ILLUSTRATION: SHUTTERSTOCK
LAST FISCAL YEAR the Cyber Bureau of Nepal Police received ten complaints involving the theft of computer source code. The Nepal Copyright Registrar’s Office received similar complaints, some of which have already reached the courts. Ten formal complaints sounds manageable until you consider that this is only the reported fraction.
Most source code theft in Nepal never reaches the police at all; the companies involved often do not know it has happened until a competitor’s product appears in the market doing things that their product used to do exclusively. By that point, the code is already deployed and the employees who took it have already been paid by their new employer. Moreover the legal process for recovery involves a district court that, by most accounts, has never developed a consistent methodology for calculating damages from software theft.
The case that best illustrates how this plays out in practice is Diyalo Technologies. Kathmandu-based Diyalo Technologies developed an enterprise resource planning platform called WaterMark for water distribution and customer management. According to the company, several former employees later left, established a new company called Wash TechNepal and then launched a competing product, WashBilling, which allegedly replicated Diyalo’s software.
The trend here is common: a small software company invests years in building a product for a niche market; trusted employees with access to the codebase leave; a competitor appears offering something functionally identical at a lower price, with faster implementation because the underlying architecture is already solved. The original company has spent the development budget. The competitor has spent the sales budget. The market cannot easily tell the difference.
Baburam Aryal, a cyber law expert, said that although Nepali courts have convicted defendants in source code theft cases, securing adequate compensation for victims is still a big challenge. “The courts still lack a consistent methodology for calculating damages,” Aryal said. “As a result, companies often win the legal case but still fail to receive meaningful compensation for the commercial losses they have suffered.”
Winning a case and recovering losses are different things; and in Nepal’s context, where a small software company may spend Rs2-3m in legal fees pursuing a case over two to three years, only to receive a judgment awarding damages below the cost of the litigation itself, the rational response is to absorb the loss and invest in internal security rather than courts. That rational response, repeated across dozens of companies, produces an environment in which IP theft carries minimal legal risk.
The legal framework that governs this is outdated. Nepal’s Patent, Design and Trademark Act was enacted in 1965; the Copyright Act came in 2002 and covers software as a literary work; but Nepal’s existing intellectual property regime has struggled to keep pace with artificial intelligence, startups, digital technologies and globalisation.
The Ministry of Industry, Commerce and Supplies has published a draft Industrial Property Act for public consultation, which introduces legal protection for startups, trade secrets and integrated circuit designs while aligning with WTO TRIPS Agreement standards.
Trademark infringement, misuse of geographical indications and unfair competition could attract fines ranging from Rs1m-1.5m, up sharply from the current maximum of Rs100,000. Patent infringement and trade secret theft would attract fines of Rs500,000 to Rs1m. The penalties are still modest relative to the commercial value of what is being stolen; but they are a significant step up from the current Rs50,000 to Rs100,000 maximums that make prosecution economically rational only for the defendant.
Trademark infringement complaints surged by 74% in fiscal year 2023-24, rising to 1,637 cases from 941 the previous year. The surge reflects two simultaneous trends: more companies registering their IP proactively (which creates more trackable violations) and a business environment in which competitive copying has become common enough that it shows up in official statistics. The Nepal Copyright Registrar’s Office is processing cases. The courts are convicting defendants. The system is technically functioning; what it is not doing is deterring the next theft, because the consequences of being caught remain too modest relative to the competitive advantage gained from the stolen code.
Nepal’s tech sector has been celebrating its $1bn in estimated annual IT exports, its 100,000 sector workers or so, and the global visibility that comes from Lamina Labs getting into Y Combinator and Fusemachines listing on NASDAQ. Those achievements are real. They also share a characteristic: they are built on intellectual property (the models, the platforms, the proprietary systems) that has value because it is hard to replicate.
A tech sector that cannot protect source code is a sector that will find it difficult to attract the kind of sustained investment that transforms services revenue into product revenue. Foreign investors doing due diligence on Nepali software companies now commonly ask about IP protection as a specific risk category; the true answer, until the Industrial Property Bill passes and enforcement improves, is that Nepal’s legal system can convict but cannot compensate. ■
