Guest Post: A response to the draft e-Governance policy

Spicy IP is delighted to bring forth for its readers an incisive and insightful guest post from Bob Jolliffe, a South African standards activist, on a response to the e-Governance standards post.  Bob is a founding director of the Freedom to Innovate Foundation, South Africa.  

Bob is a frequent speaker on-Governance and standards and one such talk on e-Governance/standards is available here.  

Guest Post:  A response to the draft e-Governance policy

I think the point that this author makes about RAND terms is  essentially correct - and that Richard Stallman and POS-e-Gov are not.

The important thing about "RAND terms" is that they are infinitely variable.  Reasonable" (or sometimes Fair and Reasonable) and "non-discriminatory" are open to interpretation and negotiation.  In almost all cases the SDOs coordinating the development of the standard have adopted a hands off position regarding this.  So whereas it might seem obvious to conclude that RAND would imply that all implementors would be entitled to uniform and reasonable licence terms this appears not to be the case.  And I can't think of an example where an SDOs does specify such a constraint.  There are cases of SDOs obliging members to specify a *maximum* licence cost as part of their IP declaration/commitment but this is not common.  I suppose that this would roughly correspond to the fees being "published" referred in the RAND definition in the glossary of POS-e-Gov.

From a client or user's perspective, such as government, royalty free is the least ambiguous  Though even there we know there are different shades as reflected in promises, covenants etc as we have seen with IBM, Sun and Microsoft.  Usually there is some form of protective measure to protect the licensor from being counter-sued for patent infringement by the licencee.  And there are interesting variations on rights being granted irrevocably on subsequent versions etc.  But, whilst being mindful of these flavours, there is a much more reasonable degree of certainty about a royalty free arrangement.

 So the problem we are faced with is what to do when there is not a royalty free standard available and appropriate for a domain. Assuming that royalty-free will always be preferable on a spectrum of openness.   The solution is not so simple as to say that in those situations we will consider standards available on RAND terms, because as we know RAND effectively means anything goes.  We would ideally like SSOs to provide more guidance in terms of describing the RAND terms for a particular standard but they, for a variety of reasons related to their own self-preservation, are reluctant to do so.

I suspect, and I think I've expressed this before, the only solution for a state body who wishes to raise the bar on how open is sufficiently open, is for for that body to specify a rubric itself.  So for example, the glossary refers to one definition of what might be considered reasonable and non-discriminatory.  If these are the desirable characteristics they should be spelt out as requirements rather than being offered as a generally understood definition of RAND.

 To "fix" the glossary entry would require wording along the lines of:

 "RAND An abbreviation for Reasonable And Non-Discriminatory , is a  phrase that international standards groups use to describe terms to which a patent contributor to a standard must adhere. In the absence of a universal unambiguous understanding of Reasonable and Non-Discriminatory, this policy will consider those terms to mean that if a technology which is part of the standard is to be licensed for a fee, the terms must be (i) non-exorbitant, (ii) published, and (iii) the same for all implementers (rather than subject to individual negotiation).  Standards which are not available under such terms will not be considered to be RAND."

 Regarding the applicability of 3(k) it would have been nice to see something in the policy which highlights it rather than ignoring it.  Regarding the participation of giants, the article is right to say they should be invited to comment.  And I would be most surprized if they hadn't.  But to infer that the policy should be shaped to fit the IP agenda of giants seems to be suggesting a course of action which should not be a public policy objective.  Government is driven by a democratic imperative which it is obliged to pursue.  The giants have no such obligation.

The draft e-Governance Policy and its implications on patent law in India

A look at the draft e-Governance policy and its implications on patent law in India

The Department of Information Technology (DIT), Government of India (GoI) recently came out with a draft (V1.1)  Policy on Open Standards for e-Governance, (POS-e-GOV), available here.

The objective of this Policy is to "promote technology choice, avoid vendor lock-in and aims for reliable long-term accessibility to public documents and information in Indian context."

There have been prior discussions on the topic at this blog, for example here but those discussions were on a previous version of the  policy.

The current draft of POS-e-GOV contain a six mandatory clauses for an identified standard to be identified as an "Open standard".  Of the six clauses there are two that may be of greater interest to patent practitioners in India. They are clauses 4.1.2 and 4.1.4  

4.1.2:  The patent claims necessary to implement the Identified Standard shall be available on a Royalty-Free basis for the life time of the Standard. If such Standards are not found feasible then in the wider public interest, Fair, Reasonable and Non Discriminatory terms and conditions (FRAND) or Reasonable and Non Discriminatory terms and conditions (RAND) with no payment could be considered.

4.1.4:  Identified Standard shall be recursively open.

Before going into the detailed ramifications of these two clauses, a brief backgrounder is provided for some of the terms used in POS-e-GOV.  The first clause provides for a Royalty Free (RF)-Fair, Reasonable and Non Discriminatory  (FRAND) terms.  To understand, RF-FRAND terms, it is necessary to take a look at RAND terms:

POS-e-GOV defines RAND and FRAND as:

RAND:  Reasonable And Non-Discriminatory.  RAND is a phrase that international standards groups use to describe terms to which a patent contributor to a standard must adhere. If a technology which is part of the standard is to be licensed for a fee, the terms must be (i) non-exorbitant, (ii) published, and (iii) the same for all implementers (rather than subject to individual negotiation).  

FRAND:  Fair Reasonable And Non-Discriminatory.  FRAND is a phrase that international standards groups use to describe terms to which a patent contributor to a standard must adhere. If a technology which is part of the standard is to be licensed for a fee, the terms must be (i) impartial, (ii) non-exorbitant, (iii) published, and (iv) the same for all implementers (rather than subject to individual negotiation). 

There are certain issues with the definitions as provided in POS-e-GOV because they deviate from the generally accepted definitions of these terms.  

RAND terms, in general in the standards area, are a basic commitment for a standard setting organization (SSO) member to agree to license its Necessary/Essential patent claims on reasonable and non-discriminatory (RAND) terms and conditions.  The idea is that in exchange for adopting a standard that includes the patented technology of a SSO member, that member gives up a part of its rights and agrees to offer licenses to all who wish to implement or practice the standard, including the patented technology.  

There are two key variables in a RAND discussion:  The RAND terminology is inherently flexible so that it can be used in varying conditions and business engagements and a RAND term does not mean that two prospective licensees will receive exactly the same patent.  A RAND license may include a royalty free license and any other term or condition that may arise in settling a business arrangement between companies.  In other words, a RAND term is a commitment to negotiate a license - a licensor and prospective licensee must negotiate the actual terms of a license.  Flexibility of terms is a hallmark of a RAND license.  

Note that POS-e-GOV definition states that RAND terms are the "same for all implementers."  This is not the provided for in the RAND terms. See for example the definition of RAND terms in the patent license policy of World Wide Web Consortium (W3C) available here.  The W3C had initially proposed RAND licensing but later settled for Royalty Free (RF)-RAND terms.

There is considerable debate about RAND terms and POS-e-GOV gives a certain twist to the definition itself.  

Necessary Claims:  Companies that participate in licensing a standard, often like to know the amount of any patent royalties they may have to pay before adoption of a new standard and may ask any member company to provide them with patent claims to disclose the existence of such claims in the belief  that the participants may determine the royalties due to that patentee/owner/assignee.  Accordingly, IP policies generally contain a disclosure requirement of necessary Claims. This is a circular reference problem because there is no apriori knowledge of a necessary claim before a standard is defined.  

But in practice, disclosure of necessary claims is generally done during development of a standard and before its adoption.  See for example, the IP policy of 3GPP working under ETSI available here.  ETSI provides for an Ex-ante disclosure of licensing terms where the disclosure is about committing to licensing terms before the protected technology will be selected as part of a standard or, in other words, a mechanism about submitting anticipated licensing terms for a given standard draft before the contribution is locked-in as a standard.

Note that even now, there cannot be any necessary claims because the patent has not been granted - it is disclosed that there are patent applications that may have significant bearing on the standard.  In other cases, some members may disclose granted claims to the standard body as necessary claims.  This process makes the standard development procedure more transparent and avoids a hold up (a situation where one company slips its patented technology into a standard so it can charge unreasonable license fees from all adopters of the standard or refuses to negotiate a license with parties wishing to implement a standard).

A Royalty-free (RF) approach is one of the suggested ways to eliminate (at least theoretically) the hold-up risk as discussed above.  An example of a RF-RAND license can be seen here.  

There are inherent risks associated with RF-RAND licenses:  standard adoption may be significantly delayed, and key patentees may not participate at all.  When patentees choose not to participate, the overall innovation process may  stall and that standard may not be commercially adopted. Therefore, the concerns against a RF-RAND license is that it may apply to a broad set of claims, it may not provide adequate safeguards against inadvertent licensing commitments, and may even result in an unsuccessful standard.  

A government adopted standard, by definition, would apply to all stakeholders (citizen, businesses, and employees) and as such, the unsuccessful standard risk may not be excessive, but the other two risks are still inherent.  

POS-e-GOV aims to reinvent the wheel; Because technology for use to connect with the citizen, the employees and businesses is available and it may easily be customized to government requirements.   There are a large numbers of vendors both inside and outside the country.  There is no incentive for any vendor to provide their patents to the standard as purported by POS-e-GOV.  For example, document creation, editing and exchange techniques are not new - DOC, PDF, XML, OOXML are just a few of them.  

"Recursively open" (clause 4.1.4 of POS-e-GOV) is not directly explained.  However, a draft policy on Open Standards, released July 2008 provides that "[S]elected Standard should be recursively open; They shall not use unpublished extensions."

This means that all contributions by members - whether about necessary claims, or other developments, cannot be kept out of public view.  This would mean that a technology inventor risks their respective contribution inadvertently falls into the public domain.  This provision is similar to an Ex-Ante provision as provided by ETSI.   

However, there is a significant debate regarding the benefits conferred by ex ante licensing terms.  Disadvantages of ex ante terms include that it discourages participation from inventors, and decreases license transparency.  Most importantly, Ex Ante disclosures do not mitigate the risk of hold ups.  See for example a letter discussing the effect of such terms in a license.

Leaving aside the applicability of section 3(k) of the Indian Patents act, to patents envisaged under POS-e-GOV, the above two mandatory clauses discourage both publication and participation as discussed. (There has been a recent decision from the highest German Court holding a software patent valid.  See for example, a discussion about the decision of the German Court here.  Suffice to say that the law regarding software patents is still in a flux-and Indian courts will definitely see the decisions rendered in the German case and Bilski case.

There are a large number of patents filed from "software" giants based in India. For example, the Microsoft India Development center (IDC) is Microsoft's second largest development center in the world, after Redmond, WA.  Infosys, Wipro, TCS and a host of others, are major providers who have a significant presence in the technology area affected by the e-Governance standard. To address such problems, the DIT may be advised to invite specific comments from prospective vendors and from other departments (including the Department of Industrial Policy & Promotion - the patent office) regarding the Policy, to ensure that objectives as provided are met and that the standards are widely adopted. 

  

IP Taxation: Know-how, Consultancy and Service Tax

A few days ago, out of sheer interest I was searching for some literature on a topic (taxation) which I wouldn’t exactly call my comfort zone, not because I don’t have an aptitude for it, but because I don’t know much about it, in fact I know very little.

This search was not a random one. For quite some time, I have wanted to understand taxation better for academic and practical purposes, but somehow for one reason or the other, I just couldn’t begin going through the literature. 

But my interest in the subject received that much-needed impetus when in the course of a formal rendezvous, someone I respect and adore observed that taxation is probably one of those subjects which sharpens one’s powers of analysis and observation, and practically equips one for any other branch of law. This got me working and fortunately, I found a few judgments on IP taxation, making it easier for me to make a decent beginning.

The first of the two judgments is Foster’s Australia v. Commissioner of Income Tax and Director of Income Tax (2008) and the second is an older one IFFCO v. Commissioner of Central Excise ((2007)7VST 6 CESTAT). The former has been discussed on SpicyIP with tantalizing brevity by an ex-teammate in two tidbits. For a clear analysis of the judgment, please read this Livemint article.

In this post, I intend to deal with the second judgment. I realize it is dated and if there have been further developments in the law on this issue, we welcome our readers to share them with us.

The primary issue in this case was applicability of the definition in Section 65(31) of “Consulting engineer” of the Finance Act, 1994 to an arrangement entered into between Indian Fanner Fertiliser Co-operative Limited (IFFCO) and Haldor Topsoe of Denmark as per Rule 2(1)(d)(iv) of the Service Tax Rules (substituted vide Notification No. 12 of 2002 dated August 1, 2003 having effect from August 16, 2002).

The question that needed to be addressed here was, whether Topsoe rendered engineering consultancy services to IFFCO? If yes, IFFCO was liable to pay service tax under Chapter V of the Finance Act, 1994 for such consultancy services in addition to penalties under the Act.

The facts leading to this issue were as follows:

1. IFFCO entered into 4 agreements with Topsoe for licensed use of Topsoe’s technology for redesigning and modifying the operation of its ammonia and urea plants at Aonla (U.P.) to make the plants more energy efficient.

2. In a statement given under Section 14 of the Central Excise Act, 1944, IFFCO disclosed that it had received taxable services worth approximately Rs.4.22 crores. The tax liability for this amount worked out to approximately Rs.34 lakhs. In addition to this, IFFCO paid an R&D cess of approximately Rs.19.5 lakhs under the R&D Cess Act, 1986. IFFCO could avail an exemption of service to the extent of the R&D cess paid, therefore, the net service tax liability would be approximately Rs.14.5 lakhs.

3. However, IFFCO argued that it was not liable to pay even Rs.14.5 lakhs since the arrangement between IFFCO and Topsoe (hereinafter “the transaction”) was one for transfer of know-how, and not for rendering technical consultancy services. According to IFFCO, the technical consultancy provided by Topsoe was integrally connected to the transfer of technology and that such integral assistance was not within the scope of the definition of “consulting engineer” under the Act.

4. The Commissioner of Central Excise held the contrary and served a show cause notice on IFFCO demanding payment of service tax with interest and proposing imposition of penalties under Sections 76 and 77 of the Finance Act.

5. IFFCO appealed to the Customs, Excise and Service Tax Appellate Tribunal (CESTAT)

IFFCO’s (Appellant) Arguments

As mentioned earlier, IFFCO contended that the transaction was one for transfer of know-how/intellectual property which could be sold or licensed. This “know-how” was a bundled package of technical information and technical assistance, and therefore, was not a service as envisaged under the Act. To make its case, IFFCO drew attention to the nature of arrangement between Topsoe and itself.

According to IFFCO, if Topsoe were a mere consultant, then IFFCO would not need to take a license for use of such technology; instead, it would have purchased the title to the technology as one whose development was commissioned by IFFCO for its use. Further, Topsoe had sought performance guarantee, which IFFCO argued proved that the transaction was not for provision of consultancy services because consultant engineers did not seek such guarantees.

IFFCO relied upon Navinon limited v. Commissioner of Central Excise where the levy of service tax was set aside on an agreement for technical know-how, expertise and services on grounds that it did not attract the definition of a “consulting engineer”. IFFCO added that since the technical-how had been received in tangible media, they constituted "goods" and therefore, the transaction was a mere purchase of imported goods.

 Besides the fact that no separate payment was made for technical assistance, IFFCO argued that such assistance was incidental and therefore was not in the nature of “consultancy”. IFFCO also submitted that since the development of technology had occurred outside India, there was no service provided in India. To support this argument, Carborundum v. Commissioner of Income Tax (Supreme Court) was cited where it was held that where advice was received from abroad, the fact that the advice was used in India did not render the advice amenable to service tax in India.

 Commissionerate’s (Respondent) Response and Ruling of the Tribunal

It was argued by the respondent that the definition of “consulting engineer” included feasibility study, pre-design study/project report, basic design engineering, detailed design engineering, trouble-shooting and technical services including establishing systems and procedures for an existing plant, etc. Since all such services were actively provided for in the transaction between the parties, the respondent argued that the transaction was amenable to service tax.

Having heard both the parties, the Tribunal undertook a detailed perusal of the clauses in the agreements. It observed that although the transaction was primarily for transfer of know-how, at several places in the agreements technical assistance had been provided for. Also, the parties had agreed upon on a method of calculation of the payments to be made for such services on a man-day basis.

Further, contrary to IFFCO’s contention that no service had been provided in India, the Tribunal noted that such technical assistance was meant to be provided at the plants situated in India. Such services included an elaborate study of the plant, which obviously couldn’t have been undertaken without visiting the site in India. It was pointed out that technical assistance of this nature found specific mention in the definition of “consulting engineer”.

Then from paras 16-20 of the decision, the Tribunal explained in detail the meaning of know-how and addressed the question whether all know-how was intellectual property. It observed thus in para 19:

“"know-how" is a parcel of closely-held information relating to industrial technology, sometimes also referred to as trade secret which enables its user to derive commercial benefit from it. "Know-how" as an intellectual property, would mean a proprietary series of practical, non-patented knowledge, derived from the owner's experience and tests, which is secret, substantial, and identified.... "Know-how" must be described in a sufficiently comprehensive manner in order to verify whether it meets the secrecy and substantiality criteria.”

In other words, according to the Tribunal, know-how which was out in the public domain and which did not need special knowledge or training for it to be put to use was not intellectual property.

The Tribunal observed that there was no denying that the transaction between the parties primarily dealt with transfer of know-how/intellectual property; the factum of provision of technical assistance by Topsoe to IFFCO proved this further. That said, such technical assistance was not subsumed within the know-how and fell squarely within the definition of "consulting engineer".

The Tribunal took a middle path between the arguments of IFFCO and that of Commissioner of Central Excise; it held that neither was the transaction completely one for transfer of know-how nor was it entirely for provision of services. It was for both; also, the agreements envisaged two separate methods of payment for each of the components. Therefore, since only a portion of the outstanding tax liability of Rs.14.5 lakhs was for technical assistance, only such portion could be recovered from IFFCO.

This decision is of relevance in understanding the motives behind positioning of IP transactions and their tax implications. More importantly, it demystifies to an extent the esoterica surrounding discourses on IP and makes it much more relevant for businesses. In the process, it also probably calls for greater clarity in our perception of what constitutes IP.

If there are any such similar decisions, we welcome our readers to share them with us. Expert comments on IP taxation are welcome.

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Ten suggestions for the better functioning of the IPOs website/workings

Ten suggestions for the better functioning of the IPOs website/workings

Don't get us wrong-we love our IPO but there are at least few things that the IPO can do better in order to make the site more user friendly and content a bit more easily accessible to the users. 

In the software world, Linus' law states that "Given enough eyeballs, all bugs are shallow."   Therefore, this post is written to provide constructive feedback for our patent office.

The suggestions are divided into two distinct categories-style and substance.

Because a large number of images are used for showing the current processes at the IPO, the post can be accessed in its entirety here (Click on the PDF file to view or download).

Substance

Given that our patent office has four independent offices working under the office of the Controller General, it would be expected that the quality of the work is uniform/same or at least similar across all branches.  However, it is not the case.  We have quite a few issues that we highlight and provide specific suggestions for overcoming the problems.

1.  The numbering scheme at our patent office is so unique that practitioners avoid using the numbers provided by our IPO and prefer to identify an application by either its European or US counterparts numbers.  

Consider as an example, the application number 1576/DELNP/2005 and 1576/DEL/2005.  One would think that both these numbers refer to the same case.  But, these numbers refer to two distinct applications/inventions/assignees.

Currently, application numbers are named as per the patent office location.  This scheme causes problems while searching the international applications.  Any practitioner who has searched for an international family of related patent  applications, can vouch for the fact that the numbers issued by our patent office are simply inconsistent and extremely confusing. 

A simple solution to overcome this problem would be to convert the office into numeric format and keep the entire application number in numeric format.  For example, consider the tables below where each city is assigned a code, and each application type (provisional or non-provisional) is assigned another series code, and whether an application is NP or a regular application is assigned a different code.

OFFICE	CODE
DEL	11
MUM	22
KOL	33
CHE	44

Application Type
Provisional	Non-Provisional
01	51
National Phase (NP)	Other
10	01

The application type rolls over depending upon a total number of applications filed in the series.  For example, if 999,999 provisional applications are filed, then the provisional series rolls over to 02.  It is up to the patent office to link up the series code with the year.  By using such a code, the numbering scheme is still unique that allows easy identification of an application.  One possible example is shown below.

  

NP/P Series	NP/P Series	Patent  Office		N	U	M	B	E	R	N	P
5	1	2	2	0	0	1	5	7	6	1	0

             

2.  At the IPO, there is no common guideline regarding the content of an office action.  An action issued at the IPO almost never specifies a set of claims that fail under a particular section or Rule.  In the example below, objections 3 and 4 have got no basis unless specified in detail.  The example below also fails to state which claims fail section 3(k).

In order to avoid such issues, one suggestion is to specify why each claim fails a Rule or section.  A general practice is to object or reject the independent claim because dependant claims fall with the independent claim. 

As an example, general practice before the Board of Patent Appeals and Interferences (BPAI) at the USPTO is to decide each application against an examiner rejection based upon the independent claims.

Additionally, a reason why a claim (and not the application) fails a test must be articulated by the Examiner in an office action. 

In the example actions shown here, the action first refers to the substantive section and then spells it.  It then states that a particular claim fails the substantive section and the reason for it.  To help the Examiner, the IPO too can have a template form that includes such details. 

Style:

1.  Use of Frames:

The IPOs website uses frames. The use of HTML Frames has its advantages but major disadvantages of using frames are: developer (read patent office) must keep track of more HTML documents, they disrupt the flow of the website and it is difficult to anticipate where a page may land when clicked, it is extremely difficult to print the entire page. 

A good idea might be to use standard web practices to entirely avoid the problems associated with frames.  These standard practices/guidelines for web development are issued by either World Wide Web Consortium (W3C) (http://www.w3.org/standards/webdesign/) or by our very own National Informatics Center (NIC) http://web.guidelines.gov.in/ .

2.  Use of flashing images-The less said about it the better- Good practice is to avoid flashing GIFs.  See  http://web.guidelines.gov.in/tips.php

3.         Avoid suggesting a preferred browser to the user.

The guidelines from NIC and W3C ensure that a website is equally accessible from any browser and any device (like smart-phones). 

4.         Update information regularly to avoid serving stale information to the users- Suggestion is to use specific web pages and avoid frames.

5.  Uniformity:  The Chennai patent office issues the Controllers decision in an image format of a Controller’s decision whereas the other three issue Controller’s decisions that are text extractible.  Image formats are much larger in size that normal text files.  A good practice is to post decision in XML or in PDF text formats.  Therefore, all decisions from the Controller must be accessible in extractible PDF format.  A document can be electronically signed and this obviates the need for a Controller to physically sign each document.

Additionally given that our patent office plans to put up entire file histories for all published application and patents online, uniformity in putting up content would go a long way in ensuring that all files are easily uploaded and accessible.  Generally it is a good practice to provide programmatic access to data.  For example, the data in a file may be digitized and viewed in a web browser.  But if the data itself is of multiple formats (like an image of a document vs. a document), it becomes extremely difficult and expensive to provide such programmatic access.

Similarly, all notices that are put on the patent office web-site need not be an image format.  It could be a PDF copy with an electronic signature or a PDF document with only the physical signature of the Controller as an electronic signature.

To see the entirety of this post with images, please click here.