Guiding Businesses


Intellectual Property Rights are essential assets for the growth and development of any economy. They refer to the legal right granted to the creations that have arisen from the intellect of a human. These rights are granted in order to encourage creativity and innovation by ensuring that the creators reap the benefits of the inventions or works. IPRs are classified into numerous kinds such as copyrights, patents, trademarks, geographical indications, design etc. The globalisation of economic activities and expansion of international transactions which involve knowledge-intensive programs have focused a lot on this area. This has led to a high degree of protection of this area by the nations at a worldwide level. Keeping this in mind, IPRs play a massive role in taking decisions for FDIs. The existence of a pro-competitive business environment is of the utmost importance when it comes to FDIs. It is urged that FDI and licensing tend to benefit the recipient country and it is essential that such flows result in stronger competition on markets, promoting long term gains.


China has always been criticised for having weak IPR Protections, which is now beginning to change due to external pressure and internal economic objectives. Despite there being an existence of strong laws and to protect IPR, the Chinese are unable to embrace these entirely as they focus more on short term gain. This is probably because the country views the practice of having a more stringent IPR as potentially compromising on its economic production and consumption. There might be instances of corruption and local protectionism that come in the way of proper enforcement. Additionally, limited or insufficient resources, as well as trainign available to enforcement officials regarding the impacts of IPR violations, can hamper enforcement of IP laws.

India is also considered to have inadequate IPR regulations, as mentioned in the Priority Watch List. The office of United States Trade Representative (USTR) annually prepares a Special 301 report which identifies countries that have inadequate intellectual property rights protection and fair market access to US entities relying on its protection. The Government of India has time and again dismissed the suggestions offered by the US to enhance its IPR regulations. However, this remains one of the biggest hurdles when it comes to entering into bilateral agreements with countries like the USA. The main concerns that arise are due to inadequate trade secret protection, online piracy, domestic distribution and export of counterfeit pharmaceuticals. The fact that India refuses to strengthen its IPR regulations could negatively impact the economy of the country and reduce its chances of being party to several agreements.


A lot of developments have been made in the realm of Intellectual Property Rights wherein countries are taking an active effort to adopt a set of minimum standards on IPR. This is done by signing the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) by the developing countries that are members of the World Trade Organization (WTO). The strengthening of IPR protection is beneficial in the manner that it would have an impact on the innovation and Foreign Direct Investment (FDI) in these developing countries. FDI has become an essential aspect and is an important source of private external finance in developing countries. It is primarily motivated by the long term prospects of the investors to make profits in production activities directly controlled by them. This helps in improving firms access to markets for goods and services and increases competition in markets that were previously protected by forcing firms to seek new markets, resources and assets abroad. IP is a significant asset and is important for the development of advanced industries that require a lot of research and innovation. However, strong IPR practices are not adequate incentives for companies and individuals to invest in a country. IPs are included in the investment agreements as it increases the value of the investment and the IP could be subject to the general guarantees given to the investors. It can further lead to providing a legal basis to foreign investors for a cause of action against the host country for failing to protect their IP.


 Foreign direct investment and bilateral trade agreements

Foreign Direct Investment or FDI is essentially an investment in the form of controlling ownership which is made from a party or entity in one country into the business of another country. This leads to not only the inflow of money but also knowledge, skills, competition, superior technology, market access abroad and bridging of foreign exchange gaps in the country where the investment is being made. It is considered to be an essential aspect of the development of any country and is a catalyst for the economic growth of the host country. Various factors come into play while making investment decisions, and they include the new technologies, specific organisational skills, reputation for quality etc. Additionally, certain other factors include location advantages by the foreign company, which makes it more profitable to locate the business abroad. Another reason would be the profitability of firms to internalise production instead of selling or licensing their intellectual assets to independent local firms in foreign companies. The investment in IPR protects the exporting firms from being limited to the local markets and thus, increase the market size facing exporters and inducing them to expand their sales. Additional market power is granted to such firms, and the countries with stronger IPR protection tend to attract more imports.

Free trade agreements are agreements between two or more nations that allow unrestricted purchase and sale of goods and services between the parties without the imposition of certain constraints. These agreements can either be bilateral or multilateral. Bilateral Trade Agreements are necessarily agreements between two nations which confers favoured trading status between the two nations. This is done by giving access by both to each other's markets, and this leads to an increase in the trade and economic growth of a country. When it comes to Intellectual Property Rights, these agreements are made to agree that neither of the nations will steal the other's innovative products. They tend to adopt each other's copyright and other intellectual property laws. When a country enters into a trade agreement with another country, the signatories are obligated to amend their intellectual property laws to match or resemble those of the more developed country.



A lot of confusion exists regarding the influence of IPR on foreign investment. This confusion pertains to whether strong protection of the IPR of a country has a positive or negative impact on foreign investment in a country. The reason for a positive impact is that the risk of copying or imitating the IP would be less and this would lead to a higher demand for protected products. Conversely, the negative impact would be that a strong IP protection would provide the holder of the right with immense market power. This might lead to the firms to divest in the country and get their services from other foreign countries. Also, if there are higher levels of protection, the investors may choose to switch the mode of delivery that is preferred from foreign production to licensing. Thus, there is a lot of ambiguity in the effects of a higher level of protection of IPR on investment. However, on average, stronger IPR protection policies have a stronger tendency to induce higher inwards flow of FDI.

The relationship between IPR and Trade is not entirely simple but is rather complex, and it is not mandatory to include IP in Trade. The main aim of Intellectual Property Rights is to protect the creations of the human intellect, which are essential in our day to day lives and also help in maintaining growth and development. Trade, on the other hand, is related to exchanging goods and services subsequent to the intellectual creation process and is primarily done to satisfy needs and distribute the resources efficiently in national and international markets. The functions of these two might coincide as the objective of free trade is to move goods and services across borders without barriers. However, intellectual property laws have complex rules when it comes to parallel importation, exhaustion of rights and doctrines of infringement. These rules are helpful for the owners of the rights as they can then restrict the movement of goods. While IPR focuses on maintaining a monopoly, for proper investment to occur, some competition needs to subsist. Thus, it can be seen that stronger IPR protection tends to be manipulative as it creates a new form of protectionism under the idea of intellectual property rights.


Technology Transfer plays a crucial role in the growth of any country. Technology can be defined as "the information necessary to achieve a certain production outcome from a particular means of combining or processing selected inputs." Comprehensively, the definition of technology is not only limited to equipment. It also includes the transfer of skills, knowledge to operate, use and maintain as well as understand the technology hardware to make it possible to innovate independently in the future. Technology transfer refers to the activity of one party, gaining access to the knowledge of another party and becomes able to adapt the knowledge successfully in the specific process of production. This becomes important so that local people, farmers, firms and governments can make and design technologies which can, later on, be helpful in the growth of our economy. There are many barriers linked with the transfer of technology and these include poor infrastructure, inadequate laws and regulations, lack of absorptive capacity, shortage of skilled personnel, lack of finance, ignorance of technological issues, high cost of certain agreements, problems created by suppliers of equipment and intellectual property rights. While these barriers are subjective, there are certain central problems while transferring to developing countries. These include the fact that there has been a liberalisation of the economy, which means the technology can be directly exported without resorting to Foreign Direct Investment (FDI) or licensing, the licensing technologies would assist a licensee in becoming a potential competitor in the global market, and for licensing to become a viable option, the expected return should yield more than the transaction costs and risks paid by the licensor.

It is often seen that the availability of an effective IPR protection regime provides foreign companies with an incentive to transfer the technologies that are protected to developing countries. This, in turn, increases the inflow of FDI, thereby bringing about technology transfer to the host country. However, there is no clear cut evidence that strengthened IPRs will result in direct FDI. In certain situations, a strong IPR protection can make the situation more problematic, and a weakened IP regime can facilitate access to foreign technologies. This can be seen as India has the most US Food and Drug Administration- approved manufacturing facilities outside the US, which is a testament of the superior technology and quality standards achieved by Indian manufacturers when the IP protection was low.


Intellectual Property Rights and investment have a complicated relationship which is yet to be appropriately uncovered. Most of the theories that revolve around their interactions are statistics-based, and there is very little theoretical knowledge pertaining to this that exists. IPR has a very strong future, and this is a pivotal time for its future. It is essential for the countries, especially developing countries, to come up with strategic policies to promote the economic objectives of intellectual property. These policies must align with the International standards and the TRIPS Agreement and should be made in a way that further the objectives of the international trade scheme. When dealing with IPR, Trade and investments, it is always beneficial to ensure that there is effective competition. In order to further the interests of free trade agreements with respect to IPR, it is essential to combat high levels of intellectual property piracy overseas, support research and development and establish a more suitable balance of trade.




About the author: Ankita Sethi a fourth year law student from Symbiosis Law School, Pune. She has an inclination towards Intellectual Property Rights and its intersection with Media and Entertainment Laws. She is extremely motivated and passionate about studying law and enjoy solving real life problems. She also enjoys reading, cooking and meeting new people. She loves doing adventurous things and checking things off her to-do list.

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