One of the greatest honors of practicing law as an American born and raised
Indian woman is having the opportunity to serve Indian clients throughout my
community. As the United
States continues to develop business relationships with
India, it is prudent for lawyers and
business professionals alike to familiarize themselves with the various legal
issues and obstacles that they will undoubtedly encounter when engaging in such
business transactions.
Recently, I had the opportunity to attend a conference held by the Practising
Law Institute highlighting these critical legal issues that U.S. companies routinely face when conducting
business with India. Among many other things,
the conference targeted key areas of risk management including, but not
limited to, commercial disputes, intellectual property and
bribery and other corrupt practices.
Commercial disputes which lead to litigation and ultimately involve
Indian courts often result in long delays. Indian courts generally have
very limited resources and its appeals courts routinely reverse lower court
decisions, directly motivating citizens to continue litigation.
Fortunately, there are several considerations in order to mitigate these risks
involved with commercial disputes.
One of the suggested best ways to handle commercial disputes between
U.S. and Indian companies is to
incorporate detailed alternate dispute resolution clauses into business
contracts. Settling commercial disputes via arbitration is an attractive
choice as it avoids the Indian court system and is often times more economical
than litigation. Of critical importance when drafting such arbitration
clauses is choosing a venue outside of India and insisting on having United
States law governing the dispute.
Intellectual Property protection is yet another area with somewhat
concerning consequences in India. Many U.S. companies have begun to outsource their
technology and business process functions to India.
While reforms have been made to India’s intellectual property laws, historically
intellectual property protection is weaker in India than in the United
States. Many loopholes still exist
including, most notably, that Indian patent law does not recognize patents on
computer programs.
The good news is that there are new reforms, allowing patentability for
things such as pharmaceuticals and agrochemicals. It is strongly
suggested, in order to mitigate the inherent risks, that U.S.
companies, among other things, include full and complete intellectual property
provisions in their contracts, supplementing contractual language with
intellectual property assignment clauses, thoroughly detailing infringement,
warranty and indemnity provisions, and routinely incorporating non-disclosure
and non-compete provisions.
One of the most troubling and frustrating challenges for U.S. companies doing business in India
is facing the fact that bribery and other corrupt practices run
rampant in Indian public and private sectors. Several participants at the
conference detailed their experiences of being asked to pay special “fees” to
government officials in order to obtain permits, etc.
The Government of India has developed a Central Vigilance Commission to
advise on issues of corruption, conduct surveys and release reports. The
Central Bureau of Investigation is responsible for actually investigating and
prosecuting these corruption cases. Astoundingly, one Central
Vigilance Commission report revealed that nearly 50 percent of Indians who use
government services pay bribes.
The main governing body of law in this area is the U.S. Foreign Corrupt
Practices Act (FCPA), which prohibits engagement in corrupt practices.
U.S. companies doing business
in India must be diligent in complying
with the FCPA as they are liable for any “knowing” violation of the FCPA.
In addition, U.S.
companies with operations in India must also comply with Indian
central and state anti-corruption guidelines. The Indian guidelines,
however, are often weaker. For example, under the Indian Penal Code, while
bribery of public servants is prohibited, the person receiving the bribe is
prosecuted; not the individual involved in the act of bribery itself.
In order to mitigate the risks involved with corruption, it is imperative
that U.S. Companies require mandatory compliance with applicable anti-corruption
regulations by any of its operations or employees in India. Forming a trusted
relationship with an individual in India who is familiar with the social
and business corruption issues is also beneficial.
Finally, formal auditing of U.S. operations in India and due
diligence efforts are crucial. It is also strongly suggested that a
preventative task force be formed by U.S. companies doing business in India so
as to be adequately prepared with relevant strategies and resources should
suspicions of corruptions arise.
With a growing middle class and increasingly strong infrastructure,
India provides fantastic
business opportunities for companies based in the United
States. Nevertheless, it is crucial to be
aware of the challenges in order to make the potential transactions as
successful and fruitful as possible.
