Impact of patent policy changes on R&D expenditure by industries in India

• DOI: http://doi.org/10.1111/jwip.12090
• Date: 01 March 2018
• Published date: 01 March 2018

DOI: 10.1111/jwip.12090

ORIGINAL ARTICLE

Impact of patent policy changes on R&D

expenditure by industries in India

Ruchi Sharma

1

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Audhesh K. Paswan

2

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Sunil K. Ambrammal

3

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Madan Dhanora

4

1

WS-203, School of Humanities and Social

Sciences, Indian Institute of Technology

Indore, Simrol, Indore, Madhya Pradesh,

India

2

University of North Texas, Denton, Texas

3

National Institute of Technology Goa,

Farmagudi, Ponda, Goa, India

4

Indian Institute of Technology Indore,

Simrol, Indore, Madhya Pradesh, India

Correspondence

Ruchi Sharma, Associate Professor, WS-203,

School of Humanities and Social Sciences,

Indian Institute of Technology Indore,

Simrol, Indore 453 552, Madhya Pradesh,

India.

Email: ruchi@iiti.ac.in

Funding information

Indian Council of Social Science Research,

Grant number: 2-018/2010-RP

Emerging economies realizing the importance of innovation

are taking steps to enhance their innovative capabilities.

Among the tools used, institutional factor such as patent

protection policy is being increasingly used by such

economies, despite mixed research evidence linking patent

protection policies and innovation. This study investigates

the effects of patent policy changes on stimulating innova-

tion in India. Panel data regression technique is used on data

for 1989–1990 to 2009–2010. The results indicate that

patent policy changes, specifically, increase in the protection

duration, enforcement mechanism, and membership into

international convention dimensions of patent policy have

positive influence on the R&D intensity.

KEYWORDS

patent policy, research and development expenditure, TRIPS

agreement

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INTRODUCTION

Emerging economies are building their innovation capability to create superior value, become competitive in

international market, and enhance the well-being of their stakeholders. To achieve this goal, these economies are

using tools such as policy changes, creation of research clusters and parks, development of dynamic capability, and

access to much needed resources. Of these, institutional factors such as intellectual property or patent rights have

been suggested to be a key determinant of innovation (Arrow, 1962). It is also a major source of debate in the world

trade arena (Chaudhuri & Das, 2006; Mazzoleni & Nelson, 1998; Prabudha, 2004; Watal, 2002) as evidence linking

© 2017 The Authors. The Journal of World Intellectual Property © 2017 John Wiley & Sons Ltd

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wileyonlinelibrary.com/journal/jwip J World Intellect Prop. 2018;21:52–69.

patent policy and innovation is still mixed (Allred & Park, 2007; Branstetter, 2004; Qian, 2007). Hence, this study

investigates the effects of patent policy changes on stimulating innovation in emerging economies with India as the

research context.

The importance of this study is underscored by the fact that patent policy of a country is seen as a significant tool

to stimulate innovation by ensuring appropriation of the investments made in the research and development (R&D)

activity by the innovator. History reveals that developed economies formulated patent regime to suite the special

requirements of their industry.

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Traditionally, patent policy is territorial in nature with the level and conditions of

protection being determined by national laws and enforcement institutions. Agreement on Trade Related Aspects of

Intellectual Property Rights (TRIPs) under the aegis of World Trade Organization (WTO) lays down minimum

standards of protection (e.g., subject matter of coverage, rights covered, exceptions granted, and the duration of

coverage) of intellectual properties including patents for member states. The objective of the agreement is to

stimulate domestic innovation and facilitate technology transfer through strong rights.

India as a founding member of WTO complied with the TRIPs agreement by 2005 and changed domestic

legislation as per the agreement's stipulation, thus increasing the strength of patent rights to right-holders. Key

changes included increase in the duration of the patent protection to 20 years, provision for product patents for food

and pharmaceutical industry, signing of Paris Convention and Patent Cooperation Treaty, and making provisions for

the preliminary injunctions, contributory infringement and burden of proof reversal. However, some within the Indian

political and regulatory landscape have raised concern about the gains from signing the agreement. Thus, the findings

of this study should help provide some direction to this debate.

This study, next, presents patent policy changes in India along with the implication of such changes on theowners'

rights, followed by a review of the existing literature on patent policies and innovation in emerging economies. In the

next section, we discuss the hypothesized model, data sources and control variables. This is followed by the details of

the research method and discussion of the findings.Finally, we present the implications, both theoretical and practical,

of the results and limitations.

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PATENT POLICY CHANGES IN INDIA

The history of patent regime of India dates back to the 19th century when as acolony of British Empire, India followed

Act XV based on United Kingdom Act of 1852. Indian Patents and Designs Act, 1911, formalized all the rules prevalent

at that time to cover industrial designs and patents. Following the recommendations of the Justice N. Rajagopala

Ayyangar committee, Patent Act of 1970 replaced the Act of 1911 and was implemented in 1972. The Patent Act of

1970 must be viewed in light of the economic and social realities of the times. In order to ensure that food and

medicines are available to public at the cheapest prices, the act allowed only processes to be patented in the

respective sectors for limited time period of 7 years. For the innovations in other field of technology, the act provided

protection for 14 years. The Act remained in force for 24 years.

TRIPs came into the picture in 1995 with minimum standards of seven types of IPRs including patents for

member's countries of WTO. India also made many changes in its domestic patent policy to comply with TRIPs

agreements. A series of ordinances were issued for changing the act of 1970. Patents (Amendment) Act, 1999 that

replaced the 1999 ordinance was brought into force retrospectively from January 1, 1995. This amendment made

provision for receiving the applications for the product patent in the field of pharmaceutical and agricultural chemicals

during the transition phase 1995–2005. The amendment provided for the grant of exclusive marketing rights (EMR)

for distribution and sale of pharmaceutical products to the manufacturer for a period of 5 years from the date of

obtaining marketing approval or until a product patent is granted or rejected, whichever is shorter. India also became

member of the Paris Convention in 1998.

The second amendment to the 1970 Act is made through the Patent (Amendment) Act, 2002 that came into force

on May 20, 2003. This amendment made the term of patent protection in all fields of technology uniform for 20 years.

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