Intellectual Property – White Paper

6 Jan

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.  

 (c) 2007. P. Mohan Chandran. All Rights Reserved. 

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