Business Today

Protect At All Costs

The new DIPP draft guidelines seek to curb hefty royalty payments by local manufacturers to use patents of foreign firms. This may open up a Pandora's box.
By Anilesh S. Mahajan   Delhi     Print Edition: May 8, 2016
Protect At All Costs

Agri-biotech major Mahyco Monsanto Biotech, a joint venture between Maharashtra-based Mahyco and US-based Monsanto, is currently fighting "non-payment of around `450 crore" in royalty fees by nine Bt cotton seed manufacturers in India. And, the government's recent move to bring genetically modified (Bt) cotton seeds under price control seems to be a tacit support to local manufacturers.

Now, domestic mobile phone makers, too, are seeking protection from the government in their fight against MNC technology companies. The new draft circulated by the Department of Industrial Policy and Promotion (DIPP) on Standard Essential Patents (SEP), which mandates members to agree to a pre-determined royalty, license their inventions at the "smallest saleable unit level" than at the "handset level", and not be able to seek injunctive relief at any stage in case of a "hold out" situation, only makes their case stronger.

Besides handset manufacturers, the move is also being supported by agriculture and pharmaceutical companies, and there are fears that the draft guidelines will open up a can of worms with representatives of other sectors seeking similar concessions. In fact, critics say, the proposals will allow manufacturers to use patented products without paying royalties.

Officials at DIPP say the aim of the new guidelines was to see if the government can have a role in determining the price of royalties and deciding whether a patent holder can sue a company or not. The new draft says the pricing of royalties in patents should be done along the lines of global patterns of fair, reasonable and non-discriminatory standards, and courts should get involved only if the patent holder and the user fail to achieve pricing terms.

However, interference by the government would be in contrast to PM Narendra Modi's commitment of minimum government and maximum governance. Industry lobby groups, such as FICCI, Assocham and CII, have already opposed the DIPP move, saying it would severely impact the 'Make in India' efforts.

It all started with Ericsson moving court two years ago to seek royalty from handset sellers in India. Now, it has triggered a series of disputes with a spate of actions by other companies, including Nokia, Sisvel and Qualcomm.

In China and the US, royalty of 0.019 per cent and 0.5-2 per cent is charged, respectively, on the value of the smallest saleable practising unit. But in the absence of a clearly-stated policy, Indian manufacturers, such as Micromax, Lava, iBall, Intex and Karbonn, are jittery. They fear that the total royalty (no cap) to be paid to MNC holders of SEPs could far exceed the manufacturing cost of a handset. Indian handset makers import chipsets from across the world, assemble them and sell the handsets under their own brand name.

The case of technology players is stronger with a favourable judgment from the Delhi High Court, but it will really be up to the Centre to strike the right balance between fairness of businesses and empowering those at the bottom of the pyramid.

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