November, 2010

Technology Transfer across the borders involves lots of issues relating to the rules and guidelines on exchange controls, the anti-trust laws, the taxation laws and repatriation of royalties and license fees between the host country and the licensee countries. It also involves approvals from various regulating agencies viz. Secretariat for Industrial Approval (SIA), Ministry of Commerce (Govt. of India) and the Exchange Control Dept of Reserve Bank of India. One has to also look into the existence of Tax Treaty and the bilateral investment treaty between the concerned two countries. The technology transfer may be either through a foreign technical collaboration or through a joint venture but under both the situation it is important to carefully examine the terms of the license agreement, especially the restrictions on improvements of the technology and the issues relating to joint ownership of the Intellectual Property along with the terms for payment or lump sum and the running royalty.

Each country has its own guideline for technology transfer. European Union regulates it by Article 81 of the EC Treaty to Technology Transfer agreements, whereby the licensor permits the licensee to exploit the licensed technology for the production of goods or services. The aim of Article 81 as a whole is to protect competition in the market and to avoid the abuses of monopolies. Technology is an input which is either a part of the product or a production process and therefore may affect competition in the existing market of the product or in an output market of a product where such technology is used to produce such goods or services. The European Union also provides for block exemption to certain categories of Technology transfer agreements which fulfills the conditions as set out in EC treaty to technology transfer agreements (TTBER).

Peoples Republic of China regulates Technology Transfers by Article 329 of the contract law which defines technology transfer in a broader concept, covering both assignments that involve the transfer of Intellectual Property and licensing that does not involve the transfer of Intellectual Property. It includes the assignments of Patent rights, patent licensing and transfer of knowhow or other Technology. Article 329 of the contract law states that any technology which impedes technological progress or infringes upon the technological result of others is null and void. There are additional rules regarding import and export of technologies and the following restrictions are banned in Technology import contracts:
1. The condition to purchase unnecessary technology, raw materials, products, equipments or services;
2. Requiring transfer to pay royalties for technology for which relevant patent protection has expired;
3. Restricting the improvement or use of the subject technology by a transferee;
4. Restricting a transferee's right to obtain similar or competing technology from other sources.
5. Unreasonably restricting product output variety or sales price or export of goods.

In India, section 140 of the Patent Act, 1970 provides for avoidance of certain restrictive conditions in the technology transfer licensing agreements and if an agreement contains such restrictions, they are considered unlawful and void. Most of such unlawful conditions are similar to Article 329 of contract law of People's Republic of China. However, section 3 (5) of the Indian competition Act 2002 provides for certain exemptions to restrictions on transfer of patented technology if imposition of such conditions are reasonable for protection of any rights which have been conferred or may be conferred to the licensor under various provisions of IPR laws in India including the copyright Act, 1957 and the patent Act 1970. To conclude, it may be said that all technology transfer agreements either through assignments or through licensing have to comply with the various laws of the host country.

- Dr. D. R. Agarwal