SEED Corporate Project

Project Report

Table of Contents

Contents
Background Info Research Examples Recommendations References

Page No.
2 5 7 11 13

2|Page

Background Info:
(How does licensing/contract manufacturing work? What are its typical aspects etc.?)

Licensing
Technology licensing: Agreement whereby an owner of a technological intellectual property (the licensor) allows another party (the licensee) to use, modify, and/or resell that property in exchange for compensation (consideration). The compensation may take the form of a (1) lump sum royalty, (2) royalty based on volume of production (called running royalty), or (3) right to use licensee's technology (called cross licensing). Through licensing of proprietary technology, small firms can earn substantial income from markets that they could not penetrate on their own, and large firms can have foreign affiliates without high financial and legal risks. Contract Manufacturing: Production of goods by one firm, under the label or brand of another firm is referred to as Contract Manufacturing. Contract manufacturers provide such service to several (even competing) firms based on their own or the customers' designs, formulas, and/or specifications. It is also called private label manufacturing. Licensing fee: A fixed payment made to a governing authority by

an individual or corporation seeking a permit to engage in a specific activity. The fees vary by jurisdiction and are determined by the type of activity to be conducted. Whether someone is involved in in peddling, providing medical services, gambling or the operation of nuclear reactors, a licensing fee must be paid. License Agreements: Define all the obligations of the receiver and the knowledge transfer of during and after the term of the agreement clauses clearly so that the receiver is aware of

3|Page

what and how he can use and/or disclose delivered knowledge during and after the term of the agreement. Understanding the scope of the license: What is the field of technology transfer and technology use Subject matter of the License Whether the License is exclusive, non-exclusive or co-extensive with the licensor What are the Licensed activities What is the Licensed territory What is the duration of the License What is the IP covered by the License

Licence Agreements - The key aspects: What is being licensed What are the rights of parties involved in the deal What are the financial and commercial aspects of the licensing arrangements What is the term of the licence Other aspects of the agreement such as confidentiality Who will own the rights to further developments by the licensee? Will the Licenser transfer further developments to the licensee as part of this agreement? Or what will be the arrangement?

Licence Agreements -Key issues: The rights make, use sell? Geographical jurisdiction of the rights Exclusive or non-exclusive Rights to sub-licence by the licensee? Rights to the improvements? 4|Page

Term of the agreement Are there any minimum time limits set for the licensee to put the licence into practice? If such time restrictions are not met, what are the consequences? Clauses that will survive beyond the term of the agreement Any anti-competitive practices have been built in the agreement? Rights to conduct parallel imports? What will happen if the technology licensed under this agreement becomes a subject of compulsory licence in a country? Who will be responsible for the renewal of the IPR associated with the technologies covered in the licence agreement? Who will bear the costs for such transactions? Who will be responsible for any disputes arising with respect to the IPR associated with the licence agreement? Who will bear the legal costs of the disputes arising out of the IPR associated with the licence agreement? What will be the impact on the commercial terms and the rights acquired if the IPR associated with the licence agreement get invalidated? What will be the impact on the royalty payments if the disputes related to the IPR are settled in favour or against the owner of the IPR associated with the licensing agreement? What happens if the licensee files for bankruptcy, insolvency,

Structure of Licensing Agreements: Title of Transaction Table of content Identification of parties and signatories to a binding agreement Recitals and preamble a. Narrative - b. Introductory Definitions Period of agreement, Warranties and representations from both sides, description of rights, licensors and licensees obligations etc. Clauses on IPR (in some cases clauses related to right of first refusal) Confidentiality Clauses 5|Page

6|Page

Research:
(Reports, Information given by Industry Experts etc.)
Information given by Ranjith: 1) SEED water pump has the depth reach of only 30 feet. This is a major issue; as such low water table levels are available only near banks of river and delta region of rivers. Ex: Bangladesh, West Bengal etc. This will narrow down the market for the water pump.

2) He gave an example of Jain Irrigation in Gurgaon, which used the method of drip irrigation in order to lower down their cost. Initially, they had a cost of around Rs 1,00,000 per acre, which they bought down to Rs 20,000 per acre. This was done by making used of the cheaper materials and by getting subsidy from the government.

3) Another example was that of GEWP (Global Easy Water Products), a for profit social enterprise in India that focuses on developing and delivering low-cost irrigation solutions to small farmers who are often overlooked by technology advancements. GEWP is sourcing micro irrigation products from small scale manufacturers at present 58 small scale manufactures are associated with GEWP. In order to ensure the access of its affordable products GEWP is taking help of dealers & sub-dealers which are based in the rural markets. At present more than 1000 such dealers are associated with us.

4) Some of the important issues which SEED should look into before going ahead are: Cost, price point Accessibility of the product Quality of product: should be robust Distribution mechanism Viability: In terms of availability of diesel in rural areas, price of diesel and the ease of availability.

7|Page

5) Suggestion given by him was to take the SEED forward as a Social venture. Look for a venture capitalist. The expected returns will be in the range of 18-20%, the period of return will be 5-7 years.

Information given by Rajeev: 1) Licensing: Different types of licensing available: - Technology licensing, Intellectual Property licensing, Brand licensing, Character licensing. SEED is in the area of technology/intellectual property licensing. This type of licensing is relatively uncommon in India as compared to other types of licensing.

2) Technology Licensing is done when some value is provided by the licensor. IP licensing is done when the licensor is providing some support i.e. know how of some products used by licensee.

3) SEED should look into what all it can provide to the licensee in order to increase the confidence of the licensee about the product. Like: a) Value by the product b) Hand holding c) Know how d) Reports about the feasibility of product e) Relevant data (collected from pilot test done in Bangladesh)

4) Rajiv provided consultancy to an entrepreneur who got into licensing with a Chennai based company working in Agri equipments. The entrepreneur joined the company as a consultant. And he used to visit their Coimbatore based manufacturing unit thrice a week. This gave the entrepreneur the idea and access to the manufacturer as well as he can look after any issues with the design or any other problem in manufacturing.

5) How to go about Licensing:

8|Page

a) First and foremost, file a patent. A patent brings a lot of credibility to the design. At least go for provisional patent. This will help in 2 ways: help in investment raising and help in licensing out. b) Identify the companies to be partnered with. IDEI is an example. Search for Agri equipment businesses. There are a number of small and fragmented players. Do not go for them. Try to go for decent size, medium to large scale manufacturers. Search for 10 companies in Agri equipment or Agri pumps and target them. c) Do not go for very large scale companies also as they will take too much time to respond, they will too many processes. It takes around a year with such companies d) 6 months is the average time taken for the licensing process. Very less chance of this time period to come down. e) Better preparation on SEEDs end is the key. Get the technical specifications, e-brochures, relevant data and various reports etc. ready. Prepare a demo video about the product and upload it on YouTube, so that the prospective partners can have an idea about the product beforehand.

6) Examples of companies who have taken the licensing route: a) Rajiv couldnt share much data as it was against their policy. b) Search for WIPO (World Intellectual Property Organization) website. In their case study section, there are a number of case studies related to licensing, both in India and abroad.

9|Page

Examples:
(How best Licensing/contract manufacturing was used to an advantage from both industry relevant as well as non-relevant industry)

Relevant Industry:
Attached as Annexure

Non-relevant Industry:
Overview

Name:

Dr. Milind V. Rane / Unidyne Energy Environment Systems Pvt. Ltd. Commercial Enterprise, Entrepreneur Industrial Engineering

Object of Protection:

Inventions

Organization Type:

Instrument of Patents Protection:

Industry:

Focus: Global Issues:

Commercialization, Licensing, Partnerships Environment

Country/Territory: India

Background 10 | P a g e

Dr. Milind V. Rane, an Indian inventor, was a freelance consultant when he conceived and developed the design for the Matrix Heat Recovery Unit (MHRU). The invention relates to a heat exchanger an innovative compact design to heat fluids using waste heat from exhausts and can be used to heat a variety of fluids. It can recover heat from hot gases and/or vapours from engines, gensets, boilers or furnaces. Heat is recovered in the form of steam, hot water or hot thermic fluid. Invention Thermodynamics tells us that if we want to cool a substance, we need to remove heat for which we have to do work. Now this 'waste' heat which we have extracted can in turn be used to produce heating, says Dr. Rane. The concept of the MHRU is based on this logic and was motivated by the need to develop a heat recovery unit to address certain limitations of the prior art (shell and tube configuration with gas or water tube designs). The inventive step of the MHRU was the combination of at least two sets of heat transfer passages encapsulated in a conducting matrix, wherein one of the sets carries hot gases and the heat recovery fluid passes through the other set. Dr. Ranes invention scores over conventional designs in terms of compactness, safety and flexibility. Additionally, the costs of the MHRU are 20 to 25% lower than that of conventional designs. Partnerships and Licensing In the late 1990s, Dr. Rane was introduced to Unidyne Energy Environment Systems Pvt. Ltd. by one of his friends. Unidyne is a small-scale company, based in Mumbai and engaged in the manufacturing and sale of direct waste heat fired boilers and various industrial thermal energy systems. Following a demonstration of the invention to the company, Dr. Rane signed a Memorandum of Understanding (MoU) with Unidyne by which a license was granted to Unidyne to manufacture and sell the MHRUs as engine exhaust fired steam generators and water and thermic heaters. As per the MoU, a down payment was made at the time of signing, and subsequent payments were made after achieving various milestones during the demonstration phases. The agreement stipulated a royalty rate of 4.5% of net sales for the inventor. For Unidyne, the MoU represented an important move as it enabled the company to enhance its product portfolio and widen its technology and customer base. For the inventor, the license provided a vehicle for the commercialization of the invention. Patents A provisional patent for MHRU was filed in India in 1999 after the successful demonstration of the invention to Unidyne. The invention was licensed on 11 | P a g e

the basis of this patent application and the costs of patent filing and maintenance were borne by Unidyne. The first examination report was received from the Indian patent office in early 2004. The patent agent was changed mid course and the patent specification and claims had to be amended. After a hearing at the patent office and a few office actions with the patent examiner, the patent was accepted in October 2004. The patent was not assigned to Unidyne, but it was agreed that the technology would not be licensed to any other company in India as long as a minimum royalty payment schedule is met. Since this was the inventors first exposure to the patent system, and since there was a lack of adequate initial guidance, the invention was only filed in India. The priority period lapsed without filing applications abroad. With hindsight, this proved to be a mistake, as the market for the MHRU extends beyond the national boundaries. Amending the claims to the patent specification during the patent prosecution stage was an important step to be able to effectively protect the invention. Interactive sessions with the patent agent have also opened up new avenues, and the inventor has now filed Indian as well as PCT applications for several other inventions, some of which are already in the process of being licensed for commercialization. Commercialization and Business Results Following the signing of the MoU, even before a patent was granted for the invention, as many as 45 MHRUs were installed in various companies in India. Initially, MHRUs were marketed through Unidynes existing network. Subsequently, an original equipment manufacturer (OEM) contract was signed with Cummins Diesel Sales and Services (CDSS). Revenues generated from the down payment and the royalties have helped for the development of other inventions. Dr. Rane has continued his R&D work, and a number of new technologies and products have already been developed, while many others are being developed. From Concept to Commercialization: Benefits of the Patent System The process leading to commercialization of the MHRU was an eye-opener for Dr. Rane on the potential benefits that can result from effective use of the patent system. Although joint efforts between the inventors and firms in intellectual property development have many advantages, benefits sharing can be an area where disputes can arise if contentious issues are not sorted out before work is started. The collaboration between Dr. Rane and Unidyne shows that these issues can be resolved through proper contract responsibilities and obligations.

12 | P a g e

Recommendations:
(What do you recommend SEED do? If licensing/contract mfg is the chosen path, then what would be the best course of action/strategy to follow? Include potential contacts or organizations to contact)
Analyzing the various factors and discussions with the experts on the field of Licensing & Intellectual Property Rights, we as a team has concluded that there are two options for SEED. Option 1 is to apply for a patent and then do a tie up with a contract manufacturer in this sector. Option 2 is to go ahead with the current plan for getting models imported from China and selling to Indian market. Going ahead, we would like to present the pros and cons of these options and to convey our findings Option 1: Go ahead for the licensing option Before going into the details of this option, we must understand the level of awareness and implementation of IPR in our country. The levels of implementation are gradually improving in the organized sectors wherein the leaders are taking various initiatives for the implementation. Since 2005, Indian govt has also given clearance for product patents apart from the usual process patents. But again, when we look into the unorganized sectors wherein there are few or no national players and more of regional players; implementation of IPR laws becomes very difficult. These, when looking into the pump sector in India, are quite realistic. So before going to the positives of this option, we must consider the cons. As our design is far better than the current models in the market and gives better performance it would become risky to share our design with a contract manufacturer. There is a chance that the manufacturer himself too may implement this design in his products and launch them into the market. Hence, while going for this option, we must take care that the contractual document takes care of the various conditions that needs to be kept. We have identified certain and would be mentioning them in this document. On the other hand, if we go for this option then we would be able to address some of the major issues that we are facing right now. There are some of the following positives of this option as listed follows: By tying up with the contract manufacturer, we would be able to take advantage of the developed manufacturing facilities in India. Also, we would get the relevant market knowledge from these contract players which at present is very limited Another benefit of this option would be that in the initial years, it would help manage the working capital requirement for the project and tide over the lower no of orders initially 13 | P a g e

We would be able to avoid the initial capital investment required for the project and can also avoid acceptance risk of the product in the market This model would also help us in exchange expertise in this sector with the established player in terms of product development and also market development

Now, to go ahead with this option, there would be a number of steps that needs to be taken for the execution of this option. These are listed below: Firstly, apply for a product patent with the process explained in the earlier sections The next step would be of identifying the regions in which we want to launch the product and thereby identify a manufacturing partner & signing a contract. Consideration for establishing a distribution network with options like microfranchising, NGO tie-ups etc Last but not the least, there must be a 5 year plan designed for the lifetime of the product and also SEEDs journey. This plan would have projections in terms of numbers and possibilities for assembling/manufacturing/new product development.

Now while tying up with such a player, there are some caveats that need to be taken care of. These are as follows: o Proper agreement made with the contract manufacturer in terms of the design aspects of the product & terms of usage The contractor must not have its products in the market that we are launching in so that there is no cannibalization of our product We can have conditions for usage of the contractors distributors in case we want to launch our products in adjacent markets For reaping the product benefits, they can have a condition that marketing infrastructure of the contractor can be used and a proper component in the royalty amount for the contractor Patent law reinforcement arrangements too can be made with the contractor to avoid any spurious products in the market

Option 2: Continue with the current model The current model is that of importing the product assembly from China and then selling it to the identified markets of our country. Now presently we are facing pricing issues for the product and hence we got to negotiate better with our 14 | P a g e

Chinese supplier. This model would give us more time to keep running our business as usual and explore other opportunities in the Indian manufacturing space. With the current model itself, there are chances of design copy which is a huge issue in China but then again, we need to figure out from the two options available. We can tweak the current model in several ways and a few suggestions can be: We can try and bring CKD (Completely Knocked Down) units from China and then form smaller centres for assembling them and then selling. By doing this, we would be able to reduce the amount of duties to be paid Another option can be localizing certain parts which are possible to like finding aluminium casters if possible and producing the major parts in India We can also look into an option of using a 3HP motor rather than an IC engine. There are two advantages of this viz expanding our market and another is reducing the no of parts required to be imported and hence the duty amounts For distributing of our models, we can take support from NGOs working in this sector and explore options of micro-franchising, sponsored products by govt/NGOs & community usage Apart from these, China too being an agrarian economy, we can try to identify opportunities along with our importer for launching our product in that market

These are some of the recommendations that we think can help SEED to move ahead in its business plans. Of course there may be other options too that may pan out but we feel that they are out of the scope of the project and we have tried and listed out our suggestions.

15 | P a g e

References:
http://www.wipo.int/ipadvantage

http://www.iam-magazine.com/
http://www.gewp-india.com/

16 | P a g e