TECHNOLOGY TRANSFER CONTRACTS: An Overview
In the current age of industrialization when the word is running after invention, adoption and subsequently the absorption of the same, there have been a huge number of discoveries that have crept up by the use of scientific techniques and formulae. This is the scenario for the developed countries; while the developing countries are still striving to such developments and techniques that they aim to achieve in the next few years. Again, with more and more developments; more and more companies have come up particularly Multinational Companies which marks technological advancement as a competitive advantage that they hold against others in a market arena. These MNCs of the developed countries are the major hubs facilitating technology transfer to the various developing countries as also to budding companies.
The companies bring to use various hi-tech machines or equipment and several other new emerging technologies within the various divisions and departments be it production of raw material or finished goods all are dependent on technology. Such is indispensable to the success of each unit of a company, be it small or large and all such are patented technologies. Now the question arises as to whether it is feasible to make such equipment within or outsource the same from other countries or companies. In all such case which involves the rights of the transferor as well as the transferee has to be kept in mind and has to be put in the form of legally enforceable documents. This paper contains a brief idea of such rights in the form of Technology Transfer Agreements/Contracts.
Keywords: Competitive Advantage, Industrialisation, Technology Transfer.
Technology Transfer Contracts are a type of new-age contracts which have gained significance over the past few years. To understand what these are and the various requirements of its validity; it is important to look into what contracts are and what governs the law of contracts in India.
The contract refers to an arrangement between two parties whereupon they agree to certain terms with a stipulated consideration. The Contract Act, 1872 defines contract under the interpretation clause, S. 2 (h) as an agreement enforceable by law.[i] For such a contract to be valid it is important that there is a proper offer made, acceptance of the same and consideration to be paid. There are various kinds of contract which are to be chosen based on the subject matter of the agreement to be dealt with. The various kinds of contracts include Non-Disclosure contract/agreements, Joint venture agreements/contracts, Limited Partnership Contract, and many more. Similarly, in the current era of developments when the corporate world is getting more tech-savvy, Technology Transfer Agreements or Technology Transfer Contracts have emerged as one of the recent types of contracts with requires due consideration.
TECHNOLOGY TRANSFER AGREEMENTS/CONTRACTS
Technology Transfer Agreements also referred to as TTA, in this era of technologies has been considered the most convenient and easy to deal with the process of acquiring as well as transferring technology and technological know-how. Now, as we know that today no invention or development is left without protection in the form of patents, copyrights, etc. the transfer of indigenous research and developments by the host companies or countries to others that forms an integral part of the TTAs includes within its ambit aspects of Intellectual Property Rights among other laws.[ii]
Technology Transfer Agreements/contracts are such kinds of contracts wherein one company (referred to as the Licensor licences or renders its registered industrial and intellectual property rights and also technical know-how to the second party company that is often referred to as Licensee.[iii] TTAs are very similar to the Trademark License Agreements with regard to the certain amount paid initially for the assignment of intellectual property rights or other industrial rights while during the tenure of the contract certain percentage is paid as royalties on the sale of the products that are made by the licensee under the contract. It is said that the Technology Transfer Agreement is one among the widely used strategies taken up by the corporations dealing mostly in technology which has helped them venture into new competitive arenas without the internal investment of the required technology being built in its own plant.[iv]
ORIGIN AND CURRENT STATUS OF TECHNOLOGY TRANSFER
From the very time, human lives marked its existence, we are aware of inventions and discoveries of new equipment. This has been continuing since the Stone Age if we look back the in the time. From the invention of fire to the needle, and many other types of equipment which were considered new technology then were found out at different points of time. Since then humans have not looked back. They have always strived to gain and improve on to what already existed. This is the very reason humans are said to be different from any other living creature. But the concept of securing one's invention or discoveries and technology transfer has been considered to be one of a very recent origin in India. However, for other countries across the globe technology-transfer is not a modern concept but has been one of the basic pillars for their economic developments.
Now if we look into the histories of various countries like China, Europe or any other western countries we find it as playing a pivotal role in the economic growth of not just the developed but also the developing countries. With all the positives, the success has not been unqualified and has witnessed various shortfalls for reasons unknown. Even after that, the concept of technology transfer is still in use.
The massive technological and scientific advancements in the current times have resulted in huge demand for high level technical and scientifically skilled manpower for taking the full advantage of the newly imported technology and thus, in turn boosting the economic growth. This has also increased the significance of Technology Transfer agreements.[v]
LEGAL ASPECTS OF TECHNOLOGY TRANSFER AGREEMENT
I. Nature of the contract
A technology Transfer Agreement is similar in nature to that of a license agreement as also a Know-How Agreement. The license agreement relates to intellectual property rights that include trademarks, patents and many more whereas an agreement from Know-how includes in its ambit the transfer of skills and required information, those which lack statutory recognition. The two contracts, however, differ at one point, i.e. on the confidentiality clause. A TTA is one which broadly circumvents around not just transfer of technology but the mode of such transfer and also the terms and conditions for its use. It is said that the transfer can take place through a document or it can also be done with the help of training and assistance, software devices or by means of selling machinery, its components or any other tech-based raw materials.[vi]
In a TTA the relationship that is established by law between the two parties, i.e. the transferor and the transferee is of contractual nature wherein there is consensus ad idem while the transferor transfers the technology and the transferee acquires it. Agreement of Sale or Assignment of Intellectual Property Rights or even License agreements is held to be the various legal methods/arrangements for transfer of technology.[vii]
II. Constituents of a TTA
Since these TTAs are legally enforceable in the court of law, it is important it lays down basic elements or requirements to be adhered by either parties or both the parties. Thus the main components of the Technology Transfer Agreements/Contracts include the description of Patent or technology that is to be transferred, Trademark if required (since technologies generally do not contain Trademarks), Brand Name of the product or equipment transferred, Royalties to be paid by the Licensee during the term of the contract or any other Management or Technical fees, Duration of the contract, a Confidentiality clause in cases where technical assistance or know-how is shared, Assistance to the party regards establishing R&D, terms regarding the performance of Guarantee, provision for Training and other restrictive practices.[viii]
Various judicial trends have been seen in regard to the concept of Technology Transfer. Technology Transfer Contracts in the case of M/S. Whirlpool of India Ltd. v. CCE & St, New Delhi, 28 August 2014[ix] was held to be enforceable under the Indian Contract Act, 1872. In this case, Whirlpool was charged with Service Tax on a fee for Technology Transfer that was paid to Whirlpool for the technical Know-how.
Again in the case of India Pistons Ltd. v. Commissioner of Central Excise, Chennai-III, 29 August 2005[x]; Technology Transfer was held different from Engineering Consultancy Services.
Technology Transfer helps to identify new business opportunities which ultimately results in enhanced technical know-how and a competitive advantage over others. With the arena for business getting broadened there is also an increase in the rights and obligations that are conferred onto the parties indulging. More awareness of technology systems rights obligations has laid to more Technology Transfer Agreements.[xi]
As we have already seen that in the current eras where there are huge investments in technology creation, it must also be understood that nothing comes free of cost. Investments in technology are risky as well as expensive. Not all companies are well equipped to go through an innovation process. One among the important decision making variable in these days for the companies is whether to develop the same, in-house or acquire it from outside. In the latter case, comes the role of TTAs to guide and channelize the process of pooling expertise to enter new markets in accordance with law; for the commercialization of a new product or service or improvement of an existing product or process and to get faster entry into the market with a competitive advantage.