A recent development in India may be a catalyst for domestic companies in the country to begin engaging with intellectual property in way that up to now most of them have failed to do. A note I have just received from Safir Anand, a senior partner in the leading New Delhi IP law firm Anand and Anand, details recent moves by the Indian Security and Exchange Board to ensure greater transparency in, and reporting of, IP-related issues among publicly-quoted companies in the country:
The Security and Exchange Board of India, a regulatory body dealing with compliance and governance of listed companies as well as shareholders’ interests, has circulated a discussion paper entitled “Annual Information Memorandum”. This provides that in addition to the current mandatory disclosure applied to listed companies on the Indian stock exchanges, certain new annual disclosures will now be required.
The objective of these disclosures is to provide shareholders and prospective shareholders with accurate and relevant information about the financial and operating performance of a company. In clause 7.3 of the circular, a requirement to disclose ownership of intellectual property rights has been imposed. Further, clause no.18.1 - entitled “Legal and Other Information – details a requirement for a listed company to disclose all outstanding material litigations filed against the company and/or material subsidiaries, including criminal, civil and other outstanding litigation, such as economic offences. Clause 18.2 states that information about litigation involving the company and material subsidiaries which has closed, settled or in which decisions have been handed down (unless appealed to a higher court) must also be provided.
Details of financial implications, if material, should be mentioned, including for cases closed during a financial year. The circular mandates such disclosure be provided annually and within 135 days of the end of the financial year to which the company is subjected. It is also necessary that the information be disseminated electronically by uploading the same onto the company’s website and through a simultaneous filing with the stock exchange.
Before providing disclosure, a company has to have the information memorandum approved by its board of directors. It is bound to update the information every year in respect of all quantitative as well as qualitative information parameters.
Limited to the extent of disclosure on ownership of intellectual property, this circular is of relevance particularly in cases where there is lack of public information for shareholders as to ownership of intellectual property assets. This may involve assets that are either owned by the company or under licence to the company or in respect of work in progress. As a natural follow up to this, it is likely that listed companies in India will place much greater emphasis on identifying all their intellectual property rights to ensure that their titles are clear and to stating whether they are owned by the company itself, are co-owned, belong to a related entity (including a promoter), or are under licence, eg, in the case of an Indian company that uses IP licensed from a foreign parent.
Once the disclosure is made, if there is a subsequent assignment of the IP from the listed company to another entity, it is possible that the assignment will also become part of public scrutiny, particularly in cases where the monetary value of the asset being assigned is not in accordance with fair international practice.
While this is not provided categorically in the circular, because the information is being sought by a regulatory body (SEBI) whose object is to safeguard the interests of minority shareholders and parties interested or involved with the company, our reading is that annual disclosure will be necessary. It is also likely that as a result of this circular, the market capitalisation of certain companies on the stock exchange will be impacted either by a favourable disclosure or unfavourable disclosure (for example, a promoter holding a brand, copyright, know-how or technology in its own name and not in the name of the company).
For a country with a strong innovation/invention, technology, content and branding pedigree, India is woefully behind the curve when it comes to IP creation, management and exploitation in comparison with many other Asian jurisdictions, let alone the globe’s best-in-class. Anything that increases IP awareness and engagement can only be a good thing. Without a strong IP culture, India's undoubted potential in so many drivers of the 21st century economy will never be fulfilled. Hopefully, these new rules might be the start of something.
IP management, Brands, IP litigation, Copyright, Patents, IP business
Interesting! it would be useful understanding the degree of disclosure on IP license and how the board would/could impact on the information provided through the Memorandum.Giulia Solinas, Cass Business School on 13 Mar 2014 @ 16:16