Unraveling the Indian software conundrum

by Abhinna Shreshtha    Nov 19, 2010

Unraveling the Indian software conundrumConsider these statistics, in 2009, China had 7,900 patent applications while the US had around 45,000 patent applications. In comparison to these two, India had just a measly 761 patent applications. For a country that prides itself for its talent, the numbers are a cruel jolt of reality and an indication that something is seriously wrong with the software companies in India.

Take the case of Adepto, a privately-funded startup that recently launched a social media application for e-commerce. Like many other Indian software start-ups, Adepto’s management had to face a critical decision – should they apply for an Indian patent or not. “We had a choice between waiting to get a patent or going out and getting our first customer. Patent and piracy laws are anyway not strong in India, so even going through the difficult and expensive process of applying for patent would not have been of any use,” said Kiran Kumar, co-founder of Adepto. Unfortunately for Indian companies, Kumar’s opinions are also echoed by others.

“Applying for patents in India is a big headache. It is not easy to develop a product in India. The environment is not suitable to create IPs here and there are a number of obstacles in the way,” agrees Pradeep Palzhai, COO of EC Media, which has launched an e-book reader - Wink, in India.

The ‘headaches’ that Palzhai refers to are mainly the rigid IP laws in the country. An example is that Indian laws do not allow patent registration for products that are commercially available in the market. For a start-up working on shoestring budgets waiting to get a patent before going to market could have serious ramifications.

A more pertinent issue, says Keshav Dhakad, director (IPR & license compliance) for Microsoft India, is that the patent laws are too confusing for many companies. For example, one clause in the patent laws that states that ’software per se’ cannot be granted a patent. “This makes many think that software itself is not patentable in India,” explains Dhakad. More complications arise when companies have to show their software along with its application. This is one reason that even a company like Tally has not filed for a patent yet. “As of now, stand-alone software and business methods cannot be patented. Only some software, which produce a technical effect or enable new or enhanced functionalities in hardware are patentable,” explained Sanjeev Palekar, head-legal & company secretary for Tally Solutions.

Add to this the expenses for patent applications (which can go up to Rs. 8 lakh in some cases) and the unavoidable red tape, and one can understand the reticence of software companies.

Even if a company goes through with the patent application process, the problem does not stop there. The common feeling is that copyright laws are lax in the country. However Dhakad, who is also a part of piracy watchdog - BSA, disagrees. According to him, the laws are good enough but they are not enforced. That maybe true, but for the majority of software companies, there is hardly any difference between the two.

The question obviously is that with all these inherent difficulties, does it make sense for a company to take the path? For most software companies India is not the target market. Their main aim is to tap the more mature markets of the US and Western Europe. In fact, most of the companies that treat IP callously in India are quite serious about applying for patents in the US. So, is this reason why India sees so less software patents?

Rahuldev Rajguru, co-founder and CEO of Aquilonis, the company behind the popular call diverting tool - xblockr, does not believe this view, though he does agree that the US is the prime target for Indian software companies. His view is that Indian patents do not bring any value to the company. “Indian patents are not recognized in other countries. Unlike the US, where having a software patent is a prerequisite to getting investment, Indian investors are not concerned whether the company has a patent or not. Then, why should a start-up spend all these efforts getting one?” argues Rajguru. Patent laws are also much more stringently enforced in the US agree both Kumar and Dhakad.

Rajguru’s opinion is valid to an extent. Indian start-ups, especially those which take on the arduous task of creating indigenous products, have some very unique problems, as compared to their western counterparts. Infrastructure is not of the highest quality and not available everywhere. Getting financed is also always an issue with Indian investors considered too risk conscious to invest in software product firms. Though India has a very large talent pool, it lacks large numbers of high-quality, specialized talent. There is a resource crunch in terms of high skilled engineering. “We conduct 40-60 interviews a week in India, but only 1-2 of these actually join us. In contrast, in Eastern Europe, the joining rate is nearly 60 percent,” complains Sachin Duggal, president and CEO of Nivio, whose company will be soon launch a computing system for the masses that utilizes desktop virtualization. Faced with all these problems, it is fair to say that no company would want to take on the additional burden of patent applications, especially when most of them don’t even believe they are of any use.

The situation in India has become something of a vicious circle. Start-ups blame application policies and the slack attitude of enforcement agencies; government agencies have probably not yet realized the gravity of the situation and no one seems to want to step up and break this status quo. The one inescapable fact is that this situation will have to change if we want an indigenous, global product like Google or Windows. Government laws maybe lax, but an even bigger problem seems to be that start-ups do not understand the laws. One can understand a start-up’s perspective, but not protecting their IP now is a myopic decision and only leaves them open to piracy and theft later. The change will only come when all parties - government, software vendors, industry bodies, investors, etc. start working together.

The services sector has driven India’s economy till now, putting the country on the global map. But as competition from new geographies increases, perhaps it’s time that we stop relying on just IT services and start focusing on developing innovation in the are of software products too.