Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint

Why India needs innovation and IP rights

The way forward is a knowledge-led economy where innovation and IP stimulate productivity, push economic growth

Talk about the most powerful, economically advanced or developed nations, and you would immediately think of the US, Japan and Germany. They all have something in common, which has been a major contributor to their success. Innovation.

But it was not always so. Take the US for example. In its founding days, the US was primarily an agrarian economy with a standard of living lower than that of its South American counterparts!

A stark contrast to its current status.

So, what transformed the US into an economic powerhouse?

The America we see today is a nation that has built its economy on the back of innovation and the nation’s ability to capitalize on its immense wealth of creative talent.

Closer to home, Japan, and more recently, South Korea, China and Taiwan have also demonstrated how innovation leads to an increase in gross domestic product (GDP).

However, I would hasten to add that it is not innovation alone that is responsible for their economic success. Innovation has to be channelled, encouraged and protected. That’s where intellectual property (IP) management comes into play with its ability to convert innovation into opportunity.

Innovation fosters economic development. However, innovation will truly flourish only in environments where ideas are protected and the originators of those ideas—whether individuals or organizations—are able to reap the benefits of their creativity. That’s why IP-savvy countries recognize the importance of having an effective IP system in place with protective measures backed by the rule of law; while IP-savvy companies are increasingly adopting a more diligent approach to IP management.

Gone are the days when a nation’s GDP would solely depend upon agriculture or manufacturing. While these sectors are vitally important to India, they have their limitations in terms of the economic return they will accrue. The way forward for India is the knowledge-led economy where innovation and IP together stimulate productivity and push the boundaries of economic growth.

IP-based sectors in developed as well as developing countries are substantial drivers of GDP and employment growth. According to a report released in 2012 by the US commerce department, titled “Intellectual Property and the US Economy: Industries in Focus", IP-intensive industries support at least 40 million jobs in the country and contribute more than 34.8% to US GDP. The IP-intensive industries directly accounted for 18.8% of all employment in the economy.

In the European Union (EU), IP-intensive industries account directly for 26% (or around 56 million) of all jobs. These industries generated almost 39% of total economic activity (GDP) in the EU, worth €4.7 trillion. These industries also pay higher remuneration than non-IP based industries, with a premium of more than 40%.

In Asia, South Korea’s GDP per capita was nearly the same as India in the late 80s. Today, South Korea is counted amongst the world’s developed nations with a GDP per capita of $23,000. This is primarily based on innovation-fuelled growth.

It is clear from these examples that innovation and IP-savviness are key to making nations competitive.

Today, companies across the globe are facing similar challenges. There is mounting pressure on the C-Suite to deliver improvements on their companies’ bottom line. The changing business climate is forcing upon companies a sharper need for innovation in order to differentiate themselves in the marketplace. As a result, directors and shareholders of companies around the world are more interested than ever to know how their intellectual property is being tapped to achieve its true potential. They want to know what is being done to manage IP-related risks, to exploit existing IP portfolios, and to develop their future portfolios.

The world’s most successful organizations link their accomplishment to their IP strength. A classic example is that of Apple Inc. Its continued innovations have dramatically accelerated the entry of new, improved products and services that have created new markets. Apple’s game-changing innovations, be it the iPod, the iPad, iTunes, the Apple Macbook or most famously, the iPhone, are protected by a multitude of patents that allows it to monetise the innovations. JP Morgan, in 2012, even went to the extent of saying that Apple’s iPhone 5 could single-handedly lift the US GDP by as much as 0.5%.

Other companies that have become multi-million dollar enterprises—be it technology giants such as Microsoft Corp., branded consumer goods companies like Procter & Gamble and Unilever, a mobile communication front-runner such as Samsung, or conglomerates like GE, to name a few— have also taken a more strategic approach to IP.

There is a reason why companies with sound IP strategies stay ahead of the pack. These organizations are able to capitalize their innovations intelligently, which in turn positively impacts their business and financial performance. Efficient IP management helps companies:

l Lead product innovation, which in turn gives them an edge over competitors, and enables them to create powerful brands

l Grow and protect revenue

l Generate opportunities to earn from multiple sources, for instance, through licensing or sale of IP rights that are no longer critical to the core business strategy.

Today, look at the many high-profile mergers and acquisitions (M&As). The valuations that took stock of earnings, net present value, cash flows and the like are now adding IP as a key factor to assess current and future potential.

So, where does India fit into all this? There has long been an argument that we need not focus on IP just yet, or at least we need to wait for our per capita GDP to reach a certain threshold. That is a flawed assumption, especially considering that wage arbitration may no longer be our trump card as more and more developing nations adopt that as a growth model.

A market of 1.2 billion people and 329 million households, India is one of the fastest-growing economies. For years, we have continued to be a “developing" nation. We have valiantly progressed through our many challenges, but now we need to decide whether we want to remain a “developing" nation or tap the many opportunities staring us in the face. It would serve the nation well to move to the next level and create an environment conducive to innovation. However, in order to get there, the government needs to commit itself to providing the necessary framework for innovation to take place. At the same time, companies need adequate understanding of IP and sustained direction and discipline to promote and encourage innovation within the organization.

The factors that contribute to an ecosystem of innovation are many. These include a strong scientific and technological base, which clearly India has no dearth of; as well as investment from both public and private sectors. There are industries and organizations that invest heavily in research and development (R&D), but, if these organizations are not allowed to reap the benefits, the chances of them ploughing back the money into R&D are slim. Thirdly, policies that encourage research in businesses as well as by individuals and/or independent organizations help promote a broader culture of innovation; and this is something that needs to be carried through into India’s education system so that it is more suited to the needs of an innovation-based economy.

For innovation to thrive, we need government policies that support IP and a sound legal and regulatory framework to be able to accommodate an efficient IP system. Our democratic structure and an educated population are perfectly suited to an innovation-based growth model. At the same time, I am not absolving organizations of their responsibility in creating a culture of innovation.

For organizations to succeed, they must understand and invest in IP. For nations to succeed, governments and policymakers must encourage and create a climate favourable for invention, creativity and innovation.

Anand Sharma is a member of the global board of directors and executive management board of CPA Global, an IP management and IP software specialist, and a provider of outsourced legal support services.

Intellectual property (IP) refers to any creation that can be leveraged for its innovation, ingenuity and monetary value. IP is protected in law through such means as patents, trademarks, design rights and copyright.

According to CPA Global’s survey on the “state of the IP industry" released in 2012, 77% of in-house IP professionals reported a greater understanding of IP strength and quality in their organizations, while the same percentage also highlighted a greater awareness of the importance of IP valuation.