Re: World Intellectual Property Report - R&D Outsourcing to India
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World Intellectual Property Report - R&D Outsourcing
Volume 18 Number 08
Sunday, August 1, 2004Comment and Analysis
R&D Outsourcing to IndiaThe continuing slump in demand
for IT since the burst of the dotcom bubble has made
reduction of product development costs an imperative
and, as a result, generated much interest in the
outsourcing of product research and development (R&D)
to Indian companies. According to market research
consultancy Frost & Sullivan, the R&D outsourcing
market for IT in India will grow from $1.3 billion in
2003 to $9.1 billion by 2010. R&D outsourcing is
software-oriented, will involve disclosure of
sensitive code and, as such, will necessarily require
analysis of protection of intellectual property under
Indian law. These issues assume tremendous importance,
particularly in view of the 70 percent software piracy
rate in India.
This article examines the statutory protection of
software and integrated circuits in India,
particularly with respect to the protection of code
given to an Indian service provider for development
work and the transfer back of rights in newly
developed code. As computer software is not patentable
under Indian law, our analysis begins with copyright
protection of computer software.
Software and Screen Displays as Literary and Artistic
The 1984 amendments to the Indian Copyright Act, 1957
entitled software to copyright protection as a
literary work. Under the Indian Copyright Act, 1957,
copyright subsists in original literary, dramatic,
musical and artistic works for a term of 60 years
after the death of the author. Copyright also protects
tables and compilations including computer databases,
which may be expressed in words, codes, schemes or
Copyright confers the exclusive right to reproduce a
computer program, including the right to store it, to
issue copies, to perform the work, to make a
cinematograph film or sound recording, to make any
translation or adaptation of the work. Copyright also
includes the exclusive right to sell or rent or sell
any copy of the computer program.
A frequently asked question is whether or not the
copyright must be registered in order to be
enforceable. A copyright comes into existence upon
creation of the work. Registration is not required to
create a valid copyright. However, it is highly
advisable to register a copyright as registration is
prima facie proof of the validity of the copyright.
Copyright applies to both published and unpublished
Little JurisprudenceInterestingly, there is a paucity
of Indian jurisprudence on copyright protection of
software. The only case which directly deals with the
issue is a 2004 judgment of the Delhi High Court in
Microsoft Corporation v. Debasish Seal, which,
although decided two decades after the amendment of
the Copyright Act to include computer software,
surprisingly dilates on whether or not software in
magnetic or electronic form is a literary work.
Microsoft had moved the court for an injunction
restraining the defendant from reproducing and selling
Microsoft Office 2000 Professional and Microsoft
Office XP for Rs. 300 (approximately U.S.$7).
Microsoft had registered copyrights with respect to
Microsoft Office 2000 Professional in India. The
defendant failed to provide any evidence disputing
Microsoft's claim that he sold pirated copies of the
software to an investigator hired by it.
The Delhi High Court began its analysis by raising the
question of whether copyright protection could be
extended to cover computer programs which generally
exist merely in magnetic or electronic form although,
when a computer program is converted and transferred
to a piece of paper, it would definitely enjoy the
protection of copyright like any other literary work.
Notably, the Court failed to cite the relevant
sections of the Copyright Act. It if had, it would
have noticed that there is no statutory restriction
which limits copyright protection to a computer
program only if it is written on paper.
Fortunately, the Court nevertheless concluded that
computer software is protected by copyright as a
literary work whether it is written on paper or
appears in magnetic or electronic form. Observing that
the defendant had also infringed the registered
"Microsoft" trademark of the plaintiff which appears
on the computer screen when the pirated software is
used, the Court granted a permanent injunction against
Both Copyright and Trademark IssuesThe Microsoft case
involved both registered copyrights and trademarks.
However, it is important to note that registration of
intellectual property rights in India can take up to
six years due to bureaucratic delays. Therefore, in
order to prevail in an infringement action, it is
important to apply for copyright and trademark
registrations well before transferring any sensitive
code to any persons in India.
Screen displays are protectable by copyright as an
artistic work unlike computer programs which are a
literary work. Therefore, a computer program and the
screen display cannot be registered in the same
application. A separate application giving the graphic
representations of all copyrightable elements of the
screen display must be filed. However, unlike in the
United States, there is no Indian jurisprudence to
date on the "look and feel" of screen displays or any
other guidance on what may be protectable.
There are several exemptions from infringement of
software copyrights. First, fair dealing with a
literary, dramatic, musical or artistic work, not
being a computer program for private use including
research does not constitute infringement. The making
of copies or adaptation of a computer program by the
lawful possessor in order to make back-up copies or
for non-commercial personal use is also permissible.
Any act necessary to obtain information essential for
the inter-operability of two computer programs does
not constitute infringement. Finally, the observation,
study or test of functioning of the computer program
in order to determine the ideas and principles which
underlie elements of the program is also exempt from
Deposit RequirementsAn important question is whether
the source code must be deposited along with the
registration application or not. The Copyright Act and
Rules require the deposit of three complete copies of
the work. The Copyright Office takes the view, through
telephonic communications and not in written guidance,
that it is not necessary to deposit the entire source
code. There is a view taken by industry bodies that
the first 25 pages and last 25 pages of the source
code should be deposited in line with U.S. practice.
However, there is no specific requirement in law
regarding the deposit of source code at the present
It may also be possible to deposit the object code
instead of the source code. The problem is that there
are currently no written procedures or guidance
regarding whether the object code should be deposited.
Reliance must be placed on oral guidance from the
Copyright Office. Accordingly, it is possible to apply
for copyright registration of a computer program
without depositing the source code thereby protecting
the confidentiality of the same.
Work for Hire DoctrineAnother important issue is
whether the work for hire doctrine exists in India.
Under the work for doctrine principle, the copyright
in a work developed by an employee will vest by
operation of law in the employer exists in India.
Unlike in the United States, Indian courts have not
articulated a work for hire doctrine which applies
generally to all work done by an employee in the
course of employment; however, there is a statutory
work for hire principle in the Copyright Act, 1957.1
Section 17 provides that, in the case of a work made
in the course of the author's employment under a
contract of service or apprenticeship, the employer
shall, in the absence of any agreement to the
contrary, be the first owner of the copyright therein.
However, where a work is commissioned for creation by
a third party under a contract for services, the
copyright does not vest in the commissioning party and
a deed of assignment would have to be executed. This
means that, if an Indian service provider develops
software under a service contract for a U.S. client,
the copyright will vest by law in the Indian service
provider. The service provider will then have to
execute a deed of assignment in favour of the U.S.
client in order to transfer the copyright to it.
Accordingly, the provisions on assignment assume
tremendous importance in ensuring that an Indian
developer transfers the new software code to the U.S.
AssignmentUnder the Copyright Act, the owner of a
copyright may assign the copyright to any person
provided the assignment is in writing.2 The deed of
assignment should identify the work, specify the
rights assigned, the duration and territorial extent
of the assignment. In the case of assignment of
copyright in any future work, the assignment shall
take effect only when the work comes into existence.
Therefore, the assignment of the future developments
by the Indian developer back to the overseas client
can be executed at the time of the original
outsourcing contract. An important requirement to keep
in mind is that the assignee must exercise the rights
within one year from the assignment or else the rights
will deem to lapse.
An important issue is whether the Indian developer
would have to register the copyright in his newly
developed code before assigning it to his overseas
client. As discussed above, copyright comes into
existence upon creation, not registration. Therefore,
it would not be necessary for the Indian service
provider to register the copyright on the new code
before assigning it to his client who commissioned the
development work. Instead, the assignment may be
effected at the time of creation of the work.
While computer software is protected by copyright law,
India follows international practice by protecting
semiconductor chips as a mask work, in local parlance,
a lay-out design. A lay-out design means a layout of
transistors and other circuitry elements and includes
lead wires connecting such elements and expressed in
any manner in a semiconductor integrated circuit.
Layout designs are registrable under the Semiconductor
Integrated Circuits Layout Design Act, 2000 for 10
years from the date of filing of the application or
commercial exploitation. The registered proprietor is
conferred with the exclusive right to the use of the
layout design whether or not incorporated in an
article. Registration is required in order to file a
case for infringement of a layout design.
Requirements for RegistrationA layout design cannot be
it is not original;
it has been commercially exploited for at least two
years anywhere in India or a convention country;
it is not inherently distinctive; or
it is not inherently capable of being distinguishable
from any other registered layout design.
A layout design shall be considered to be original if
it is the result of the creator's own intellectual
efforts and is not commonly known to the creators of
layout designs and manufacturers of semiconductor
integrated circuits at the time of its creation.
However, a layout design consisting of such
combination of elements and interconnections that are
commonly known among creators of design layouts shall
be considered as original if such combination taken as
a whole is the result of its creator's own
intellectual efforts. There is no case law in India on
registration of layout designs, therefore, it remains
for future courts to apply and interpret the foregoing
Work for HireAs in the case of copyrights, a statutory
work for hire doctrine exists under the Semiconductor
and Integrated Circuits Layout Design Act, 2000. If an
original layout design has been created in execution
of a contract of employment, the right of registration
to such layout design belongs, in the absence of any
contractual provision to the contrary, to the
employer.3 However, as in the case of copyrights, work
commissioned under a service contract does not fall
within this provision. Therefore, an Indian service
provider commissioned to create a layout design would
have to assign the rights to the same back to the
client. The client would not have any right to the
same by virtue of the fact that the layout design was
commissioned by it.
AssignmentA layout design may be assigned with or
without the goodwill of the business. If no goodwill
is assigned, the assignee must advertise the
assignment in six months as Registrar may direct.
In sum, software is protectable under Indian copyright
law as a literary work while screens are protected as
artistic works. Importantly, it is not necessary to
deposit the source code with the Copyright Office
along with the registration application. While an
employee who develops a new code will not have any
right to a copyright in the same, the reverse is true
for a contractor who performs the work under an
outsourcing service contract. Therefore, companies
outsourcing to India must take care to request the
Indian developer assigns the rights in the newly
developed code back to the client. Similar provisions
apply to semiconductor chips which are protectable as
layout designs. Once again, care must be taken to
ensure that the proprietary rights to the new designs
developed in India flow back to the overseas client
through an assignment executed by the Indian
developer. However, in view of the extraordinarily
long time required for registration of intellectual
property rights in India, a foreign company
contemplating handing over valuable code to an Indian
service provider should apply for copyright
registration of such code at the very earliest.
Act, 1957, s. 17.
2 Copyright Act, 1957, ss. 18, 19.
3 Semiconductor and Integrated Circuits Layout Design
Act, 2000, S. 7(3).
By Aparna Viswanathan, Viswanathan & Co., Advocates,
New Delhi; e-mail: legaleagle@...
Contact customer relations at: customercare@... or
Copyright © 2004, The Bureau of National Affairs, Inc.
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