IPR - The invisible hand at the helm of Information Technology Industry's Business Strategy

Updated: Apr 3

By Aditya Gaggar | Advocate, Supreme Court of India

Before the dawn of intellectual property, the right of ownership was restricted just to tangible assets but the development of intellectual property rights has doubled the ambit of man’s rights, granting him exclusive rights to a variety of intangible assets too, such as musical, literary and artistic works; discoveries and inventions; and words, phrases, symbols and designs, etc, which were not capable of being owned earlier, so much so, that today it is this type of ownership which is most sought after.

Today, one cannot exploit the true market potential of his creator unless he is able to protect his copyright. In a globalised economy, the protection of the intellectual property is of even greater importance, as it becomes impossible to do business in such a scenario without a strong IPR regime.

IT industry is one of the most globally distributed industries with an equal spread over the market and the most rapidly evolving products that make it an IPR intensive industry. Rather, it would not be wrong to say that IPR is the most crucial factor in determining the business strategy of the software industry.

In India and for that matter at most places, the world over a computer program is considered as a literary work and is usually protected under the copyright law. Common business strategies for protection of computer software include beta testing, trial versions, the release of limited feature or limited accessibility versions and the release of earlier versions for free.

Even though there are immense benefits to following a business strategy focusing on IPR management yet there are numerous challenges to its implementation which include large scale piracy and complexity of the legal procedures involved.


Introduction

Over the thousands of years of man’s evolutionary history, man has constantly redefined himself and the things around him. From the ancient wheel to the ultra-modern spacecraft, all along, he has constantly indulged in creative innovation. Though this innovation had been slow initially, it has considerably picked up the pace in the past few decades, so much so, that it led Bill Gates to say,

Never before in history has innovation offered the promise of so much to so many in so short a time.

The difference, you ask?

One can’t help but smile and point out, the development of Intellectual Property Rights.

In early society, there was a time when there was no security for an author’s literary work, no respect for an inventor’s invention. Any common forger could make quick bucks and huge public acclaim by simply copying the immense hard work and labour of another, while the actual originator of the work would be very easily left to the streets. All you needed in those days for a comfortable living were the sly ways of a criminal and not the brilliant brain of a genius. The dawn of intellectual property rights has changed all that forever.

If one looks at it from a jurisprudential point of view, one would find that prior to the emergence of the concept of intellectual property, property rights were only awarded over tangible assets. Now, exclusive rights can be acquired over a variety of intangible assets too, such as musical, literary and artistic works; discoveries and inventions; and words, phrases, symbols, and designs, etc.

DEVELOPMENTAL HISTORY OF IPR

The concept of intellectual property has been traced back to the monopolies granted by the Byzantine empire. Similarly, in ancient Greece, a one year monopoly was given to cooks to exploit their recipes while statutory legislation in the Senate of Venice provided exclusive privileges to people who invented any machine or process to speed up silk making. Yet, all these were rare and widely spaced instances and the principle of protection of IPR was not such a commonly accepted one, then. The emergence of the modern concept of intellectual property, as we know it, has been fairly recent in the timeline.

Intellectual property has quickly evolved from its status as an obscure, alien concept unknown to the nomadic community, to becoming all-pervasive in the modern Information Age where protection is sought for almost every new idea under the category of intellectual property rights. Lawrence Lessig has even gone to the extent of saying,

The Americans have been selling this view around the world: that progress comes from perfect protection of intellectual property.

Commenting on the wide-scale IPR infringements openly taking place in China and emphasizing the importance of a positive IPR regime in the economic growth of any country, Dan Glickman is said to have stated,

If China wants to be a constructive, active player in the world economy, it's got to respect intellectual property rights or it makes it pretty impossible to do business with them.

IPR PROTECTION TO INFORMATION TECHNOLOGY

PROTECTION UNDER COPYRIGHT LAW

Under copyright laws of different jurisdictions world over, Software and Computer programs fall within the ambit of and are considered as literary works and accordingly are protected under the Copyright Act 1958. Copyright makes it possible to regulate, by subsequent contracts, the way the public can access these works. Also, it entitles the owner to prevent the copying of the protected work, the distribution of copies and the preparation of derivative works. Both the TRIPS Agreement, 1995 and WIPO Copyright Treaty (WCT), 1996 prescribe copyright protection for computer programs. It could be considered as the most widely used and appropriate means of software protection.

Software programs, user manuals, databases, websites and other information technology work in India are protected under the Copyright Act as literary works. Courts recognize the writing of a computer program as a creative "art form". Updates or enhancements to software can also obtain independent copyright protection. The fact that a computer program is created using well-known programming techniques or contains unoriginal elements may not be a bar to copyrightability if the program as a whole is original.

Under the Copyright Act, databases are given protection as "compilations". In order to receive copyright protection, databases must have been independently created by the author, the selection and arrangement of the components that make up the database must be the product of an author's exercise of skill and judgment and must not be a purely mechanical exercise. However, "creativity", in the sense of novelty or uniqueness, is not required. It is important to note that the creator of the database only acquires copyright in the database and not in the individual components of the database. Similarly, the underlying mathematical calculations, algorithms, formulae, ideas, processes, or methods contained in information technology are not protected, only their expression is.

Courts have also held that a Web page's look, layout and appearance are protected by copyright, as are musical works stored or created electronically. Whether or not, computer languages, macros and parameter lists, communications protocols, digital type-fonts are protected by copyright is something yet to be decided by Courts.

PROTECTION UNDER PATENT ACT

While some countries such as the USA, protect computer software like any other invention, the Indian Patents Act 1970 excludes a computer program or algorithm from patentability, despite the fact that a patent could probably provide the most comprehensive and secure protection. No international convention grants a patent to computer software either. However, in India, computer programs may be patentable along with hardware or where they focus on the systems, processes, and methods used to achieve a solution to a specific problem, rather than on the algorithms alone.

PROTECTION OF TRADEMARK

Trade-mark rights arise under the Trademarks Act, 1999. Trademarks can be used to protect the goodwill associated with the names, slogans, symbols, and other marks used by businesses in the information technology industry. Software products are getting protection as a trademark. Windows, MS Office Suite, Acrobat, Work Share are all trademarks of their respective manufacturers.

Domain names may garner trademark rights if they meet the statutory requirements for trade-marks. The IN Registry under the authority of National Internet Exchange of India (NIXI) has been appointed by the government of India for registration of .in domain names. For other generic domain names, the rules promulgated by the Internet Corporation for Assigned Names and Numbers (ICANN) apply. Trademark owners may be able to obtain relief for cybersquatters under trademark law (where the dispute is in respect of a .in domain name).

PROTECTION AS TRADE SECRET

An IT formula, pattern, compilation, program, method, technique, or process, may also be protected under trade secret law where duties of confidence exist either at law or by virtue of an agreement. Thus, an Owner can exploit his trade secret through confidentiality agreements, both with his employees and with his customers. Hidden aspects of web sites and software can thus be protected under trade secret law. In fact, coupled with copyright or patent protection, this is the most effective way to protect computer software.

PROTECTION AS DESIGN

Integrated circuit topographies (or computer chips) which form an essential part of many software allied gadgets are protectable in India by The Semiconductor Integrated Circuits Layout-Design Act, 2000. Computer hardware designs and plans may also receive design protection.

IMPORTANCE OF IPR IN IT INDUSTRY

As the inventor of WWW, Tim Berners-Lee, once acknowledged,

Intellectual property is an important legal and cultural issue. Society as a whole has complex issues to face here: private ownership vs. open source, and so on.

IPR plays a role of vital importance in almost every industry and it is especially so in the IT industry. IPR promotes greater R&D (Research and Development) and innovation as the owners have improved marketability for their products and services. Even if the copyright owner does not want to enter the open market all by himself, he can license his work to others and sit back and enjoy his royalty. Also, this increases the healthy inter se competition between the companies who are forced to focus on product innovation to maintain the upper hand in the market. It also benefits the consuming public in general as it increases the standards, the quality and the variety of products available to them in the market. Thus it is a win-win situation for everybody.

A strong IPR regime is even more important for a developing nation as it helps in technology transfer from the developed nations to the developing nation. Statistical data shows that a strong IPR regime promotes investment in the ICT sector of that country. It promotes rapid growth and development not only in the IT sector but in all other ancillary sectors too. It is even more important for countries like India where the IT sector forms such a large share of the GDP pie.

It is not as if it is only the developing nations that benefit from a strong IPR framework, rather the developed nations benefit infinitely more. It makes it easier for them to outsource their work to the developing nations without fearing piracy and market capturing. Also, they become the research hubs, hotbeds for innovation, the very fact that keeps them ahead of other nations.

SHIFT OF FOCUS: IPR MANAGEMENT

In modern times the focus of almost every industry has shifted to management of their intellectual property rights or rather intellectual property resources. The same is even more necessary in the field of Information Technology which innovates most rapidly. This is pointed out by the outrageous spending the software companies infuse into their R&D department every year. The “inventors” in such companies also happen to be one of the highest-paid people. Moreover, almost every IT company also has a long list of IPR litigation running in various courts all the time with a hotshot, eminent and needless to mention, expensive lawyers fighting their cases. Many even have a whole separately dedicated department that just keeps a track of their IPR formalities that arise from time to time.

IPR AND BUSINESS STRATEGIES

Unless one is able to protect his copyright one cannot exploit the market potential of his creation. Moreover, being a software, further aggravates this fact, as it can be so easily copied, the protection of Intellectual Property Rights become all the more relevant. The IT industry uses the IPR to its fullest possible use by devising a strategy where they safeguard their newest software against piracy but simultaneously release their earlier versions for free. This helps them in exploiting the niche segment of the market, by realizing the best possible consideration from them. The software by its very nature has interdependence on other basic software and operating systems. The industry provides the earlier version for free or deliberately do not check the piracy. Free use of an earlier version of the software provides them dominance in the market due to its excessive use by those groups who have a lesser capacity to pay which is accomplished by giving the earlier version of the product free. The software industry is able to keep the majority of the users attracted to their basic software or operating systems in this manner. This ensures them a ready market for the future versions of their software which operate in the same environment as that of earlier versions of the software. An example of this strategy is the marketing done by Adobe Laboratories which provides its Adobe Reader and Flash Player’s earlier versions to the public free of charge but charges heavily from the professional users who use the latest versions of the program. A similar strategy is applied by Microsoft in its famous operating system, Windows. It is said that the software industry deliberately does not take anti-piracy steps against a majority of users who are not using their genuine program, even though they are fully aware of the same. This is apparently for the reason that the company is aware that the majority of such users are not capable of buying their latest software. Still, if they are harassed by the use of anti-piracy laws then it is very likely that they will switch over to different programs of similar use of their competitors. In this manner the protection of the IPR and for that matter, deliberate non-protection of the IPR in given circumstances is part of the business strategy of the IT industry.

The IT industry often follows another strategy in which it lets out its unfinished product prior to its formal and full release into the market with limited features in a controlled manner called a Beta version. This gives them an opportunity to advertise their products while also taking feedback from the potential users which helps them in further improving the features of their products and fixing the bugs. This is also beneficial for the users as they get an opportunity to actually use the software for free for a prescribed amount of time, that too legally and find out its usability for themselves. Such a practice is common with companies providing internet utilities and other internet intensive tools and applications. A related approach is that of providing their software as a trial version that is available for free use for a limited time period after which it expires, rendering it unusable, with a dialogue box prompting you to buy the unlimited accessibility edition, instead. This is quite common in computer games. An IT company may also provide you with a toned-down version of the software with fairly limited functions for free called the free version and may suggest you buy the pro version for more features. Usage of this technique is commonly seen in Anti-virus software like AVG, Avast, Norton, Mcafee, Kaspersky etc.

CHALLENGES TO ENFORCEMENT OF IPR IN IT INDUSTRY

Though the protection of intellectual property rights and their enforcement has numerous advantages as already laid down, yet there are several major hurdles that stand in the way of their proper realization. Foremost among them of course, are the legal challenges to its enforcement that require expert advice and dedicated legal practitioners for its management which does not come cheap.

The longevity of the protection afforded to IT products also varies from country to country, not in the least due to the difference in the ways of the grant of IPR protection to them. Bill Gates has been quoted as having lamented that,

Intellectual property has the shelf life of a banana.

New regulations regularly throw up new challenges for businesses working at the cutting edge of technology, who must keep their one eye on the rapidly evolving market conditions and another on the courts. This increasing complexity of such regulatory laws is another major cause for concern for the IT industry. In the words of Eric Allman,

The intellectual property situation is bad and getting worse. To be a programmer, it requires that you understand as much law as you do technology.

However, just as in an Isaac Asimov story, the greatest challenge, by far, to the protection of intellectual property rights and the forward march of technology, comes not from law but from the technology itself. Lawrence Lessig has brought this irony to light thus,

Notwithstanding the fact that the most innovative and progressive space we've seen - the Internet - has been the place where intellectual property has been least respected.


 

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