Conditions and Prospects of Intellectual Property Market Organization in the Context of Innovative Antirecessionary Development of Indo-Russian Partnership in the 21st Century.

I greet the participants of the 1^st India-Russia Dialogue: Strategic Opportunities and Challenges on behalf of the Academic Board of the National Scientific Research Institute of Intellectual Property (NSRIIP) - a unique scientific non-profit organization in the Russian Federation that specializes on intellectual property research issues. NSRIIP was founded in 2005 by the Accounts Chamber of the Russian Federation with the participation of the Russian Academy of Sciences.

  For the last 3 years NSRIIP has signed 55 agreements with state government bodies, the following among them; Federal Service for Intellectual Property, Patents and Trademarks (Rospatent); Federal Service for Defense Orders; Federal Agency on Protection of Military, Special, and Dual-Use Intellectual Property (FAPRID) affiliated with the Russian Federation Ministry of Justice; Russian Federation constituent entities’ government bodies; and state corporations “Russian Defense Export” (Rosoboronexport), “Russian Technologies” (Rostechnologii), “Russian Corporation of Nanotechnologies” (Rosnano). NSRIIP has also established scientific research centers of intellectual property in all federal districts of Russia, and several branches of the Institute in the European Union and North America.

 Such geographic expansion allows NSRIIP team broadening the scientific research scope and carrying out full-cycle services in the field of intellectual property for universities, organizations, and major Russian energy, oil, aviation and shipbuilding corporations. In its turn it serves to working out unique technologies to solve most complicated problems of the innovation cycle, i.e. transfer knowledge into a new product, and to prepare the benchmark and rules of the future intellectual property market for it to operate as civilized.

 The present report covers the main conclusions, pointing out the core challenges and problem-solving approaches based on the aforementioned research.

 Situation Assessment:  Russia and India as Strategic Partners.

       International Legal Framework

 n  13 April, 1947  - diplomatic relations established;

n  28 January,1993 – Treaty of Friendship and Cooperation;

n  October, 2000 – Declaration of Strategic Partnership;

n  2000 – Complex Long-Term Scientific-Technical Cooperation Programme for the period until 2010 (more than 130 projects);

n  3-7 February, 2006 – Memorandum of Cooperation between the Ministry for Economic Development of Russia and the Ministry for Trade and Industries of India (increasing goods turnover up to 10 billion US dollars by 2010);

n  The Year of Russia in India (2008) and the Year of India in Russia (2009);

n  30 June, 1994 – Scientific-Technical Cooperation Agreement (for 10 yrs++);

n  23 December, 1994 – Agreement for the Promotion and Mutual Protection of Investments (for 10 yrs  + 15 yrs);

n  21 December, 1998 – Joint Document on Development of Trade, Economic, Industrial, Financial, Science and Technology Cooperation (by 2010);

n  4 December, 2002 – Protocol of Protection and Execution of IP Rights, attached to the Agreement of 30.06.1994;

n  12 November, 2003 – Protocol of Scientific Cooperation Between the Russian Academy of Sciences and the Science &Technologies Department, Government of India; Scientific Cooperation and Scientist Exchange Agreement between the Russian Academy of Sciences (RAS) and Indian National Science Academy (INSA);

n  3 December, 2004 – Cooperation Agreement on Peaceful Space Exploration, incl. a Supplement on IP;  

n  13 February, 2007 – Agreement on Protection of Some Items of Tea, Rice and Mango used on the territory of Russia.

 Conclusion: improvement and development  needed

 Commercial Development Priorities:

 n  Transition from trading to bilateral joint production using innovative technologies through the intellectual property market; 

n  Improvement of the infrastructure from bilateral to multilateral cooperation through  promoting innovations (Hailigendam Process 8+5 (India, China, Mexico, Brazil, Republic of South Africa) , Asia-Pacific Economic Cooperation);

n  Construction of Kudankulam NPP (cost - about USD 2.6 bln., rated capacity - 2000 МW), nuclear fuel supply to Tarapur NPP;

n   Sakhalin-1 oil-gas field development project with participation of the Indian state enterprise ONGC (USD 1.7 bln. investments by India);

n   Exploration and development of gas fields in the shelf area of the Bay of Bengal with participation of ОАО Gazprom;

n  Metallurgy;

n  Transport corridor «North - South»;

n  Lunar mission “Candrayan-2”.

Military-Technical Cooperation:

 n  RF MTC (728 military industry sector enterprises) - 57 countries, only 1/3- intergovernmental agreements;

n  India – over 40 % of RF defense export and 60-70% of own defense imports;

n  MTC program by 2010 - over 200 projects amounting to apprx. USD 20 bln. (MiG – 29 К Fulcrum, MiG – 29 КUB, Ка-31, Smertch Multiple Launch Rocket System (MLRS));

n   Strategy – transition from trading to joint licensed production (SU-30МКI airplane, Т-90С tank, BraMos supersonic cruise missile).

 The successful foreign experience of transition to innovative economics (USA, Japan, China) shows that the principle condition of such transition is organizing an intellectual property (IP) market.

Three questions of IP market organization:

 n  What (IP market object)?

n  Who (IP market participants/entities)?

n  How (IP market development mechanisms)?

Three reasons why it is important.

 1. IP is the crucial resource of the antirecessionary innovation development strategy;

2. IP is companies’ capitalization and property insurance resource in transition to self-regulation in construction;

3. IP is an opportunity for the poor become wealthy.

The basic objects of the market are not results of intellectual activity but intellectual property which serves as the basis of nonmaterial assets of the major market participants. The only possible way to legally implement new technology in real economy either of national or foreign enterprises and organizations, as well as to prevent rights infringement, is to assign copyrights and insure legal protection of the intellectual property.

 The state, that finances more than ¾ of all research and advanced development activities, must assign copyrights for the results of these activities either to state enterprises and organizations, or to state corporations, treasury, or reserve it to the performer.

 Today, for absolute majority of the results of intellectual activities copyrights are not determined neither openly – through patenting, nor through closed techniques – know-how as highly confidential and proprietary. Consequently, they are not considered to be intellectual property, but information. As it is, the latter has been removed from objects of civil rights and civil transactions in compliance with Article 128 of the Russian Civil Code (since 01 Jan., 2008).

 According to Rospatent figures, only about 10 of 100 per cent patentable government funding intellectual property objects are been patented, while only 1-2% of them are commercialized. And only 368 intellectual property rights are assigned to the Russian Federation against 1^st January, 2009.

Nowadays the amount of patent applications is negligibly small not only if compared to European countries, but even if to compare to former USSR practices. This is also the reason for extremely small share of innovative products - it doesn’t exceed 5%, - in the total sales volume of industrial products in Russia. If 20 years ago more than 3000 of national inventions were patented each year abroad, in 2006 there were only 500 of patent applications.

While in developed countries every forth national invention is patented abroad, allowing them to sell copyrights effectively and to protect them in case of infringement on the territory of these countries. In the Russian Federation only every sixtieth national invention is patented, that is 100 times less than in the USA and 50 times less than in Germany. Obviously, it is necessary to restore the system of selection and patenting of national inventions abroad.

At this conjuncture the largest foreign producers work out ways unprecedented in the international practice to legally assign exclusive copyrights for Russian government funding inventions to their own favor, they also make free use of technical documentation containing technologies and other results of intellectual activities.

According to inspections of Rospatent and the Accounts Chamber of the Russian Federation, in the majority of Russian enterprises and organizations the nonmaterial assets are next to none (less than 1-2%). The foreign semicentennial experience of nonmaterial assets capitalization with respect to intellectual property is practically either neglected or of no use.

Moreover, in 2008 the Russian Ministry of Economic Development forecasted that the outstripping growth of expenditures on research and advanced development in China and India would bring them up to scientific and technological  leadership in the world by 2020; by increasing the input into the knowledge-driven economy they will have 1/3 share of the global economic development. The experience of these countries is also disregarded or taken primitively.

The reasons are as follows:

 First of all, Russian legislation has changed substantially in terms of intellectual property.

According to paragraph VIII of Article 2 of the Stockholm Convention (constituting WIPO - 1967) the term “intellectual property” includes the complex of rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields.

 For the Convention has been ratified by the Russian Federation, and more than 20 of its international treaties signed and ratified by state laws contain direct references to the standards mentioned, these provisions remain in force from 1^st January, 2008. Furthermore, on 1^st January, 2008  Part 4 of the Russian Civil Code entered into force. It includes the norms concerning intellectual property,  previously covered in 6 special laws.

 Moreover, Articles 2 and 128 of Part 4 of the Russian Civil Code has been amended substantially, and Article 138 has been removed completely. Therefore, Article 2 determines exclusive rights for intellectual activities as copyrights, while the results themselves or equivalent individualization means -  as intellectual property  (see Article 128). Whereas, unlike international standards in the Russian law system the list of intellectual property objects is closed, while the list of rights for them is open.

According to Part 4 of the Civil Code, the following are referred to as intellectual property rights:

1. exclusive property right;
2. personal non-property right;
3. right for access, “droit de suit”;

4.      other rights like right for remuneration, right for withdrawal, right for patent, right for denomination of selection achievements.

 A revolutionary amendment for the Russian and international laws and law enforcement practices has become Article 1252 which determines the list of infringing merchandise and set-off  measures.

Starting from 1^st January, 2008 in Russia the following are considered to be infringing: any tangible medium of legally protected intellectual activity results or means of individualization (20 categories) in case of infringement of exclusive copyrights (cf.: only 4 categories before). Whereas, not only the tangible media are subject to set-off and further destruction, but all the manufacturing equipment and resources used for the purpose as well.

 Secondly, there is no innovative motivation of the major participants at any stage of the process, be that producing knowledge in the course of research or technology adoption in the real sector of economy and further commercialization.

 The roots of this problem originate in socialization of any intellectual property in Russia in the beginning of the 20^th century and until 1990^th. So, the problems of allocation and assignment of rights, as well as building up a remuneration system for using official results of intellectual activity, remain on the front burner.

 Thirdly, the connection between the 3 main groups of government entities and businesses in the innovation cycle has not been formed yet because of the following:

 -    Multiple re-organizations of the responsible Ministry (Ministry for Industry, Science and Technologies -  renamed into Ministry for Education and Science now) has led to a gap between declared powers and real functions, which have been transferred to other authorities;

-    Among 80 state clients distributing budget funds for research and development there are only 2 main participants in the civil sector – Ministry for Education and Science and Federal Agency for Science and Innovation. As a rule, their activity in the field often terminates with obtaining new knowledge and “cash disbursement”, so the most important objectives of adopting and commercializing new technologies are thereby not achieved;

-    The main government entities responsible for creation and development of the innovative infrastructure are Ministry for Economic Development and Ministry for Information Technologies and Communication. The other 3 government entities responsible for the real sector of the economy, i.e. Ministry for Industry and Commerce, Ministry for Energy and Ministry for Regional Development, have no significant power either over implementation of the state research and development program or over transformation of obtained knowledge into innovative products.

 Major tasks of building up non-material assets at innovation launch stage

Research & Development – Results of intellectual activity (obtaining new knowledge) – Innovation (commercialization of the new knowledge):

 1. Inventory and recording of intellectual activity products (expert evaluation of their industrial exploitability, protectability, marketability of the new knowledge and technologies (marketing, monitoring), and determining means of their protection);

2. Building up intellectual activity products database of institutions, enterprises, treasury (in regions) in accordance with the expert evaluation figures regarding the following criteria:

 -products of intellectual activity (further – “PIA”) do not need additional technological development before commercialization;

- PIA need technological development (investor – venture investments (business angels, venture funds and campaigns))

-in compliance with research and development results PIA call for ME to produce a pilot lot and start the production  (investor – venture funds, enterprises, banks);

-PIA with high commercialization potential as per research and development results do not need ME;  (investor – venture fund, enterprise, bank);

-allocation of intellectual property rights for PIA (among the state client, the customer, the performer and the author);

-assignment of rights for PIA (patenting, registration, know-how);

-evaluation of rights for PIA;

          -determination of the remuneration and/or compensation system for authors for creating PIA;

          -introduction of PIA to the financial statement as non-material assets (if necessary);

          - tax optimization of non-material assets;

-determination of terms of non-material assets transference (alienation agreement, license agreement, security and pledge agreement, franchise agreement, Memorandum and AC -  non-material assets as part of equity capital ) ;

-insurance against intellectual property risks;

-protection of infringed intellectual property rights.

Conclusions:

 On the international level it is necessary to join efforts within the framework of joint innovative programs implementing pilot projects on managing intellectual property in each country-participant of the Dialogue and make provisions for best practice exchange. On the national level state departmental policy must be unified and coordinated.

1. It is important to point out most stable industries and sectors of economy relevant for their effect to overcome the crisis; and to identify innovative technologies which are crucial for each of these sectors. On the basis of this analysis the stated projects must be corrected, including those within the framework of international cooperation.
2. Permanent monitoring of implementing the national project on managing intellectual property is also needed. The SYSTEM must be created and operated according to common, understandable and transparent criteria and rules of innovative motivation of all participants of the process, and have a united coordination centre.
3. Coordinated actions are necessary for carrying out the following activities:

• legal education in governmental, scientific and business structures;
• improvement of legislation and methodological bases (it is important to set up an international Technical Committee for Standardization “Intellectual Property and Innovations in the Economy”);
• staff training and its continuing education.

In the 21^st century along with traditional commodities intellectual rights for innovative technologies must become a significant point of the bilateral Russian-Indian cooperation market. They would serve as a result and an indicator of implementing innovative development strategy through the intellectual property market.

 Suggestions:

 For successful development of the Russia-India relations under joint strategic innovative projects NSRIIP offers for consideration and possible implementation the following suggestions concerning the organization of the intellectual property and innovations market:

 - Considering the divergences of norms of the bilateral agreements between Russia and India (1994-2008) and the national laws regulating the relations in this area, to carry out comparative legal analysis of the specified statutory acts and to prepare offers on their streamlining and improvement (April – December 2009).

 - To carry out inventory of PIA on Russian-Indian strategic partnership projects in order to reveal and allocate rights for the intellectual property being created, to evaluate the market cost of created (acquired) non-material assets on the basis of intellectual property for their further commercialization, and even on the territory of other countries. To consider joint license manufacture of Su-30MKI planes, as well as engineering and manufacture of the fifth generation plane in India as the first pilot project trial of legal and economic mechanisms of the Russian-Indian cooperation.

 - In order to create an effective mechanism of launching innovative dual-use technologies in the civil sector of economy under realization of military-technical cooperation projects and strategic Russian-Indian partnership and to optimize expenses, to establish a non-profit partnership «International (Russia – India) Specialized Technology Park – Conversion», (whereat JSFC "Systema" could act as one of the со-founders with subsequent transfer of front office functions to its representation).

 - For to constantly implement the aforementioned tasks, as well as to maintain management of the intellectual property of the international technology park, to create a NSRIIP branch in India.