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Protecting IPR
October, 04th 2007

The next corporate battle for supremacy will neither be on the streets of Bangalore nor Mumbai for market share, nor in Dalal Street or Wall Street for large sums of money on beneficial terms. It will not be fighting global cost competitiveness either. It will be before the judicial forum in public visibility and finally behind closed doors with the help of private arbitrators, and the subject matter of dispute will be intellectual property.

The corporate world is already spending an increasingly large amount of time and money either defending or obstructing grant of or prevention of the use of IPR (intellectual property rights). The voice in the street is getting shriller.

Here are some pointers to what is ahead:

Ranbaxy is still fighting its patent war with Pfizer in some legal forum or other in the world, much after the Supreme Court in the largest market turned down its challenge against Lipitor.

The patent litigation for Glivec is spilling into public domain, and the political powers are reminding the contender that they will resort to compulsory licensing, a path shown to work by Thailand and Brazil recently.

The Bajaj-TVS spat on the digital twin spark ignition system is hotting up, with each party waiting to see the move of the other. Pharma companies are filing by the dozen objections to each others patent applications.

MNCs and their larger local cousins are eager to obtain patents even for marginal/incremental innovations or product modifications.

Reasons for the rush

India joining the WTO agreement on TRIPs is a recent phenomenon. And the amended Patent Act is still evolving. In this background, there are two influences impacting the corporates:

The markets are getting restructured on the back of IPR, and provide a kind of first-mover advantage and a strategic opportunity to re-write the market equation. This is a positive influence.

A barrier against competition, and ability to realise monopoly or super normal rent/returns: A not-so-socially-positive move, yet a powerful, strategising one.

Underlined in this is the faith that the IPR once granted will be a talisman against competition and any infringement can be fought through the legal system and the predator punished with penalties.

The reality check

While there is no reason for any one to lose faith in the Indian legal system, the peculiarities of the patent system should make India Inc. sit up and think again about whether the legal forum is the best way to protect the commercial interests of the patentees innovation?

Mature corporates are for sure moving away from litigation as a way to deal with or protect their property rights.

Recently, one saw a pharma company, known for its never-say-die attitude, withdrawing rather quietly from a legal battle involving over a billion dollars. Is realisation that such head-on confrontation in the legal forum is bound to be costly, long drawn and finally uncertain?

Why infringements happen?

A closer look at some of the known and contested infringements shows that the existence of three factors simultaneously encourages the predator to be adventurous.

A strong commercial benefit and/or competitive advantage: Innovators of new products often are under compulsion to recover their costs through product pricing, and this very model of recovery sows the seeds for infringement. Higher the R&D (research and development) expense, higher the pricing premium and larger is the menace of infringement. Often, a market for low-tech products gets created quickly and at a significant price discount. (Like spurious software with many bugs, or pirated versions of books with many pages missing in between.)

The spurious sellers and sophisticated reverse engineers, who sell a variant of the original product, are two sides of the same coin, though their strategy and, hence, response will have to be different.

Is the way we fund commercial research the culprit? Or is it simply that the inventor over-engineers the product and ends with a classic market dilemma?

The predator must have the ability to infringe or invent around the product: Successful infringers are, by and large, smart guys, and they have the ability to either reverse engineer the product at lower costs and/or quickly pass it off in the market as original. They understand and exploit the imperfections of technology and the market.

Given a little time, there is no product which India or China cannot reverse engineer.

The real problem is not about reverse engineering or developing a copycat at half the cost. It is the lack of access to complimentary assets and facilities which are still holding infringements at lower-than-possible levels.

Belief that the violator can get away with or, at best, minimal damage: This is a critical requirement, and is based on a clear appreciation of the imperfections of the law, be it its structure and evolutionary nature or its lax implementation.

Successful infringers have a realistic understanding and the ability to exploit the imperfections of the technology, market and the legal protection the inventor enjoys.

This is in sharp contrast to the patent-holder who swears by his often over-engineered product, justifies its high pricing and hangs to the patent as a talisman.

Work the patent

A patent, to begin with, can be thought of as a three-way contract, between the inventor, the granting Government and the public at large. The problem starts here, as at the stage of patenting the inventor has little knowledge of the source, form and time of the possible challenge, from the vaguely defined public at large. The patentee compounds this problem by working to obtain a patent as an end in itself.

Work it commercially

Here are why making patents work commercially is important:

Beware, cognitive bias of the administrator: Commercially successful patents have been so, not because of the legal protection they enjoy, but because of the way they work the patent to be commercially efficient.

Though innovation process in industries differs, the legal process has a one-size-fits-all approach.

A dispute in a judicial forum does not guarantee success for the original inventor, despite its impartiality. Research elsewhere has shown that cognitive bias is sharper in patent and intellectual property issues. The context of a challenge/infringement is not necessarily the same as the original grant of the patent. The law on the subject is still young and evolving.

Lifespan of products and technology is becoming shorter, but the judicial process is becoming longer: A patent gives its holder a protection of two decades and the possibility that the product/technology is succeeded by the next generation during this period is very high. Technology and pharma companies are examples of how a technology can become dated in a few years a two decade patent protection in most cases is irrelevant.

It will be to the infringers delight to drag the dispute in a judicial forum for a decade, as by then, few other generations of technology/invention would have happened. Winning an infringement suit does not automatically lead to injunction on the infringer, as the courts consider it only on demonstration of its need.

Patent protection versus catch-up time: In reality, what the inventor enjoys is essentially a catch-up time before the invented around version hits the market.

The protection strategies of the inventor should therefore revolve around: a) lengthening the catch-up time, and b) when the catch up is about to happen, move to your next advantage, which means becoming a serial inventor. Reverse engineering a well-oiled R&D set-up is not as easy as reverse engineering a product.

Research elsewhere has shown that catch-up time works effectively in certain industries such as auto parts, pharma and telecommunication, and not so in the case of electrical parts industry.

Other mechanisms to achieve a longer catch-up time include technology bundling, technology concealing, and cross licensing

Needed, IPR protection forums: Markets are churning rapidly on the back of IPR and old equations being re-written with significant economic impact. The IPR law is still young and evolving. What India needs at this juncture is a forum with teeth, to balance and protect the inventor, the predator and, of course, the market. What one needs is not another judicial forum, but a forum of inventors, infringers, and the market.

P. B. Ramanujam
R. Muralidhar

(The authors are former pharma MNC executives and currently Chennai-based M&A consultants.)
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