At any meeting of foreign investors in India or in similar developing economies there would always be active discussions on Patent Laws and Intellectual Property Right violations. Corporate from the developed economies based are upset and indicate that they suffer Billions of Dollars of losses. So in the 80's countries like India were put on the Super 301 list and "Trip-pad". This formed the basis and key issue that led to the Dunkel - GATT agreements and trade talks to form the WTO. The fears of transnational corporate justified as there must be better compliance of laws and respect for Intellectual property.

First we need to concur that in order to insure the implementation and preservation of any trade law within a country - the law itself must first be based on the “local” environment! The economic terms of reference have to be relevant to the local region, statistics, local infrastructure and the current functioning of the local judiciary system.

There has however been an error created by including IPR as an "input" cost calculated within the concept of globalization and free trade.

This Non Linear Thinking based “thought process” would be acceptable to the owners of Intellectual Property (IP) who are specifically interested to increase trade, improve turnover - and not merely score legal points or exploit the markets based on the extreme variations in consumer income between regions. Linear Logic has made companies and economists inadvertently “cost” intellectual property in a simplistic manner, and much like any other input.

Within globalization and free trade - all raw materials are sourced from the “lowest cost” point then “manufactured” where the infrastructure and labour costs are most economical. The “benefits” are then globally shared by all. Unlike products that can be globally sourced and produced, “Intellectual Property” is not mobile. We cannot manipulate the “point of sourcing”. This lack of mobility of I. P. creates an “inflexibility” - where the value has been based on the aspiration of the owner of the Intellectual Property.

This overlooks the key critical issue that -
It is the “income of the consumer/buyer” that determines the value - and “not”, the “cost” of the Intellectual Property.

All Intellectual Property commences its “form” as an intangible. It is a 100% risk based development whose value is determined by the “demand it creates” and not by its cost . The demand is dependant on the income of the buyer. If there is no demand or no sales then it cannot claim to have a value!Its demand based on price also determines the longevity and technology value of the development and therefore the total return must always be based on potential “ total volume” of sale. The rate of “amortization” thus becomes the key factor that determines the correct “per unit”. costing.

Within globalisation Intellectual Property cannot be merely added as a “linear value” to product cost - It is required to be based on the number and the income of the potential consumer. This “error” in the method of costing has prevented greater sales of products and has thus given lower returns from I. P. to its owners on a worldwide basis and specifically “outside” their home markets.

If growth is the objective, then the owner of intellectual Property should accept that the costing and pricing must be different in developing countries. The rate of amortization/recovery of I. P value needs to be planned “ as a proportion of the potential consumers income" based on the prior experience of the "per capita" recovery in developed markets.

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The Pharmaceutical battle highlights the issue!

The United State of America spends a minimum of 2000 US Dollar per capita on health care. We in India cannot and do not aspire to spend more than say US Dollar 50 per capita ( Logically a similar ratio to equivalent income levels ). Even this value is a euphemism, or optimistic forecast for India.

The medical infrastructure in developing economics like India do not indicate a future where despite intentions the health care system can become a welfare one as in the U. K. nor can we assume a fiscal system of full insurance reimbursement as in the U. S. Non-Linera research models would project the start of Insurance models to be based on fixed cost reimbursement schemes . We are therefore unable to assume that we could ever afford the 'same cost' for drugs or patient care. The fair way is based on per capita income or expenditure.

One West-based citizen or “Unit” is directly worth 30 to 40 times in consumption value compared to one Indian patient or product unit. Therefore it is easy to calculate that 30 - 40 Pharma / Health care units in India would give the equivalent return of one unit of IPR as is recovered in the U. S. Indian manufacturing “costs” are low, and the pricing is competitively based on Indian Income. It should be logical for the owner of I. P. to amortize one Unit of I. P. as recovered per capita or per unit of product in the U. S. over 30 - 40 people or product units in India.

This logic is not a “human value’ plea to save lives BUT based on economic logic so as to insure a much higher return for IPR owners.

Wherever the development of IPR , in that home country one unit of I. P. would be loaded on to one unit of product. BUT for another country like India/Africa and most of ASIA this pricing would be an illogical ad - valorem value.

Thus, an economically fair and logical method of calculating the “I. P. Content” of the same product produced in different countries/regions should be in either of these 2 ways -

• Maintaining the rate of amortization of the Intellectual Property Value in the same ratio as the Difference in income between the users groups in the different markets ( This would be applicable to low volume drugs or software where I.P. content is high).
• The Intellectual Property content could maintain the same percentage to the per capita consumption values of the product in both countries. (Applicable to mass consumption product like Pharmaceuticals and Agri - based products like seeds etc. )

These methods of valuation provides the correct and fair “amortization” rate and gives the correct Intellectual Property unit so as to provide the volumes and returns on a “Total Basis” level rather than on a “unit” basis.

Obviously this is applicable only to what is intended to be manufactured within the country of consumption. It is not intended to request for lower prices for products that are “manufactured in the country where the IPR was developed”.

Personal Income and value of life (Health) have unfortunately a direct co-relation in Developing Countries and a stronger linear link in India because of the absence of Insurance or tax reimbursement schemes. Unfortunately “Life” - will always have an economic value in populous developing countries and beyond a price - there is little or no market for unaffordable health care products despite disease or demand.

Statistics on the import of life-saving and cancer drugs in India in the late 1980's would provide the evidence of this. Based on “import’ and even at the “zero import tariff” - the sales of critically needed life saving drugs were very low vis-à-vis obvious need and demand. They could not be afforded by the majority. Once locally manufactured, the sales have increased based on the correct pricing.

Multinational corporates who want to become true “partners’ in the Indian/Asian/African economies and who are interested to do long term business should inevitably have to ‘reduce’ the I. P. content in line with the “consumers Income”. This however should be done before 'linear disputes' based on this economic logic. Data and calculations showing greater returns need to be well presented to the owners of Intellectual Properties by local companies.

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An Ineffective Legal Infrastructure requires Economic Pragmatism

The success of “new” entrants in the Western Music software Industry have supported the “economic logic” - that “correct pricing” has been the best method to fight piracy and infringement not legal agreements.

Today we receive music software almost in line and in time with the rest of the World - and at a fair price. The entire added value of a music cassette in India must perhaps equivalent to the royalty received by the music / I.P. owner in the West. It is the pragmatism of the Indian business partners and overseas owners of this software that has brought legitimate commerce, turnover and growth to an industry which was plagued by piracy. Volumes are now continually rising and piracy is gradually coming under control.

In India, or wherever there is an infrastructure deficient economy the “Judicial system” is unable to provide speedy justice, because of the infrastructure delays. The resultant corruption and misuse of the system makes a mockery of democratic law and any legal agreements that may be signed or I. P. protection.

While Non Linear Thinking has enumerated the need to “correct” the “valuation process” of Intellectual Property Per se; trade partners need also to identify if there are violations and disparities in the implementation of laws for crimes which is far more serious than violations of Intellectual Property Rights!

Foreign trade partners and entrants must first evaluate what percentage of persons arrested for illegal trade in drugs, contraband have been convicted and sentenced in the new markets. What percentage of those found guilty of tax evasion or fraud have been convicted and sentenced.

When there is a fundamental absence of a functioning judicial infrastructure, there is little benefit that can be assumed through an agreement for the protection of Intellectual Property. The valuation of Intellectual property is only finally regarded after society is conscious about the preservation of Human values. This is controlled by economics. ( See "Human Values are controlled by Economics" )

Non Linear Thinking does not moralize or moan about the good or bad conditions. The issue is solutions so that commerce can be promoted and continued, because it is only improved economics that create good infrastructure and good laws. Hindering trade by “sanctions” has rarely achieved much as the increase in illegal trade has meant loss of the market and economic opportunity for all!

In a Non Linear era, the linear logic of punishment through deprivation yields little benefit.

We must therefore evaluate and identify the needed change where the intellectual property laws are themselves ‘unequal” and incorrectly perceived - by design on a linear logic.

The Governments within the developing economies now face internal political pressure to resist the “dominance” of the West in their demand for protection of Intellectual Property. Though the developed nations with their economic muscle have insured that most Nations will finally comply to WTO rules based on linkage to 'financial aid and loans etc'; it is hoped that such solutions are adopted to avoid dispute and disribution of potential profits to the legal community. (They dislike Non Linear solutions as their profession is based on the "past".)

There should be no reason to doubt that trade partnerships in the private sector will use “economic logic” to reduce the impact of what many assume will be a “severe” cost impact of “TRIPS” and WTO guidelines.

Only economics, better economics and more trade can correct the flaws in our infrastructure and improved the implementations of law itself. “Trips” can have little legal protection in India, where the judicial system is primarily used as a means to “avoid and delay justice” - rather than, “protect and render justice”. (This is not a critique, just an observation.)

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Software

A Non Linear thought process on valuation of IPR must also be applied to computer software.

When developing a software to be priced in US Dollars, would the US based owner developer have considered a potential Indian “user’ whose income would be between 50 to 100 US Dollar per month? Probably NOT!?

For a software costing U. S. Dollar 100, the average income of a U. S. based user would be US Dollar 25,000 - 40,000 per annum. For the “target” user the “Intellectual Property” charge including product cost would perhaps be priced at less then 1% of annual income. This is a fair value. The potential savings from pirated software do not provide sufficient economic motivation to violate the law. ( also within a developed judicial infrastructure)

In India the potential unemployed “user” has a dilemma. The first requirement is to be educated and become “computer literate’ before he can get a job. How have Millions in India become computer literate if only a few 1000 copies of software have been sold? Obviously though piracy. Tough this is not the correct route - the “no-option” was created by erroneous pricing and economic logic in costing. Initially the 'wrong economics' was ably assisted by the Indian government and their archaic import laws which added an Import Duty value to Software , because in India there was little understanding on the value of services as distinguished from products.

There is a negligible natural computer literacy in India that evolves within Asia after schooling and surpisingly even after college education despite the obvious need. The private computer education industry thus established a separate education system. The oft-repeated bogey by overseas companies of “losses” due to piracy - are thus grossly exaggerated. Does Piracy of a 100,000 copies entail a “loss”? Such statistic are a myth. At “the market price” there is no market! The commencement of “piracy” in India for computer software has been so as to learn to “use” - not commercially save! This has meant a higher learning cost in a country where there are approx. 20 million educated employed . When unemployed there is no 'ability to pay'.

This point of view is “not intended” to condone the criminals who “pirate” but lay some blame and responsibility on the “guilty who price erroneously". They are also responsible for “creating” the criminals. Software owners must differentiate between the price paid to learn software ( This generates the user’s who later give returns to the industry) and the price for commercial use of software.

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Non linear benefits to the owners of IPR!!

Non Linear Thinking also considers the benefit and profits that have been returned to the “Owners of software” as compensation for their perceived loss through piracy!A large majority of the computer literate software programmers have learnt because of piracy. This computer literacy has resulted in huge software exports where the majority of the benefits of low cost of Indian man - hours has gone to the Global creators of software. They are purchasing Indian Input resulting in a “lower cost” of their development - and hence much greater profits!

This in turn has also created the burgeoning sale of hardware and consumables. As commerce has increased, the “legitimate” sale of software can be seen to increase exponentially. Today the export of millions of man-hours at “low cost” is paradoxically the direct return from piracy to the buyers of Indian output.

The error in valuation was initially compounded by Indian government policy which created the wrong positioning of software by protecting the hardware manufacturers. “Software” was erroneously positioned as the “Cart”. The fact that software is the “Horse” and hardware is the “Cart” was realized only in the late 90's. The resultant economic boom provided the justification.

Finally even the “sanctity” of “ An IPRValue’ must also be questioned. Within the developed markets the prices of software crash rapidly. Almost every software product is “cheaper” in the U. S. market than it is in ASIA. For ASIA this should not be the economic logic for costing - since the primary markets have already been tapped and costs recovered. Asia must received Intellectual Property and Software that is costed in proportion to the users Income.

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The Future

The future indicates a different picture. NLT can forecast that there will be little sanctity accorded to todays trade and WTO agreements . When economics fails no trade agreement has any sanctity.

Further, software will increasingly be offered for far less than todays value added by hardware manufacturers who will “bundle” the software and hardware when they ship in “Millions”. This will give a much higher return in an era where “Packaged speciality selling” will become the focus with the hardware cost of data storage and capacity continuously falling. (Since this was written in 1992, the Internet-based shareware and download was not considered.)

The continuos extension of “interactive” technology and the installation of huge telecom capacities - will create an infrastructure where software could perhaps be available and costed on a “per usage” or “on demand” basis rather than ownership. the speed of change, product enhancements, reducing costs are indicative of the impending demise of the concept of static ownership of “Intellectual Property.”

Intellectual Property owners must perceive that they will in the Non Linear future receive value “when used” - not “when produced” or merely installed/delivered. Competition will insure that “cost” will become associated with usage and utility not ownership!

Intellectual Property must be available for all and justifiably at varying rates to suit varying incomes. The “returns” will be sufficient based on the volumes that will be forthcoming with differential pricing. Rentals and “pay by use”, are already common for Music and Video software. Business and Commercial Software must obviously follow the same route.

It is also possible to merge Moral and economic logic to convince our Northern and Western Partners.

NLT would forecast that for the pharmaceutical and health care Industry the “Current owners in the developed economies who own the technology and Intellectual Property” have a population that only represents 20 - 25% of the “life”on earth. Even with falling numbers and a rising income there will be a paradoxical fall in the per capita disposable income for health care.

SOUTH ASIA and the EAST represent 70% of life on Earth and growing. There is no moral or economic logic that should seek to deprive the ASIAN population of any form of “health care and medicine”, irrespective of any written agreement.

Today technology and commerce control human values and our democratic development - not agreements. Commerce is totally “fluid” and creates or finds its own level - wherever there is maximum economic opportunity. We must have the optimism to believe that technology alone has the power to render an agreement even within WTO redundant. With the logic of commerce added - there should be no fear in India or within the developing World of exploitation - if business partnerships are sound.

We must also acknowledge that all past trends and past successes are no longer indicators for the future.

For the future “we have to develop new negotiation skills that prove that profit and growth do not always come from “greater linear values”. In future profit will increasingly have to come from saving and “cutbacks”. A quest for more could means a lesser yield because we live in a Non Linear era. ( see "More can only come from Less in a Non Linear era" )