Article written by Avirup Bose on "To ensure success of Startup India, Digital India, regulators must encourage innovation" - The Financial Express

January 01, 2017 | Prof. Avirup Bose

There has been a flurry of developments in India’s innovation landscape since the country announced its National IPR Policy, earlier last summer. The policy document rightly underscores the government’s recognition of the importance of strong intellectual property rights for fostering innovation and to ensure the success of its flagship programmes of Startup India and Digital India. Although this is a welcome move, but India needs to adopt measures for implementing such forward-looking policies as well.

For example, in spite of having an IPR policy, and after making robust efforts to remove red-tapism, India ranked 37th out of 38 countries on the 2016 Global Intellectual Property Centre’s IP index, and has improved its position by merely one rank on the 2016 World Bank’s Ease of Doing Business index. The World Bank specifically cited lack of implementation of certain policy initiatives for India’s poor ranking.
Given that India’s capacity for entrepreneurial innovation stands at the cross-roads of a mature IPR framework, competitive prowess and an ability to attract investment—each of which has a different regulatory structure in India—implementation of progresses made by the legislative/executive should not be curtailed by the country’s economic regulators or courts. Therefore, the question we need to ask is: What is the role of regulators/courts in encouraging innovation?
Currently, regulators perceive their role as law-enforcing agencies, charged with the responsibility of either ex ante standardising sectoral rules of conduct or ex post deciding legal liability issues of sectoral/industry actors. Innovation is not an input factor in their regulatory decision-making process. Regulators, neither voluntarily nor under law, are required to assess the impact of their decisions/policies on an industry’s capacity to innovate or grow.
To create a robust innovation ecosystem, India needs to ensure that innovation remains central in both the economic policy-making of the government as well as in the judicial process of its regulators and courts. To develop a national vision of innovation, the regulatory agendas of regulators/courts should be in coherence with the innovation agenda of the federal or state governments.
For example, last year, the Competition Commission of India (CCI), without any detailed inquiry, passed interim orders against Ericsson that its royalty calculation methodology—based on the entire value of a product using its standard essential patents (SEP)—is unfair, anticompetitive behaviour. Although the issue of determining the appropriate SEP royalty rate remains sub judice, CCI’s conclusionary remarks that Ericsson’s royalty practices were abusive in nature did not consider if it could chill effect on the incentive to innovate for the telecom industry. Similarly, CCI’s order against 14 automobile firms requiring them to sell their proprietary designed spare parts and diagnostic tools in the open market without pricing conditions and further standardise the design of their spare parts to facilitate their use across brands did not consider the innovation requirements of the automobile industry.
The Telecom Regulatory Authority of India (Trai) with its net neutrality ruling—which disallowed differential pricing by telecommunication service providers, based on the content consumed by the users—could have discouraged investments in telecom infrastructure, internet penetration and development of innovative internet data products. India’s media and entertainment industry’s innovation woes arise from Trai’s required fixed tariff rules, which prevent the effective monetisation of the industry’s rich content. Similarly, the Securities and Exchange Board of India’s (Sebi) notice against crowdfunding platforms, warning investors that they could be in violation of the country’s securities laws, could have offered a premature blow to India’s budding crowdfunding start-ups, consequently limiting the availability of funding resources for India’s medium and small innovators. The Delhi High Court’s recent copyright verdict, which confers unrestricted reprographic (reproduction of graphics through mechanical or electrical means) rights on academic institutions may drive reputed publishers out of the field of Indian academic publishing or chill their incentive to invest in developing innovative learning platforms.
It is not an argument that regulators/courts need to prioritise the innovation needs of a sector over issues of consumer safety, fair market access, product quality, etc. However, regulators in their regulatory processes should be equally focused on the potential effects of their actions on the innovative capacity of the sectors they regulate. They should help facilitate emergence of new industrial ideas as much as regulate them.
For this, a new relationship needs to be developed between regulators and regulatees. Currently, Indian regulators have a policing attitude towards industry behaviour, focused on delineating industry dos and don’ts, and are reactionary—especially in dealing with sectoral innovations which occur within an unregulated space—rather than facilitating or incentivising the emergence of path-breaking solutions.
The idea is to make Indian regulatory agencies a stakeholder of the sector/industry’s sectoral process, where industry actors and regulators, on a real-time basis, will facilitate the development of innovative solutions for consumer needs within a given regulated or unregulated legal framework. For this, Indian regulators need to pro-actively develop a good understanding of the market ecosystem in which sectoral innovation is occurring. Similarly, generalist courts, on the other hand, should defer to the wisdom of these expert regulators while deciding appeals within the larger rule-of-law framework.
The Niti Aayog, under the auspices of the Atal Innovation Mission, can take leadership in developing the details of a cohesive national strategy for innovation, and work with Indian regulators/courts to promote the need to develop a new regulatory agenda for India’s judicial and quasi-judicial agencies which will partner the government’s vision for transforming the country into an innovation destination.
The author is assistant director, Centre for International Trade and Economic Laws, Jindal Global Law School, and former expert consultant, Competition Commission of India