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Jul, 29 2015

How can franchisors guard against patent infringement?

Let's take a quick look at steps that helps franchisors in protecting their brand’s patent rights to cement stronger position in the market.

As an expression intellectual property connotes a cluster of rights acquired by any person upon creations of his mind such as inventions, literary and artistic works, processes, designs and symbols, names and images used in commerce. The intent of any intellectual property system is to safeguard the rights of an inventor/ creator in the work of its cognition, inception and creation. Patent is one such right covered under the umbrella of intellectual property rights. In India, patent means the grant of some privilege or property by the Government to one or more persons and statutorily, a patent has been defined under the Patent Act, 1970 (“Patent Act”), as 'a patent for any invention (i.e., a new product or process involving an inventive step and capable of industrial application) granted under the act'.

The object of patent law is to encourage scientific research, new technology and industrial progress. The Supreme Court observed in the matter of Bishawanath Prasad RadheyShyam v. Hindustan Metal Industries that grant of exclusive privilege to own, use or sell the method or the 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 Patent Office, which after expiry of the fixed period of monopoly, passes into the public domain.

Benefits conferred upon the Patentee

The Indian patent law recognises the exclusive right of a patentee to gain commercial advantage out of his invention for the duration of the patent and restrict third parties from using, reproducing, offering to sell, or selling the invention in any manner unless it is allowed by the patentee.

In accordance with the Patent Act, a patent granted after the commencement of the Patent Act confers upon the patentee:

A) Where the patent is for an article or  substance, the  exclusive right by himself, his agents or  licensees  to make,  use, exercise, sell or distribute  such  article  or substance in India;

B) Where a patent is for a method or process of manufacturing an article or substance, the exclusive right by himself, his agents or licensees to use or exercise the method or process in India.

Protecting patent rights

Considering the exclusive benefits of inventing new technologies/ processes, it is important that such inventions are protected by law to mitigate against probability of conflicting ownership claims for a similar invention. The Elisha Grey-Graham Bell controversy pertaining to the invention of harmonic telegraph is one such instance that dates back to as early as the 1800s. Therefore the first step every inventor/franchisor must consider is to get his technology registered and acquire a patent to protect his ownership rights in his invention.

Registration of patents

An invention is patentable if it satisfies the following, inter alia, requirements:

Novelty: The invention has to be new and cannot be part of a prior existing art. Prior art herein refers to everything that has been published, presented or disclosed to the public as on the date of filing for the patent.

Inventiveness (Non-obviousness): An inventive step means a feature of an invention that involves technical advancement as compared to the existing knowledge and that makes the invention not obvious to a person skilled in the art.

Industrial application: The invention is capable of use and application.

The process and the time taken in filing the application at the appropriate Patent Office in India to the grant of patent (if successful) is time consuming and goes through various stages of scrutiny, publication, opposition by any third party, examination by the Patent Office. Once the objections raised by the Patent Office or any contesting third party are duly satisfied by the applicant, the Patent Office may proceed with the issuance of order of grant of patent for a period of 20 years from the date of filing.

Patent licensing

In the realm of franchising, patent licensing is a legal tool which allows a patentee to exploit his patent rights by permitting a third party to use and commercialise the invention before the expiry of the patent. For the purposes of protection of the patentee/franchisor's rights, it is imperative that any license arrangement must be documented in a written agreement laying out all the terms and conditions related to the extent, scope and period of use of the patent by the licensee. Licensing of a patent shall not be construed valid unless the same is reduced to writing and duly executed by both the parties in accordance with the Patent Act. Additionally, the Patent Act requires such license of patents to be registered with the Controller of Patents in the register of patents.

Registration of patent rights is imperative but it is more important to understand how to use, exploit and safeguard patent rights including by ensuring execution of necessary agreements to minimize conflict and unwarranted hardships which may defeat the purpose of the seeking patent rights in the first place.

Franchisor should consider the following points in order to safeguard his interests:

= The patentee must ensure that the subject matter and the scope of the license agreement is clearly and unambiguously defined in the agreement to avoid any potential future disputes.

= The license rights should specifically cover the territory of use and exclusive or non-exclusive nature of the use.

= The duration of license along with terms of renewal must be specifically agreed in the agreement provided such duration does not exceed the term of the patent.

= Exploitation of patent rights may be allowed on payment of a one time or annual fixed fee or a small initial fee coupled with recurring royalty calculated as a percentage of the licensee's gross revenue from the sale of the patented products. Understanding of payment of taxes applicable to the transaction is also critical for avoidance of future disputes.

= Protection of the confidential information and data associated with the patent is important and therefore inclusion of confidentiality and non-disclosure covenants of the licensee is must part of the agreement.

= The franchisor will continue to be the true, legal and beneficial owner of the patent together with all intellectual property rights and this aspect needs to be recorded.

(Seema Jhingan, a Partner at LexCounsel Law Offices, has substantial expertise in representing investors, developers, VC/PE funds, international corporations, sponsors/lenders and other strategic investors involved in the establishment, development and financing of infrastructure, education, IT and satellite projects in India. She is recognised for her capability of structuring innovative franchising and investment models and has considerable transactional experience in representing franchisors and franchisees.)

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