Understanding Government Regulations on Technology Transfer

Every time a pharmaceutical company licenses a drug formula to a manufacturer, or when a defence contractor shares aerospace technology with a government entity, or when a startup sells its patented software to a multinational – government regulations are silently governing all of it. Technology transfer is not just a commercial transaction; it is a legally structured, state-regulated process. In India, this regulation is layered, involving intellectual property law, foreign exchange controls, export licensing, and international treaty obligations. Understanding how the government controls technology transfer is essential for anyone working at the intersection of patents, commerce, and public policy.

What is technology transfer and why does the government regulate it? 🔗

Technology transfer refers to the movement of technological knowledge, inventions, processes, or expertise from one entity to another – whether between companies, research institutions, or across borders. The transfer may happen through licensing, assignment, joint ventures, or research collaboration agreements.

Governments regulate this process for several reasons. Unrestricted transfer of strategic technologies can pose national security risks. Without oversight, foreign entities might acquire sensitive technologies that could be weaponised or used to undermine domestic industries. At the same time, if regulations are too restrictive, innovation stalls and foreign investment dries up. India’s regulatory framework tries to strike this balance – protecting national interests while encouraging the commercialisation and inflow of advanced technologies.

Section 83(c) of the Patents Act, 1970 explicitly recognises that patent protection must contribute to the promotion of technological innovation and to the transfer and dissemination of technology – making it clear that IP protection and technology transfer are two sides of the same coin.

The core legal framework governing technology transfer in India 🔗

India does not have a single unified “Technology Transfer Act.” Instead, the regulatory framework is spread across multiple legislations, each covering a specific dimension of the transfer process.

The Patents Act, 1970 🔗

This is the primary legislation dealing with patented technology. Under the Patents Act, any assignment or licence of a patent must be executed through a written document containing all terms and conditions, and this document must be registered with the Controller of Patents. Without registration, the transfer has no legal validity. The Act also governs voluntary licensing arrangements, where a patent holder permits another party to use the patented invention under agreed conditions.

Beyond voluntary arrangements, the Patents Act also contains provisions for compulsory licensing – one of the most significant tools of government control over technology transfer.

Compulsory licensing under Sections 84 and 92 🔗

Chapter XVI of the Patents Act deals with compulsory licensing. Under Section 84, any interested person can apply to the Controller of Patents for a compulsory licence after three years from the date of patent grant, on grounds that the patented invention is not reasonably accessible to the public, is not available at an affordable price, or has not been worked in India. A compulsory licence effectively forces the patent holder to allow another entity to use the technology – without requiring the holder’s consent.

Section 92 goes further: it allows the Central Government to directly issue compulsory licences in situations of national emergency or extreme urgency. The landmark case of Bayer Corporation v. Natco Pharma Ltd. illustrates this in practice. Bayer’s patented cancer drug was priced beyond the reach of most Indian patients. After Bayer refused to grant a voluntary licence, Natco successfully obtained a compulsory licence under Section 84, enabling it to manufacture the drug at a fraction of the price. This case demonstrates how government-backed compulsory licensing acts as a check on monopolistic control over critical technologies.

Additionally, Section 100 of the Patents Act allows the Central Government and authorised persons to use any patented invention for government purposes, while Section 102 empowers the Central Government to acquire a patent or invention outright in the public interest, with notification published in the Official Gazette.

The Foreign Exchange Management Act (FEMA), 1999 🔗

When technology transfer crosses international borders, FEMA comes into play. Any arrangement that involves payment of royalties or technical service fees to a foreign entity must comply with FEMA regulations. Royalty payments to overseas licensors are governed by Foreign Exchange Regulations under FEMA, administered by the Reserve Bank of India (RBI). The RBI has periodically revised the automatic route limits for technology transfer payments, giving Indian businesses more flexibility while retaining governmental oversight.

Importantly, the Finance Bill 2023 increased the rate of tax on royalties earned by foreign non-resident companies from 10% to 20% – a significant compliance factor for any cross-border technology arrangement structured around royalty payments.

Other key legislations 🔗

The broader regulatory ecosystem for technology transfer also includes the Trade Marks Act, 1999 (governing transfer of trademark-associated technologies), the Copyright Act, 1957 (relevant for software and creative technology transfers), and the Companies Act, 2013 (governing corporate entities involved in transferring technology assets like patents or trademarks). The Indian Contract Act, 1872 underpins all technology transfer agreements as the foundational legislation governing contracts.

Export control: the SCOMET list and strategic technologies 🔗

Not all technology can be freely transferred out of India. For technologies that have both civilian and military applications – called dual-use technologies – the government imposes strict export controls through the SCOMET List (Special Chemicals, Organisms, Materials, Equipment and Technologies).

The SCOMET list is maintained by the Directorate General of Foreign Trade (DGFT) under the Foreign Trade (Development and Regulation) Act, 1992, and is notified under Appendix 3 of Schedule 2 of the ITC (HS) Classification. Export of items and technologies under SCOMET is either prohibited or requires prior authorisation from a designated licensing authority.

The SCOMET list is divided into nine categories (0 to 8). Category 0 covers nuclear material and equipment, with licences issued by the Department of Atomic Energy. Category 6 covers munitions, regulated by the Department of Defence Production. Category 8, relevant to the IT and ITeS sectors, covers information security software, encryption technologies, and other dual-use electronics. Even intangible transfers – like sharing encryption source code electronically with a foreign party – can require SCOMET authorisation.

A SCOMET export licence is valid for 24 months and can be extended by up to 12 months through revalidation. Critically, the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 makes it a criminal offence to facilitate the transfer of any technology that could contribute to WMD proliferation, even if the item is not explicitly listed on the SCOMET list.

India’s obligations under TRIPS and international alignment 🔗

India’s domestic regulations do not exist in isolation – they are shaped significantly by its international commitments, particularly the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). TRIPS sets minimum standards for IP protection and includes provisions that directly affect technology transfer, particularly between developed and developing countries.

India’s alignment with TRIPS has shaped its patent law amendments over the decades, including the 2005 amendment to the Patents Act that introduced product patents for pharmaceuticals. At the same time, TRIPS allows developing countries certain flexibilities – including the use of compulsory licensing – which India has exercised, as seen in the Natco-Bayer case.

India is also a member of multilateral export control regimes including the Wassenaar Arrangement, the Australia Group, and the Missile Technology Control Regime (MTCR). These memberships shape what technologies India controls at the export level through the SCOMET framework, and align India with global norms on preventing technology proliferation.

Sector-specific controls and emerging technologies 🔗

India’s regulatory approach distinguishes between different categories of technology based on strategic sensitivity. Technologies with high dual-use potential – including artificial intelligence, quantum computing, advanced semiconductors, and biotechnology – are increasingly subject to enhanced government scrutiny before transfer is permitted, particularly where foreign entities are involved.

Conversely, technologies addressing public welfare – such as clean energy, agricultural innovation, and healthcare – may benefit from expedited approvals and government incentives to encourage faster transfer and deployment. India’s Department of Science and Technology (DST), through the Technology Development Board (TDB), facilitates technology transfer from R&D institutions, and the government has established technology parks, incubators, and Special Economic Zones (SEZs) as part of this effort.

Government programmes such as Make in India, Startup India, and the National IPR Policy 2016 reflect a broader policy to attract foreign technology into India while building domestic capability. The National IPR Policy, in particular, aims to strengthen patent enforcement and improve conditions for technology-driven businesses operating within the Indian legal framework.

Prohibited conditions in technology transfer agreements 🔗

Government control does not only apply at the macro-regulatory level. The Patents Act also restricts what a technology licensor can contractually impose on the licensee. Certain conditions are void under Indian patent law, including tie-in arrangements that force the licensee to purchase unrelated products from the licensor, restrictions that prevent the licensee from using competing technology, clauses that prohibit the licensee from challenging the validity of the patent, and price-fixing conditions on the sale of licensed goods.

These restrictions are grounded in competition law principles and prevent patent holders from using licensing arrangements as tools to suppress market competition. The Competition Commission of India (CCI) also plays a role here – as seen in the Biocon v. Roche matter, where the CCI examined whether IP rights were being used to delay generic market entry in an anti-competitive manner.

Compliance requirements for technology transfer agreements 🔗

For any technology transfer to be legally valid in India, particularly in a cross-border context, several compliance steps must be followed. The agreement must be in writing, and if it involves a patent, it must be registered with the Controller of Patents. For trademark-linked transfers, registration with the Trademark Registry is required. Copyright-based transfers must be in writing, signed by the assignor, and must specify the work, the rights granted, the territory, the duration, and royalty terms.

Foreign exchange remittances under the agreement must comply with FEMA, and reporting requirements to the RBI must be met. If the technology falls under the SCOMET list, an export authorisation from DGFT must be obtained before any transfer – physical or intangible. Failure to comply with any of these requirements can result in the agreement being unenforceable, penalties under FEMA, or criminal liability under the WMD Act.

The balance between control and commercialisation 🔗

At the heart of government regulation on technology transfer lies a fundamental tension: too much control stifles innovation and foreign investment; too little risks national security and allows monopolies to suppress access to vital technologies. India’s regulatory framework attempts to navigate this carefully.

The compulsory licensing regime ensures that patented technologies serving public health or national interest remain accessible. FEMA and DGFT controls ensure that foreign exchange flows and strategic technology transfers remain within a supervised framework. SCOMET controls ensure that dual-use technologies do not reach actors who could misuse them. And the TRIPS-aligned IP laws provide foreign technology owners enough confidence to invest and license in the Indian market.

As India continues to develop as a technology-producing nation – not just a technology-importing one – these regulations will continue to evolve, particularly around AI, semiconductors, and biotech, where the line between civilian and strategic applications is increasingly blurred.

What do you think? Given that compulsory licensing can override a patent holder’s exclusive rights in the public interest, do you think India’s current threshold under Section 84 – three years from patent grant – strikes the right balance between incentivising innovation and ensuring public access? And as AI and quantum technologies become central to national competitiveness, should India develop a dedicated regulatory regime for their transfer, separate from the existing SCOMET framework?

References

1. https://www.lexology.com/library/detail.aspx?g=784564cc-282d-4825-a4fa-533de46b5c5f
2. https://ksandk.com/information-technology/technology-transfer-regulations-in-india/
3. https://www.iiprd.com/grant-of-compulsory-license-in-india-its-provisions-and-need-in-several-industries-in-india/
4. https://www.globalpatentfiling.com/blog/-Unlocking-Innovation-Patent-Licensing-in-India
5. https://www.lexology.com/library/detail.aspx?g=32e7c547-1e10-4721-a0f5-52b9c5b5bb6f
6. https://dae.gov.in/frequently-asked-questions-faq-on-the-export-control-of-nuclear-related-items/
7. https://nasscom.in/sites/default/files/SCOMET08ITT_Booklet_NASSCOM_24072021.pdf
8. https://thelegalschool.in/blog/technology-transfer-in-india
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