Licensing Advanced Manufacturing Know-How: Structuring Japan-India Technology Transfer Agreements

Introduction : Japanese manufacturers have a technological advantage in certain precision - engineering segments such as components for automobiles, special alloy processes and have been licensing technology to Indian companies for a long time, without setting up independent Indian manufacturing plants. These deals generally include patents, technical drawings, trademarks and hands-on training into one agreement. Disputes arising from such transactions are rarely addressed within the patent license. Key unaddressed issues often includes : Whether the improvement belongs to the licensor or the licensee, the amount of supervision the licensor has over the quality, what happens to the know-how when the contract expires, and the way two distinct national export-control systems are applied to the same transfer of technical information. This article outlines the regulatory framework for such agreements in India, the Japan overlay to the export controls, the confidentiality problem between the two countries, and concludes with a checklist of the parameters of the licensing term.

Legal Provisions

A technology-licensing agreement is governed by the Indian Contract Act, 1872. And it is bound by the Section 27 of the Act which invalidates any restraint on the exercise of a lawful trade, profession, or business, except for narrow statutory exceptions.

A license covers a patented process, section 68 and 69 of the Patent Act, 1970 govern the form and registration of the license. The section 3(5) of the Competition Act, 2002 exempts reasonable conditions protecting the IP from the general restriction on anti-competitive agreements, an exemption with limits where a condition exceeds what protecting the IP genuinely requires. Cross border royalty payments come under the Foreign Exchange Management (Current Account Transactions) Rules, 2000. Earlier limits on lump sum fees and running royalties were lifted in December 2009 and now the payments are done on the automatic basis without the government's approval. Some of the advanced manufacturing technologies are also included in the SCOMET category in the categories of equipment for additive manufacturing and advanced materials of the Directorate General of Foreign Trade that was extended in September 2025.

On the Japanese side, the Foreign Exchange and Foreign Trade Act (Act No. 228 of 1949) requires a METI licence for transfer of listed technology to a non-resident, and considers certain transfers to foreign nationals in Japan, such as trainees and seconded engineers, to be a "deemed export", which must be licensed as well. Unlike Japan, there is no specific statute in India to protect trade secrets transferred through these agreements, rather, it is protected expressly by law in Japan under the Unfair Competition Prevention Act (Act No. 47 of 1993).

Legal Analysis

The Japan-India technology-licencing agreement is under two regimes that do not neatly fit together. However, on the Indian side, the commercial terms such as ownership of improvements are largely contractual: neither the Patents Act nor the Contract Act contains a default provision concerning the grant back clause. Typical licensors will require any improvement developed by its licensee to be assigned to the licensor; however, an exclusive, one-way grant-back may be problematic under Section 3(5) of the Competition Act, as it may be more than necessary to protect the licensor's underlying IP, especially if the improvement is useful to the licensee's other enterprises.

The two systems differ the most in the confidentiality position. The Unfair Competition Prevention Act of Japan provides a statutory basis and cause of action for trade secrets. There is no such provision in India; only the terms of the agreement and along with the common-law action for breach of confidence provide protection to confidential technical information. A Japanese licensor used to statutory protection at home should be careful when applying the Indian confidentiality clause, as it must be drafted to better reflect the requirements of statutory protection, including what constitutes confidential, how long the obligations will last after termination of the contract and remedies for violation of the confidentiality clause.

The same problem arises with termination, but is slightly different. A non-use clause or non-compete clause that only comes into effect during the period the licence is in force is normally valid as the restraint of that period is not covered by Section 27 at all. A restriction that was intended to endure the termination is another and Indian courts have always held that this kind of restriction as unconstitutional, unless it falls within one of the narrow exceptions provided in the Act. A pure confidentiality agreement, rather than one that impedes the licensee from conducting its own business, has firmer footing and is likely to survive termination, because it does not prevent the licensee from doing business.

Case Laws

In the case of Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd, MANU/SC/0364/1967, the court upheld an injunction against an employee working for a competitor and disclosing trade secrets, even though it was directed against sensitive manufacturing know-how, on the ground that such a negative covenant which only operated during the life of the contract was not a restraint of trade under Section 27. This is equally so for licensing arrangements, where the licensor's interest in protecting its process is similar to an employer's interest in protecting the trade secret during the course of employment.

The negative covenant in a franchise agreement prohibiting franchisee from selling competitive products during the term of the agreement was upheld as not violative of Section 27, in Gujarat Bottling Co. Ltd. v. Coca Cola Co., MANU/SC/0472/1995.

In Percept D'Mark (India) Pvt. Ltd. v. Zaheer Khan, MANU/SC/1412/2006, the court had held otherwise in respect of a right of first refusal which was intended to remain in force after the expiration of the underlying agreement, which was held to be a restraint of trade under Section 27.

Read with Superintendence Company of India (P) Ltd. v. Krishan Murgai, MANU/SC/0457/1980, reaching a similar conclusion on a post-termination non-compete clause, these decisions confirm that an Indian licensee's freedom to use general skill and experience gained during a licence cannot be restricted once the agreement ends, even where the licensor's underlying concern is commercially legitimate.

Practical Implications

Sector Impact

Japanese licensing activity has also increased in India, with production linked incentive programmes and a shift in Japanese manufacturing supply chains away from China positively affecting the automotive components and precision electronics and industrial machinery sectors. Additive manufacturing equipment and related materials are being added to the SCOMET list in September 2025, which will bring this type of technology within India's own export-control perimeter, and thus impose a need for licensees to exercise due diligence in the future re-export of goods manufactured using the licensed process.

Deal Structuring

Where possible, the improvements should be granted non-exclusively or for a royalty fee in a separate clause, to minimize Competition Act exposure. Technical-assistance clauses regarding secondment of Japanese engineers should include provisions regarding the immigration status of the seconded engineers, whether or not they are liable on-site and whether or not the specific training is a deemed export under Japan's Notification for Technology Transfer, which requires prior approval for technology transfers to non-residents. Quality-control clauses are most effective if they are linked to objective and measurable standards and a clearly established inspection process, instead of vague language that allows the licensor reasonable discretion over how to monitor production, which opens the door to a dispute over whether the licensor has gone beyond the bounds of legitimate oversight into the licensee's operations.

Confidentiality and Export Control procedures

India does not have any specific law on trade secrets; under a licence agreement, the parties must agree what constitutes confidential information, the period for which it is confidential after termination of the agreement, and the repatriation or destruction requirements. Importantly, the Japanese compliance team should be able to confirm independently whether the transfer is subject to METI authorisation or not, because the deemed-export rules can apply even to training held in Japan for Indian personnel who are not residents.

Licensing-Term Checklist

• Be specific about the nature of the licensed technology, background IP and bundled trademark rights.
• Deal with ownership of improvements separately, stating whether or not any grant-back is exclusive, non-exclusive or royalty bearing.
• Establish objective, measurable quality control criteria and a defined inspection and audit procedure.
• Annotate the technical-assistance and secondment provisions, such as immigration status and liability allocation.
• Assure that royalty set-up is aligned with FEMA Current Account Transactions Rules and RBI reporting requirements.
• Review if the licensed technology is included in the SCOMET list under the Foreign Trade Policy of India.
• Ensure that the authorisation is obtained from METI for the FEFTA in Japan, including for deemed exports to seconded personnel.
• Make confidentiality agreements clear and specific, including broadness, duration, and disposition of materials.
• Distinguish restrictions operating during the licence term from any post-termination restriction, given Section 27's limits.
• Identify termination events and termination commitments.

Conclusion

To meet the needs of two legally different perspectives on the same transaction, a Japan-India technology-licensing agreement has to be binding and acceptable to both sides. India leaves most commercial terms, including ownership of improvements and the scope of confidentiality, to the contract itself, with Section 27 placing a firm limit on post-termination restrictions, while Japan's export-control regime reaches further than many licensors expect, catching training and secondment activity that never physically leaves the country. Getting the structure right means drafting confidentiality and improvement clauses as if no background statute will fill the gaps in India, and screening technical-assistance arrangements for Japanese export-control exposure even where no equipment crosses a border. As India's own SCOMET list extends further into advanced manufacturing categories, that overlap between the two regimes is likely to grow, and licensing agreements drafted today should account for that trajectory rather than only the rules currently in force.

Author :- Akshat Singh, in case of any query, contact us at Global Patent Filing or write back us via email at support@globalpatentfiling.com.

References (Endnotes)

1. Indian Contract Act, No. 9 of 1872, § 27 (India).
2. Patents Act, No. 39 of 1970, §§ 68-69 (India).
3. Competition Act, No. 12 of 2003, § 3(5) (India).
4. Foreign Exchange Management (Current Account Transactions) Rules, 2000, G.S.R. 381(E) (India), as amended by Press Note No. 8 (2009 Series), Dep't of Indus. Pol'y & Promotion (Dec. 17, 2009).
5. Foreign Trade Policy 2023, Appendix 3 to Schedule 2 (SCOMET List) (India); Directorate Gen. of Foreign Trade, Public Notice on Revision of SCOMET List (Sept. 23, 2025).
6. Foreign Exchange and Foreign Trade Act, Act No. 228 of 1949, arts. 25, 48 (Japan).
7. Unfair Competition Prevention Act, Act No. 47 of 1993, art. 2(1) (Japan).
8. Niranjan Shankar Golikari v. Century Spinning & Mfg. Co., MANU/SC/0364/1967 (India).
9. Gujarat Bottling Co. v. Coca Cola Co., MANU/SC/0472/1995 (India).
10. Percept D'Mark (India) Pvt. Ltd. v. Zaheer Khan, MANU/SC/1412/200 (India).
11. Superintendence Co. of India (P) Ltd. v. Krishan Murgai, MANU/SC/0457/1980 (India).