TECHNOLOGY TRANSFER

The level of technological development determines the status of the nation and its potential for human
development. Such technological advancement can be achieved in two ways. Firstly, through own
research by engaging in broad based R&D work. And secondly, the more recent one is by purchasing
or acquiring technology from domestic or foreign developers. The later comes under the ambit of
transfer of technology through a transfer of technology agreements.

Foreign technology transfer is now being recognised as having played an important part in the
industrial development of the slow industrially developed and under developed nations. Because of
immense importance of technology in nations’ growth and development, transfer of technology has
become one of the highly discussed areas of international business transactions in past century.

CONCEPTUAL FRAMEWORK OF TECHNOLOGY TRANSFER

Transfer of technology means the conveyance of the technology from one entity to another. Such
transfer could be commercial or non-commercial in nature. Commercial transfer has its overall
objective the making of profit out of the technological development. Whereas, non-commercial
technology transfer are not strictly for commercial pursuits. It is mostly done at governmental level
and commonly figures in international cooperation agreements between developed and developing
nations. Such agreements may relate to infrastructure or agricultural development, or to international
cooperation in the fields of research, education, employment or transport.

Another distinction as regard to technology transfer could be made in form of vertical and horizontal
transfer of technology. ‘Vertical technology transfer represents a flow from laboratory research
through developmental stages and ultimately to commercialization. Horizontal technology transfer is
essentially the transfer of established technology from one operational environment to another.
Vertical technology transfer generally originates from individuals researchers, research institutions
such as in universities and colleges, research laboratories, non-profit organisations and government
agencies performing scientific research and development.

There are two reasons for vertical transfer of technology. Firstly, these research entities usually find it
difficult to commercially exploit their discoveries and invention for profits as they have no approach
to market in a way as commercial enterprise possesses. They lack means for marketing,
manufacturing and distribution. Secondly, they have less scope for further developing their research
to an extent that it could be straightforward manufactured and sold in the marketplace.

DEFINITION

On definitional aspect technology transfer involves two concepts i.e. ‘technology’ and ‘technology
transfer’. Technology means systematic use of knowledge. In legal sense it includes all forms of
commercially usable knowledge, whether patented or unpatented, which forms the subject matter of a
transfer transaction. And thus technology transfer would mean transfer of all forms of knowledge
through an agreement between companies or states.

UNCTAD Draft Transfer of Technology Code (draft TOT code) defines “technology” as “systematic
knowledge for the manufacture of a product, for the application of a process or for the rendering of a
service”. On similar lines, Draft TOT code defines “Transfer of Technology” as “the transfer of
systematic knowledge for the manufacture of a product, for the application of a process or for the
rendering of a service and does not extend to the transactions involving the mere sale or mere lease of
goods.”

It may include following technology transfer transactions:

(a) The assignment, sale and licensing of all forms of industrial property;
(b) The provision of know-how and technical expertise in the form of feasibility studies, plans,
diagrams, models, instructions, guides, formulae, basic or detailed engineering designs,
specifications and equipment for training, services involving technical advisory and
managerial personnel, and personnel training;
(c) The provision of technological knowledge necessary for the installation, operation and
functioning of plant and equipment, and turnkey projects;
(d) The provision of technological knowledge necessary to acquire, install and use machinery,
equipment, intermediate goods and/or raw materials which have been acquired by purchase,
lease or other means;
(e) The provision of technological contents of industrial and technical co-operation arrangements.

Some of the most frequently used business models for technology transfer are as follows:

1. Outright sale and assignment agreement.

2. Patent licensing agreement
3. R& D Contracts.
4. Joint Ventures
5. Corporate Partnership agreement
6. Marketing and distribution agreements.

Amongst the abovementioned agreements sale & assignment agreement and patent licensing
agreement are most commonly used technology transfer vehicle.

Collaboration via TT AGREEMENT

The most important types of collaboration available for the growth of Indian Companies are as follow:

The following are the types of collaboration:

1. Technical collaboration:

Technical collaboration is a contract whereby the developed country agrees to provide technical
know-how, sophisticated machinery and any kind of technical assistance to the developing country.
Technical collaboration enables to undertake research and development activities and innovation.

2. Marketing collaboration:

Marketing collaboration is the agreement where the foreign collaborator agrees to market the products
of the domestic company in the international market. Marketing collaboration creates value for
customers and builds strong customer relationship. Marketing collaboration promotes export.

3. Financial collaboration:

When the foreign contribution is in the form capital participation, that contract is known as foreign
collaboration. When the foreign company agrees to provide capital or financial assistance to the
domestic company, that collaboration is known as financial collaboration.
4. Consultancy collaboration:

A Consultant is a professional who provides advice in a particular area of expertise such as

management, accountancy, human resource, marketing, finance etc. Consultancy collaboration is the
agreement between the foreign and the domestic company where the company agrees to provide
managerial skills and expertise to the domestic company. This type of collaboration bridges the
information gap.

Importance

Technology Transfers and their agreements are important as –

1. They strengthen commercial ties

2. TT Agreements make a legally-binding, contractual agreement that is enforced by both
parties.
3. Handle intellectual property, including ownership, licencing, and royalties (such as patents,
copyrights, trademarks, and industrial designs).
4. Help in accessing technology
5. Provide adaptable protection for one or more categories of intellectual property rights.
6. Resolve disputes over contracts by referring to the relevant terms included in the Technology
Transfer agreement and provisions of Technology Transfer Regulations valid in India,
7. Enable the non-licensing transfer of technology pertaining to methods, know-how, and trade
secrets.
8. Identify the goal of technology transfer - creation of new goods, expansion into new markets,
legal and tax implications, and litigation rights.

Technology Transfer Regulations In India

The Technology Transfer Regulations in India are as follows: -

1. Indian Contract Act, 1972

It is the only comprehensive legislation in India that governs contracts. There are rules that are
tailored to suit the nature of agreement.

2. Foreign Exchange Management Act

Rule 4 of the Foreign Exchange Management (Current Account Transactions) Rules 2000 (“Rules”)
states that the Ministry of Commerce and Industry of the Government of India must first approve any
withdrawals of foreign currency for remittances made in connection with technical collaboration
agreements where the royalty payment exceeds 5% on domestic sales and 8% on exports and the
lump-sum payment exceeds USD 2 million[1].

Item no. 8 of the Rules and the entry pertaining to it were determined to be excluded after the
Government of India evaluated the current policy regarding the liberalization of foreign technology
agreements. Thus, AD Category-I banks may authorize foreign currency withdrawals by individuals
for the purpose of paying royalties and lump sums under technical partnership agreements without the
consent of the Ministry of Commerce and Industry.

3. Intellectual Property Rights

The Patents Act, 1970, the Trademarks Act, 1999, and the Copyright Act, 1957 all govern and protect
the intellectual property rights in India. They specify the procedures for transferring IPRs and form a
part of Technology Transfer Regulations in India.

 According to the Patents Act, any interest in a patent, including an assignment or licence,
must be through a written document that contains all the terms and conditions governing the
parties' rights and obligations. This document must be registered with the Controller of the
Patents.
 A registered trademark may be transferred/assigned under the Act with or without the
goodwill of the business. To prove ownership of the registered mark, the assignment must be
registered.
 The Copyright Act states that an author may grant his rights to third parties for commercial
exploitation in exchange for a one-time payment. Copyright assignments must be in writing
and signed by the assignor. The deed of assignment shall include the identity of the work, the
rights granted, the term, and the territorial scope of such an assignment, as well as the amount
of any royalties due to the author.

4. The National Intellectual Property Rights Policy 2020

The National Intellectual Property Rights Policy aims to strengthen the country's IPR framework by
raising public awareness of the economic, social, and cultural benefits of IPRs among all societal
segments, promoting IPR generation and commercialization, modernising and strengthening service
oriented IPR administration, and strengthening the enforcement and adjudicatory mechanisms for
dealing with IPR violations.

The National Intellectual Property Rights Policy outlines seven objectives that are further defined
with steps that must be implemented by the designated nodal Ministry/Department ( DPIIT). The
objectives include the following steps that are taken in relation to Technology Transfer Regulations in
India: -

1. Undertake studies to assess the contribution of IP content in different industries on the

economy, employment, exports and technology transfer.
2. Examine the issues of technology transfer, know-how and licensing relating to SEPs on fair
and reasonable terms and provide a suitable legal framework to address these issues, as may
be required.
3. Promote licensing and technology transfer for IPRs;
4. devising suitable contractual and licensing guidelines to enable commercialization of IPRs;
5. Promote patent pooling and cross-licensing to create IPR based products and services.

Competition Act, 2002

The Act establishes the Competition Commission of India which, is tasked with outlawing
anticompetitive agreements that have the potential to cause appreciable adverse effects on competition
in markets and prohibits abuse of dominance by enterprises. According to Section 3(5)(a) to (f) of the
Act, a technology owner is fully entitled to prevent any violation of his rights and to apply reasonable
restrictions that are only required to safeguard those rights.

Technology Transfer Agreements (“TTA") would be deemed anti-competitive if they result in the
abuse of a market position by imposing unreasonable terms or if they go beyond what is necessary to
maintain such intellectual property rights. The following technology transfer agreements may be
deemed anticompetitive and thus null and void:

1. Patent Pooling, in which two or more businesses join and cross licence the relevant
technology to prevent others from purchasing it.
2. Tie in Arrangements that require the acquirer to purchase both the patented product and the
other product from the patentee.
3. Forbidding the licensee from using technology from a competing enterprise.
4. Restricting the licensee's ability to dispute the legality of intellectual property rights.
5. Fixing the price at which the licensee will sell the licenced goods, etc.

Process For Technology Transfer:

There are two ways to share knowledge and information about technology: formally, through
technology transfer agreements, and informally, through the transmission of expertise.

Transferring intellectual property from one organisation to another is done through a Technology
Transfer Agreement (“TTA"). TTA is used to refer to a wide range of contracts that are meant to
cover the procedure of transferring ownership or the right to use a certain technology from one party
to another.

The approval process for foreign technological collaboration is as per FEMA requirements,
through automatic route and on approval from RBI.

The Foreign Technology Agreements in India plays an important part in the technological
development of the Indian industries. The agreements are permitted through Government approval or
by RBI governed automatic route.

TRANSFER OF TECHNOLOGY AND LAW IN INDIA

Foreign Technology Agreements in India caters to the growth of the technology in the Indian
industries. The primary purpose of the agreement is to induce the required amount the technological
development and promotion of technologically advanced industries. The foreign technology is
transferred from foreign sources such as research and development agencies, foreign parent
companies, and other sources to the Indian counterparts. The transfer of foreign technology takes
places by the means of foreign direct investments and foreign technology collaboration agreements.

Foreign Technology Agreements in India permits transfer of technology by the means of Government
approval or through the automatic route delegated by RBI.

Automatic Approval-Foreign Technology Agreements in India

 The RBI grants automatic approval by the means of the regional offices to Indian industries
for foreign technology collaboration.
 The payments pertaining to the technology transfer should not exceed US$ 2 million
 The royalty to be paid is restricted to 5 % in case of domestic sales, 8 % in case of exports
and total payment should be 8 % on sales for a period of 10 years
 The royalty period should not exceed 7 years from the date of starting of the business or 10
years from the date mentioned in the agreement
 The royalty paid is 1 % in case of domestic sales and 2 % in case of exports as granted under
automatic route for use of the trademark foreign collaborator
  The royalty paid is 5 % in case of domestic sales and 8 % in case of exports as granted under
automatic route for wholly owned subsidiaries to offshore parent companies is allowed
without any restriction on the duration of royalty payments

All proposals for foreign technology agreements not meeting the parameters for automatic approval
are considered on merit by the Project Approval Board (PAB).This is chaired by the secretary,
department of Industrial Policy and promotion, Ministry of Commerce and Industry. Applications in
respect of such proposals should be submitted in form FC/IL (SIA) to the secretariat for Industrial
Assistance, Department of Industrial Policy Promotion, Ministry of Industry, Udyog Bhawan, New
Delhi. No Fees is payable. Approvals are normally available within 4 weeks of filing the application.

Government Approval-Foreign Technology Agreements in India

Government approval is required in the following cases -

 Proposals which requires licensing

 Proposals which involves previous trademark agreement, joint ventures, technology transfer,
etc
 In case of an extension of the foreign technology collaboration agreements which had been
automatically approved earlier
 Proposals with no parity with the norms of the automatic approval

The Project Approval Board evaluates the merits of any other applications for foreign technology
agreements that do not fulfil the requirements for automatic approval (PAB).

The following rules would apply to foreign financial/technical collaborators who have previously
engaged in business or have ties to India:

 Those who have or had any prior joint ventures, technology transfer agreements, or trademark
agreements in the same or related fields in India would not be eligible for FDI and/or
technological collaboration through an automatic method.
 Investors in technology for the aforementioned category of suppliers will need to seek
FIPB/PAB approval for joint ventures or technology transfer agreements (including
trademarks), outlining the specific reasons why they feel it is necessary to establish a new
joint venture or enter a new technology transfer.
 The burden of evidence to the satisfaction of the FIPB/PAB that the new proposal will not in
any way harm the interests of the current joint venture, technology/trademark partner, or other
stakeholders falls squarely on such investors/technology suppliers.
 The FIPB/PAB shall have the exclusive power to accept the application with or without
conditions or to reject it outright while properly documenting its justifications.

Challenges Faced In Technology Transfer:

1. R&D is risky & costly

2. Uncertainty in the outcome and long gestation period
3. Strict adherence to the time schedule
4. Lack of experience in introducing first-of-its-kind products globally
5. Unethical competition and infringement
 6. High patent costs.

Opportunities In Technology Transfer:

1. Creates a forum for the exchange of ideas

2. Safeguards intellectual property.
3. Encourages economic growth by utilising breakthrough technology for commercial purposes.
4. Obtains goals through sharing and/or combining resources that neither side could achieve
alone.

The International Convention

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.