The Way Forward On Intellectual Property For China And India

from the what-to-do-now... dept

This is the final post in our series on intellectual property in China and India. Feel free to read through the whole thing.

The continued development of the knowledge economies in both China and India requires thoughtful, practical policies that will give the needed incentive and capacity to innovators while providing benefits to as many as possible. In contrast to the beliefs of many, further strengthened intellectual property rights are unlikely to provide a positive impact on the economies of China and India. Instead, the two emerging giants should dedicate maximum attention to the other ingredients of a knowledge economy while structuring, to every extent possible under international treaty obligations, their domestic intellectual property regime to provide the optimum balance between incentives and access, bearing in mind that to diffuse the gains from existing innovations, the latter is to be favored.

Perhaps the single-most beneficial thing China and India can do to promote innovation and a dynamic knowledge economy is to provide high-quality education for all. This can be done in numerous manners, but it is important that science and technology education is promoted, perhaps even subsidized, to make it more attractive and affordable. Developing highly-skilled workers will provide the creativity and drive essential to the invention, adoption and productive utilization of new technology. While providing training for scientists and engineers, China and India must also create a strong managerial class to absorb and adopt technologies from around the world (Maskus 2000).

Additional policies can promote innovation, as well. Labor laws, especially in India, should be restructured to create maximum mobility and provide competitive salaries for the best and brightest. Government procurement laws, the rules of science and technology ministries and funding sources can be reformed to provide the incentives that intellectual property seeks to create, but without the unintended consequences of limited access and monopoly prices (Graff 2007). Universities, an important source of knowledge, should be connected with industry and receive funding for basic and applied research. Further, economic policies should encourage open competition, macroeconomic stability and a robust ICT infrastructure.

China and India should seek to structure their respective intellectual property regimes to best promote their individual interests, not an unclear global compromise that is driven by nations far wealthier than themselves. China and India are unique due to their size in which advanced capabilities exist in parallel with deep-seated poverty. Although existing international treaties largely confine China and India, they do have some room for flexibility. For example, TRIPs leaves room for domestic standards regarding novelty, nonobviousness and the scope of patent protection (Abramson 2007). This can be used to tilt the intellectual property regime towards second-comers, especially domestic innovators (Reichman 1997). For example, nonobviousness should be interpreted widely, allowing Chinese and Indians to legally utilize overly blatant foreign patents. Disclosure should be strengthened, leading to additional information spillover. And competition laws can be used to curb many of the adverse effects of IP. In the face of overly-strong intellectual property abroad, China and India should structure their legal incentives to encourage long-term competitiveness, establishing an innovation system that will be increasingly attractive to MNCs who find innovation difficult in the West.

A number of specific recommendations are possible, as well. Think tanks and research institutions focused on issues concerning intellectual property should be established with independent, objective and well-trained staff. Both existing IP systems should be run efficiently and with social interests in mind. This means training judges, administrators and bureaucrats in the nuances of intellectual property and their costs and benefits. When addressing university commercialization, India and China should fund and manage research in the public interest, mandating transparency, avoiding exclusive licensing unless necessary for commercialization, and potentially retaining government use rights for resulting innovations (So 2008). Although it has not been the focus of this paper, on the topic of traditional knowledge, China should follow India’s lead in actively defending the public use of exiting knowledge by fighting attempts to reappropriate the public domain through marginal changes to traditional knowledge. India’s successful challenge of patents on neem and Basmati rice provide useful examples (Boldrin 2008). Finally, the capacity of domestic institutions to support limited intellectual property should be strengthened, most prominently by prosecuting misuses of the IP regime (Okediji 2006 PDF).
    
With increased global prominence, China and India should accept their rightful place in the international system. As far as it is in their populations’ interests, they should resist further elevation of intellectual property, seek expanded compulsory licensing capability, and promote exceptions and limitations for educational materials for students.

Above all, China and India should seek consistency and transparency in their intellectual property policies to create a business environment conducive towards investment and innovation. IP should not be strong; IP should be efficient. As an imperfect tool, it should be used pragmatically and critically.

Robust, clear and enforced intellectual property is very likely a part of a successful knowledge economy, but the advantage of strengthened IP is frequently overstated. In contrast to the other parts of a knowledge economy, intellectual property has a tendency to be misused to the detriment of the economy. For both China and India, placing faith in exclusive rights will limit the ability of the impoverished masses to find productive employment and threaten the long-term sustainability of their innovativeness.

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Other posts in this series:

• Do China And India Really Want Stronger Intellectual Property?
• A Brief History Of Intellectual Property In China And India
• Why Might China And India Want To Strengthen National Intellectual Property Policy?
• Why Increased IP In China And India Is Likely To Disproportionately Benefit The Developed World
• In China And India, Stronger Intellectual Property Is Unnecessary
• There Is No Harmony In A Patent Thicket
• The Way Forward On Intellectual Property For China And India

Kevin Donovan is an expert at the Insight Community. To get insight and analysis from Kevin Donovan and other experts on challenges your company faces, click here.

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There Is No Harmony In A Patent Thicket

from the just-thorns dept

This is the sixth post in a series of posts looking at the question of intellectual property rights in both China and India. We've got one more post to go.

Why Intellectual Property Is Insufficient For Economic Development In China And India

The strong focus on intellectual property presented by advisers to China and India miss the ecosystem in which useful innovation takes place. This ecosystem includes, among other things, education, entrepreneurship and openness. For example, intellectual property can only add to growth when coupled with trade liberalization, something India significantly lacks (Gould 1996). However, because a larger market provides a larger incentive for commercial innovation, some researchers have found that with increased market size should come decreased intellectual property (Boldrin 2005). This finding, that for every 2% of economic growth, the duration of IP should be reduced by 0.5% would have significant implications in rapidly growing China and India, but it receives little to no attention amidst the drive for ever stronger intellectual property. Finally, even though intellectual property may stimulate cross-border licensing of technology, it is unlikely to bring a sudden inflow of foreign investment because other facts account for the variation in the behavior of MNCs in different countries (Fink 2005).

Watch out for the Patent Thicket

As China and India are exhorted to increase intellectual property protection and enforcement to higher standards - “harmonization” in the rhetoric of its proponents - they risk emulating the detrimental IP systems of the developed world. The United States, widely viewed as the most innovative nation in the world, has a patent system that  has, according to Jaffe, "become sand rather than lubricant in the wheels of American progress” (Jaffe 2004). Even more worrying, the trend in international intellectual property is actually speeding past the American level of protection, raising concerns that the incredibly strong IP in countries will diminish, rather than promote, innovative capabilities.

Patent thickets - "a dense web of overlapping intellectual property rights that a company must hack its way through in order to actually commercialize new technology" - and the "tragedy of the anticommons" - where "too much ownership... wrecks markets, stops innovations and costs lives" - are useful concepts for policy-makers in China and India to keep in mind as they are encouraged to increase their intellectual property. Instead of being incentives for innovation, 47% of firms are using patent portfolios in negotiations and 50% as defensive protection from lawsuits (Boldrin 2008). If China and India grant patents too broadly, they risk overshooting privatization, likely stunting the domestic growth of complex technologies and innovations whose production will be covered by dozens of competing patent claims (Jaffe 2004). This will only be exacerbated by bad standards that do not restrict exclusive rights to truly novel, useful and non-obvious inventions (Boyle 2008).

Are China and India Overshooting Optimal Intellectual Property?

There is already evidence that the two emerging superpowers are making these errors. East Asian countries are patenting at a per capita rate of 4 times the developed world, leading to quick patent quantity convergence (Brahmbhatt 2007). China, whose patent office led the world with 800,000 applications in 2008, is now also home to the most patent lawsuits per year (“Battle of Ideas”). While, prima facie, the enormous absolute populations of China and India will likely make their patenting activity among the highest, given the relatively small sectors engaged in truly innovative work, these figures are worrying. In fact, the same motivations that have been fingered as the causes of the American patent system’s woes – government downsizing and competitiveness – are currently present in China and India, increasing the likelihood that they follow America’s folly (Jaffe 2004).

Another American policy of uncertain quality that is being emulated in China and India is university commercialization. The Bayh-Dole Act, passed by Congress in 1980, encouraged universities to commercialize their innovations through patents, but its effectiveness is highly suspect. Bayh-Dole changed “academic norms regarding open, swift and disinterested scientific exchange” (So 2008). In India, this is already a concern with 71% of surveyed executives feeling “that lack of collaboration between industry and research institutes was the main hurdle to innovation in India” (Dutz 2007). The facilitators of that exchange, Technology Transfer Offices, have “become gatekeepers that in many cases constrain the flow of inventions and frustrate faculty, entrepreneurs, and industry” (So 2008). Yet, China and India are both encouraging university patents (Graff 2007).

Flying Right Past the USA

Unfortunately, simply recreating the flawed American system is unlikely. The world’s largest economic force, the USA, is actively using its trading power to increase international IP standards beyond the current TRIPs-mandated level. Through bilateral free trade agreements (FTAs) and the multilateral Anti-Counterfeiting Trade Agreement, currently being negotiated in secret, the United States is promulgating even more expansive intellectual property policies. The FTAs have strengthened intellectual property rights beyond the high standard already set by TRIPs in dozens of countries. These measures include extending copyright for an additional 20 years, preventing parallel importation of patented pharmaceutical products, limiting compulsory licensing ability, limiting copyright exceptions and limitations through the illegalization of technological circumvention measures, and explicitly extending patents to biological innovations (Fink 2005 PDF). Countries accept these provisions in return for lower tariffs and better quota allotments, but while those are temporary, the expansive intellectual property policies are not.

In addition to all the previously explained reasons why this is likely detrimental to the developing nations who agree, it is useful to note that these policies promoted by the USTR are deeply hypocritical, especially when it comes to copyright. The United States copyright laws give considerable breadth to consumers through the fair use provision. This limitation on exclusive rights has been estimated to contribute $4.5 trillion per year to the US economy (Rogers 2007 PDF). Consumer International, a nonprofit, ranks the United States as among the best copyright policies in regards to consumer protection; notably, it is joined by China and India, condemned by the USTR and copyright industries as too permissive (“IP Watch List” 2009).

Speaking of intellectual property as unidirectional makes little sense when one recognizes that the benefits are neither clear-cut nor absolute. Additional costs of further strengthened IP in China and India will be higher administrative costs, less imitation, and a decrease in the incremental innovation that provides real growth (Reichman 1997).

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Other posts in this series:

• Do China And India Really Want Stronger Intellectual Property?
• A Brief History Of Intellectual Property In China And India
• Why Might China And India Want To Strengthen National Intellectual Property Policy?
• Why Increased IP In China And India Is Likely To Disproportionately Benefit The Developed World
• In China And India, Stronger Intellectual Property Is Unnecessary
• There Is No Harmony In A Patent Thicket
• The Way Forward On Intellectual Property For China And India

Kevin Donovan is an expert at the Insight Community. To get insight and analysis from Kevin Donovan and other experts on challenges your company faces, click here.

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How Toyota Is Using Patents To Slow The Growth Of Hybrid Vehicles

from the what-a-shame dept

Slashdot points us to a WSJ story about how Toyota has purposely built up a patent thicket so thick that basically no one can build hybrid vehicles without paying up:

Since it started developing the gas-electric Prius more than a decade ago, Toyota has kept its attorneys just as busy as its engineers, meticulously filing for patents on more than 2,000 systems and components for its best-selling hybrid. Its third-generation Prius, which hit showrooms in May, accounts for about half of those patents alone.

Toyota's goal: to make it difficult for other auto makers to develop their own hybrids without seeking licensing from Toyota, as Ford Motor Co. already did to make its Escape hybrid and Nissan Motor Co. has for its Altima hybrid.

Defenders of the patent system often say that there's no problem: others should just "invent around" the patents. But when companies create a patent thicket like this, that makes it effectively impossible. The end result? We all lose. This makes it that much more expensive and difficult for others to innovate, because they need to allocate money to Toyota, rather than to their own innovations. It slows down Toyota as well, since it's devoting so much time and effort to lawyers. And it massively slows down the market. Rather than competing on innovation and a better product, the focus is on patents. And since it slows down competitors it means Toyota doesn't need to innovate as fast either. In the meantime... not only does the economy suffer, but so does the environment.

Of course, we can't just blame Toyota for this. It's the system that created such a scenario. In fact, Toyota recently went through a long and arduous patent battle with someone else over patents held by that guy -- resulting in Toyota having to pay a tax on every hybrid it makes. So, perhaps it's no wonder that it's trying to gobble up as many patents as possible around hybrids, if only to have the necessary "stockpile" for future patent battles against competitors. Once again, it's the entire patent system that's leading to this questionable result that harms everyone... except the lawyers, of course.

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Patent Battles Make It That Much More Difficult To Keep People Healthy

from the what-a-shame dept

The problem with the view that patents should be given out for every little improvement (most of which would have come about naturally thanks to market demand) is that you end up with "patent thickets" where a ton of different companies all claim patents on some small part of a larger offering. This isn't just an argument about "ownership" or "rights" in some cases. It can also have direct impact on keeping people alive.

For example, just witness the patent battle going on in the medical device market concerning Boston Scientific, Johnson & Johnson, Medtronic and... famed patent hoarder Acacia. Boston Scientific, Johnson & Johnson and Medtronic have all been suing each other concerning various patents used in stent and catheter technology. Acacia has now jumped into the fray by acquiring patents from Datascope and setting up yet another shell company called Cardio Access.

In all of these cases, everyone is claiming ownership over some piece of the technology used in stents and catheters, basically suggesting that others can't use that part of the technology without paying them. The end result is that we're all put at greater risk. Either stents and catheters won't be able to be as useful as they should be because they can't use the best possible technology -- or if they do use that technology, they get priced much higher to pay for all of these licenses from everyone else. And, of course, with all of these patent lawsuits (and rewards -- since Boston Scientific has already had to pay out the two largest patent fines this year, totaling $750 million), money that could have been spent on making a better product is instead going into lawsuits.

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Quick! Who Else Has A VoIP Patent That Vonage Can Settle Over?

from the sue-and-settle! dept

We've covered in too much detail how it's some sort of "open season" on Vonage when it comes to VoIP patents. After dealing with ridiculous and expensive patent lawsuits from companies who failed to actually innovate in the same way Vonage did, the company was pressured by Wall Street to quickly settle the various patent lawsuits filed against the company. Of course, rather than settle matters, that simply opened the door for other companies to go searching through their patent portfolios to see if there was anything they could sue Vonage over. Indeed, following those settlements it didn't take long for AT&T to dig up a patent and sue -- which was quickly settled as well. Thought things were over? No such luck. Nortel just showed up last month to sue and it took all of about a week and a half for Vonage to settle that case as well.

The Nortel case is slightly different because Vonage actually already had a patent infringement lawsuit going against Nortel, but it wasn't really initiated by Vonage. Instead, it had been initiated by a patent holding firm that Vonage bought in 2006. The end result of the settlement doesn't involve money changing hands, but just a cross licensing agreement for the patents. So what's the big lesson that Vonage and others have learned from this? It's certainly got nothing to do with innovating. It's to hoard as many patents as possible so that you have your own nuclear stockpile for when someone else sues you. Want to know why the USPTO is overwhelmed? It's not because there aren't enough examiners (as some will claim) or that there aren't enough funds. It's because the way the system now works is that you are supposed to file patents on every tiny little advancement so you can use it to protect yourself against lawsuits from everyone else. That's not about innovation. It's about waste. In the meantime, since it's still open season at Vonage, who's going to be next? There are a ton of other patents in the VoIP space that can surely be used in a lawsuit, right?

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And Another One: Nortel Latest To Sue Vonage Over VoIP Patents

from the who-else? dept

A "patent thicket" is when so many different entities claim patents on a particular space or product, it becomes nearly impossible for any company to actually put a product out in that space without either having to pay ridiculous patent license fees or face a series of patent lawsuits. There are plenty of patent thickets out there -- and a big one is in the VoIP space. The concept of using internet protocol for voice communications has been out there for ages, and there were lots of attempts to get such a service working in the late 90s. While technically it was possible, the real problem was that most users didn't want to go through the hassle of setting things up to use VoIP. Vonage was the first company to get past that hurdle by making things easy: you plug a box into your modem, and then you plug in a phone -- and everything works just like your current telephone. It was this simplicity, combined with a big advertising campaign, that made VoIP popular. It certainly wasn't the basic technology advances that almost everyone in the space had figured out well before. Yet, Vonage's ability to attract users made lots of other firms jealous, leading to a series of patent lawsuits. Earlier this year, under pressure from Wall Street, Vonage agreed to settle such patent lawsuits from Verizon and Sprint, as well as some tiny patent holders. As we noted at the time, this was simply flinging the gates wide open -- and anyone who had any kind of patent related to VoIP should probably sue Vonage as fast as possible.

AT&T couldn't resist and dredged up some VoIP patents itself. And, sure enough, Vonage quickly settled. Of course, that wouldn't be the end. Now along comes Nortel, who has also sued Vonage for infringing on nine separate patents. To be fair, Vonage may have also brought this one on itself, having first sued Nortel over its own patents, leading Nortel to retaliate. You would have hoped that Vonage would have learned its lesson that patent battles aren't particularly helpful, but it appears that the company took away the wrong lesson, and is hoping to get in on the patent dollar bonanza. All we're really seeing is a blatantly clear explanation of how patents are holding back innovation, rather than promoting the progress of useful sciences. Update In the comments, someone from Vonage notes that the company did not quite initiate this, as the lawsuit actually came from another company that Vonage acquired.

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Those 200 iPhone-Related Patents Don't Seem To Be Stopping Patent Infringement Lawsuits

from the welcome-to-the-patent-thicket dept

When the iPhone was first announced, Steve Jobs proudly hyped up the 200 patents the company had filed around the various parts of the device. However, we were among those who wondered what the point of all those patents were -- as most of the concepts were widely known, and Apples real innovation was putting them all together in a nice usable package. And, if Steve Jobs thought that the announcement of those 200 patents would scare off patent infringement lawsuits, he was clearly mistaken. The iPhone has already been accused of patent infringement for the touchscreen and the virtual keyboard, and now Klausner Technologies has sued the company for its visual voicemail offering. If Klausner sounds familiar to you, that's because it's the company that sued both AOL and Vonage for daring to display voicemail information on a screen (yes, apparently that concept is patented). Vonage, of course, recently settled with Klausner, giving it the cash to take on a big fish like Apple. Considering Apple's notorious willingness to pay up when accused of patent infringement, even on the most ridiculous patents, this strategy probably makes sense for Klausner, but it's hard to see how it furthers the cause of innovation.

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Vonage Settles AT&T Patent Suit; Anyone Else Want To Squeeze Free Money Out Of Vonage?

from the just-find-a-voip-patent-and-sue dept

The various patent lawsuits against Vonage have been a perfect example of almost everything that's wrong with the patent system. Vonage was the clear leader in this space -- being the first to successfully get this type of product to a widespread audience, even as the idea had been talked for years. Vonage's success had nothing to do with its technology acumen. The concepts behind VoIP services were widely known and widely discussed. The problem facing the space had always been an inability by any company to package it up in a way that people would buy it. Vonage figured that out. And for it, it got sued into oblivion by all the companies who were unable or unwilling to figure out. Just the fact that there were so many patents covering the basic concepts of "VoIP" (even when there was so much prior art) should have been a warning sign that perhaps most of those patents were bogus. However, once Vonage's investors started pressuring Vonage to just settle the cases, things only got worse. Vonage settled with Verizon and Sprint and even with some small patent holder very few people had heard of. With Vonage quickly trying to settle any such lawsuit, you can bet that plenty of companies went hunting through their patent portfolios, looking to see if they had anything related to VoIP which they could use to sue Vonage over. AT&T quickly found something and sued Vonage, knowing the company would quickly cough up some money. And, cough it up, it did. Vonage has agreed to pay AT&T $39 million. Anyone else have a VoIP patent? Might as well sue while Vonage's wallet is wide open...

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Vonage Loses Yet Another Patent Case

from the not-looking-good dept

Vonage has already had enough trouble actually making their business profitable without having to worry about a barrage of patent lawsuits over highly questionable patents. But thanks to a patent system that approves a tremendous number of overly broad patents on obvious ideas, that's what you get. Already appealing a similar case from Verizon, a jury has found Vonage guilty of violating a bunch of Sprint patents. Juries will often find in favor of the patent holder, so this isn't much of a surprise. Vonage will most certainly appeal and the case is far from over. However, given how much effort the company needs to put into fighting these patents, the company may not be able to survive. The really sad thing is that the technology behind VoIP has almost nothing to do with Vonage's success. There were a ton of companies that had tried and failed to make popular VoIP plays before (and after) Vonage. What Vonage did was actually innovate: taking the basic idea that everyone knew about, and turning it into an offering that people wanted to buy. That's where Verizon, Sprint and other incumbents failed. For them to come back afterwards, and claim patent infringement is simply sour grapes. They were unable (and unwilling) to create the services that people wanted -- and now they want to shut down the company that actually did innovate -- and they're likely to succeed. That's not how the patent system is supposed to work.

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Sprint Claims Vonage Wouldn't Exist Without Sprint's Patents

from the stop-laughing dept

Already facing possible shutdown and huge fines from Verizon over some VoIP patents, Vonage is apparently facing a similar threat from Sprint as well. The case was filed nearly two years ago, but it finally is underway, with Sprint making the ridiculous claim that without Sprint's patents, Vonage wouldn't exist. We've already gone through this with Verizon, but there's a ton of prior art on VoIP offerings -- and almost all of these patents seem overly broad and quite speculative. Lots of different folks all figured out how VoIP could work at about the same time (suggesting that the concept was the natural progression of the technology, which isn't something that's supposed to receive patent protection). Vonage's real innovation was in figuring out how to package and market the service -- something that neither Sprint nor Verizon did. Both companies are now simply trying to shut down a rival who out-innovated them in the market. That's not what the patent system is designed to do, and it's a blatant abuse of the patent system by both telcos to claim that Vonage somehow "stole" anything from them.

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