The Curious Case Of Intellectual Property

 

When I was thinking about writing this article on the business of Intellectual Property some names crossed my mind and I had an urge to retract.  I wanted to be a bit careful to not belittle the contributions of some of the greatest minds that walked on the spiritually charged land called India where intellectual property is often misunderstood as some real estate or as an excuse to fund and celebrate a bustling generic drug market. You can almost manually count how many individual household computers in India have a genuine licensed copy of Microsoft products.

 I recently read a fascinating post by none other than one of the most erudite and wordsmith that I know - Soumya Kanti Roy (https://www.linkedin.com/in/soumyakantiroy). Recently Mr. Roy posted a note on Mr. Amal Kumar Raychaudhuri, a teacher and researcher of Physics at Ashutosh College in Kolkata, who developed a mathematical model on black holes (https://www.youtube.com/watch?v=i9_hm2qe34s).  Mr Roy narrated how the young physicist’s formulation - named the “Raychaudhuri Equation” - served as a brilliant basis for research on black holes (https://www.linkedin.com/posts/soumyakantiroy_in-1955-amal-kumar-raychaudhuri-a-teacher-activity-6720143663919321088-RtGT). It’s for these “singularity theorems” that Roger Penrose has been awarded the 2020 Nobel for Physics. Three additional names crossed my mind simultaneously -  renowned mathematician Vashishtha Narayan Singh who passed away last year unattended and poor, the genius Indian Director Satyajit Ray and Acharya Jagadish Chandra Bose. These gifts of mother nature were born in a country that was built on trust and faith and they didn't imagine that their inventions or creativity would be stolen. For Acharya Jagadish Chandra Bose it was the theft of his wireless technology that brought Marconi to limelight and allegedly Steven Speilberg's sneaking out the ET script from Satyajit Ray's collection that got him the Oscar. If only they knew about protecting intellectual property. So does it mean that the lack of Intellectual Property protection is the biggest roadblock to innovation and requires concerted budgeting and funding?  

The cumulative number of patents tally between the top 5 Indian IT firms would be somewhere in the ball park of 15K, at least. Patents granted would be much lower though. If we were to follow those numbers we should see a large number of products and platforms in the market from all these firms. Unfortunately we don't and certain firms are more prolific than others and the number of patents may not even correlate with the number of products they have in the market. Weird huh? How many blockbuster products did IBM launch in the last 5 years with more than 9000 granted patents under their belt or for that matter Samsung with ~6400, Cannon with 3548, Microsoft with 3081 or GE with ~1800.  I wonder how do these companies justify Return on Investments to their shareholders? Why do they need to protect everything that they do if there is no equivalent tangible value emerging out of these investments and effort? The other pretty contradictory behavior I have observed is that the same firms and countries that crib about greater transparency & access to markets tend to have more stringent patent laws. Isn't it a bit counter intuitive/ironical? One the one hand we speak about creating opportunities for start-ups however we insure these start-ups are crippled to start with, trying to buy out patents that the big brothers own.

Following up my last blog (https://kpax72.blogspot.com/2020/10/as-nation-rose-founding-fathers-were.html), I decided to bust 2 more myths -

1) Patents are  creation of the industrialised 21st century

2) Patents promote innovation.

The Great Exhibition in 1851 in England triggered a series of debates that resulted in creating a more protective framework to retain intellectual properties. You would be surprised to know that in the 17th century King James used to raise a ball park of GBP 200K a year by granting patents. He was farsighted and wanted to test if financial motivation was a driver for innovation. To his surprise it was and he started encouraging it. However all the widgets created did not necessarily have a tangible market traction i.e., they didn't necessarily end up being applied innovation. It only encouraged greedy people to innovative more as it provided just a chance to win the big bucks.

Patents have a long history and the most important one is that the inventions and innovations that occurred between 1760 through late 1800s did not require patents for example mule-spinning, railways, steamships to gas lamps. Innovation was free flowing and neither did people bother to protect their innovation nor did they mind if others copied. The motive was "social" - larger the proliferation greater good for humans. In pure economic terms larger supply will lower the cost of acquisition and society as a whole gains. A 2004 research by America's National Academy found that overall society suffers due to patents with the only exception being medical discoveries. The hypothesis was bolstered by another research paper published by Michele Boldrin & David Levine around 2012. They argued that patents are neither good at rewarding innovation nor do they proliferate innovation. The latter view stuck with me and I started following a inductive path of discovering the truth.

 My cousin in NY was head heading business strategy for the world's largest telecom company that later acquired a media house. He was visiting me in Kolkata and as we took a walk down some major shopping corridors, he was simply shocked at the blatant level of video piracy.  He exclaimed, no "wonder we are struggling to make any profits from India". Last year at a certain fair in Thailand, I was pleasantly amazed at some of the innovations I saw. Those innovations were definitely not novel but nevertheless helped solve regular problems in a simpler way and the creator didn't worry about loss of IP.  I inquired with a particular vendor who was selling  widget to peel pineapples about the risk of not protecting his innovation. He said that if someone copied from him, he will innovate something else. The interaction was humbling yet profound. Profound because to such a man, insecurity was a myth and self assurance was a gift.

I personally do not believe more exclusivity assures innovation. In 1970 USA expanded patent protection to crops that reproduce sexually like wheat. There was no subsequent evidence to show that yields increased disproportionately or for that matter, R&D spend. Patents on biotech in USA was expanded in the early 80's I remember a similar feat in India later when companies like Biocon came about. If you follow the price movement of Biocon over the last 10 years, it is hardly noticeable. My 2 cents is that patents have little impact on innovation when threat of other industry players is low, however as market participants increase, profitability erodes. Therefore there is one conclusion I can draw from the market behavior, IP is not a function of Innovation but one of Competition. I also feel that industries that require heavy investments and produce very complex products need not bat for innovation protection. They usually end up either being a monopoly or at best an oligopoly. There is however an exception in an industry that is cut throat in competition and was the harbinger of labor arbitrage - software. If patents really were beneficial why did something like open source technology come about? Google simply killed the notion of "need to protect" with its Android platform, Wikipedia changed the way we consume information or Youtube on how we consume music.

Patents, in my opinion are value destroyers. They increase the cost of a product - patenting process, expensive lawyers and an internal team to manage the patent process.  The median cost of pharmaceutical patent cases rose 67%, between 2105-2019 according to “2019 Report of the Economic Survey.” The current COVID outbreak exposed the under preparedness of the Life Sciences and Healthcare system. These 2 industries are heavily guarded by IP. If you look up the history of patents they were meant to spread knowledge by creating a sense of obligation to the inventors to expose their work to interested parties. Expensive patent lawyers were the recruited who specialized in the art of obfuscation and to block innovation through complex wording. Did you know that every year USA can have save more than $ 200 billion in prescription drugs had there been no temporary monopoly on medicines? As yourselves, who is really losing out? Research shows 40%-90 patents never gets exploited and they are drawn up as a strategy to stall innovation.

What I think is the need of the hour is a robust innovation management process that includes forecasting long hand trends and building those quickly to extract value from an unsuspecting market i.e. market timing. Organizations need to have a strong research and foresight team to draw out a portfolio of products that could be tactically launched over a short period of time depending on their market maturity and time to mainstream adoption.  If the very initial thinking is around creating barriers to entry for competing firms, the product/service will always be sub optimal because one will never have the motivation of nurturing a creation. There ought to be quick validation of idea through a portfolio of stakeholders business and/or technology, internal or external. Additional care should be expended towards a will to put together a minimum viable product in the shortest possible time. Agility is the key. Product strategy and market assessments ought to be done at the initial stages of product conceptualization to reduce the cost of appraisals & external costs. Supply chain strategy is of utmost importance be it B2B or B2C products if the product requires niche skills & high customization. For highly commoditized products it will be distribution management and for software companies, focus should be on  self healing systems with a robust CMDB.  In software industry supply chain will imply people skill and for a product company it will mean raw materials. Truly innovative companies should look at leveraging ecosystem players globally to accelerate solution delivery and not burden them with patent bully.  Newcomers in semiconductor businesses need to pay more than $200 mn to the incumbents to get access to licenses. How could we possibly depend on our start-up brethren to speed up the launch of Quantum computers such restrictive trade practices?

If the pandemic has taught us one thing, it is that geographical borders really don't matter. There is enough technology in place today to innovate remotely (creating a Cloud based sandboxed environment) and India's top IT service players are doing it effectively. I sincerely hope that when the Corona Virus vaccine finally emerges to tackle the current onslaught of COVID19 pandemic, it will not be patents that decide citizens of which country get to live and which ones are dispensable.  Innovations cannot be shackled within the confines of something as limited as IP because what defined people like Amal Kumar Raychaudhury, Vashishtha Narayan Singh, Satyajit Ray & AJC Bose were not their innovations per se but to imagine the infinite possibilities.