Demystifying Intellectual Capital and Intellectual Property
Part II


By
G Bharathi
Asst. Professor (Economics)
Aurora's Post Graduate College
Chikkadpally, Hyderabad-500 020
 


PART II

In the last section we have seen the difference between the terms intellectual Capital, Human Capital, and Social Capital. In this section after the definition of the term IP, 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:

a. 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.

b. 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.

c. 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.

d. 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 it's 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-500 020
 

Source: E-mail May 18, 2005

 
 

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