPO Copyright Treaty (WCT), the WIPO Performances and Phonograms Treaty, the Beijing Treaty on Audiovisual Performances, and the International Convention for the Protection of New Varieties of Plants.

With respect to trademark protection, the TPP’s Article 18.18 specifically provides for non-visual marks such as sounds and scents to be given protection by parties. Draft Article 3.1 of the RCEP contains a similar provision, but the portion dealing with scent marks has been met with significant opposition. India’s position on scent marks is unclear, but a reading of Section 2(1)(zb) of the Trade Marks Act 1999, alongside Rule 30 of the Trade Marks Rules 2002, seems to suggest that scent marks would not be permitted in India. Sound marks have been granted in the past by the Indian registry.

Article 18.20 of the TPP suggests that the exclusive protection granted to the owner of a registered trademark shall extend even against the rights of prior users of the mark. This would fly in the face of the statutory limitation in Section 34 of the Trade Marks Act 1999, which provides that owners of registered trademarks shall have no remedies against prior users. Draft Article 3.6 of the RCEP unequivocally protects prior rights.

Article 18.37 of the TPP contains an expansive definition of patentable subject matter, which would have significant implications for Indian law. These include software patents, evergreening, patents on microorganisms, etc. Draft Article 5.1 of the RCEP contains a similarly broad definition of patentable subject matter, but recent statements by Nirmala Sitharaman seem to indicate that Draft Article 5.1 has been modified to address India’s concerns regarding evergreening.

Another worrying feature of the TPP is the provision of patent term adjustments for “unreasonable” processing delays at the patent office (Article 18.46) and more specifically, for the time taken to obtain marketing approval for a new drug (Article 18.48). Draft Article 5.13 contains a provision for patent term restoration to compensate patentees for the non-working of patents pending marketing approval, but the latest draft records significant opposition to this clause. Draft Article 5.13.3 also contains a more general patent term restoration obligation for unreasonable delays at the patent prosecution stage attributable to the patent office.

The TPP provides for an aggressive data exclusivity regime, with ten years for agrochemicals (Article 18.47), five for new drugs (Article 18.50) and eight for biologics (Article 18.51). The RCEP, in Draft Article 5.16, provides for five years of data exclusivity for new drugs. The TPP also contains a patent linkage regime, in Article 18.53.

Article 18.63 of the TPP mandates a ‘life plus 70’ copyright term, while the RCEP leaves this untouched.

Article 18.68 of the TPP and Draft Art. 2.3 of the RCEP require parties to legislate anti-circumvention measures such as DRM and RMI into place. While India has done this through the insertion of Ss. 65A and 65B through the 2012 amendment to the Copyright Act 1957, it had no international obligation to do so, since it is not a party to the WCT. This would, therefore, still amount to the acceptance of a new TRIPS+ international standard. In addition, the Section 65A contemplates mens rea on the part of the person attempting to circumvent TPMs, and for this reason, Indian law could still fall short of complying with the TPP and RCEP obligations.

Article 18.72 of the TPP requires parties, in judicial proceedings for infringement, to presume the validity of the patent, trademark or copyright. This could pose significant problems for India, especially in patent litigation, since Indian jurisprudence advocates a relatively cautious approach to patent validity at the prima facie stage of infringement proceedings. In Bilcare v. Supreme Industries, the Delhi High Court has interpreted Section 13(4) of the Patents Act 1970 to arrive at the conclusion that young patents could not be presumed to be valid, and that interim injunctions could be denied merely on the strength of a challenge to the patent’s validity in court.

Finally, Article 18.78 of the TPP also requires parties to enact criminal penalties for the misappropriation of trade secrets, a provision that has come under criticism for its lack of protection to whistle-blowers. In addition, given that Indian law does not provide for statutory protection of trade secrets, it would be unable to comply with this requirement as it stands today.

Conclusion

From this analysis, it is clear that the TPP, RCEP and TISA will entail some amount of IP norm-setting that shifts the balance established in the TRIPS towards rights-holders. It is safe to say that the provisions of the TPP and the TISA will entail the loss of what is perceived as “sovereign” control over the internet, a tradeoff balanced by the lowering of entry barriers for Indian digital players into the world market. However, it bears noting that most provisions in the TPP are subject to a ‘ratchet clause’, meaning that the lowering of barriers is necessarily a one-way process. Within the IP space, it is surprising to note that in some instances, the RCEP draft imposes stricter obligations than the TPP. Less surprising is the fact that the TISA, in several cases, imposes stricter controls than the TPP on e-commerce and the free flow of information. This is because the TPP can be seen as a sort of lowest common denominator among the FTAs surveyed, while the TISA, which has the EU and the US as parties, understandably caters to developed country interests at a larger scale.

The author is a law student and the first ORF-SpicyIP Fellow.