India’s Royalty Caps Proposal Would Set Back IP Protections by a Decade

While the recent decision by the U.S. to suspend India’s Generalized System of Preferences (GSP) benefits has drawn significant attention, one issue has quietly re-emerged– royalty caps.

India’s government is considering imposing royalty caps, severe restrictions on payments to owners of intellectual property such as copyrighted material, patented products, and trademarks and brands to Indian business partners. This would have a profound negative impact on the commercialization of intellectual property (IP).

A decade ago, India liberalized its royalty caps, acknowledging that they were in impediment to IP commercialization. Since then, U.S. exports of IP royalties quadrupled from $850 million to over $3 billion, while U.S. portfolio investment income more than doubled, to about $4 billion. India’s own economy and job creation have benefitted, in the process.

Yet here we are again, with India considering taking an increasingly narrow view on these issues and threatening to revive the counterproductive policies prior to the early 2000s.

India’s preoccupation with capital flight hampers that nation’s global competitiveness and its ability to expand its middle class. Indian trade negotiators keep insisting that their investment provisions exclude portfolio investments. Not surprisingly, India has been unable to persuade its trading partners that this makes any sense.

AFTI remains convinced that our two governments can advance strong intellectual property rights that promote innovation, trade, and investment.  But when India falls back to short-sighted populist actions, the U.S. must push back.