Indian Intellectual Property: The (Differential) "Price" of Protection

IP’s “Perception” Problem: Nobody Loves Me

While the key theme of the conference itself was the use of intellectual property as a business asset, the conference focused on other IP issues as well, such as the current negative “perception” problem faced by IP owners. There was an entire panel on this issue, with a particularly impressive presentation from Caroline Kamerbeek, Director for Communications (IP and standards) at Philips. Incidentally, Philips may be one of the only companies in the world to have a special communications person dedicated to IP (I believe there are only two such companies in the world today–but if any of you have better information on this account, please let us know).

For those interested in the IP and communication theme, Duncan Bucknell has a good note on this aspect on his blog, which elicited some very insightful comments, including one from David Kline, the famous author of “Rembrandts in the Attic: Unlocking the Hidden Potential of Patents“. Also, Sara-Jayne Adams is tackling this issue in a full length article in the next issue of IAM.

I highlighted a bit of this negative “perception” issue in my talk at the IPBC. The most recent case that bears testimony to such a prevailing perception in India is the Novartis case, where the IPAB ignored existing law and went on a legal frolic of its own to build in an additional patentability hurdle i.e a patent will not be granted, if the price is too high! Luckily, this finding was only one of the grounds for rejecting the patent; the other one being non compliance with the famous 3(d), a section that has been discussed endlessly on this blog and one which bars the grant of patents to pharmaceutical derivatives that are not significantly more efficacious than already existing substances. I have reviewed this decision and its flawed reasoning here. See also Nina Mehta’s well articulated review of this decision in the Economic Times.

In my talk at the IPBC, I went to offer some suggestions on improving the public perception of IP. I will focus on one such suggestion here, namely deploying a “differential pricing” strategy in India.

Low (and Differentially) Priced IP Goods

Although intellectual property rights entitle owners to charge monopoly prices (barring constraints in terms of compulsory licensing, pricing regulations etc) , they ought to consider lowering prices voluntarily in countries such as India, where the consumers are extremely price sensitive and the IP enforcers more prone to emotional rhetoric. This strategy has been attempted by some IP owners and early indications suggest modest success.

Consider the example of Moser Baer, the leading optical disc manufacturer in India, who vowed to wipe out piracy by selling CDs and DVDs containing music and movies at prices close to the pirated prices. They negotiated licenses with content owners and brought out CD’s and DVD’s at extremely cheap prices. I’d discussed this aspect in an earlier post, where I mentioned:

“…a normal DVD version of a movie costs around Rs 200 (USD 5) or upwards in India, whereas the version sold by Moser Baer costs around Rs 30-50 (USD 1). The pirated version also sells in places like Palika Bazaar for around the same amount (USD 1) or sometimes even more! With such low margins, pirates will find it hard to survive!

Indeed, the use of such “mild” economic principles is a much smarter way of tackling piracy than the oft “aggressive” and terribly expensive anti-piracy campaigns carried out throughout the country.”

I haven’t seen any comprehensive empirical data on this model and how well its worked–but anecdotal evidence suggests that it has proved a decent business model and one that has managed to address piracy in a relatively peaceful and perhaps less expensive manner. Given India’s booming one billion plus population, I’d be very skeptical of critics that suggest that IP content holders are likely to suffer losses by selling at low prices to a rapidly expanding consumer base. Of course, the issue of whether or not this low priced IP model is likely to work in other “piracy prone” sectors such as software is indeterminate. Though I would wager that it would work, and it would work absolutely fine.

In pharmaceuticals, Merck proved to be a pioneer of sorts in India by introducing its diabetic drug, Januvia at 1/5th of the global price. This strategy appears to have stemmed from the much debated Roche vs Cipla decision, where the Delhi High Court refused to restrain Cipla from allegedly infringing the patent rights of Roche over an anticancer drug Tarceva, on the grounds that Cipla’s version sold at only one third of the patented version. The judge may have been influenced by the fact that not only was the cost differential between the innovator product and the brand significantly huge, the innovator product was being sold in India at about the same price that it was being sold in the richer Western markets (UK and US).

The Detractors and the Parallel Imports Issue

In March this year, I was at a conference on “copyright exceptions and limitations” funded by the Ministry of HRD and organised by India’s leading IP academic and my guru, Prof NS Gopalakrishnan. Much to my surprise, I found that other copyright industries (such as book publishers) were unwilling to accept the sagacity of Moser Baer’s model–claiming that it would never work in their sectors.

Any innovative idea will naturally have its fair share of “status quoist” detractors…but this dismissal of Moser Baer’s model could perhaps stem out of a fear that traversing down the differential pricing pathway could be fatal for IP owners: for it would lend pricing decisions to more public scrutiny . There is a danger that lower priced IP goods in India could lead to claims for lowering prices in the wealthy western markets. And of course, the much touted threat that some of these low priced goods could be shipped back to the western economies.

I’m not entirely sure how IP owners will tackle the first threat. As for the second threat, as we’ve been repeatedly harping on this blog, perhaps “technology” might prove a viable solution. See this post documenting Roche’s “mass serialization” technology, which was deployed to keep out counterfeits from domestic markets–but there is no reason why something similar cannot be deployed to check imports into countries where the product is not intended to be sold.

I plan to discuss the other suggestions to tackle IP’s negative perception in future posts. These include building “low cost” IP products for India and partnering with local companies and grassroot innovators to help boost local innovation capabilities.