Saturday, September 7, 2013

Winding Up of a Company - A different Legal Perspective

Meaning & Kinds: “Winding-up” in literal sense, means to bring to a conclusion or an end by putting in order.[1] It is defined as the process by which the life of a company is ended and its property is administered for the benefit of its members and creditors[2]. Winding-up is different from insolvency and dissolution[3]. The Act provides for three kinds of winding up:
1. The winding-up by the Tribunal. [(Sec 433) of Companies Act, 1956]
· If the company has, by special resolution, resolved that the company may be wound-up by the tribunal;
· If default is made in delivering the statutory report to the registrar or in holding the statutory meeting;
· If the company does not commence its business within a year from its incorporation, or suspends its business for whole of a year;
· If the number of members are reduced then their required number;
· If the company is unable to pay its debts (specified in Sec 434)
· If the tribunal is of the opinion that it is just and equitable that the company should be wound –up;
· If the company is in default in filing up with the Registrar its balance sheet and profit and loss account for five consecutive financial years[4];
· If the company has acted against the interests of the sovereignty and integrity of India or security of any state, friendly relation with foreign States, public order, decency and morality;
· If the tribunal is under the opinion that the company should be wound up under the circumstances specified under the Sec. 424G.
2. Voluntary winding-up, which itself is of two kinds, namely,
· Members voluntary winding-up,
· Creditors voluntary winding-up.
A company may be wound up voluntarily at any time after passing a special resolution. But where the articles provide for a period on expiry, which the company is to be wound up and that period has expired, or for a contingency on the happening of which the company is to be dissolved and that contingency has happened, winding up may be commenced with an ordinary resolution [Sec 484]. Within 14 days the resolution should be advertised in the Official Gazette and in a newspaper circulating in the district of the registered office of the company [Sec 485]. Winding up commences from the date of resolution [Sec 486]. The corporate status and power of the company shall continue till the company is completely dissolved, but it shall stop its business, except so far as may be necessary for beneficial winding up [Sec 488]. If a declaration of solvency is made in accordance with the provisions of the Act, it will be members’ winding up. If the directors are not able to pay the debts within the specified period, the liquidator shall call a meeting of the creditors and it then becomes the creditor’s winding up [sec.495&Sec.498].
Is winding up possible during the pendency of a civil suit?
Section 433 of the Act provides for the circumstances in which a company may be wound up by court. [5] Here arises a question that if there are parallel proceedings for the same subject matter i.e., for the recovery of debt, where one is a civil suit and the other is for winding up of the company, should they be allowed to subsist together?
The act nowhere prohibits that the proceedings under the act shall or could not lie, where civil suits are pending or they subsequently be filed. There is no provision in the Act to oust the jurisdiction of the court and decide the winding up proceedings. There would have been a provision to that effect in the Act if the legislature had intended to that effect. Since the winding up proceeding is not merely for the benefit of the petitioner but of all its shareholders, creditors or contributories [6]. The pendency of a civil suit is not a bar to the admission of winding up petition based on same debt.[7] The proceeding for winding up will not be invalidated if a suit is filed by the petitioner by way of abundant caution to save the claim getting barred by limitation[8].
The winding up proceedings can be continued in a company court once it has come to the conclusion that it has not been a case of bona fide and tenable defence is made out [9]. While dismissing the petition for winding up the following principals have to be relied upon by the Court:
1) The defence of the company is in good faith and one of substance.
2) The defence is likely to succeed in point of law.
3) The company adduces prima facie proof of the facts on which the defence depends.
4) Where the debt is undisputed, the Court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular amount and.
5) Where, the company owes the creditor a debt entitling him to a winding up order. But the exact amount of the debt is disputed; the Court will make the winding up order without requiring the creditor to quantify the debt precisely [10].
The following points have to be considered while dealing with winding-up:
1) A petition presented ostensibly for a winding-up order; but really to exercise pressure will be dismissed, and under the circumstances, may be stigmatized as a scandalous abuse of the process of the Court The modern practice has been to dismiss such petitions. If the debt is not disputed on some substantial ground, the Court may decide it on the petition and make the order. [11]
2) The company may be wound up even if it has large assets. The crux is to see if it is unable to meet its current demands i.e., if the current liabilities are more than the current assets. If the company is financially sound and in a position to pay its liability, it cannot be ordered to be wound up under Section 433(e) of the Companies Act. But the company should establish that it is capable of discharging its existing liabilities. There is presumption of inability [12].
3) Although a winding up petition is an appropriate remedy and a mode of execution against a company unable to pay its debt, it is not an alternative to the ordinary procedure for realization of the debts due from the company. Since, the creditor had already resorted to the civil suit; the court in its discretion can dismiss the petition [13].
4) It has been observed that the pendency of a civil suit as such is not merely a ground to oppose a winding up petition [14].
After analyzing and observing various legal propositions and situations, it is found that the right to apply for winding up is the creature of statute and not of contract, d the winding up orders passed by the court are not judgments in rem. In the absence of any prohibited provisions in the Act winding up proceedings u/s 433(e), 434,439 can be allowed even if a civil suit is already pending against the debtor company. But it should be marked that the winding up proceeding are greatly affected by the facts and circumstances of a particular case. The machinery of winding-up cannot be used as a pressure tactics, where a suit has already been instituted for recovery of debt, under such circumstances, the proceeding are in the nature of parallel proceedings in respect of the same cause of action. As a result, such course should not be considered by the court more so to avoid conflict of jurisdiction of findings by two parallel courts of competent jurisdiction. Thus at last it can be said that a genuine case has to be made out rejecting the malafide contention, in the interest of good faith and justice.

Legal Issues in Offshore Outsourcing to India

With the rise in outsourcing and with more and more global organizations outsourcing business processes and IT services to India, there has been a number of legal issues in outsourcing. Companies outsourcing to India have to face some complex legal issues with outsourcing. If your organization is outsourcing to India, make sure that your organization is aware of the intellectual property protection and the data privacy and protection in India. Before outsourcing to India, also make sure that your organization knows about compliance with applicable Indian laws, enforcing contractual/legal rights in India and dispute resolution procedures.

There are several legal issues in offshore outsourcing and dealing with them effectively can help the organization who wishes to outsource and the outsourcing service provider, to face the legal issues of outsourcing. The following are some tips on efficiently dealing with the legal issues of offshore outsourcing.

1. Taxation

Offshore outsourcing is often influenced by several international and local issues. The taxation policy of India also has a big effect on the offshore outsourcing decision. Before outsourcing, find out about the tax implications that you have to deal with. This is an important legal aspect to deal with, because different countries have different tax laws. You can meet your outsourcing provider in India and decide about which tax provision would be appropriate in the legal contract.

2. Legal Systems that are Heterogeneous

When you outsource to India or any other country, you will discover that the rules of governance are different in different countries. In outsourcing, you and your outsourcing provider have to make sure to include two different legal systems. This heterogeneity in the legal system is an important legal issue with outsourcing that companies have to deal with. This problem exists, because there is no legal system which can be used globally. Different countries even have different intellectual property laws. Since there are no standard legal rules and regulations to follow, it is best to meet your outsourcing provider and make sure that you adhere to both the legal systems. This will help you to sort out any legal issues of outsourcing.

3. The Influence of Local Laws

Some countries have strict data protection and privacy laws, which might be a hindrance in outsourcing. In such cases, the outsourcing provider and the customer would be legally bound and share equal legal responsibilities. This might increase the liability of the customer and in some cases can become a legal issue in outsourcing. Outsourcing service providers also have to protect their business from civil penalties. Conduct some research on the country that you want to outsource to and if the local laws of that country are a hindrance, find another outsourcing service provider. The influence of local laws is another major legal issue in outsourcing.

4. Dispute Settlement

Dispute settlement is yet another legal issue with outsourcing. If a customer from U.S wants to sue an outsourcing provider in China, there would be plenty of disputes. The Chinese outsourcing provider would not want to go to the U.S and the U.S customer would not want to come to China. There is also the legal issue of where the case will be filed, as the case has to be fought in the country where the case is filed. These two countries would also have two different legal systems. When making a settlement contract with your outsourcing provider, ensure that you mention the system of dispute settlement. Clarifying the legal aspects in outsourcing and dealing with the problem of dispute settlement can avoid future problems.

Legal Issues in Outsourcing to India

1. Effective Changes in Indian Laws

India is the most ideal place to outsource to. When you outsource to India, you need not face many legal issues in offshore outsourcing. There are many global organizations which have been outsourcing to India and these organizations have not faced any hindrance with the legal issues of outsourcing to India. Indian laws are always going through amendments and they are often changed to effectively meet the requirements of today and to be in unison with the latest international laws. India complies to the “agreement on trade related intellectual property right”. India also accepted the “world trade organization agreement” even when outsourcing was just starting. The Indian government has brought about many effective changes in patents, copyrights, designs, trademarks to meet the requirements of today. Such effective changes have transformed India’s intellectual property laws.

2. The Proper Law of Contract in India

When a legal contract has to be made between two countries, the legal regime of any single country becomes insufficient to deal with the situation. Outsourcing brings about two legal systems into the picture and this is where the private international law comes into place. Before you sign a legal contract with your outsourcing provider, make sure that you decide about which law would govern the legal contract. In India, the outsourcing service providers ensure that the “Proper Law of contract is applied, before a legal contract is signed.

3. Choice of Law is endorsed by Indian courts

The courts in India have always endorsed the choice of proper law. If you have expressed the choice of law in the legal contract, you can be sure that it will be supported in the Indian courts.

4. Freedom of choice to choose any law

When you outsource to India, you can choose the law that would govern the legal aspects of the contract. You can also decide which court would conduct the jurisdiction. The sections 13, 15 and 44A of the Indian Civil Procedure Code and Section 41 of the Indian Evidence Act, govern the conclusiveness and enforcement of foreign judgments made in India.

Guidelines to help you deal with the legal issues in offshore outsourcing to India
ü     If you choose arbitration as the means of dispute resolution, ensure that the place of arbitration and other important aspects are well defined in the legal contract
ü     If you choose the Indian law and if you want Indian judgment to be used in your country, then make sure that your country has a similar law as the Section 44A of the Indian Civil Procedure Code.
ü     In case, you sign the legal contract in a country, which is different from the country whose law you have chosen, make certain that the formal requirements of that place of contract are fulfilled.
ü     Make sure that the country whose law you choose supports the proper law for enforcement.
ü     Ensure that there is a choice of law which governs the legal contract.

Is India Geared Up For Business Method Patent

Today technology is changing expeditiously. New technical inventions are taking place in huge number. These new inventions open new field of subject-matter for protection under Intellectual Property Law. Intellectual Property law gives an umbrella protection to new inventors. Patent provide protection for those line of process, products which are novel and are capable of proving that it involves an inventive step. USPTO grants maximum patents in a year. The paper written here advocates the invalidity of Business Method patent in Indian scenario. Business method today is capable of IP protection in countries like USA, Australia, Japan and New Zealand. India is against granting of protection to Business Method.
Definition: Business Method Patent
Business Patents are those patents which are given to business methods or business systems or like. A business method may be defined as "a method of operating any aspect of an economic enterprise". Business method patents are part of a larger family of patents known as utility patents, which protect inventions, chemical formulas, processes, and other discoveries. A business method is classified as a process, because it is not a physical object like a mechanical invention or chemical composition.
Background To Business Method Patents
Business Method Patents were not considered as a subject matter for protection under Patent Law. Earlier Business Method was considered as an abstract idea and was thus not falling under the purview of Patents. But by a decision by a Federal Court even Business Method have been granted patent protection. Section 101 of US Patent Act defines Inventions which are capable of Patent protection
A combine reading of Sections 101, 102, 103 and 112 will lead to following construction:
• Any process, machine or composition of matter may be patented if;
• It is new (Novelty Section 102), Non-obvious (Section 103) and is capable of adequate description and invention (Section 112).
Protection Under TRIPS
TRIPS also provide subject matter for patent protection. Article 27 paragraph 1 of the agreement on Trade-Related Aspects of Intellectual Rights (TRIPS) provides that "patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application..."
Further, Article 27 paragraph 2 of the TRIPS agreement permits Members to "exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary to protect order public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to the environment, provided that such exclusion is not made merely because the exploitation is prohibited by their law."
Cases In Which Business Method Was Upheld
Concept of Business method patent is now a decade old. State Street case is an important decision in this regard. Further developments have taken place after this judgment.
Business Method was considered as an exception to Patent protection until 1998. The first case of this kind was filed in the year 1908. In Hotel Security case the question was whether business methods can be said to be patentable. Here the case rejected the argument of it being capable of protection and created a per se exception to business methods. It was until year 1998 that this position was accepted.
1. State Street Bank v. Signature Financial Group, Inc.
In the present case the District Court had rejected application for Business Method Patent on the said process of “hub and space”. But Later the Federal Circuit confirmed that there is no rule which prohibits the patentability of "business methods." The Court stated “The judicially-created business method exception to patentability is . . . an unwarranted encumbrance to the definition of statutory subject matter in section 101 that should be discarded as error-prone, redundant, and obsolete. It merits retirement from the glossary of section 101. Patentability does not turn on whether the claimed method does "business" instead of something else, but on whether the method, viewed as a whole, meets the requirements of patentability as set forth in Sections 102, 103, and 112 of the Patent Act.
Federal Court further clarified that it was never intended that business methods should be kept out of the subject matter. Rather in earlier few cases claim was rejected due to incapability of those methods to be taken as inventions. Thus, State Street confirmed that business methods can be patented if they meet the statutory requirements of utility, novelty and non-obviousness.
2. Inc. v.
In this case one-click patent to was criticized by few writers on the ground of it being “unplanned mutation”. Here an injunction was granted to Barnes & Noble for not using the said feature. This case clearly reflects drawbacks that can arise in case a business patent is protected in countries which are still developing their technologies. Later part of my paper deals with disadvantage that granting a business method patent can have.
Amendments Brought After State Street Case
Now that the situation is clear with respect to business method patents in US laws, it can be said that business method are capable of granting patent protection. But in order that no ambiguity remains the USPTO publicly announced that in terms of granting protection sufficient prior art search should be undertaken.
Class 705
A new classification (Class 705) was introduced for the filing of business method patents under the more generic utility patent applications: "Data processing: financial, business practice, management or cost/price determination.” Specifically, Class 705 includes sub-categories for industries such as health care, insurance, electronic shopping, inventory management, accounting, and finance.
Amendment In Title 35
Section 100 Title 35, United States Code, was amended to provide for improvements in the quality of patents on certain inventions. Thus, ‘Business Method Patent Improvement Act of 2000’’was passed. The term business method patent has been defined under the Act. What is surprising is the fact that under the definition any “technique used in Athletics” can also be qualified as a Business Method Patent.
Interim Guidelines
For providing better uniformity in the system Interim Guidelines were published for Examination of Patent Applications for Patent Subject Matter Eligibility on October 26, 2005
Lacunas Prevalent In Method Adopted At USPTO
It has been observed that the method of granting patent in USPTO is without a substantial base. Patents at USPTO are granted not on a quality basis, rather on quantity basis. The following are serious lacunas which should be given a serious thought:-
1. In USPTO examiners are not properly trained to search prior art. Prior art search is scattered and hence proper care is required while doing a prior art search. But since the examiners are not provided with enough resources quality somewhere lacks while granting a Patent
2. Further it has been observed that in USPTO examiners get bonuses on allowing a patent rather than rejecting it. Hence the result can be seen more the acceptance by examiners, more the bonus. The process should change and bonus should be given only while rejecting a patent.
3. Once a patent is granted USPTO doesn’t conduct a review or quality control.

4. Mostly claims use ambiguous language which leads to more confusion in mind of patent examiner. Thus affecting the quality of specific invention.
Disadvantage Of Granting A Business Method Patent
1. Once a patent is granted for an invention it is capable of securing the rights of patentee for a period of 20 years. Thus it can be well understood that if patent is granted for a business method then it would obstruct new technological research for the next 20 years to come.
2. Granting a patent on business method would create a monopolistic situation which would hinder growth. It would mean an unhealthy competition.
Advantage Of Granting A Business Method Patent:
1. Copyright protection is insufficient to protect Business method. All Research and Development that is done requires that something more that Copyright protection should be given in order to reward Business ideas.
2.  Start-ups should be encouraged. New companies would benefit with a concept of such kind. Initially patent protection to such starting groups would definitely benefit them in order to have a strong stand in front of powerful companies. Business method patents create the artificial scarcity needed to preserve market power and restore the incentive to innovate.
Solution For A Business Method Protection
1.The paper here accepts granting of business patents but not at the cost of technological or economical growth. Thus in order to benefit both inventor and other co-inventors in line it would be better to grant patent protection only for a limited period of 3 years for Business method Patents. Thus law should help in sustaining a collaborative effort.
2. Change in the Patent System at USPTO is also required. The one sentence rule should    be eliminated so as to faciltitate clearer language. Thus, it would help patent examiners and also leave less scope for manuplation by patent lawyers. Also person applying should disclose his computer code to the patent examiner.
3. Salary of Patent examiners should be increased. Also USPTO should give bonuses on rejecting a patent application rather than on accepting it as earlier mentioned in paper.
Should Patent Be Granted On Business Method In India
India is a developing economy. We are still unable to cope up with many threats like poverty, unemployment and population. In global market India is considered as a growing economy. Our youths are taking India to greater heights. All this reflect that we require a technological and economical boom. It needs to be mentioned that countries which have granted business method patents are developed countries. Conformance with TRIPS is particularly slow in developing countries, notably Argentina, Brazil, India and Egypt. Further I believe that granting a business method patent in India would impede technological growth in our country. Hence I am of opinion that business method patent should not be granted in India.
With boom in intellect ideas in corporate world it is required that these should be protected and respected. But fortification of these ideas by means of patent might not be profitable at this stage in developing countries. Grant of business method patent in US saw mixed reactions from experts of law. Moot problem was the modus operandi for granting of business method patent at USPTO. US have also drafted an Act called Business Method Patent Improvement Act of 2000 with respect to protection of business methods ironically athletic techniques are also within the purview of Business methods.

Patent over a particular invention protects it for a period of twenty years. Thus a patentee acquires an exclusive right over it (subject to Patent Act) and thus has right to prevent infringement of it during the said period. Thus in case of protection to business method the patentee would be in a position to stop the claimant of patent for a period of 20 years. Thus it would imply that business related methods/ideas would be retarded for such a long period. It can be thus concluded that Business method may be granted but it should be granted for a lesser duration of time and preference should be given to new companies. Thus Indian Patent system may move a step ahead for grant of Business method patent in future but not at present. It would be beneficial that there is no amendment in Section 2(k) of Indian Patent Act, 1970 for the next five years.

Intellectual Property Rights are a privilege, not a human right

Intellectual Property Rights should be subsumed to human rights, national interests and the preservation of genetic resources
Intellectual property can be defined as the creations of the human mind. Intellectual Property Rights (IPR) are legal rights governing the use of such creations. The inventors are given certain monopoly rights for a specified time, and in return, the details of the innovations are made public. It is generally assumed that IPR helps to encourage invention, innovation and dissemination of knowledge.
The term IPR covers a bundle of rights such as patents, plant breeders' rights, copyrights, trademarks and trade secrets, each with a different purpose and effect. Copyright covers the expression of ideas in writing, music and pictures. Patents cover inventions such as designs for objects or industrial processes. Trademarks are symbols associated with a good, a service, or a company. Trade secrets cover confidential business information. A very recent addition -- plant breeders' rights -- covers the area of production of new seeds and plant varieties.
IPR is nothing more than State-mandated monopolies. The idea behind such rights is that the fundamentals of an invention are made public while the inventor, for a limited period of time, has the exclusive right to make, use, or sell, the invention. Discoverers and inventors are thought to deserve special rewards or privileges because their discoveries and inventions benefit society. The public good is not considered a reward in itself and therefore these incentives to encourage invention or innovation.
Inherent contradiction in IPR
The whole argument regarding IPR is built on a contradiction: that in order to promote the development of ideas, it is necessary to reduce the freedom with which people can use them. One approach to the philosophy of intellectual property that currently dominates the theoretical literature on IPR springs from the position that a person who labours upon resources that are either unowned or ‘held in common' has a natural property right to the fruits of his or her efforts, and that the State has a duty to respect and enforce that natural right.
The earliest patent laws expressed the need to ensure that innovations did not die away with the original inventor. In other words, they were designed to promote disclosure and dissemination of knowledge. However, the systems of both law and practice that emerged were based on physical expression. Thus, what was protected as intellectual property was the expression of an idea, a technological artefact, a piece of music, or a work of literature, etc.
Since it is now possible to convey ideas from one mind to another without ever making them physical, ideas themselves are sought to be given ownership, and not merely their expression. And since it is likewise now possible to create useful tools that never take physical form, there is a move towards patenting abstractions, sequences of virtual events, and mathematical formulae -- the most unreal terrain imaginable.
From inventors to corporations
Central to the projected utility of Intellectual Property Rights is the notion that creation is facilitated by the provision of a temporary monopoly which ensures that the author of a work will be the sole beneficiary of any profits accruing from it. The earliest patent and copyright laws were geared, to an extent, to benefit the individual artisan, or the author of a literary piece or a musical score. But with the institutionalisation of the concept of IPR, individual creators ceased to be the beneficiaries and were replaced by large corporate interests. In practice, today, most creators do not actually gain much benefit from intellectual property. Independent inventors are frequently ignored or exploited. When employees of corporations and governments have an idea worth protecting, it is usually copyrighted or patented by the organisation, not the employee. Since intellectual property can be sold, it is usually large corporate entities that benefit.
The value of intellectual products is not due to the work of a single labourer, or a small group. Intellectual
products are social products. Even in the US and Japan , an enormous part of research is State funded. Therefore, the line between what constitutes ‘basic research' by a company and what it draws from public funded research, is blurred.
Inhibiting research and innovation
Open ideas can be examined, challenged, modified and improved. To turn scientific knowledge into a commodity on the market, arguably inhibits science. There are innumerable examples to show that IPR has been used to suppress innovation. Companies may take out a patent, or buy someone else's patent in order to inhibit others from applying the ideas. For example, as far back as in 1875, the US company AT&T collected patents in order to ensure its monopoly in telephones. It slowed down the introduction of radio for some 20 years. In a similar fashion, General Electric used control of patents to retard the introduction of fluorescent lights, which were a threat to its market of incandescent lights. Trade secrets are another way to suppress technological development. Trade secrets are protected by law but unlike patents they do not have to be published openly.
One of the newest areas to be classified as intellectual property is biological information. US courts have ruled that genetic sequences can be patented, even when the sequences are found ‘in nature', so long as some artificial means are involved in isolating them. Companies are now racing to take out patents on numerous genetic sequences. In some cases, patents have been granted covering all transgenic forms of an entire species, such as soybeans or cotton. One consequence is the severe inhibition of research by non-patent holders. Another consequence is that transnational corporations are patenting genetic materials found in Third World plants and animals so that some Third World peoples actually have to pay to use seeds and other genetic materials that have been freely available to them for centuries.
Distorting research priorities
The pharmaceutical sector is a classic pointer to the dangers of a strong IPR regime. Large pharmaceutical companies have generated super profits through the patenting of top selling drugs. But drugs that sell in the market may have little to do with the actual health needs of the global population for, often, there is nobody to pay for drugs required to treat diseases in the poorest countries. Research and patenting in pharmaceuticals are driven not so much by actual therapeutic needs, but by the need of companies to maintain their super profits at present levels. Simultaneously, new drug development has become more expensive because of more stringent regulatory laws. This is a major reason for the trend towards global mergers of MNCs. As a consequence, we are looking to a new situation, where 10-12 large transnational conglomerates will survive as ‘research based' companies that will be in the business of drug development and patenting. The bulk of drug manufacturing will be done by smaller companies.
Given their monopoly over knowledge, these companies will decide the kind of drugs that will be developed, which are likely to be drugs that can be sold to people with the money to buy them. Thus, on one hand, we have the development of ‘life-style' drugs, like Viagra, which target the illusory ailments of the rich. On the other hand, we have a large number of ‘orphan' drugs, or drugs that can cure life threatening diseases in Asia and Africa , but are not produced because the poor cannot pay for them. Just four per cent of drug research money is devoted to developing new pharmaceuticals specifically for diseases prevalent in developing countries. To put it another way, less than 10% of the $ 56 billion spent each year globally on medical research is aimed at the health problems affecting 90% of the world's population.
A similar situation has been created in the software sector due to monopolies created by software patenting. Microsoft, with its virtual monopoly over software that is used on personal computers has consistently obstructed the development of new products by its competitors.
From victims to aggressors
In the 1980s, the US alleged that international ‘piracy' was costing American industries millions, if not billions, per year. Countries singled out for action were largely developing countries in Asia , South America and Africa.
The US presented the issue as an organised effort by foreign countries, especially the developing countries, to systematically usurp American creativity and technological knowledge. The innocent victims were American companies such as Microsoft, or Walt Disney, or Merck. Gradually the US introduced the concept of unfair trade practices alongside that of alleged IPR violations in countries like India . It was repeatedly said that the lack of strong international intellectual property laws hindered international trade. By this virtual sleight of hand, the US (with the support of Europe and Japan ) introduced IPR as an issue in trade negotiations in the Uruguay Round of GATT (General Agreement on Tariffs and Trade) negotiations in 1986.
The success achieved by the US in making IPR a trade issue, and its subsequent incorporation in the WTO agreement, overturns the very basis of trade negotiations, where, classically, the developing nations are considered victims and special considerations are taken to remedy their problems. In the US version, the roles are reversed. The US is a victim and the developing countries are the hostile aggressors that threaten the very foundation of America , its creativity and ideas.
The rhetoric about ‘piracy' gave the US a justification for interference. The generalisation spread from individual pirates to entire States and occurred with the identification of ‘problem' countries like India . Finally, in a feat that defies all forms of logic, large multinational corporations were portrayed as the victims. Note here how the whole concept of intellectual property has come a full circle -- from the initial notion of the protection of an individual's rights and the notion of disclosure of information, IPR now means protection of the rights of corporations and a bar on the free flow of information.
Developing countries the losers
There is growing recognition that patents and IPR cannot be regulated under a universal standard. Different socio-economic conditions and levels of development require different intellectual property systems. The patent system may entail considerable short-term costs for developing countries, mainly due to administrative costs and problems, with higher prices for medicines and key technological inputs, while long-term benefits seem uncertain and costly to achieve in many nations, particularly for the poorest countries. Moreover, higher standards of patent protection are unlikely to have a positive effect on local innovation, except in those few countries (and sectors) that have reached a certain level of technological development and have the capacity to finance substantial research and development.
Higher standards of IPR protection were implemented in the developed countries only when a threshold level of technological advancement was achieved. For instance, pharmaceutical products were excluded from patent protection in Germany till 1968, in Switzerland till 1977, in Italy till 1978, in Spain and Portugal till 1992, and in Finland till 1995. In countries with a longer history of pharmaceutical product patents, such as Canada , France and the UK , compulsory licensing provisions were quite liberal. India 's pharmaceuticals sector is yet another example of benefiting from a more relaxed patent regime. All these factors should be considered when harmonisation and higher standards of IPR are thrust upon developing countries.
Though the ‘international politics' of intellectual property has mainly taken place at the WTO, new intellectual property standards continue to be set under the auspices of the World Intellectual Property Organisation (WIPO). In this context, the new initiative at WIPO, known as the Patent Agenda, launched in September 2001, may greatly influence the shape of the international intellectual property system. WIPO is one of the specialised agencies of the United Nations system of organisations, with 182 nations as member-states. WIPO's principal objective is to promote the protection of intellectual property throughout the world through cooperation among States, and, where appropriate, in collaboration with other international organisations. It administers 23 international treaties dealing with various aspects of intellectual property protection.
Though WIPO was considered an important institution during the 1980s, due to the lack of uniform standards and a strong enforcement mechanism, key industry players in the US persuaded their government that WIPO had failed to secure appropriate levels of intellectual property protection in other countries. They lobbied to bring the issue of IPR protection within the GATT system. An obvious advantage of GATT vis-à-vis WIPO was the possibility of applying trade sanctions to countries found to be non- compliant.
As expected, developing countries resisted the proposal of negotiating on IPR in the Uruguay Round. However, the US , supported by the European Union (EU), succeeded in its efforts through bilateral dealings and the threat of unilateral retaliatory measures such as under Section 301 of the US Trade and Tariffs Act, as well as promises of concessions in agriculture, textiles and clothing.
The Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement introduced the concept of minimum standards for IPR in diverse areas and placed heavy obligations on national governments. However, there are some ‘flexibilities' available for the design and implementation of the patent regime at the national level. Much of this flexibility now faces the possibility of being eroded or suppressed under the new WIPO Patent Agenda.
Once higher standards were adopted at WIPO, pressure would build up at the WTO to further increase the intellectual property standards for all its members under Article 71 of TRIPS. It should not be forgotten that much of the substantive provisions of TRIPS are drawn from WIPO. Due to the existing international geopolitical situation, it would be extremely difficult to raise IPR standards at the WTO. Hence, the US -- the prime driver of higher IPR standards -- thought it prudent to adopt a two-stage procedure: to raise standards first at WIPO, and then export these higher standards to the WTO.
This is part of the game plan where the US has been preparing the ground for higher IPR standards globally through several bilateral agreements, notably with Jordan, Singapore and Australia, as well as other means such as asking China, or even least developed countries such as Nepal and Cambodia, to join the UPOV (International Union of Plant Variety Protection) Convention as a condition for accession to the WTO. UPOV, incidentally, is an agency that protects the interests of the large seed companies.
It was because of the demands of civil society organisations and progressive movements all over the world, that the US and other developed countries were forced to concede certain flexibilities within the TRIPS framework. In the Doha Ministerial conference, a Development Agenda was accepted which gave a lot of space for politically committed developing countries to implement IPR policies to protect their national interests, especially in relation to pharmaceutical production. The US is now trying to use WIPO as a platform to regain what it lost in Doha.
The battleground therefore has shifted from WTO-TRIPS to WIPO conferences. Recently, in the Inter-sessional Inter-governmental Meeting of WIPO, 14 developing countries led by Argentina and Brazil , who called themselves ‘Friends of Development', submitted a proposal to amend the WIPO Convention and to reform the functioning of WIPO. The essence of the proposal is to make WIPO accept the development needs of developing countries when IPR rules are framed.
Intellectual Property Rights versus human rights
There are a large number of international covenants that are signed by nation states accepting the protection of human rights, the major ones being the Universal Declaration of Human Rights, the International Covenant on Economic, Social and Cultural Rights, and the Universal Declaration on the Human Genome and Human Rights. Also there are international treaties like the Convention on Biological Diversity, and the FAO Treaty on Plant Genetic Resources for Food and Agriculture. These covenants and treaties are formulated to protect human rights and the genetic resources of nation states. It should be stressed that IPR are for limited periods but human rights are inalienable and universal.
Not rights but privileges
IPR should not be implemented so as to violate and infringe upon human rights. IPR should be subsumed to human rights, national interests and the preservation of genetic resources. In fact, intellectual products are basically social products. This should not be forgotten when granting certain ‘rights' to innovators. Therefore, Intellectual Property Rights cannot be considered as ‘rights' as in the case of immutable human rights. In this sense, Intellectual Property Rights are only certain ‘privileges' conferred on individuals or corporate innovators.

The Real Estate (Regulation and Development) Bill-2013- A Giant Step in Real Estate Sector

The real estate sector in India has been largely disorganised and for a long time a need has been felt to regulate and organise the sector. The last few years have seen tremendous growth in the sector and prices of properties have gone up accordingly. There has been a spurt in foreign investment as well. To address the emerging need, Government has been trying for several years to introduce a Real Estate Bill. Hence, A Bill providing for setting up a regulator for the real estate sector and having provisions like a jail term of up to three years for developers who make offences like putting up misleading advertisements about projects repeatedly was presented in the Rajya Sabha in the current session of the Parliament.
The Real Estate (Regulation and Development) Bill, approved by the cabinet, seeks to provide a uniform regulatory environment to the sector. It also intends to make it mandatory for developers to launch projects only after acquiring all statutory clearances from relevant authorities.
The Bill makes it mandatory for builders to clarify the carpet area of the flat. This would be made uniform for the entire country. This rule would make the concept of super area - which is often used to mislead owners - virtually non-existent. The Bill has provisions under which all relevant clearances for real estate projects would have to be submitted to the regulator and also displayed on a website before starting the construction, sources said. The proposed legislation has tough provisions to deter builders from putting out misleading advertisements related to the projects carrying photographs of the actual site. Failure to do so for the first time would attract penalty which may be up to 10 per cent of the project cost and a repeat offence could land the developer in jail.
The Ministry of Housing and Urban Poverty Alleviation is working on bringing all projects under a single-window clearance. While the Airports Authority of India and municipal bodies have come on board, there are some objections from the Environment Ministry which are being looked into.
As per government sources, nearly 22 states had given their approval to the Bill while five states wanted certain amendments. These changes have been incorporated in the Bill presented in the Rajya Sabha. Chhattisgarh is the sole state to still oppose the Bill.
While the Regulator in the states will be appointed by the state governments, in Delhi the Urban Development Ministry will appoint the regulator. DDA is likely to be made the regulator in Delhi, sources said. The Regulator will also be the appellate authority in cases of dispute. This will save the owners the hassle of running around to different authorities for redressal.
The latest draft of the Real Estate (Regulation and Development) Bill, 2013 (the Bill) was approved by the Union Cabinet on June 4, 2013. (Real Estate Bills have been formulated by Maharashtra and Haryana State Governments. When enacted, the Central Act would prevail over any State legislation and any provisions repugnant to the Central Act would be void.) The Bill proposes to establish a regulatory oversight mechanism to enforce disclosure, fair practice and accountability norms in housing transactions and to provide dedicated adjudication machinery for speedy dispute resolution in the real estate housing sector.
Salient features of the Bill and the problems it seeks to resolve are as follows:
Residential projects – The Bill aims to promote transparency in the real estate sector and to establish mandatory governance standards pertaining to all private residential projects of more than 4,000 square meters. There is no prescribed limit on the number of dwelling units. The Bill only seeks to cover large residential projects; commercial projects are not covered.
Regulators – A two-tier dispute resolution mechanism is proposed comprising a Real Estate Regulatory Authority (the Authority) and adjudicating officers at state-level and a central Real Estate Appellate Tribunal to adjudicate upon matters relating to residential projects covered under the Act. Currently real estate transactions are largely governed by the agreements between the parties, which are considered generic contracts relating to immoveable properties with remedies including specific relief (if applicable) and damages for breach available under civil and criminal law. Pursuant to enactment of the proposed legislation, civil courts shall not have jurisdiction in respect of any matter covered under the Act.
Advisory council – A Central Advisory Council is proposed to advise the Central Government on implementation of the Act, with a mandate to make recommendations on major questions of policy, to protect consumer interests and to foster growth and development of the real estate sector. The proposed Council will possibly take over the role of The National Real Estate Development Council, which was set up in 1998 by the Housing Ministry as an autonomous self-regulatory body to assure transparency and ethics in the real estate business, and seeks to formulate real estate policies through advisory and consultative processes with both Industry and Government.
Mandatory registration – The Bill proposes registration of developers, their projects and their real estate agents with the Authority to accredit and monitor projects.
Project launch after approvals – The Bill contemplates launch of new projects only after all approvals are in place. Accordingly, development, conversion or commencement of construction of immoveable property would be permissible only after obtaining requisite approvals and registration with the Authority.
Mandatory disclosures – Developers would be required to upload information and documents on the Authority’s website relating to land title, encumbrances over land, number and carpet area of units, layout plan, proposed facilities, proposed completion date, etc. These provisions have been introduced to ensure that customers are able to procure complete information and there is no ambiguity with respect to the status of approvals and stage of construction of the project. This will also substantially reduce disputes between the parties that largely arise due to lack of transparency. Presently consumers are unable to procure complete information or hold developers to account in the absence of effective regulation.
Agreements – Developers would also be required to provide to the Authority proposed advertisements relating to the project, formats of the agreements to be executed with buyers and lists of bookings in the project on the basis of the agreements with proposed buyers. This will further protect the interest of the buyer and avoid hardship due to one-sided agreements.
Carpet area – The Bill provides for developers to clearly specify the carpet area for each unit. As per current practices, developers usually mention “super built-up area” of a unit, which can be very misleading, as the super built-up area may be 25-40 per cent more than the carpet area.
No pre-launch bookings – The practice adopted by developers to commence sale of units in pre-launch booking before obtaining mandatory approvals for the project and at times even before acquisition of the land is to be curbed. Issuance of advertisements or booking of units in a project would be permissible only pursuant to registration of the project.
Use of funds – The Bill proposes acceptance of an advance/deposit for the proposed sale of a unit in a project by developers only pursuant to execution of a written agreement with the buyers. Further, 70 per cent or a lower percentage (as prescribed by the Authority) of the funds received are to be deposited in a separate bank account to be used only for the relevant project. This provision was introduced to the Bill to ensure that funds collected for a particular project are not diverted for other purposes.

Adherence to approved plans – Developers under the proposed Bill must adhere to approved plans and project specifications and are liable to rectify, at their own cost, any major structural defect or deficiency in the unit or services incidental thereto for one year from the date of handing over possession. If developers fail to rectify such defects within a reasonable time, they shall be liable to pay appropriate damages or compensation to the buyers as may be determined by the Authority.
Transparency – Developers would be required to make available information and documents to proposed buyers to ensure transparency in development of the proposed project such as approvals, site plans, structural designs, specifications, construction schedule, etc.
Delayed possession – The Bill provides that if the developer is unable to complete construction to give possession of the flat to the buyer, the developer would be liable to refund the deposit received along with interest at the rate prescribed by the Authority. Correspondingly, the buyer must make payments in a timely manner and would be liable to pay prescribed interest in case of delayed payment. These provisions in the Bill have been introduced to ensure timely delivery of possession/completion of the project. The Bill also strives to strike a balance by ensuring that the buyer makes timely payment to the developer.
Revocation of registration – In case of wilful default of the provisions of the proposed Act, or unfair practice by a developer, including false representation of the quality of services or status of approvals, the Authority may revoke registration of the developer.
Punishment – The provisions for punishment in case of contravention and/or non-compliance with the provisions of the proposed Act currently include imprisonment for a term of up to three years, or a penalty of up to 10 per cent of the estimated cost of the real estate project, or both.
Few practical problems in implementation of the Bill include the setting up of regulatory authorities at national and state levels, which is likely to be a long-term process. Developers may structure their projects so that each phase is less than 4,000 square metres to escape the reach of the proposed Bill; as each phase developed separately would be considered as a stand-alone project. Furthermore, the provision in the Bill for opening a separate bank account for funds collected for a project may not serve its purpose as State Governments may allow developers to maintain even less than 70 per cent of the funds collected for the project, thereby allowing for utilisation of funds for some other purpose.
Even otherwise the Bill has only been approved by the Union Cabinet, and has to be approved by the Parliamentary Standing Committee, passed by both houses of the Indian parliament, and then submitted for approval of the president pursuant to which it can be enacted as legislation. There are likely to be many more discussions and changes to the Bill following the recommendations of the Standing Committee and debate in the parliament.
The impact of the proposed regulatory Bill can be only assessed over time as to whether it is able to effectively address the issues facing the housing sector including standardization of sale agreements, efficacy in resolution of complaints and encouragement of private equity through effective regulations. This would also depend on the extent to which the major players are able to find loopholes, the Government’s resolve to plug them and its commitment to regulate growth of the real estate housing sector.
Anurag Tiwari, Advocate

Nestle Owns Maggi said IPAB over Trademark Dispute

Trademarks are invaluable assets of every business. These indicate source of origin of goods and services and help the consumer’s in distinguishing goods and services of one person from that of another. Trademark indicates toward a superior quality to which the consumer associates the product with. They promote businesses and help in generating goodwill and brand value and it is on account of this inherent quality that they have emerged as one of the most sought after assets of the 21st century over which diverse claims are raised every day before the various Judicial and Quasi-judicial forums of the country.

In fact, the Indian Trademark Office is flooded with Oppositions to various Trademark Applications seeking registration of trademark for diverse categories of goods and services. One of the most recent Trademark disputes that had been decided by Quasi-Judicial Forum is that of the dispute over Trademark 'Maggi' between Switzerland based Multinational Giant Societe Des Produits Nestle and Mumbai based Swaraj Industrial and Domestic Appliances Pvt. Ltd. The Intellectual Property Appellate Board (IPAB) decided the dispute and rejected the trademark application of Swaraj industry for the registration of mark 'Maggi for various classes of goods including Home appliances, mixers and grinders.

'Maggi' is popular trade name / trademark held by Nestle for selling variety of food products around the world. This trade name has acquired distinctive character and has been in use in India since 1974. The dispute between Nestle and Swaraj industries over the trademark 'Maggi' began in 1990 when Swaraj Industries filed application for registration of mark 'Maggi' as trademark for home appliances, mixers, and grinders produced by it. Nestle Company resisted this application and claim by Swaraj industries over the mark 'Maggi'. Nestle filed opposition to the trademark office where the Senior Examiner rejected the claim by Nestle Company over the trademark 'Maggi' and held in favour of Swaraj industries thereby allowing the application for registration of trademark Maggi for Swaraj industries goods.

The Senior examiner had accepted applicant /swaraj industries argument that deception and confusion was least likely to be caused in the minds of consumer in relation to the source of origin of goods on account of trademark 'Maggi' being used by the companies for different class of goods. The senior examiner held that goods in question were quite distinct from that of Nestle and also held that Nestle could not establish its trademark was well known.

Swaraj industry had submitted before the Examiner that they had been using the mark since 1984 and the mark had acquired distinctive character with respect to their goods. Nestle on the other hand submitted that the term 'Maggi' was not a word found in dictionary and was in fact derived from the surname of the company founder Julius Maggi. Nestle also submitted that that Maggi as brand had been listed as a Super brand by many journals and crores of rupees are annually spent on the promotion of Maggi products with which people identify the company with. Nestle also submitted that trademark Maggi was being used by the company around the world since 1887 and was used in India since 1974. Nestle also submitted that it had registered Maggi as a trademark for various food product produced by it since 1970.

Nestle appealed against this order of senior examiner before the IPAB challenging the stance taken by the senior examiner of trademark office. IPAB thereafter set aside the order of the examiner and held that in favour of Nestle.

IPAB held that in case the application for registration of "Maggi" as trademark for home appliances by Swaraj industries is allowed then it was in all likelihood to cause deception and confusion in the minds of general public about the source of origin of goods. IPAB said that the goods for which Swaraj industry had claimed trademark protection were indeed "allied and cognate". IPAB said that the appellants/Nestle goods under the trademark "Maggi" are food and snack items that are purchased by the common man and the household goods of the respondent would make the common man think that the goods of the respondent emanate from the appellant source.

IPAB also observed that the respondent (Swaraj industries) had not achieved the burden of establishing the proprietorship, usage and reasons for the adoption of the trademark "Maggi". IPAB also said that respondents did not prove that such adoption would not cause deception and confusion in minds of general public in case the mark is already is vogue or is in use in another classes of goods.

Thus, IPAB set aside the order Senior Examiner and held in favour of Nestle thereby asserting the country strong initiative to protection of trademarks in India.

China passes new trademark law

 The new law raises the compensation ceiling for a trademark infringement to $500,000, six times the previous limit, reports Xinhua.

China's legislature on Friday passed a new trademark law to crack down on infringements and ensure a fair market for trademark holders.

The new law raises the compensation ceiling for a trademark infringement to $500,000, six times the previous limit, reports Xinhua.

After three readings over the past two years, the revised law was passed at the bimonthly session of the standing committee of the National People's Congress, China's top legislature.

The revision was based on comments from lawmakers, experts and representatives of businesses and trademark agencies from China and abroad, said Wang Qing, an official.

Agencies violating the law will face fines. Those involved in serious cases will have their businesses suspended.

The new law also offers protection for renowned trademarks, giving owners the right to ban others from registering their trademarks or using similar ones—even if such brand names are not registered.

The draft changed clauses regarding the examination period of applications for trademark registration to make it more efficient.

China adopted its trademark law in 1982 and amended it in 1993 and 2001.

As of June this year, China held the world's largest number of registered trademarks and valid trademark registrations at 8.17 million and 6.8 million respectively, according to latest official statistics.

What do we do with juvenile offenders?

The Juvenile Justice Board verdict sending a juvenile to three years in a reform home for the December 16 gang-rape and murder of a 23-year-old physiotherapy student has not ushered in any sense of closure. The juvenile, 17 years old when the crime was committed and 18 now, was described by the police as the most brutal of the six rapists.

The barbarity of the crime, the rape victim’s subsequent trauma and her dogged fight from a hospital bed inspired nationwide protests demanding stringent sexual assault laws. While the Justice Verma Committee recommendations led to a series of amendments in criminal law, the committee refrained from suggesting changes to the Juvenile Justice (JJ) Act, 2000. 

 Two demands were made by those upset that the justice meted out by the JJ Act would not be commensurate with the magnitude of the offence perpetrated on the 23-year-old victim. One demand was to lower the age of juvenility from 18 to 16.

The other wanted juveniles to be tried under normal law for serious offences like murder and rape. Both were rejected by the Supreme Court in June. The court rightly noted that the JJ Act was consonant with the UN Convention on the Rights of the Child while raising the age-bar for childhood from 16 to 18 in 2000. 

It also reaffirmed the restorative, and not the retributive, principle of justice enshrined in the JJ Act that aimed to assimilate children in conflict with the law back into society after a stint in a reformatory.

While the SC termed the December 16 case as an aberration despite acknowledging its gruesome and diabolic execution, it relied on statistics (only 2 per cent of crimes are committed by juveniles) to uphold the JJ Act. In the gang-rape of a 22-year-old Mumbai photojournalist, two accused have claimed juvenility.

Often, these claims are made to elude the stiffer punishments meted out to adults in similar circumstances.
While there is no evidence that stringent punishment acts as deterrence, delivering justice to the victim is equally important.
In most US states, children over 10 or 13 years of age can be tried as adults for murder. There have been instances, in Florida, of 14-year-olds being sentenced to life in jail without parole. In France, the circumstances and personality of the juvenile is considered before slapping criminal charges. 

Even the UK made the break with the past, in 1993, when it tried two 10-year-olds for the murder of a toddler. The Supreme Court must look at these laws to evolve a reasonable amendment to the JJ Act. 

But what undermines the JJ Act is the poor condition of reform homes. In August, inmates of a juvenile home in Delhi drove out officials and guards and vandalised the home. A Delhi High Court-appointed committee certified that were revolting against despicable living conditions. 

The lofty ideal of restorative justice cannot be achieved when reformatories are dysfunctional. The circumstances in the December 16 and the Mumbai photojournalist gang-rape case were similar: a group of violent individuals who carefully plotted and executed the crime on a hapless victim over whom they enjoyed a position of power. Treating such individuals as juveniles does no credit to the restorative aims of the JJ Act.