Safeguarding Intellectual Property in the Republic of Panama

Panamanian Intellectual Property Law No. 35 of May 10, 1996, replaced the obsolete legal provisions on Intellectual Property, which were in existence for more than sixty years. This law simplifies the process of registering trademarks and allows for renewal of a trademark for ten-year periods. The law’s most important feature is the granting of ex-officio authority to government agencies to conduct investigations and to seize materials suspected of being counterfeited.

This new legislation introduced modem concepts recommended by the World Intellectual Property Organization (WIPO), consistent with the policies of the World Trade Organization (WTO), thus bringing Panama into line with international developments on industrial property, which has reduced the infringement of foreign trademark rights in Panama.

In addition, Panama is party to the following international agreements:

(a) The Trade Related Intellectual Property Rights (TRIPS) contained in the Marrakech Treaty, approved by means of Law No. 23 of 1997;
(b) The Berna Convention approved by means of Law No. 3 of January 3 1996;
(c) World Intellectual Property Organisation (WIPO) Treaty approved by means of Law No. 93 of 15 December 1998;
(d) The General Inter-American Convention for Trademark and Commercial Protection approved by means of Law No. 64 of 1934; and
(e) The Paris Convention, approved by means of Law No. 41 of 1995.

In Panama, differing from other jurisdictions where cases of industrial property are of administrative nature, since 1997, the IP jurisdiction has been removed from the Ministry of Commerce and Industry and given to special courts with exclusive competence to handle IP conflicts (ie, oppositions, cancellations, infringement of trademarks and copyrights, etc). Also, the District Attorneys’ office is specialized in the prosecution of IP rights. Since the creation of this specialized jurisdiction within the court system, the proceedings regarding these subjects have been more expedite and owners are allowed to get a better protection of their IP rights in Panama.

The creation of specialized prosecutors for intellectual property-related cases has strengthened the protection and enforcement of intellectual property rights (IPR) in Panama.

Panamanian Intellectual Property Law also includes criminal enforcement and criminal penalties such as prison, which are the most effective methods and procedures in the fight against infringement of intellectual property rights.

Another major difference from foreign jurisdictions is that in Panama custom authorities and administrative authorities from the Colon Free Zone, which have their own special brand register, are empowered by law to retain, inspect and even seize counterfeit goods; in some cases, these institutions may proceed even without the need of a claim or process in case of suspicion of counterfeited goods.

On the other hand, Panama’s 1994 copyright law modernized copyright protection and its 2004 update created a special Copyright Office with anti-piracy enforcement powers.

The Republic of Panama is signatory to the WIPO Copyright Treaty and the WIPO Performances and Phonographs Treaty. The copyright office has enhanced border measures and established new punishable offenses, such as for Internet-based copyright violations which have significantly reduced the rate of VHS piracy.

Panama worked through the FTA negotiations with the United States of America to establish a legal regime to combat piracy of audiovisual products over the Internet, including notice and take down provisions and clearly defined Internet Service Provider (ISP) liabilities and copy protection measures.

At the international level, Panamanian government has reinforced the legal framework and institutional arrangements to comply with the existing international treaties, including more effective methods and procedures to all intellectual property matters, such as:

• Administrative enforcement, such as seizure of infringing goods by a customs office;

• Criminal enforcement against the infringer;

• Civil enforcement, in which the right holder, or someone in possession of valid rights, such as an assignee or licensee, takes prescribed legal action, such as in court by filing a civil action against an infringer, and perhaps seeking an injunction;

• Technological enforcement, in which producers of products and services employ technological means to protect IP rights against infringement (for example, encryption of digital copyright works).

• Border measures before the Customs Office and the Colon Free Zone Authority. In order to enforce IP rights, Panamanian Intellectual Property Law grants discretionary powers and faculties to Customs and The Colon Free Zone authorities to conduct investigations and retain any goods suspected of being imitations, including the confiscation of equipment used to manufacture fake goods.
The Attorney General’s Office and the Customs Bureau are officially empowered to initiate investigations on Intellectual Property matters.

The Customs Bureau and the Free Zone Administration are duly empowered to keep records of the Panamanian Intellectual Property Registrations for companies willing to protect their intellectual property through barrier measures. GALINDO, ARIAS & LOPEZ offers the service of registering a Panamanian Trademark Registration before the Customs Bureau and the Colon Free Zone.

With the information in the register, the authorities can control and even seize merchandise more effectively at the Colon Free Zone and Customs. These measures take importance because allowing an infringing product to remain on the market will hurt the right-holder’s sales and lead to a risk of market confusion.

Some complexities involved in establishing or enforcing IP rights on a cross border/international scale, are time factor and expertise on the part of the authorities. In view of the seriousness of the sanctions involved, which require that decisions be taken as quickly as possible, time is of the essence.

Demanding cessation of infringement only makes sense if a court order can be issued quickly. For this reason, preliminary injunctions play a major part in enforcing IP rights, since these measures are intended to prevent further infringement until the court has decided on the merits of the case.

On the other hand, the demand for a quick procedure, leading to a very tough sanction, requires expertise on the part of the judges. Only judges fully versed in intellectual property matters are prepared to make speedy use of this prohibitory instrument. It is also necessary to ensure the participation of well-trained legal practitioners and attorneys.

Finally, costs are an issue of major practical importance in establishing or enforcing IP rights on a cross border/international scale. With the complexity of these matters, retaining the services of experts, and of specialized legal practitioners in addition to attorneys, imposes a heavy financial burden on the parties. Measures such as taking evidence and carrying out tests and investigations on the infringing goods also involve further costs. In some cases, in Intellectual Property infringement proceedings, the financially weaker party is always in disadvantage.

The United States concluded free trade negotiations with Panama on 2006. This trade agreement will eliminate tariffs and other barriers to goods and services, promote economic growth, and enhance trade between the United States and Panama.

This trade agreement includes a chapter on Intellectual Property. Conventions such as the Madrid Arrangement concerning the International Registration of Marks, and the Patent Cooperation Treaty (PCT) will be mandatory in the Republic of Panama.

The agreement provides for improved standards for the protection and enforcement of a broad range of intellectual property rights, which are consistent with both U.S. standards of protection and enforcement, and with emerging international standards. Such improvements include protections for digital products such as U.S. software, music, text, and videos and; stronger protection for patents, trademarks and test data, including an electronic system for the registration and maintenance of trademarks.

Strengthening and improving Panama’s overall regime for the protection and enforcement of intellectual property rights in a broad range of areas was an important objective of the FTA negotiations.

In Panama’s climate, businesses are often looking for a way of putting themselves ahead of competitors; many companies lack a clear understanding of exactly what their intellectual property is or what it’s worth. Many businesses are unaware of the extent of their intellectual property and the consequences of failing to protect it properly.

Therefore, businesses are realizing the importance of an effective protection and use of intellectual property and companies are seeking expert legal advice to find out the best way to protect their intellectual property and also to understand how best to enforce it.

Some companies are tending to implement measures in order to have an inventory of their intellectual property to determine what the company’s intellectual property is, where it is, and what it is worth; and also to understand that managing the company’s intellectual property is more than just registering patents and trademarks.

Companies are starting to implement processes to identify intellectual property that belongs to others – such as knowledge and trade secrets of competitors that may accidentally come into their business with new personnel.

Between in-house resources and outside advisors, companies are making sure to cover intellectual property licensing, strategic alliance structuring, counterfeit and grey market tracking, due diligence on partners and employees, registration of patents, copyrights, trademarks and trade secrets, intellectual property valuation and royalty and revenue recovery.

REBECA HERRERA graduated in 1994 from Panama’s Universidad Santa María La Antigua (USMA) with a degree in Law and Political Sciences; she also holds a Master’s degree in Law with a focus on private law, earned from the University of Chile (with Honors, 1999).

Rebeca Herrera specializes in the areas of mercantile law, corporate law, mergers and acquisitions, unfair trade practices, public bids and contracts, intellectual and industrial property, and administrative law.

She has worked with a particular focus in the area of intellectual and industrial property, legally representing multinational companies-such as banks, commercial businesses, insurance companies-in judicial and administrative processes before the customs authority of Colon’s Free Zone, and legal representations regarding health where such matters have concerned violations of sanitary registry regulations. She has participated in the process of mergers and acquisitions involving the principal banking companies in Panama, as well as insurance companies, and also the execution of legal corporate audits. She is in charge of the firm’s intellectual property department.

What is an Intellectual Property (IP)?

The concept of property is something we all understand. Take real estate. Property is a home, a strip mall, a commercial building or farmland. You can touch it, walk on it and live in it. Pretty simple concept. Property is something real, ergo, real estate.

An intellectual property is different. It usually begins as an idea, takes form and becomes a book, a film, a game, a TV show or something else that people read, watch, play or otherwise recognize. The World Intellectual Property Organization (WIPO) defines intellectual property this way:

“Intellectual property relates to items of information or knowledge, which can be incorporated in[to] tangible objects at the same time in an unlimited number of copies at different locations anywhere in the world. The property is not in those copies but in the information or knowledge reflected in them. Intellectual property rights are also characterized by certain limitations, such as limited duration in the case of copyright and patents.”

An IP differs from real property in several key ways. An IP is the product of imagination – a very difficult thing to measure or define. An IP is more easily stolen, pirated or just plain ripped off. In fact, certain countries in the world have no intellectual property agreements across international borders so you can buy a pirated copy of the latest blockbuster on the streets of Beijing today – BEFORE it premiers in U.S. theaters.

Like a house or other property, an intellectual property can be bought and sold. It happens every day. An intellectual property can be sold lock, stock and barrel, or sold off in parts, which usually delivers increased revenue to the owner of an intellectual property.

For example, rights to a copyrighted book can be sold off in many different formats: North American distribution rights, large-print rights, one-time serial rights, sole source rights, audio-book rights, film rights – the owner of a copyright can sell various types of rights as long as the sale doesn’t conflict with rights agreements already in place.

“I Have A Good Idea.”

So does everyone else in the world including my Aunt Tilly. But an idea is NOT an IP. You can’t copyright or trademark an idea. In fact, if some other innovator comes along with the exact, same idea as your brainstorm, there’s nothing you can do about it.

An idea is NOT an intellectual property. An idea becomes an intellectual property when you apply work to it – write it, design it, describe it, code it, or otherwise put some work into that idea. And the more work you put into your idea, the more of an intellectual property you own – an IP that needs protection from theft or infringement.

That protection can take the form of a registered copyright, a patent, a license, a contract or some other defining documentation that describes the parameters of the intellectual property.

That’s why it’s critical to protect your idea as you give it more and more form. You can copyright a book or film. And as the copyright holder, you own that IP, whether it’s a book, video game, movie, webinar, seminar or any other form of media. Without legal protection your intellectual property may be unprotected.

You know the famous smiley face – the one that’s burned into all of our brains? Well, the artist who created that ubiquitous icon never registered the copyright for the image and, over time, that smiley face fell in to the public domain, which means anyone can use it. Even an IP lawyer.

It’s a Jungle Out There

If you’re new to the concept of IP, but you’re in the process of creating one, i.e. you’re writing a book, coding a computer game, building a website or broadcasting a webinar, you need protection early in the development process.

The world wide web, and all the attendant “new media,” have created an insatiable demand for intellectual properties. Today, an IP – a good one – is almost like currency. It can be traded, bought and sold, used to build credibility and trust and generate revenue. And if it’s really good, that IP can generate a whole lot of revenue.

However, if you don’t know the consequences of selling your copyright to a publisher, if you don’t understand the difference between a trademark and a signature mark, if you’re unfamiliar with one-time serial rights, you may quickly discover that your IP is no longer your IP.

Intellectual property law is a complex specialty, one few attorneys practice. It involves a variety of media. It entails means of distribution, it crosses international boundaries in this global economy, it engages dealers, publishers, distributors and even rack-jobbers. And if you’re engaged in the creative process, chances are you may not even be aware of the value of your IP.

Further, you may not fully understand the risks associated with intellectual properties – especially across international boundaries.

Seek Legal Advice Early

Remember, an idea is just an idea. However, once you’ve developed that idea and put work into it, giving the idea substance, it needs to be protected with a copyright, patent or other legal document. You own something. But without legal protection, you can very quickly lose that product of imagination forever. Or, end up in court for years battling a deep-pockets IP publisher who’s in no rush to settle

Managing Intellectual Property Rights and Contract Law

Intellectual property rights are by their nature restrictive rights. Rights owners are granted the power to prevent third parties using their intellectual property without their consent. When it comes time for materials in which IP rights subsist to be exploited, it is the law of contract that is called upon to do permit to use the materials, subject to the conditions of contract.

Contract Law

A contract is simply a legally binding agreement. Parties to contract are at liberty to agree to what may take their fancy and the terms that may please them. The law imposes limitations on what may be contracted for when the courts find that an agreement is contrary to public policy or otherwise restricted by statute. With this background, owners of intellectual property are free to agree to deal with intellectual property in any way that they see fit.

Contractual Dealings with Intellectual Property

Dealings with intellectual property take two basic forms. Firstly, intellectual property rights are personal property, which means that they may be assigned to another person, subject to very limited exceptions. An assignment of intellectual this property rights conveys the title to the rights to another person. Far more frequently however these personal rights are licensed to other businesses for a limited purpose or a limited period, in accordance with the particular terms of contract. Amongst many others, movies, music, software, architectural plans, trade marks, designs, patents may be licensed to businesses or the public at large to use them subject to specified conditions and limitations. These licenses, which are in essence permissions, allow the licensee to perform some act in respect to the intellectual property that would otherwise amount to in infringement of the owner’s intellectual property rights.

In the commercial environment contracts allow such dealings to happen.

Copyright Law

Copyright is the palladium of product of the arts, such as manuals, computer programs, commercial documents, leaflets, articles, song lyrics, sound recordings, photographs, film, sound recordings and many others. Businesses that trade using copyright works such as these are entirely reliant granting licenses to their customers on specified terms to trade using their stock in trade.

Contract law allows these companies to restrict and limit use of these copyright works to a fine degree. For instance a photograph might be licensed for use in print media for a set price and electronic media for an entirely different price, or indeed prohibit these uses in their entirety.

Patent Rights

Of all the different types of intellectual property rights, it is patent rights that provide the most extensive and complete monopoly over inventions. Products and processes which are inventive may be patented. As the monopoly rights granted are so extensive, so the bar to surpass for registration is higher than any other form of IP protection. Use of patent rights may be managed in the same way as other intellectual property rights.

Confidential Information and Know-how

A common form of license is that granted by non-disclosure agreements. Non-disclosure agreements are legally binding contracts designed to impose restrictions upon information released to another person, pursuant to the terms recorded by the agreement. In the absence of a non-disclosure agreement, the discloser of information would be left with their rights under the general law to protect the information released from unauthorised disclosure or use. The general law requires a claimant must show that the circumstances of the case justify the court finding that the information (1) retained the requisite quality of confidence, (2) was imparted in circumstances importing an obligation of confidence, and (3) that the information has been misused. Establishing such circumstances requires meticulous preparation of evidence. Thus in the vast majority of cases proving to the satisfaction of a court that trade secrets have been misused is an onerous exercise.

Contract law simplifies this. If it were the case that a contract has imposed obligations of confidence between the parties, the discloser is not simply left with his rights at general law. The non-disclosure agreement imposes separate and independent rights to the general law, and indeed when properly drafted, may far exceed the rights that a claimant would otherwise be left with under the general law. As with other types of contracts, non-disclosure agreements may be framed to allow different types of uses of the information released – what those terms are rely upon what the parties intend to achieve.

Trade Mark Rights

The law of registered trade marks and unregistered trade marks protect brands, business names, logos, slogans, packaging and shapes in many instances. In industry, service marks and collective are also able to be registered, creating a device to set a standard of service and recognition that becomes associated with a particular standard of quality. Again, use of contracts allow businesses to license use of trade marks to other businesses; it may be that a licensor wishes to impose particular restrictions on the size, colour, geographical location or even the place on a website that a trade mark will be used. Provided these requirements may be reduced to writing with sufficient clarity they may form part of the contractual relations and effectively restrict use of the trade mark. For example, franchises depend on trade marks to create a common branding, as do businesses authorising others to manufacture packaging.

Commercial Environment

When it comes time to make commercial decisions as to the types of uses and licences that will be granted in respect to intellectual property, companies would be well advised to ensure that that contract accurately reflects the commercial intentions of the business. Failures to do so may have dire commercial and indeed legal consequences. Problems may arise by a variety of different courses.

For example, a company may inadvertently accept terms and conditions of the other business printed on the back of a purchase order authorising the payment. In such cases, the licensor’s own terms of business may be found not to apply. The consequences of this are that the business contracts on unforeseen terms of contract that may well be contrary to its own intentions, and result in foreseen consequences. In one case that the author has advised on, the author of a University course inadvertently transferred the intellectual property rights to a company rather than license its use. This placed it in a position whereby it had divested itself of the assets in which had invested significant capital expenditure, that it intended to use and re-use for years to generate income. It had assigned the ownership of the course to the other party inadvertently.

A company may wish to license a company to “use” certain intellectual property rights on restrictive terms. Difficulties may arise in the contractual meaning of the word “use” when it is not defined in the contract, and thus introduces ambiguity and uncertainty in the contractual arrangements between the parties. Where a licensor asserts narrow and restrictive rights for “use” and the licensee asserts broad liberal rights to “use” the work, unless there are other material in the contract indicating what the parties intended by “use”, it is extremely difficult to ascertain what the parties actually intended to agree to. In situations such as these where intransigence sets in, litigation is required to resolve the dispute causing distraction and expenses that is otherwise perfectly avoidable.

Intellectual Property and Its Pervasiveness in Industry Trade and Commerce

Intellectual Property And Its Pervasiveness In Industry Trade And Commerce.

What Is Intellectual Propoerty:-

Property which comes from the Human Brain and for which Government gives protection is called Intellectual Property Right(IPR). Trademark.Patent,copyright,geographical location are few examples of Intellectual Property(IP). Intellectual property has gained in prominence in many fields of business in recent times. Today, it is a major asset for many of the world’s most powerful companies. The intellectual property of a company is its legally protectable and exploitable invisible assets .It is a sub-set of assets known as “intangibles”. The term “intellectual property (IP)” refers to property in a legal sense. It is something which can be owned and dealt with. The legal rights that give rise to intellectual property are usually referred to as “intellectual property rights (lPRs)”. There are several types of IPRs that qualify as intellectual property. The most widely known lP category is patents. Other categories include copyrights, trade marks, design rights, trade secrets and plant breeders’ rights. In the emerging knowledge economy, lP has become a critical success factor for most high- It is an Intangible Asset.But the future benefits to be derived is uncertain. Hence valuation cannot be made correctly.

It has no objectivity or supporting documents unlike our accounting system which is based on objectivity.

HISTORICAL BACKDROP LEADING TO THE DEVELOPMENT OF (Intellectual Property Rights)IPRs:-

For most of the 19th century, the USA provided no copyright protection for foreign

authors; the argument was that it needed the freedom to copy in order to educate the new nation. Similarly, parts of Europe built their industries by copying the inventions of

others. The same model was followed later by Japan and even later, after the second world war, by both South Korea and Taiwan.

Today, however, developing countries do not have the luxury to take their time over lntellectual Property Rights (IPR). As a part of the trade deal hammered out nine years ago, countries joining the World Trade Organisation (WTO) also signed up to TRIPS (trade-related aspects of IPR), which include patents, copyright, trade marks, trade secrets, geographical indicators and such other items. The poor-er countries of the world were given until 2006 to comply in full with the requirements of this treaty.

Contrary to popular perception, TRIPS does not create a universal patent system..

Rather, it lays down the ground rules describing the protection that a country’s legal system must provide, Much of the recent debate over the impact of IPR on the poor has

centred on the issues of access to expensive medicines, In April 2001, South Africa won a victory against major drug companies fighting patent reform there, allowing access to cheaper versions of patented rnedicines for AIDS, Encouraged, the developing countries issued a declaration at the WTO meeting at Doha in November 2001 asserting the primacy of public health over IPR. They also resolved that the least-developed countries should bo given at least until 2016 to introduce patent protection for pharmaceuticals.

Tricky Proposition:-

For the last one year, the (World Trade Organisation)WTO council responsible for TRIPS was involved with a tricky proposition : ‘compulsory licensing”- the manufacture and marketing of a patented drug without the patent-holders consent, This provision has been available since the formation of the WTO and Brazil has already used the threat of “compulsory licensing” to ring substantial price discounts out of major patent-holding drug companies. This has boon permitted under contain conditions, including national emergencies and can be used by countries such as Brazil or India, which have domestic drug industries to copy the medicines. The problem comes with countries that have no drug makers, They can import generic copies from the likes of India. But, can they do so after 2005, when these copying exporting countries are supposed to have fallen in with the TRIPS line? The big patent-holding drug firms in rich countries have worried that Indian and other companies might abuse the deal to flood their markets To arrive at a compromise, the TRIPS council of the WTO Issued a declaration just before the Cancun ministerial started in September 2003,saying that countries could override patents only “in good faith, to

protect public health’, Special measures are also stipulated, such as different shapes, color and packaging, to prevent these generic drugs from getting into rich countries’ markets.

Not such a Big Deal:-

“Compulsory Licensing” involves poor countries like Kenya, Uganda or South Africa- unable to copy patented medicines to fight scourges like Aids-importing cheaper copies from India. The concerned governments will have to sure public d to people who need such medicines and thus money needed for Imports. Therefore the afflicted countries will have to depend on rich country donors to find tho money. Alternatively, they can approach world bodies which are again funded by rich countries, As such, even though the margin (difference in prices between patented drugs end Indian copies) can be fairly high, these are not really “lucrative” markets. There are also at the vexed questions of red tape and government inefficiency.

Look at Ourselves:-

In India, to stop and reduce the spread of Tuberculosis there is already in place a framework for Directly Observed Therapy Short-course (DOTS), overseen by several world bodies and our government. The growing number of tuberculosis cases, combined with HI V/Aids, places an immense burden on tuberculosis control activities, The Indian pharmaceutical industry does not look at the prospect (“No sale of over-the-counter prescribed medicines”) – with relish. Perhaps, there is a lesson in this : not a moral lesson (involving right or wrong) but an ethical one (involving fairness or unfairness). There is a limit on profits for drugs fighting public scourges, particularly in poorer countries. Perhaps, there is no scope for “sadistine” pleasure in others’ misfortunes.

Medicines for rich (and poorer countries too:-

Diseases afflict people in rich countries also. There are two separate kinds of enormous opportunities here.

First: For the research-oriented Indian pharmaceutical companies like Ranbaxy, Dr. Reddy’s and many others inventions (and delivery) of new drugs are no longer a possibility but a reality, They will be interested In protecting their IPR through suitable patents.

Second: A large number of drugs are going off-patent in the US market very soon, In other words generic versions of these drug can be made by anybody, legally-If they are able to do so. And the Indian pharmaceutical companies – several of them are able to do ao in the most cost-competitive way. During the first six months of the calendar year, thirty four Indian companies made fifty eight filings (called Drug Master Files-DMF’s) more than the combined total of the next five countries. (Itally 21, China 10, Israel 9, Hungary 9 and Spain 5). Outside the US, India h thu highest number of FDA approved manufacturing plants. In fact, the number of such facilities is almost equal to that of approved plants in the US.

Beware Bulk Generic drugs

Manufacture of bulk generic drugs is, however, not a bed of roses. Indian firms producing Penicillin are mortally afraid about imports of the same from China (which is much cheaper) and want protection through tariff barriors raised by the Indian government This will not be possible under the WTO rogime for any length of time.

Constitutional And Legal Aspects Relating To IPR On Trade And Services:-

Intellectual property rights fall under item 49 of list I Union list of Seventh Schedule to the constitution. The item reads patents, inventions and designs, copyright, trademarks and merchandises marks. Patent is hence a union subject. Protection of patent right was first introduced in 18th century. The Patents Act, 1911, introduced formal protection of patents rights. In Biswanath Prasad Vs Hindustan Metal Industries [ 1982 CS 144 (1979)] the Supreme Court observed, “the object of Patent law is to encourage scientific research, new technology and Industrial progress. Grant of exclusive right to own, use or sell the method or product patented for a limited period stimulates new inventions of commercial utility. The price of the grant of monopoly is the disclosure of the invention at the patents office which after expiry of the fixed period of monopoly passes into public domain”.

World Intellectual Property Organisation (WIPO), one of the 16 specialised agencies of

(United Nations Organisation)UNO, wan established in 1970, WIPO with headquarters at Geneva, Switzerland, became en agency of UNO in December 1974, and It administers 23 InternatIonal trea ties dealing with intellectual property protection.

International patenting relationships are based on Paris Convention 1883 for protection of intellectual property. Paris convention is a multilateral treaty covering Patent Cooperation Treaty (PCI) administered by WIPO. PCI provides for the following:-

a) Filing a single application in one language and International Search which gives a report on previously published application;

b) Centralized publication and option for international preliminary examination.

c) Seeks protection in a specific country.

Two important amendments of the Indian Patents Act 1970, viz., the patents (Amend- ment) Act, 1999 and the patents (amendment) Act 2002, made recently seemed to be of utmost attempts to adjust Patent Law with the international standards laid down by the TRIPS Agreement as part of Uruguay Round of multilateral trade negotiation. The whole history of Indian patent law was a history of adjustment with the west allowing them to exercise the Industrial and Import monopolies. Since the Paris Convention, 1883 the West in order to protect Industrial property and to promote expansion of trade monopoly adopted several policies; and one of such policies related to intangibles including patent rights, Because, they visualised that the East and other parts of the World would no longer be effective in operation imperialism. Intellectual property (IP) was considered as a splendid technique to be used for this, laid the initial foundation of successful unification between the patents rIghts and the corporate monopoly, and that ultimately led for form (General Agreement On Traiffs And Trade)GATT in themId Indian Patent law was nothing but the culmination, of joint effort exorcised by the GAIT end MNCS.

Valuation Of Intellectual Property:-

It is highly difficult to value it since it is highly uncertain to calculate the expected flow of future benefits we are going to derive from it.

This paper is about valuing IP assets; it is about how these assets should be valued in the context of external financial reporting. The generation of useful estimates of lP value is also of crucial importance in the context of internal reporting. But internal reporting requires valuation parameters or indicators that are different from those used for the purpose of external reporting. Internal reporting is outside the purview of this paper.

Asset Valuation Practices

Asset valuation first of all requires asset recognition. Assets are recognized in the accounts when they meet the definition and recognition tests. There are two principal approaches to valuing assets in accounting: input approach and output approach. Under input approach, the value of an asset is determined based on the cost inputs that have gone, or ought to have gone, into its making. The output approach, on other hand, seeks to determine the value of an asset according to what can be recovered from it either from its outright sate or from its continued use in business operations. Although both approaches are currently in use, the input approach takes the first place of interest. Under the existing GAAP, historical cost is the primary basis of valuation for most assets. In recent years there has been a tendency for the accounting standard setters to prescribe current value measurement in some areas, but historical cost-driven valuation is still the predominant valuation basis in accounting. Asset valuation in accounting is guided by two principal considerations,relevance and reliability. The values assigned to the assets reported on the balance sheet should be relevant as well as reliable. If there is a conflict between relevance and reliability, the latter wins over the former. Since historical cost- based values are derived from past transaction costs, they easily pass the reliability test. Historical values are adjusted downwards when there is evidence of impairment of value. But upward adjustments generally are not permitted. However, in some jurisdictions, upward revaluation is permitted when certain specified conditions are met.Most common example is the valuation of “Land & Building”.

Why IP Assets Need a Different Valuation Approach ?

Accounting Standard 26 And International Accounting Standard(IAS) 38,contains valuation of Intellectual Property.

The transaction-cost based approach is inconsistent with the role of IP assets. Acquired IP assets may be valued based on transaction costs, but valuing internally developed IP assets according to past transaction costs is not a feasible proposition. In most cases the transactions that give rise to an lP asset cannot be objectively identified. For example, patents developed over a long period have no identifiable costs. Even if the costs of developing an IP asset are identified, those costs may not bear any relationship to the asset’s actual value. This is an important reason why most internally developed lP assets are not reported on the balance sheet. Accounting standard setters are grappling with the issue, but the mismatch between accounting principles and the appropriate valuation of IP and similar assets continues to exist. They are yet to develop an acceptable basis for solving the problem of trade-off between relevance and reliability.

lP assets are different in many significant respects from the traditional assets. Many of IP assets are contexts specific. In most cases, the real value of an lP asset depends to a great extent upon the ability of the company owning the asset to utilize it efficiently and effectively. The value in most cases also depends upon the ability of the company to exclude others from using the asset. Because of this, it becomes. often difficult to determine reliable ways of assigning values to IP assets. Considerable research in recent years has gone into solving the problems of valuation of lP and other intangible assets and, consequent upon which, some valuation models have been developed (e.g., Intangible Assets Monitor of Sveiby, the Skandia Model and the Balanced Scorecard of Kaplan and Norton). But none has gained common acceptance.

Alternative Valuation Approaches:-

There are a number of tested ways of valuing IP. While choosing a valuation method a company should first of all determine how the asset being valued will create value for it. An asset may create value for its owner by generating additional revenues, by saving costs or by giving competitive advantage. It is the way an asset creates value for the owner which should determine which valuation approach is to be adopted. An overview of possible valuation approaches is provided below.

(1) Discounted Cash Flow(DCF) Approach:-

The DCF approach is considered as an ideal approach for valuation of assets. At the most fundamental level, the value of an asset is determined by three factors; how much it is expected to generate in cash flows; the timings of generation of those cash flows; and the degree of uncertainty associated with the cash flows. The DCF approach takes into consideration all these factors. Under this approach, the value of an asset is the discounted present value of its estimated future cash flows. To apply this valuation approach it is necessary to examine the conditions under which the lP asset will be used and to develop an agreed basis for projecting future earnings and expenditures attached to the asset. The projected amounts are then discounted by applying an appropriate discount factor. The success of this approach depends on the accuracy with which the future cash flow projections are made.

(2) Excess Operating Profits Approach:-

The excess operating profits approach determines the value of an IPR asset by capitalizing the excess profits the business expects to generate with the help of the asset. There are several ways in which the excess profits may be calculated. One possible way of computation of such profits is to make estimates of profits the business would earn without the asset.,i.e. to say the profit the firm would earn in the normal course of business had the IPR being not inducted into the business.

(3)Replacement Cost Approach:-

This approach seeks to value an IP asset by quantifying the amount of money that would be required to replace the asset or creating an equivalent asset. The replacement cost approach is based on the assumption that there is some relationship between cost and value.

(4)Market-Based Approach:-

The market-based approach values IP assets by looking to the prices of comparable assets which have been traded between knowledgeable parties at arm’s length in an active market. If it is possible to identify transactions that are exactly comparable, the approach will work satisfactorily well. But in most cases the search for a comparable transaction proves to be a futile exercise.

(5)Cost/Royalty Savings Approach:-

The cost savings method values savings that the enterprise expects to make as a result of owning the IP asset. If the enterprise owning the asset is in a position to calculate the costs it has saved as a result of introducing the new asset, it can easily arrive at a basis for assigning an appropriate value to the asset. Under the royalty savings approach, the enterprise is to develop estimates as to the amounts of royalties it would have to pay if it were to license an asset to generate the return it is earning on the existing asset.

(6)Twenty-five Percent Approach:-

The “twenty-five percent” technique is used in many cases to value patents and technology. The technique is based on rules of thumb. Under this technique, the value of an lP asset is computed as being equal to twenty-five percent of the gross profit earned on products that use the services of the asset. The validity of the technique is difficult to prove.

(7)Options-Based Approach:-

The options-based approach requires the use of the concept of options in assigning value to IP assets. Options-based approach is currently used in valuing financial derivatives. But the options-based valuation model can easily be extended to other categories of assets. The owner of an intellectual property has a variety of choices as to how he will use the asset. Option pricing models attempt to estimate the economic values for each of these possible choices.

The choice of valuation methods should not be arbitrary. It should be determined by the company characteristics and by the way in which the company delivers its products and services. If the value attributed to lP assets cannot be incorporated into the balance sheet for technical reasons, the information may be provided on a supplementary basis. But this should be done in a systematic and consistent way.

Assigning a value on lP assets is a challenging job. It is a challenging job especially when the exercise needs to be done in the context of preparation and presentation of external financial statements. But the accounting profession should be prepared to ac cept the challenge. It should promote measures for revamping the existing accounting system. The existing financial reporting gap caused by the failure of the accounting

system to acknowledge important assets needs to be shortened. Effort should be made to see to it that financial statements provide an accurate portrait of corporate resources.

INTELLECTUAL PROPERTY RIGHTS IMPLICATIONS FOR DEVELOPING COUNTRIES

Most countries aim at encouraging innovations by framing laws to regulate the copying of Ideas, inventions, literary and other creative expressions, unique names, busir. modo Industria proco symbols, computer program codes, etc. Four separ and dlstinct types of intangible property, viz., patents, trademarks, copyrights, and trade secrets are together referred to as intellectual property (IP), IP Is therefore any product of human Intellect that is unique and un-apparent having some market value. IP has many of the characteristics possessed by real and personal property. However, the most significant difference between IP and other forms of property is that IP is Intangible and therefore It cannot be defined or identified by physical parameters. It has to be expressed in some characteristic manner in order to be protected.

Since PP Is an asset, It can be bought, sold, licensed, exchanged, or gifted away like any other type of property, Again, the owner/creator of an lP has the right to prevent the unauthorized use or sale of such property, All the four types of PP are protected by national governments by conferring rights to IP Intellectual property rights (IPRs) have been defined as ‘rights given to people over the croations of their minds’ (WTO) website TRIPS material). Since IPRs are protected by national governments, the scope of protection and the requirements for obtaining protection will vary from one country to another.

In the developed world there exIsts a powerful lobby of those who believe that all IPAs are good for business, benefit the public at large and act as catalysts for soclo-economic end technoloqical progress. In the developing world, there exists a strong view that lPRs are likely to cripple the point of national Industry and technology, harm the people and benefit only the developed world. The process of implementing the Trade-Related Aspects of Intellectual Property Rights (TRIPS) has not resulted in reducing the gap between these two sides. In fact, It has helped to strengthen the opposing arguments in existence. Those who are in favour of more IPRa and the creation of a level playing f/old consider TRIPS as a useful tool with which to achieve their objectives. But those who view IPRa as damagIng for developing countries believe that the economic playing field which was already uneven before has become much more unequal with the introduction of TRIPS.

The developed world has accepted and adjusted to lPRs since long. Though some times the disadvantages of IPR8 are more than their advantages, most of the countries

in the developed world are economically strong enough and have well-developed legal mechanisms to take care of the problems Involved. Again, those countries have adequate national wealth and infrastructure to capitalise on the opportunities available when advantages of IPRS are more than their disadvantages. But, in all probability, this is not true In the case of developing countries.

The issue is how national IPRs can be designed with a view to benefitting the developing countries to the maximum extent. Rigorous standards relating to IP so tar as the developing countries are concerned should not be insisted upon before an objective assessment is made of the Impact of such standards on development. Developing countries may find lPRs useful only when they are accommodated to suit local conditions and the International institutions and all the countries, both developed and developing, need to consider that.

The advocates of IPRs, particularly those in business and government in the developed countries, are of the view that IPRs help to stimulate economic growth and reduce poverty in the developing countries in the same way as in the developed countries, However, people from different social quarters in the developing countries have rightly pointed out the fallacy & this argument. They have categorically stated that IPRs can help to generate invention In all the developing countries because the requisite human and technological capability may, in all probability, not always be present. Contrary to the assertion of the proponents, lPRs have lead to increase in the costs of essential medicines and agricultural Inputs, and have made life difficult for the poor people, including farmers, in the developing countries.

The scope, extent, and role of IPR protection have expanded at a very fast rate over the last two decades or more. lPRs have been created to cover many new technologies, viz., information technology and biotechnology and a large number of patents have been taken particularly with respect to genetic materials. Minimum standards for IP protection have been made global as a result of the World Trade Organisation (WTO) Agreement on TRIPS. Extensive discussions are also going on in the World Intellectual Property Qrganisation (WIPO) in order to harmonise the patent system still further, This apart, bilateral or regional trade and investment agreements between the developed and developing countries in most cases cover mutual commitments to implement IP regimes surpassing the minimum standards set by TRIPS. This means that the developing countries are under continuous pressure to increase the levels of IP protection in their own countries at par with the standards set in the developed countries.

Even in developed world, apprehensions are there regarding the functioning of IPR

systems. In recent times, application for patents has increased manifold and it is being perceived that many patents of poor quality and/or having too wide scope are being issued. There is also the possibility that many companies may have to spend considerable amount of time and money in order to determine how or whether to carry on research without the infringement of others’ patent rights, or allowing others to infringement upon their own patent rights The benefits arising out of such expenditure of time and money need to be weighed against the huge costs involved in patent litigation and efforts should be made to reduce such non-productive/less-productive expenditure.

These apprehensions about u impact of IP are equally true for the developing world. Moreover, the developing countries should be cautious about the direct impact that the IP systems In developed countries may have on them, e.g. the developing countries may not be gettIng the benefits of research work (on some Important matters seriously affecting them) that are being carried out in the developed world. Again, the developing countries are being largely deprived of their legitimate share of benefits arising from commercialisation of their knowledge/resources if these are patented in the developed countries.

An important point to consider is whether the rules relating to IP protection and institutions entrusted with their implementation which have evolved so far in the developed countries can at all be useful for the developing countries In the process of their socio-economic development and particularly in their efforts towards poverty alleviation.

In some social quarters there Is a strong belief that IP protection of some kind is also useful for the developing countries as it may motivate them to make inventions and develop new technologies that will ultimately be beneficial in their soclo-economic envi rons. But that will result in high costs for the consumers and other users of such protected technologies. It therefore becomes necessary to consider whether the benefits outweigh the costs. This, in turn, will depend on the nature of application of IPRa and the socio-economic conditions in vogue in the country where they are being applied. There fore, IP protection standards, benefiting developed countries, may be disastrous for developing countries since the latter have to satisfy even their basic needs largely by drawing upon the knowledge developed in other countries, particularly the developed ones.

The situation in the developing countries is quite different. While it Is true that most of the developing countries are not technologically very advanced, they do possess very rich knowledge developed over the centuries and valuable resources of varied types ; can benefit not only their own countries but the world at large, The fundamental question that arises is whether the IP systems so far generated in the developed world can help to protect such knowledge and vast resources and guarantee justice to their owners.

From the point of view of the government, conferring of the IP right is a matter of public policy and hence the IP policy should be so designed that the benefit to society (in terms of improvement in basic facilities and infrastructure and technological innovation) must out-weigh the cost to the society (in terms of the high cost to be paid by the consumers and the cost of administering the system). But the point is that the IP right Itself being a private one, the financial benefits and costs fall on different social groups.

An IP right may be viewed as a means for enabling countries to facilitate the enjoyment of basic socio rights. IPRs should never be allowed to dominate over the fundamental human rights. In fact, IPRs (e.g., patents and copyrights), granted by governments, are short-term in nature but the basic human rights are inherent to the human being. Unfortunately, today in most cases, lPRs are treated as economic and commercial rights held by the corporations rather than individual inventors. The granting of such

rights and their application in their developing countries will, in all probability, benefit the holders of the lPRs at the expense of the basic human rights of the poor people of the

developing countries who will be largely be deprived of even the basic necessities of life due to the high costs involved.

The problem is that, the interests of the owners/creators of IPs continue to dominate

the formulation of lPR policies, and those of the ultimate consumers are pushed to the hedge. The developing countries operate from a weaker position while negotiating with the developed countries in matters relating to lPRs, Thus, policy makers should seriously examine the possible effects of implementation of the IPRs on the ultimate consumers before going for further extension of IPRs instead of simply taking care of the interests of the owners/creators of lPRs,

The crux of the whole thing is that the commercial interests of the developed world often come in conflict with the developmental needs of the developing countries. What is important is that too high IPR standards should not be indiscriminately imposed on the developing countries and relevant technologies should be made available to them at competitive prices. The developing countries also need to strongly put up their causes in different world forum and countries like India and China are expected to play a leading role in this respect