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Technology Transfer Contracts and the clauses covered under it

The concept of transfer of technology is becoming a mondial issue specifically in developing countries and becomes one of the noticeable topics. We all know how technology is emerging in now a day and becoming helpful for a country's economic system by facilitating new reforms. Countries are now using the invention for boosting up their economic system with the help of industrialization.

Technology helps a goods-based company for higher production and service-based company to provide advance service. Although investing in technology development can be toilful and costly, because there are many uncertainties related to the innovation stride, it has the advantage of avoiding technical dependency on other companies and enables the company to develop its technological capabilities and innovate according to its own specific needs. Companies have to determine either they have to build in-house technology or take it from others.

Technology Transfer Contracts and Negotiating

Technology transfer is the process by which commercial technology is disseminated[1]. Technology transfer may take the form of tactile knowledge, information expressed in physical objects, facilities, and codified in blueprints, plans, technical articles, etc., or intangible knowledge., For instance, expertise, techniques that people have gained or developed to operate the technology over a while in a sector or area.

Negotiating a technology licensing agreement is agreeing under which the licensor grants and the licensee gains the right to use the licensor's technology under specified terms and conditions. To get a win-win consequence, both the licensor and licensee must be mindful of the fact that each party has some interest that they will bring to the relationship. Knowing what that interest is and knowing the needs and aspiration of both parties in entering such an agreement is the key to a prosperous negotiation[2].

The sectors for interference are explained to the supplier for agreements involving states, problems relating to the right to patents, trademarks, local laws on technology imports, foreign exchange etc. need to be considered. The exchange of information will be in writing outlining straightforward outlines of the agreement, permitting parties to take a slight look at the provisions set forward by the other side.

Role of Technology Transfer in Economic Development

Successful transfer of technology helps promote the research institution and its commercial partners and results in a development in the economy of a country. Technology transfer is a key factor strongly impacting on economic growth both in the short and long term. Increase in physical stock of productive and innovative resource helps a lot to make the economy stronger.
Some exploitation of economical resources
  • Innovation
  • Manpower
  • Natural resource
  • Physical resource

How productivity will increase
  • Labor
  • Innovation capacity
  • Capital
  • Natural resources
  • Improvement in quality R&D

Methods of Transfer of Technology

UNCTAD has defined some types of transfer transactions that may use, the draft Transfer of Technology Code has listed:
  1. the assignment, sale and licensing of all forms of industrial property, except for trademarks, service marks and trade names.
  2. Know-how and technical expertise in the form of supply of services.
  3. Necessary technical knowledge for the installation, operation and functioning of plant and equipment.
  4. Necessary technical knowledge to acquire and use machinery, equipment, intermediary goods and raw materials by purchase, lease or other means;
  5. The provision of technological contents of industrial and technical co-operation arrangements. [3]

Important Clauses under Transfer of Technology Contract

This provision lay down the overall description of transferring technology like the strategy, technology, and resources. The clause should also specify the things that are exempt from the license's purview, responsibilities of the parties in the performance.
The reach can be in the form of technical information which can be given in such a way that the other party can replicate the same with little difficulty. Field of use restriction clause can be inserted into the agreement that a patent licensor grants the license to use the patent only in a particular area.

Intellectual Property
Intellectual property included in a technology transfer contract and that intellectual property includes patents, trademark, design, and know-how. Developing technology requires tremendous effort, but it is easy to clone such intellectual properties.

Mainly, the intellectual property clause is given in an agreement to the client to remain the sole owner of the intellectual property and protect the real owner from any third party infringement.

The agreement must clarify the provisions regarding the management of confidentiality and privacy. In the confidentiality clause, it must be laid down the responsibilities and obligation to both the parties to make all the information regarding the technology private. In case of any breach or improper intervention of the third party, the licensee might face some legal action, financial damages, and might harm the reputation of the company.

For any such breach in the future, the remedies and indemnity provision should be mentioned for both the parties.

In the termination clause, it should be mentioned that under which circumstances an agreement of transfer of technology may be terminated. The reason for the termination need not result from any legal dispute. The termination may be done with mutual consent or by one of the party. The termination clause may include the reason like non-payment of the fee or price of the contract and any breach of contract from any party to the contract or the quality of the product or service is not as good as the vendor described. It also includes force majeure as one reason for termination and insolvency.

Performance Guarantee clause
This clause deals with a guarantee regarding technical performance standards which the investor should perform. It should affirm the design it will be met and also punitive measures if it�s not met. Sometimes for the non-met of the guaranteed performance, cause for termination of the contract.

Quality of the product, the accomplishment of work within the given period, and better research and development facilities become an important point under this clause to make a fair contract.

Pricing and fee structure
The fee structures under the agreement must be clear for what, how and where they will use with a schedule like for ongoing fee, taxes, foreign exchange, employee-on cost, employee entitlement and many more. For the satisfaction purposes and transparency, the customer right must be given under the clause by which a customer can audit all the invoices and bills.
The parties can also make the provision of the minimum payment, in case any difficulties, if faced by the company in future with the financial burden. The basis of payment is on a lump-sum basis or royalty basis should be mentioned which they will pay.

A technology transfer agreement will include a warranty clause that ensures that the licensor has sole possession of the transferred Intellectual Property and that the Intellectual Property doesn�t infringe any third party rights. The clause must have a period of warranty during which the customer can get some benefit of rework or newly added service with some condition because the chances of risk are always there in a contract. The vendor may refuse the warranty if he found any involvement of the third party without his knowledge.

Dispute Resolution
This clause provides detail regarding the procedure which will be used when a dispute arises between the parties. This clause used as pre-decided for the resolution if any dispute arises between the parties and they can dispose of the matter with the help of arbitrator and without going into the court. Arbitration is one of the Alternative Dispute Resolution (ADR) method which used for disposal of commercial matter arises between the parties. In this clause, it is necessary to mention the jurisdiction clause and governing law.

If the indemnity scenario occurs between the parties, the vendor will indemnify, hold harmless and defend the client Indemnities or the client will indemnify, hold harmless and defend the vendor Indemnities from and against any Losses resulting from any Third Party Claim.

Miscellaneous Clause
The miscellaneous clause covers all the other remaining points or matters which are not covered under the above clauses and is used to cover up those clauses which are also having some importance for a fair contract. This clause mentions periodical auditing, indemnity details, insurance provisions, etc. changes in ownership is an elective point to state either in a separate clause or add this into the miscellaneous. This clause also deals with the business structure and the organization about how it will run to achieve the goal.

If there is any modification required which may either wholly or partially, then it can be done with a prior agreement or understanding between the parties relating to the subject matter hereof.

After completing the write-up I conclude that they are the clauses which make an agreement/contract stable and fair for both parties. A valid and fair contract helps to makes a better relationship between the parties which result in accomplishing the goal of both parties of the contract successfully.

A developing country like India needs to work on technology transfer and its development. India needs to make polices related to technology transfer and to make young people cognizant to the benefits related to the technology transfer, by setting up the relevant institutes/academies and increasing the pace of technology transfer and technological research and development from a technical point of view.

  1. Transfer Of Technology, United Nations Conference On Trade And Development, 2001
  2. Negotiating Guidelines And Tips, Exchanging Value Negotiating Technology Licensing Agreements, WIPO, 906E, Nov. 2010
  3. (UNCTAD, 1996a, vol. I, p. 183)
Written by:
  1. Saket Anand - BBA LLB, University Institute of Legal Studies, Chandigarh University.
  2. Komal Chowbey - BBA LLB, Faculty of Law, Banasthali Vidyapith

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