Making India Innovative: A New Indian Innovation Act?

News reports regarding this legislation began pouring in since 2007. See this FICCI press release here and this Economic Times Report which announced this legislative endeavour on Sept 11, 2007. The ET report noted that:

““We want to bring in an India Innovation Act to spur innovation in India, for which we would like Ficci (Federation of Indian Chambers of Commerce and Industry) to draft legislation and present it to the government in three months,” Mr Sibal announced at a meeting of the Indo-US Task Force on Shaping the Global Innovation Economy. FICCI and the Pacific Council on International Policy, a non-partisan organisation based in Los Angeles, have joined hands to form this task force.

The India Innovation Act is likely to be modeled on the America COMPETES Act, which focuses on three primary areas: increasing research investment, strengthening education opportunities in maths, science and technology and developing an innovation infrastructure. “

We’ve now obtained a copy of what appears to be an official proposal detailing out the broad parameters of this proposed legislative endeavour. Apparently, this proposal was drafted in large part by a well known Indian corporate law firm. Unfortunately, since it is a mere proposal, it is rather “sketchy”. One therefore hopes that it will be “fleshed out” in the coming days. More importantly, one hopes that there is more “transparency” this time and that the bill is made available early on to the public for comments.

It appears that FICCI (along with the law firm that drafted the proposal) is the key architect of this legislation. We understand that they will be finalising a draft legislation on this count and presenting it to Mr Kapil Sibal, the Hon’ble Minister for Science and Technology soon. We wish FICCI the very best and once again appalud their re-energizing of the IP policy landscape in India.

Much like the Indian Bayh Dole bill, the current proposal for an Indian Innovation Act draws its inspiration from a US law titled “America COMPETES Act”. For those interested, here is a commentary on the US Act which notes in particular that:

“The “America COMPETES Act” is a bipartisan legislative response to recommendations contained in the National Academies’ “Rising Above the Gathering Storm” report and the Council on Competitiveness’ “Innovate America” report.

….the America COMPETES Act focuses on three primary areas of importance to maintaining and improving United States’ innovation in the 21st Century: (1) increasing research investment, (2) strengthening educational opportunities in science, technology, engineering, and mathematics from elementary through graduate school, and (3) developing an innovation infrastructure.”

SpicyIP has often decried the fact that we tend, more often than not, to treat patents (and other forms of intellectual property) as an “end” unto themselves. Losing ourselves in the excessivley formalisitc rhetoric around patents, we forget that “patents” are but a mere “tool” to help incentivise innovation. In an earlier post, we noted that:

“We also need to understand that innovation is not about intellectual property alone, but is dependent on a host of other factors such as levels of skill/education, infrastructure etc. We need to therefore build a comprehensive framework for encouraging innovation. Perhaps the time is ripe to constitute another “Ayyangar” like committee to help us determine what the optimal “tautness” of our patent/innovation policy string ought to be in today’s “knowledge economy”.

To this extent, any measure that looks more holistically at “innovation” and moves away from an exclusive IP centric view is a welcome one. However, unlike the Indian Bayh Dole Act, one hopes that this proposal from FICCI comes after intensive study and deliberation. Note that the “America COMPETES Act” was based on two reports i.e. National Academies’ “Rising Above the Gathering Storm” report and the Council on Competitiveness’ “Innovate America” report. Have similar studies been conducted in India? We hope to have more details on this from FICCI in the days to come.

Further, we also need to ask whether the objectives sought to be achieved by this measure can only be effectuated through a legislation or would other informal policy measures suffice? Also, how would this legislation draw up rights and corresponding obligations? Can the government be sued for its failure to implement tax breaks for “innovative activities”, as promised?

It may be interesting to note the views of Dr Madhav Menon (I was privileged to be his student at the National law school, Bangalore eons ago) who, as head of the task force on judicial impact assessment (JIA), recently submitted a report to the ministry of law and justice. In this report, he deals with the extra load created on the judiciary by new legislations. See this interview to the Mint, where he notes that:

“JIA is a methodology to know how much workload a new legislation will create in courts. Making laws is a function of Parliament. Each year hundreds of legislations are enacted by Parliament and state assemblies. Each legislation increases the burden on the courts.”

Back to our proposal for an Indian Innovation Act, which maps out five broad areas for government intervention:

i) Fiscal incentives and other financial measures to encourage innovation. Also, measures to increase venture capital funding for innovative ideas.

ii) A new statute for trade secrecy protection. Also other legal/regulatory measures to ease restrictions on technology transfers/collaborations.

Comment: From a pure IP perspective, this “trade secrecy” legislation is the most important part of this proposal. And I hope to blog on this aspect in detail in a later post.
iii) Amend university curriculum to include “problem solving” and “”industrial innovation” approaches/courses.

iv) Establish a Patent Management Corporation that provides an information infrastructure to access all patents and designs in India.

Comment: I’m not sure as to why we need to specifically provide for this in a separate Innovation Act. Rather, wouldn’t a comprehensive patent database, something that we’ve been advocating for a while now, take care of this concern?

v) Establish separate Innovation Zones.

Comment: I’m not entirely sure how this will work. Don’t we want all our industries to be innovative? Shouldn’t the whole of India be an “innovation zone”?

Anyway, for those interested, here is a text of the proposal drafted by one of India’s leading corporate law firms:

“Discussion Paper on Proposed Innovation Law
Background

The OECD says innovation can be defined as “new products, business processes and organic changes that cerate wealth or social welfare.” Richard Lyons, the chief “learning officer” as Goldman Sachs, offers a more condensed version: “fresh thinking that creates value”. Both hit the nail on the head and are the foundation on which deliberations have been based.

To enable this in India a recent World Bank report suggests a three pronged strategy:

• Increasing competition as part of efforts to improve the investment climate, supported by stronger skills, better information infrastructure, and more finance—public and private.

• Strengthening efforts to create and commercialize knowledge, as well as better diffuse existing global and local knowledge and increase the capacity of smaller enterprises to absorb it. If all enterprises could costlessly achieve national best practices based on knowledge already in use in India, economic output could more than quintuple.

• Fostering more inclusive innovation—by promoting more formal R&D efforts for poor people and more creative grassroots efforts by them, and by improving the ability of informal enterprises to exploit existing knowledge.

The aforesaid points would necessarily form the object and purpose of any proposed law on innovation.

Critical to the success of any system of regulations to foster innovation in India would also necessarily require the system to acknowledge that real breakthroughs require risk and the ability to absorb failure. As Ron Adner of Insead puts it, “Innovation is a loser’s game, as we know most initiatives fail. But the truly innovative companies know how to deal with losing.”

Therefore the eco-system of innovation should be one that leverages the strengths of the public and private sectors in designing and operating programs that support innovation, which includes existing programs, and must necessarily focus on inclusive innovation. In essence the ideal scenario is a body of regulations that promote greater competition supported by a framework of financial support, with significantly more for pro poor innovation. The private sector especially, as well as educational institutions, civil society organisations and other identified stakeholders should be called upon to manage such programs, of course with appropriate checks and balances as well as a strict regime of performance standards and monitoring.

Proposed Regulatory Interventions
1) As per the report of the National Knowledge Commission the biggest hurdle faced by industry is the fact that the academic curriculum in our higher education system lacks emphasis on industrial innovation, problem solving, design experimentation etc. The way forward is to enable flexibility in setting academic curriculum as well as expressly permitting institutions of learning to engage with the private sector on research as well as commercialization of knowledge and to raise venture funds if they desire to do so. There should be enabling provisions to allow scientists, teachers and researchers to receive market based remuneration. Furthermore educational institutions may be allowed to incorporate or enter into joint ventures on a purely profit earning basis. It may also be considered, within reasonable limits, that the bar on faculty, researchers, and scientists to not have two posts while in government service may be removed, enabling them to be entrepreneurs free to engage and own corporate entities.

2) Most firms in India use internal funds to fund their innovation activities, rather than venture capital, bank loans or government grants. This trend is quite the opposite when compared to mature venture capital markets like the United States, where private people are willing to take bigger risks than their counterparts in India. Therefore, the innovation infrastructure must include a component where there is a safety net for the innovators in terms of being able to access funds for innovation.

a. Fiscal incentives could encourage wealthy individuals including those with an appetite for risk to make such investments. Investments in eligible funds could be given tax credits, in addition to which SEBI could allow wealthy individual’s investments in eligible venture capital funds to enjoy the same tax benefits, as available to registered funds under the current regulations. This will be a useful way of connecting domestic and foreign investors to Indian start-ups.

b. Relaxing investment guidelines for pensions and insurance funds to allow them to increase their investments in venture capital funds, within prudential norms.

c. A fund of funds should be created to spur public-private venture capital funds targeted at early-stage investing, especially early stage funding for pro poor innovations. Such a fund could be created to attract private capital and professionals with foreign or domestic domain knowledge and management experience in a series of public-private venture capital funds by increasing potential returns or reducing potential risks.

d. Reform of bankruptcy law

e. Incentives to the Indian diaspora to invest India in terms of funds as well as intellectual property (license technology owned by them to Indian entities).

f. To liberalise regulations pertaining to licensing of technology and technical collaborations

3) Many innovations are kept secret as trade secrets. There is a lack of a statutory legal framework as far as trade secrets and confidential information is concerned. There is a need to recognize these as industrial rights and not as individual rights of secrecy. This is extremely important in the context of investment and maintenance of a competitive edge as India must maintain an image of a safe investment location. Therefore it is proposed that the law pertaining to innovation would set out in statute the law pertaining to trade secrets and confidential information.

4) The establishment of a Patent Management Corporation that provides an information infrastructure to access all patents and designs in India. This information grid may be linked to a knowledge grid across all educational institutes as well as public and private R&D laboratories. The Corporation may also manage a fund to identify and purchase intellectual property from across the world in sectors in which mission mode projects may be launched to spur innovation that would find wide civilian application.

5) To establish special innovation zones and the necessary regulations. This may be modeled on the successful model of the Software Technology Parks of India program.

Way Forward
As suggested in by the World Bank report on unleashing innovation a light-touch public-private oversight mechanism may be required to evaluate and address the fragmentation of India’s current innovation system; encourage collaboration and facilitate streamlining of the system’s constituent programs, using public-private partnerships wherever appropriate; and monitor the achievement of realistic targets, with periodic international benchmarking as India’s innovation potential is unleashed. India’s successes with inclusive innovation will be of particular interest to other developing and emerging market economies also seeking to harness innovation for poverty reduction and economic development.”

A good time for IP and innovation aficionados. First the Bayh Dole style bill to keep us busy. Now an Innovation Act. And to top it all, about 10 IP decisions from the Supreme Court this year (we will blog soon on a recent EMR decision involving GSK handed down by the Supremes a couple of days back). When it rains, it really does pour!