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Business
White Paper –
Intellectual Property
by P. Mohan Chandran
What Is Intellectual Property?
Intellectual Property (IP) is any invention (product or process),
creative, literary or artistic works such as novels, films, music
architectural designs or web pages, names, symbols, industrial designs,
images, proprietary formulas, ideas, and geographic indications used in
trade. IP can also include anything from a particular manufacturing
process to a product launch, a chemical formula, a trade secret, or a
list of countries where patents are registered.
For any company, and especially for pharma companies, IP – patents,
copyrights, trademarks, trade secrets, industrial designs, employee
know-how, and geographical indications – is more valuable than any of
its tangible physical assets. IP constitutes more than 80% to the total
revenues of any company while tangible assets account for only 20%. IP
can be much broader and include even an idea by R&D department if it can
be developed into an invention. IP triggers progress, transforms
mankind, and adds value to our lives.
Why Protect Intellectual Property?
Protecting IP is crucial to the survival and long-term growth of any
business enterprise or the overall development of a nation.
Innovation is the essence of IP. Without protection to IP, invention
of new products, methods, designs, literature, etc., wouldn’t be
possible. In a country like India, IP protection assumes paramount
importance as IP theft in various forms has reached stupendous
heights. For instance, music piracy is primarily concentrated in
India, apart from other countries such as Russia, China, Turkey,
Pakistan, Middle East and African countries. In 2004, sales of
pirated music in India exceeded the legitimate market. In India,
about 120 million pirated CD-Rs were sold in 2004. CD-R piracy is
significant and highest in India, among other countries in Latin
America and Southern Europe. In 2005, police seized more than
half-a-million pirated CDs in a single day in a raid conducted in
Patna (Bihar). According to the Global Piracy Report 2004, India is
among the top 10 countries (8th) with high piracy levels, with a
piracy rate of 56%. The legal market value of loss due to music
piracy in India is estimated at about $153 million per annum, while
the pirate market value is $88 million. Moreover, 38% of automobile
parts in India are not genuine, while counterfeits cause about 15%
loss to the FMCG industry.
According to authentic sources, IP theft costs the US companies
approximately $300 billion every year. The annual loss for the
California economy due to counterfeiting and piracy is estimated to
be about $34.5 billion. Gieschen Consultancy, which provides
counterfeit intelligence analysis and security research relating to
IP, estimated that $396 million was lost in IP in the first quarter
of 2005. This included counterfeit items worth $141 million and $255
million in IP theft. According to a CSI-FBI Computer Crime and
Security Survey that examined hundreds of large US companies in
2004, the total IP losses, which included theft of proprietary
information, was estimated at more than $11 million. Similarly, in
2002, UK lost ₤10 billion in counterfeiting and piracy.
US estimated that in 1991, China lost about $400 million in trade
due to poor IPR practices. In 2003, pirated software in the US
accounted for 22% of all software, while in Russia it accounted for
87% of software installed. In 2004, the loss to global music pirate
market went up to US $4.6 billion from US $4.5 billion in 2003. In
August 2005, a jukebox company in Chile was raided for piracy, which
resulted in a loss of $500,000.
Theft and illegal use of IP results in losses to an organization or
sector, and entails high economic, social, and development costs that is
detrimental to a nation’s economic growth in the long run. This economic
growth, in turn, affects a broader cross-section of people across
various sectors such as aviation, food, pharma, publishing, music,
automobiles, etc. According to the World Economic Forum (WEF) Global
Competitiveness Report, there is a strong correlation between the
protection of IPRs and national competitiveness. In 2004, the 20
countries that enforced stringent IP protection ranked among the top 27
nations in WEF’s growth competitiveness index, while those 20 nations
that had the weakest IP protection were ranked in the bottom 36. Because
of the thrust given to IPR and innovation, Korea’s per capita income
witnessed tremendous transformation from less than US$100 in 1960s to
US$12,000 today.
Technological innovations have contributed to about half of the
growth of the US economy. Industries dependent on IP, such as
publishing, music, film, software, arts, etc., employed about 5.2
million people and contributed more than €1.2 trillion in 2000 to the
European Union’s (EU) economy. It also generated €450 billion of value
addition, which equalled 5.3% of the EU’s GDP.
Piracy and counterfeiting also cause large scale unemployment
opportunities and robs the government of tax revenues that could go into
development of national economy. About 22% of the Japanese business
executives mention counterfeits as their biggest cause for concern in
trade negotiations with China. In Pakistan, piracy levels in cable
television, music and software are more than 90%, resulting in over US
$1 billion loss in tax revenues. According to a survey in 2005, the
average loss of tax revenue in the European Union (EU), caused by piracy
and counterfeiting, was estimated to be €7,581 million in the clothing
and footwear industry, €3,017 million in the perfumes and cosmetics
industry, €3,731 million in the toys and sports articles industry, and
€1,554 million in the pharmaceutical sector. The WHO’s study reveals
that counterfeits constitute 10% of all pharmaceuticals and 60% of drugs
in developing countries. All this drains the government’s revenues and
retards infrastructure development and national economic growth.
Lack of IP protection deprives the innovators and creators of their
rightful reward for hard work and innovation, and weakens the incentives
to invest for researchers. Counterfeit products also harm people by
posing high health and safety risks. Counterfeiting and piracy
jeopardizes healthy competition in an economy and distorts economic
growth. As illegitimate operators save millions on research, development
and marketing costs, legitimate companies struggle to compete with
counterfeiters in a price-sensitive market like India. Moreover, there
is a close nexus between increased piracy and counterfeiting, and
organized crime.
IP theft smothers innovation and discourages sincere investors from
investing in product and market development. It deeply affects the
knowledge-based sectors, for whom IP is the essence of their success,
survival, and growth. Counterfeiting and piracy also affects a country’s
exports and hampers the national economy. Strong IP protection is needed
in India to attract foreign investments in the form of money and
resources, especially in the fields of pharmaceuticals and
biotechnology, which hold immense potential for the future. Technology
transfer from other countries to India also requires the formulation and
enforcement of a stringent IP regime. Companies abroad would seldom
transfer advanced technology or invest in production or R&D facilities
in countries where their products are copied or technology is stolen.
Integration of a strong IPR regime into the global IP system would
ensure that IP is protected and treated as an invisible asset. This
would, thus, make India a force to reckon with in the global IP arena.
Potential Of IP – Making The Intangible Tangible
According to Business Software Alliance (BSA), pirated software accounts
for about 60% of the $51 billion global software market. The global
trade in pirated software was estimated at $29 billion in 2003. The
global counterfeit market is valued at US $512 billion. DVD piracy is
expected to reach ₤1 billion by 2007. Global production of counterfeit
products is estimated to have increased by 1700% over the last decade.
It is very essential to prevent piracy and protect the IP because of its
immense revenue-generating potential. Music industry invests at least
15% of its turnover in developing talent than any other industry invests
in R&D.
Companies also gain or lose value in trademarks (Intellectual Property)
by way of high or low brand valuation in the market. Sony registered the
highest loss of 16% in brand value among top 100 global companies in
2005. Its brand value in 2005 stood at US $10.8 billion compared to US
$12.8 billion in 2004. Similarly, Morgan Stanley lost 15% of its brand
value, and was valued at US $9.8 billion in 2005, as against US $11.5
billion in 2004. The following is a list of some companies that suffered
big losses in brand value for 2005.
Top Losers In Global-100 Brand
Valuation For 2005
|
Brand Name |
% loss in brand value |
Brand value in 2004
(USD Billion) |
Brand value in 2005
(USD Billion) |
|
Volkswagen |
12 |
6.4 |
5.6 |
|
Levi’s |
11 |
3.0 |
2.7 |
|
HP |
10 |
21.0 |
18.9 |
|
Ford |
9 |
14.5 |
13.2 |
|
Pfizer |
6 |
10.6 |
10.0 |
|
Mercedes Benz |
6 |
21.3 |
20.0 |
|
Kodak |
5 |
5.2 |
5.0 |
Source:
Business Week, August 1, 2005
eBay’s brand value, which registered the highest increase of 21%
among top 100 global companies in 2005, went up to US $5.7 billion from
US $4.7 billion. HSBC’s brand value witnessed a 20% increase in 2005 and
increased to US $10.4 billion from US $8.7 billion in 2004. The
following list shows the top gainers in global brand valuations for
2005.
Top Gainers In Global-100 Brand
Valuation For 2005
|
Brand Name |
% gain in brand value |
Brand value in 2004
(USD Billion) |
Brand value in 2005
(USD Billion) |
|
Samsung |
19 |
12.6 |
15.0 |
|
Apple |
16 |
6.9 |
8.0 |
|
UBS |
16 |
6.5 |
8.0 |
|
Yahoo |
16 |
4.5 |
5.3 |
|
Dell |
15 |
11.5 |
13.2 |
|
Nissan |
13 |
2.8 |
3.2 |
|
Audi |
12 |
3.3 |
3.7 |
|
Canon |
12 |
8.1 |
9.0 |
|
Motorola |
11 |
3.5 |
3.9 |
|
ING |
11 |
2.9 |
3.2 |
|
Cartier |
11 |
2.7 |
3.1 |
|
Nokia |
10 |
24.0 |
26.5 |
|
Toyota |
10 |
22.7 |
24.8 |
Source: Business Week, August 1, 2005
How To Protect Intellectual Property?
Intellectual Property creates intangible wealth that can be converted
into tangible wealth through various revenue streams such as licensing,
cross-licensing, technology transfer, or outright sale.
Following the steps mentioned below will help in protecting your
intellectual property:
Understand Your IP Assets
When all the employees of an organization understand the significance of
IP and the value it can generate, then they will know what needs to be
protected, how to protect it, and whom to protect it from. The Chief
Security Officer (CSO) in an organization must, at least once in a
quarter, meet with the Chief Executive Officer (CEO), Chief Financial
Officer (CFO), Chief Operating Officer (COO), and other staff from HR,
marketing, sales, legal services, production, and R&D departments, and
communicate continuously with them as well as the IP executives. The top
brass or corporate leadership must work in harmony with the other
departments for protection of IP.
Assert Your IP Rights
The CSOs must frequently perform a risk analysis as well as a
cost-benefit analysis, and map the company’s assets vis-à-vis the wealth
gained/lost due to protection/non-protection of IP. Those IP assets that
are prone to extreme risk of theft and would financially impair the
company the most, should be determined and protected.
Emphasize Your IP Rights
If some information or proprietary data is confidential to your company,
put a note or label that emphasizes the importance and confidentiality
of that information. Though, prima facie, this may seem insignificant,
it helps in substantiating in a court of law during litigations that
someone stole the information which was unauthorized.
Restrict Access to IP
Ensure that the room where sensitive and confidential data is stored is
under lock and key. Protect the digital information by means of a
password. Restrict the access of important information/databases to few
trusted employees in the organization. Keep a tab on the person who
holds the keys to confidential information.
Spread Awareness about IP
The employees of the organization have to be educated and enlightened
about the importance of IP and its protection, and also the tremendous
damage caused by piracy and counterfeiting. When proper information is
disseminated to all employees, especially engineers, scientists, and R&D
personnel as to what constitutes IP, and the amount of time invested to
develop it, employees will take extra care to protect it. Some companies
make IP protection a part of the performance plan of every employee and
review it periodically.
Role Of Governments In Protecting IPRs
To make IP work for countries and business organizations, the
governments of respective countries must take strong positive action and
impose stringent punishment on the infringers. Some of the measures that
could be taken to protect IP would include the provision of a
transparent and enforceable IP rights ownership, irrespective of
nationality. The accessibility of national and global IP systems has to
be enhanced by ensuring that the costs of applying, maintaining and
enforcing IP rights are minimal; by simplifying the procedures; and by
harmonizing the IP systems globally and reducing the costs of obtaining
IP rights in multi-countries. The government has to patronize and
implement effective IP policies with proper financial management and
infrastructure of IP institutions. It has to take up the task of
educating local communities, business enterprises, and general public on
the potential benefits of an efficient IP system. The government should
offer assistance to innovators, producers, creators on the use,
protection and commercialization of IP. It has to take rigorous steps
against counterfeiting and piracy and strengthen the legal framework to
ensure effective implementation and enforcement against IP theft.
The Indian enforcement agencies have taken several initiatives to
protect and enforce IP. The Indian government has brought out ‘A
Handbook of Copyright Law’ to create awareness of copyright laws among
professionals, scientific and academic members, enforcement agencies,
stakeholders, and general public. Copies of the handbook have been
freely circulated to state and central government officials, police
personnel, and participants in IPR seminars and workshops. National
Police Academy, Hyderabad, and National Academy of Customs, Excise and
Narcotics have organized many training programs on copyright laws for
the benefit of police and customs officers. The Department of Education,
Ministry of HRD, Government of India, has initiated measures to
strengthen copyright enforcement laws. These include setting up of a
Copyright Enforcement Advisory Council (CEAC), creating independent
cells in state police headquarters, establishing collective
administration societies, and organizing seminars and workshops on
copyright laws to create greater awareness among enforcement officials
and general public. Special cells for copyright enforcement have been
established in 23 States and Union Territories.
July 15, 2007
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