Originally published April 20, 2008
India's rapid industrialization and increased role in the global economy continues to substantially increase its demand for energy. As a result, business and investment activity in India's energy sector is substantially growing as well. For example, a recent KPMG report forecasts that India's energy sector would require investments of $120-150 billion over the next five years. Recognizing its energy demands and the imperative need for access to energy efficient technologies, both in the conventional and renewable energy fields, India has made significant strides towards liberalizing and promoting private participation in this historically "state-controlled" sector. As a result, India's energy sector is witnessing a steady increase in foreign investment and business arrangements for the import, licensing and use of energy-related technologies from US companies.
There has been a dramatic increase in the number of US companies currently either engaged in, or actively pursuing, a broad spectrum of business transactions with Indian companies in the energy field. Such business transactions range from simple licensing arrangements to complex joint R&D, manufacturing and marketing agreements for commercializing end products. These business transactions are aimed at both the Indian domestic marketplace and the sales of goods and services outside India. Regardless of the form of the transaction or the target market, US companies transfer, or otherwise make available for use, their proprietary technology and know-how (collectively, "intellectual property" or "IP") to their Indian counterparts. This IP may be in the form of proprietary designs, electronic components, software, various types of equipment, chemical entities, specifications, business processes, methodologies, geophysical data or other sensitive data.
Technology sharing and transfer transactions involving India can expose US companies to significant risks of infringement and misappropriation of their IP. In addition, certain mandatory conditions and restrictions that apply to such transactions pursuant to India's foreign investment laws jeopardize a US company's rights to its own IP. A US company contemplating transferring its proprietary energy technology to India faces meaningful, business-affecting issues and challenges involving IP protection and data security that must be carefully considered prior to entering any India-related transaction, and knowledgably navigated to realize the full benefit of the underlying business transaction.
More specifically, IP ownership, infringement and piracy are the most critical concerns from a US company's perspective. Protection and enforcement mechanisms for IP rights (e.g., patent, trademark, trade secret and copyright) are not harmonized around the world, so a company doing business in India's energy sector must understand India's legal regime relative to IP. For example, unlike the US, India offers no statutory protection for trade secrets. This creates a significant gap in legal protection because, in any technology transfer, much of the IP made available to the counterparty is often in the form of proprietary technical know-how and confidential data. India's rules governing joint ownership of IP generated in collaborative projects are also murky, and unless navigated properly can adversely affect a joint owner's ability to commercialize or enforce jointly owned IP. India's enforcement mechanisms relative to IP rights are not as robust as those in the United States, and civil litigation remains inefficient because of substantial case backlog in Indian courts and perceived bias against foreign investors in the resolution of commercial disputes.
Because of these risks and their potential adverse affects on a US company's expectations in the business transaction and its protection of IP, US IP owners must rely on thorough and carefully negotiated contracts to protect their interests. These contracts must address gaps in the protections available under Indian law, while providing effective means of protecting, obtaining and enforcing IP rights and remedies in India and elsewhere, if necessary. Carefully tailored contract provisions that address these various IP-related risks, and that are enforceable in India, are of paramount importance to mitigate the inherent potential risks that any US company faces when entering into business transactions that might involve the effort to protect and enforce legal rights in India.
In summary, while tapping the enormous potential of India's energy sector can yield substantial economic benefits, it also demands more complex and robust risk assessment and management because of the unique and heightened risks inherent in the transfer of a US company's energy technology to India. Companies transferring technology to Indian companies or entering into joint ventures cannot rely on their traditional view of IP rights to protect their interests. Furthermore, Indian law is designed, in many respects, to encourage the development of Indian companies at the expense of foreign investors. However, through carefully negotiated and constructed contract provisions, these risks can be mitigated and managed.
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