On just about every busy street corner in China street peddlers sell stacks of pirated DVDs and CD-ROMs. In fact counterfeiting is so prevalent it’s become a tourist attraction. People don’t just visit the Great Wall, they come to frequent the black markets and purchase knock-off Prada sunglasses and poorly stitched Louis Vuitton handbag clones.

To address that problem, multinationals are working with the U.S. government to wage a very public war with China–one that often overshadows the piracy battles foreign investors face in other developing nations. One such nation is India, which quietly has become one of the world’s hotbeds of piracy.

This often comes as a shock to many investors, who perceive India as an extension of Western society in the Far East. After all, the majority of the country is fluent in English, many Indians are highly educated and its legal system is based on English common law. Most of its IP laws also are WTO-compliant.

“If you read the IP laws in India, you’d see they’re very similar to ours in the U.S.,” says Joseph Beck, partner at Kilpatrick Stockton. “They’re just not always implemented the same way.” According to Beck and other experts, the problem isn’t that the legal protections are inadequate–it’s that nobody is enforcing them.

The other problem is ignorance. Many infringers don’t realize what they are doing is illegal. All of which leaves U.S. companies at risk when setting up shop in India. “Piracy is a prevalent problem,” says Dorothy Thomas, partner at Indian law firm Kochhar & Co. “Foreign companies lose quite a lot of money because of piracy.”

Piracy Pains
Although trade-secret theft and patent infringement also are prevalent in India, piracy–specifically of software and music–is by far the most widespread problem.

According to the Business Software Alliance (BSA), an industry association for software developers, 71 percent of software used in India in 2006 was pirated, a number that has remained relatively steady for the past five years. According to the report, that cost companies more than $1 billion worldwide in 2006 alone. The music industry doesn’t fare much better.

Between 2001 and 2004 the Indian Music Industry (IMI) confiscated about 2.5 million pirated CDs and 1 million cassettes. This epidemic remains constant despite India’s efforts to comply with international IP protection standards. In fact earlier this year the Office of the U.S. Trade Representative, the agency responsible for advising the president on trade matters and negotiating trade deals, listed India as one of only a handful of nations on the Priority Watch List.

“India’s criminal IP [rights] enforcement remains weak, with improvements needed in the areas of expeditious judicial dispositions for copyright and trademark infringement, border enforcement against counterfeit and pirated goods, police action against pirates and counterfeiters and imposition of deterrent sentences for IP [rights] infringers,” the agency wrote in its 2007 Special 301 report on the adequacy and effectiveness of global IP rights.

Although many factors contribute to this problem, much of it can be attributed to a lack of awareness of IP rights among those tasked with enforcing the laws. “Only recently has law enforcement even become aware of the concept of IP,” Thomas says. “Criminal enforcement is coming up to speed, but it’s a large country, which makes policing difficult.” But even if enforcement efforts improve, companies still will have a difficult time bringing infringers to justice.

Judicial Logjam
Indian courts are notorious for their extensive backlog of cases (see “Litigation and Arbitration,” p. 52). And there’s no exception for copyright infringement claims, which can take anywhere from five to 12 years to wind their way through the courts.

“If you file a civil action you can get injunctive relief within one to two weeks,” Thomas says. “But claiming damages and having the money in your hands is going to take a substantially longer time, so getting damages is difficult.” Experts recommend companies take a two-pronged approach to expedite the legal process. In addition to filing a civil claim, companies also should file a criminal claim–which often pressures infringers into settling.

“Criminal enforcement is a very good way to get an infringer to stop or pay up,” Thomas says. “That’s because it normally entails jail time for the infringer.” Although finding relief is slow going in India, the judiciary has begun taking steps to expedite civil suits.

“In recent years, India has increased its number of judges to help deal with the backlog of cases in the court system,” says Abhai Pandey, partner at Indian law firm Lex Orbis. “Also because judges have heard more piracy cases in recent years, they’re becoming more adept at handling them.” In addition courts have begun to award punitive and exemplary damages to deter infringers from committing further acts of piracy.

“[T]he time has come when the courts … should not only grant compensatory damages but award punitive damages also with a view to discourage and dishearten law breakers who indulge in violations with impunity out of lust for money,” wrote the Delhi Court in a 2005 case in which Time Inc. sued an Indian company for publishing a knockoff of its flagship magazine. “[Punitive damages] may spell financial disaster for them.”

Power in Numbers
Because of the courts’ ineffectiveness, many companies have started to pool their resources to hunt down infringers, lobby the Indian government and raise public awareness of piracy issues. Most of these efforts are done through associations such as the Motion Picture Association of America, the IMI and the BSA.

“If companies are worried about their IP being pirated in India, they should definitely consider joining one of these industry bodies that have taken on the responsibility of lobbying the government and cracking down on piracy,” Pandey says. Companies also can protect their IP by conducting due diligence on any Indian company with which they do business.

“Anyone contracting an Indian company should research whether it has committed any IP violations in the past and take note of all the company’s IP registrations to ensure it uses authorized software,” Thomas says.

Doing this due diligence not only protects the U.S. company from infringement but deters the Indian company from infringing on others in the future. “Indian companies are beginning to understand that if they use pirated products, they’re not going to attract the business of foreign companies,” Thomas says.

Legal Evolution
The laws governing IP rights in India have undergone substantial change over the past decade.

It started in 1995 when India joined the WTO . The country set out a 10-year plan to comply with the Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS ), the WTO ‘s minimum standards for IP rights.

The government didn’t enact any new legislation until 1999, when it passed the Trademarks Act. This act replaced the Trade and Merchandise Marks Act of 1958, bringing India’s trademark laws in line with the rest of the WTO community.

During this time the Indian government amended its patent laws three times, with the last amendment in 2005. Although these, too, were meant to bring the nation’s laws in line with the rest of the global community, there are a number of significant differences. For one, India does not recognize business-method patents. In addition Section 3(d) of India’s patent act restricts patents for minor improvements to old formulations by requiring such improvements to be “novel and inventive.” Swiss drugmaker Novartis recently challenged this provision and lost. It remains a highly contentious aspect of India’s patent law.