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Innovating for Social Causes

Howard Bowen

The term "Corporate Social Responsibility" (CSR) was first coined by Howard Bowen in the year 1953. In his book "Social Responsibility of Businessmen", Bowen defined CSR as "the responsibilities to society which business people can be reasonably expected to assume". Thus, the term reflects the mutual relationship between society and businesses.

CSR was first evolved when manufacturing companies started conducting campaigns for the betterment of local community comprising their manufacturing facilities. The need for such campaigns arose because companies realized they were directly or indirectly effecting the local community and its environment.

In India, CSR activities traditionally involve either donations, which are handed to a non-governmental organization (NGO), or running of trusts or foundations. For example, McDonalds' restaurants in North and East India use donations to eradicate childhood blindness, in association with Orbis International and Dr. Shroff's Charity Eye Hospitals.

However, NGO's in India are often perceived to be non-efficient and corrupt. Thus, companies are faced with the challenge of ensuring the donations reach the intended beneficiaries.

As a result, running of trusts/foundations is favored by companies. In addition to ensuring fulfillment of CSR, the trust can also be used to avail tax benefits. A study by the National Foundation of India in 2013 found that 20 of the 26 High Net Worth Individuals (HNWI) in India preferred routing their philanthropic activities through a family run foundation.

There are two major drawbacks with philanthropic activities carried out by foundations. First, the tax benefits are prone to misuse. In November 2013, the Comptroller and Auditor General questioned the tax benefits given to Rs. 3,000 crores invested by two trusts run by the Tatas. Second, the philanthropic activities are, by and large, non-strategic. Very few foundations such as the Azim Premji Foundation, put in sustained efforts over a prolonged period of time for a particular cause.

In order to overcome these drawbacks, the Ministry of Corporate Affairs heralded the beginning of a new era, with the notification of the Companies Act, 2013 and the Companies (CSR Rules Policy), with effect from April 1, 2014. With this notification, India became the first country in the world to incorporate CSR into its legislation.

The legislation is intended to make companies focus on strategic long-term and sustainable social initiatives. The new provisions mandate companies that have a "net worth of Rs. 500 crores, turnover of Rs. 1,000 crores, or a net profit of Rs. 500 crores" to spend "at least 2% of their net profits for the immediately preceding three financial years" on CSR activities that have been laid out in Schedule VII, which include hostels for women, aiding of armed forces or their families, animal conservation and soil quality improvement measures, livelihood enhancement and rural development projects and funding of approved academic technology incubators. Donations to political parties are no longer considered as part of CSR.

Though the legislation does not mandate companies to innovate, there is considerable scope for innovation in activities such as animal conservation and rural development. Moreover, sustainability, which is defined as "the ability of the present generation to meet its needs, without compromising on the ability of the future generations to meet their needs", requires innovation. Where there is innovation, there is bound to be intellectual property rights (IPR), which could facilitate companies in fulfilling their CSR through low-cost and sustainable solutions.

Piramal Foundation

Piramal Water Limited, a for-profit social enterprise was founded by the Piramal Foundation in 2008 to provide innovative solutions to drinking water problems in Indian villages. The company, under the brand name "Sarvajal" developed a sustainable, low-cost, solar-powered water vending machine termed as "Water ATM", which stores clean water and can be re-filled by the nearest franchisee. It came up with an attractive pricing scheme of $0.6 cents (~ 0.35 INR) per litre of water, thus reiterating its commitment to social welfare (one litre of packaged water normally costs around 0.5 USD). Customers could pay using a smart card, which could be easily topped up using a mobile phone. The company monitored its water purification units 24x7 using a remote cloud-based system. The system has grown rapidly and currently has over 150 franchisees supplying clean water to over 1,00,000 people. The system has also helped reduce the use of plastic bottles as customers fill water in their own containers. Though the technology is patented both in India and the US, it is an excellent example of use of a patented system for social welfare, thus dispensing the myth that patents are always associated with a price premium. Patents simply ensure that no one can copy the system and charge higher rates.

Godrej's Chotukool is another example of a company providing an innovative solution for a social need. Recognizing the need in rural areas for an affordable way to keep foodstuffs for a day or two without getting spoilt and equipped with the vision of transforming the lives of millions of rural Indians, the company came up with an innovative portable (7.8 kgs), battery-run refrigerator that uses a cooling chip, instead of a traditional compressor, along with a cooling fan similar to the ones used in computers. Priced at around Rs. 3,500 ($60 USD) only, the company also came up with an innovative business model for delivering the product by partnering with India Post for a wider reach. The product was voted as a gold winner in the "Social Impact" category at the Edison Awards 2012 held in Chicago.

In addition to providing innovative in-house solutions to developmental challenges, companies are also recognizing and utilizing the power of open source innovation. For example, Mahindra's "Rise Prize" is aimed at promoting breakthrough technological innovations in India. Recently, Mr. Anand Mahindra, Chairman of the Mahindra Group, threw open a million dollar challenge to any innovator who can build a driverless car for congested traffic ($700,000 award) and a Do-it-Yourself affordable roof top solar kit for household needs ($300,000).

Marico Innovation Foundation

A few companies have taken on the task of building and nurturing a culture of innovation among Indian business entities. For example, the CSR arm of Marico, Marico Innovation Foundation "strives to unlock the potential of social enterprises in India by building a culture of innovation." This is primarily done via two means- the annually held Marico Innovation Awards that recognize the greatest Indian innovations across business and social sectors and Innowin, which is India's first magazine completely dedicated to innovation. PayPal India has also chosen to go down this line with the start of a incubator for fostering start-ups at its Chennai campus. The company aims to provide selected start-ups with high level technology and business mentoring, which it hopes would provide them with a competitive edge once they move out of the incubator.

Global consulting firm Bain and Company estimates that voluntary philanthropy contributions constitute only about 0.6% of India's GDP, while in the US, they constitute about 2% of the GDP. Thus, it is hoped that, the new legislation forces companies to give back more and for particular causes. Will the legislation serve its intended effect? Let us wait and watch!

Venkatesh Viswanath

Venkatesh Viswanath
Patent Agent
PGD (IPR), M.F (Biotech), B. Tech (Biotech)
Surana and Surana International Attorneys


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Protect Your Goods at the Border

As part of the enforcement of the Trade Promotion Agreement entered into between Peru and the United States, Legislative Decree 1092 of June 27 2008 and its Regulation (Supreme Decree No 003-2009-EF) entered into force on February 1, 2009, approving Border Measures for the protection of copyrights or related rights and trade mark rights.

It defines pirated and counterfeit goods and makes provisions for border control measures to be taken by the Peruvian Customs administration. Its protective scope covers exported and imported goods and goods in transit that are suspected of infringing intellectual property rights, but does not cover small quantities of goods, inherently non-commercial goods and the personal belongings of travelers.

A pirated good is defined as any good that is a non- authorized copy of a work protected in the manufacturing country, when the production of said copy constitutes an infringement of a copyright or a related right under the law of the importer country.

A counterfeit good is defined as any good, including packaging, bearing without authorization a trade mark that is identical to a trade mark already registered in respect of such goods, or a trade mark in which the essential aspects cannot be distinguished from the registered trade mark, thereby infringing the rights of the owner of the trade mark in question under the law of the country of importation.

Finding Fakes

The border control measures can be initiated by a citizen, a lawyer or the Customs administration. Peruvian Customs can perform spontaneous inspections of goods if they have reasonable grounds to believe that they are counterfeit or pirated, and cannot be held liable for any damage to inspected goods.

When requesting protection at the borders, the petitioner will be required by the Customs administration to deposit a bond to cover possible losses or damages caused to the importer, exporter and/or consignee of the goods resulting from any suspension of the release of non-infringing goods. This bond must be a sum equivalent to 20% of free on board (FOB) value of the goods. In the case of perishable goods, the guarantee shall be constituted by 100% of FOB value of it. Merchandise under US$ 200 FOB value will not be affected.

The precautionary measures that can be granted are immobilization, seizure or withholding of the merchandise.

Sworn declarations will be accepted only from public entities, as well as foreign entities and institutions of international cooperation, ENIEX, non-governmental organizations for national development, or non-profit private institutions funded by donations for educational purposes that are duly registered before the Peruvian Agency of International Cooperation (APCI).

Howard Bowen

In order to verify the ownership of the relevant goods and to suspend them at the border, trade mark owners or their legal representatives or agents must be registered in an official database kept by the Customs administration. The Customs board will liaise with the Peruvian Trademark Office (INDECOPI) for the purpose of registering right holders.

Parallel Import

As mentioned above, the border measures are only applied to those goods bearing a counterfeit trade mark or pirated goods. They are not applicable to so-called parallel imports, or goods bearing an authentic trade mark that are traded by third parties without the consent of the trade mark owner. Based on the principle of exhaustion of trade mark rights, the trade exclusion right of a trade mark owner ends once he has authorized the incorporation in trade of the goods identified with his trade mark. This principle has been included in the Andean Community legislation in Article 158 of the Decision 486 of the Cartagena Agreement, which reads: “Trademark registration shall not confer on the owner the rights to prevent third parties from engaging in trade in a product protected by registration once the owner of the registered trademark or another party with the consent of or economic ties to that owner has introduced that product into the trade of any country, in particular where any such products, packaging or packing as may have been in direct contact with the product concerned have not undergone any change, alteration, or deterioration.”

The quoted regulation, which is applied to the Andean Community countries (Bolivia, Colombia, Ecuador and Peru), deals with a doctrine known as “supranational exhaustion of trade mark rights”. This doctrine comes into effect when the good is first traded in a supranational market (in this case the Andean Community of Nations). National exhaustion occurs when the first sale of trademarked goods by the owner (or a third party with its authorized consent) takes place in the local market of the subject country. Finally, the international exhaustion of trade mark rights is invoked when the first trade is conducted in a foreign market, i.e., in the market of an export state that is not integrated within a supranational market. International exhaustion assumes the complete freedom of imports and the attendant parallel sales of the authentic trademarked goods in the import state wherein that trade mark is registered.

Copyright

Regarding copyrights and related rights, the WIPO treaties of 1996 state that no aspect of the treaties will affect the parties’ abilities to determine the conditions, if any, whereby the right of exhaustion shall be applied after the first sale or another transfer with authorization of the owner.

The Andean Decision 351, Common Regime on Copyrights and Related Matters, includes in its Article 13 d), says that the author enjoys the exclusive patrimonial right to prohibit (or authorize) import into the territory of any Member Country any reproductions made without the authorization of the right holder. Thus, the right does not exist when the reproductions have been made with the authorization of the owner, in which case it can be asserted that the owner’s right has been exhausted and therefore he can not oppose the parallel import.

Parallel imports are vital to the economy and development of Latin American markets. Whether a country decides to allow parallel imports or not has a direct impact on the development of the free market.

The subject has become divided into two irreconcilable camps. One believes in international exhaustion and claims that segmentation of the markets is contrary to free trade. This concept is ironically supported by many industrialized countries who, in other circumstances, proclaim themselves defenders of the free market of goods and services. Prohibiting parallel imports could propitiate abuses and predatory practices by the holders of IP rights, particularly with respect to underdeveloped countries, where the presence of competitor goods is a basic need. The other school of thought advocates the advantages of territorial exhaustion, claiming that segmentation would allow prices of merchandise to be lowered in poorer countries without the risk of resale in markets of greater economic affluence.