The Hindu Business Line : TRIPS: Patently challenging

THERE have been significant efforts to harmonise national laws on intellectual property rights through multilateral agreements. The Trade Related Intellectual Property Rights (TRIPS) is one such agreement born out of the World Trade Organisation. It sets certain minimum standards, allowing for national variations.

Intellectual property refers to products of human ingenuity — patents for new products and processes; copyrights for written, music and artistic works and trademarks for companies' logos. Computer software is also included in this category.

Besides deterring identical products, patents also protect new technology. In global markets, it may be the key to competitive advantage.

The Internet technology has made infringement easier for free riders, and firms are finding it difficult to protect intellectual property across national borders.

TRIPS has come in for criticism from developing countries. Industrial countries hold 97 per cent of all patents worldwide and global companies hold 90 per cent of all product and technology patents.

Critical areas for developing countries are new medicines to fight diseases and seeds for crops. Both these areas rely on research in biotechnology.

Multinational corporations (MNCs) dominate this field of exploration. On the other side, many developing countries have either a weak patent system, or none at all.

The TRIPS Agreement, therefore, seems to consolidate the hold of the MNCs from industrial countries over Intellectual Property Rights (IPRs).

Theme

The most important learning from these early international initiatives and the hold the MNCs have acquired is, probably, not how to adapt to the domestic business model, although this should happen for the local fitness to be sustainable.

The most important capability should be to learn how to effectively accelerate international initiatives, aligning learning with vision.

As it gets redeployed across the company, its original domestic business model will necessarily be stretched. Some degree of entrepreneurship is expected, though it will create organisational tensions.

Intellectual initiatives require learning capabilities, information openness, the ability to experiment and debrief, drawing lessons from the local business model. For Nokia, the vision is to help "mobile information society". Logitech and HP together developed a mouse for the computer. ABB's vision is to develop customer solutions globally.

Typical (pharma) industry challenges for patents

Rising R&D costs;

Lengthening development and approval time for new products;

Competition from generics and follow-on products;

Cost-reduction pressures.

The pre-tax cost of a single new drug is $359 million compared to $231 million in the late 1980s and $125 million in the early 1980s.

The average time for obtaining regulatory approval in the US is 8-10 years. Given the fixed patent life for new products (17 years from the date of issue in US), these increases have a direct impact on a product's effective patent life, during which the patent holder enjoys market exclusivity.

According to industry sources, it is not unusual for sale of a drug to drop by more than 50 per cent in the first year after patent expiration. This comes from generic competition. Sales decline rapidly thereafter.

Health-care expenditure is a large and the growing portion of GDP of most major markets, requiring cost containment. Cost-control mechanisms include reference pricing (a fixed reimbursement based on therapeutic equivalence) and establishing budgets for individual physicians.

Cumulatively, these factors exert pressure on pharma firms to innovate a continuous flow of products to speed up the launch of new products, improve cost-efficiency of operations and to be aggressive in selling products in the major world markets.

Organisationally, senior managers optimise global returns on R&D investments;

Product-unit heads maximise global returns on individual products;

Functional units maintain interface tools and systems for support.

Aligning these require learning capabilities which will, in turn, be supported by the organisation systems, the culture, the leadership style, the organisation processes and the infrastructure. The learning agenda will be:

Existing knowhow that will be applied;

Local learning agenda;

Global learning agenda.

Deciding where to expand next and how will, thus, be based on where managers can best learn what is on the agenda, rather than on where they can best apply what they know. The challenge is to focus on multiple and often conflicting strategic objectives in search of efficiency, flexibility, responsiveness and innovation at the same time.

Understanding the overall process and evaluating options for shortening it are crucial for management, not to eliminate the phases and jump onto an immediate integrated flaccid business model.

(The author is on the faculty of a business school in Ghaziabad.)