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Demystifying
Intellectual Capital and Intellectual Property
- Part II
G
Bharathi
In
the last section we have seen the difference between the terms
intellectual Capital, Human Capital, and Social Capital. To begin with
in this section after the definition, an introduction would be given as
to why there was a need for the property concept of intellectual
creation, then the major types of IP would be discussed and finally the
article would conclude by giving briefly the TRIPs agreement and its
impact on Indian economy.
Globalization
of the world economies started in the mid eighties culminated in the
establishment of a world organization that championed the cause of free
trade between nations. The globalization was expected to bring about
exchange rate stability, expansion of trade between nations, sustainable
economic growth and development, correction of external sector
imbalances, adequate flow of concessional financial and real investment
resources, flow of technology across borders, strengthen multi
literalism, and lead to better market access. However all these were not
delivered as expected and lead towards more disparity, dependency and
widening gaps between the growth of the developing countries and
developed ones. Of course, there are differing views on this. The latest
report of the World Bank finds that the convergence of the world
economies seems to becoming more of a reality and the main cause of this
is openness.
Globalization
required cooperation amidst competition for faster economic progress of
all those concerned. In this context of ever-emerging competition a need
was felt for protecting the creation of human mind (intellectual
capital). The need of the hour for most of the firms was to improve
their quality of competition in the global market. The aim was also to
increase their revenues and profits by using the intangible assets they
have created and generated as a tool of product differentiation. However
the problem was that if the idea moves from person to person, and from
country to country then the creator faces risk that at any given point
of time he may not be able to claim the ownership of his own idea. There
was always a chance of misuse and duplication.
The
idea or the thought itself could not be protected since it was
completely intangible or invisible. However, the end product of the
human thought, the outcome which is tangible could have been protected,
thus the legal concept is created where a capital gets converted into a
property. A property concept gives the owner a clear right over his
asset and this is recognized by law. Thus, an intellectual capital gets
converted to an intellectual property when it gets legal acceptance.
Thus,
Intellectual property refers to the creations of the human mind and
human intellect. Most of the intellectual capital is protect able by the
various forms of intellectual and industrial property rights created
over the last 200 years and governed by international treaties and
regional and national laws. Patents and utility models protect technical
innovations. Trademarks protect brands. Design patents or registrations
protect industrial designs. Copyright protects literary and artistic
works as well as software. Circuit design registration protects
integrated circuit architecture, and so on. Recent years have seen
certain examples of crossover protection like business method and
software patenting. Copyright has also received increased attention due
to the introduction of digital technologies and the Internet.
Intellectual
property system is designed to benefit society as a whole, and it
strikes a delicate balance to ensure that the needs of both the creator
and the user are satisfied. Intellectual property rights usually allow
the creator to commercially exploit his work exclusively for a limited
period of time. In return for granting such rights, society benefits in
a number of ways. Most of the laws confirm that the rights of a patent
holder are placed on a higher pedestal than obligations.
Intellectual
Property Rights (IPR) can be in any of the following categories as
mentioned below:
(a)
Copyrights and related rights.
(b)
Trademarks.
(c)
Geographical Indications.
(d)
Industrial Designs
(e)
Patents
(f)
Lay out designs of integrated circuits.
(g)
Protection of undisclosed information (trade secrets)
Before
explaining the economic benefits derived from these IPRs by the economy,
firm and individual, it is imperative to explain each of these IPRs in
detail.
As
it is quite clear from the above chart that Intellectual Property is
divided into two broad heads of industrial property and copyrights and
related rights.
Industrial
property is further sub-classified into Patents, Designs, Geographical
Indications, Trademarks and Trade Secrets.
Copyright:
Copyright
is given to the creators of original works, which come under the
category of literature, dramatics, music, art etc. Since an idea is
always intangible, it cannot be copyrighted unless it gets transferred
in some form, which is tangible. Eg., a book, a CD, music cassette,
painting etc., Copyright prevents copying of only the expression. A
copyright is valid throughout the life of the author.
Patents:
It
is a monopoly right exclusively granted to an inventor over his
invention for a limited period of time by the government of a country.
This is a right of the creator. However, if the inventor or the creator
assigns any other person or any organization under a contract to get the
benefit of his creation, then the patent is granted to the
organization/person assigned. For instance, if a scientist or groups of
scientists are working on a new drug development in Dr.Reddy Laboratory
for a wage or any other monetary benefit, the patent of the drug
developed is given to DRL and not to the individuals. There can be many
patents or IPR’s on the same product. Eg., the grip of the pen, free
flow ink, roller tip etc., are patentable and patented.
An
innovation to be granted Patent requires to fulfill three criteria for
becoming eligible to get registration. A patent is granted only on that
invention which has the novelty, applicability and which is non-obvious.
A patent is given for a period of 20 years, and the patent expires after
this due date if not renewed. A patent has to be applied in each country
separately by the inventor. A patent would not be granted for the
invention, which has already been publicized through various means.
Therefore, it is necessary that an inventor first files patent and then
makes his invention public.
Trademark:
Trademark
are words, names, brands, symbols, labels etc. used or proposed to be
used by manufacturer of goods to create a unique identity for their
product. Trademark is used for distinguishing one firm’s product from
that of another. Trademark is very beneficial for industries operating
in a monopolistic market where customers have high brand loyalty and
product differentiation is very important to operate.
A
trademark is represented by the symbol “TM”. This is used as soon as
an application is filed. It is replaced by the symbol ® as soon as the
registration is confirmed officially.
Designs:
Design
deals with features, shapes, patterns, etc. applied to an article by an
industrial process, manual or mechanical. Eg., chair is a utility item.
However, chair itself does not qualify for IPR, but if special carvings,
embossing etc., is done which increases the value of chair though it’s
utility remains same, it becomes eligible for IPR under designs act.
Geographical
Indication:
It
is an indication that originates from a definite geographical territory,
which is used to identify natural and manufactured product. For Eg.,
pochampally sarees, dharmavaram sarees, madhubani paintings etc, all
qualify for registration under this category. It is valid for 10 years.
The application for registration can be by an association of persons,
organization, producers etc.,
In
case of all IPR’s, any or all of the rights of ownership may be
transferred by the owner of the right to any other individual, group of
individuals or organization. This is done through a legal procedure.
IPRs
confer lots of economic benefits for the innovating economies. Besides
providing Protection Against Piracy and Infringement, this acts as an
Incentive to Produce and Share, thus the demand for the innovated
product becomes global Increasing the Exports both in Real and Nominal
terms for the firm that has a patent for the innovated product. This
further proves to act on the exchange rate making the domestic currency
appreciate and making Cheaper Imports possible.
The
innovating firm reaps Monopoly Profits, the consumers get Better Quality
and Variety of Products and Services, and the society feels good because
it has resulted in Sustaining Innovation and Creation. The industries
that provide the inputs and support services to the export sector also
grow resulting in overall and all round economic development of the
innovating economy.
The
IPR’s have a specific significance to the innovating country as it
imparts Economic benefits in the form of the following:
-
The
exports of the innovating country tend to increase in real terms as
well as in nominal terms the product in its protection is unique in
its own sense.
-
The
imports then become relatively cheaper due to appreciation of its
domestic currency, the citizens of the innovative country have the
best of the two worlds where they get the best price for their
exports and also get the imports at the cheapest prices.
-
Besides
the above two benefits there is every possibility that the monopoly
profits are also reaped by the innovating firm in the short as well
as long run.
-
The
increase in exports has an obvious impact on the other domestic
industries, which have a link with the exporting industry thus
enhancing the overall development of the economy through the forward
and backward linkages.
TRIPS:
The
WTO established in the year 1995, based on the principles of
Non-Discrimination, Transparency and Reciprocity served the above
purpose aptly and encompassed several agreements to which its member
countries had consented on. The initial agreements were few related to
trade in goods and some included later covered vast areas of trade in
services and also that related to capital and labour. Some of them were
General Agreement on Trade in Services (GATS), Agreement on Agriculture
(AOA), Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPs), and The Agreement on Trade Related Investment Measures (TRIMs).
Thus it can be said that in the arena of international trade before WTO,
that is GATT regime, regulation confined to only goods, international
conventions ruled the matters of Intellectual Property Rights (IPR), and
Services trade.
Agreement
on Trade-Related Aspects of Intellectual Property Rights (TRIPS), was an
agreement under WTO, it required all its members to provide a minimum
norms and standard of protection for a wide range of IPR as classified
above.
The
Agreement sets out minimum standards to be adopted by the parties,
though they are free to provide higher standards of protection. A
transition period of five years is available to all developing countries
to give effect to the provisions of the TRIPS Agreement. This period
ended on 1.1.2000. No transitional period is available, however, for
grant of national treatment and most-favoured-nation treatment.
Countries that did not provide product patents in certain areas of
technology as on 1.1.1995, could delay the grant of product patents in
those areas for another five years i.e. up to 1.1.2005.
India
had, along with like-minded developing countries made proposals under
this category. In respect of the TRIPS Agreement, these proposals
included the following2: -
01. To extend the period for application of non-violation
complaints to the TRIPS Agreement.
02. To operationalise Articles 7 and 8 of the TRIPS Agreement by
providing for transfer of technology on fair and mutually advantageous
terms.
03.To establish a mechanism for disclosure of the source of
origin of biological material used in an invention and obtaining the
consent of the country of origin so that institutional mechanisms could
be established at the national level for sharing of benefits arising out
of the commercial exploitation of such inventions.
This
is not all so rosy and easy for the developing economies like India who
are net importers of the products which are technology intensive, more
so when the TRIPS Agreement places the rights of a patent holder on a
higher pedestal than obligations. These are specific reasons that many
developing countries including India have highlighted implementation
issues and concerns. One of
the major challenges that Indian economy faces is in terms of the
changes that are necessitated to meet the requirements of new regime,
some are already compatible while others have to be made so. For eg
Patent act is being modified in phases, the trademark act already
revised etc.
Companies
will be forced to set new investments in research and development.
Companies will also be forced to target niche markets and tailor their
products according to the market requirements. The implementation of
WTO's Trade Related Intellectual Property Rights gives standard
protection to copyrights, trademarks, layout designs and product rights.
But there are many possibilities that Indian exports could even be
banned because of the product patents. For instance, exports can be
barred if the product in question violates patent rights in the
importing country. Traditional items like basmati rice will have to be
patented. Automobile ancillaries will face product wrangles.
Software
programmes and data applications will have to be protected under the
patents law. Pharmaceutical companies will face a series of product
patents issues. The Information Technology Agreement singed under the
WTO, Indian hardware and software companies can become major players in
the value-added arena. Availability of high-skilled of IT personnel and
low cost of labour and operation will allow India to compete in the
international market. The SSI will be affected, as no reverse
engineering now will be permissible. This may affect its cost
competitiveness.
Another
problem is the enforcement of these laws; the governments of the
developing countries have to ensure the enforcement with the cooperation
of the several groups who are working towards the above objective. The
penalties for infringement (unauthorized usage) should be tough and
enough to deter violations. The dispute settlement procedure to solve
the disputes between the nations also should be put in place so that
justice is done to the cause of developing countries. Besides these the
remedies should be appropriately framed along with the rights. The
present objective should be to provide solution expeditiously, legally,
predictably, and in a non-burdensome manner. A legal mechanism is needed
to deal with the problems, but it should not open TRIPs agreement for
re-negotiation.
IPR
standards vary widely across nations affecting the trade between
countries, and also encouraging trade in counterfeit and pirated goods.
In a globalized world where exchange of goods have become a common
phenomenon protection of the rights become necessary not only for the
inputs and technology. Therefore, an enterprise requires comprehensive,
well thought of and planned structure to manage intellectual capital.
The increase in competition requires the intellectual capital to become
the intellectual property through adequate legal protection. However,
there is a huge opportunity in terms of JV’s.
Therefore,
transparent and balanced rules become an imperative for overall
betterment of conditions across nations. The developed countries argue
on the ground of huge expenditure that is incurred on the research and
development of the product that is innovated, however this can be taken
care by framing rules and developing a proper system of IPR’s with
respect to the Transfer of technology, Licensing and Joint ventures.
This will make the faster technological advancement of the developing
countries. This would help them in creating a competitive edge for them
in the global market. ‘Beggar thy neighbour’ policy is not
applicable in a globalized world where prosperity and poverty of all
nations move together.
Globalization
is an irreversible phenomenon and a desired evil for India as the
membership of WTO and its Agreements of TRIPs; it is therefore high time
we start looking for opportunities rather than cribbing about the
challenges.
G Bharathi
Asst. Professor: Economics
Aurora’s Post Graduate College
Chikkadpally
Hyderabad- 500020
bharathishan@rediffmail.com
Cell: 98493 63246
Office: 040 55152720
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