January 27, 2006 10:32 pm

Workshop 3: Letting go of intellectual property rights

Are intellectual property rights defensible any more? Suppose they are not. The spread of the internet, the rise in consumer expectations in the developing world, the increasing technological possibilities for stealing ideas, and the understandable clamour to tackle pandemics, such as Aids, are all threatening IPR. If current trends continue on steroids will it simply become impossible to protect intellectual property rights by 2015? If so, what challenges and opportunities would that throw up?

Some companies are already proving they can thrive in this world: open source software being the most notable example. Public goods are also being created: Wikipedia, the free online encyclopaedia that is written and edited by the public, is a good example.

Is counterfeiting even helping to increase the desirability of brands? Some companies privately seem to think so. “It is terrible that you are stealing our stuff, but if you are going to steal anyone’s then steal ours,” says one observer. Will an IPR-less world mean there will be fewer poor people, fewer inventions, and fewer lawyers?

Davos

The third CEO workshop considered this new world focusing on the implications for the pharmaceutical, software, and media and entertainment industries. The discussions created an incredible buzz in the room as the teams brainstormed about what it would all mean.

1) Pharmaceutical

The first break-out group concluded the fundamental question was: who would spend the hundreds of millions of dollars to invent new drugs if patents were no longer enforceable? Their answer: research would have to be revolutionised. By making all research publicly available, as with online encyclopaedias, you could create collective, collaborative research centres, speeding up development and reducing costs.

A scientist in Shanghai, say, could suggest the missing piece in a theoretical jigsaw being put together in California. “As all knowledge became public people would combine it in a different way to create ideas. This could be highly economically efficient.”

The big pharma companies, of course, would hate the idea. Research is after all their heart and soul. But governments could step in to pump-prime research, perhaps by levying a health tax on their citizens. Publicly funded research might even find treatments for those “unprofitable” diseases in the developing world that traditional pharma companies have no financial incentives to tackle. You never know, universities might even get back to their original purpose of publishing research rather than patenting their findings.

Davos

“I would have shot my researchers in my company if they were talking about our ideas outside the company but I think a 12-year research project that we conducted could have been done in half the time and at half the cost [if there was such public collaboration],” said the chief executive of one processing company.

However, the assembled executive said this hypothetical model would certainly not spell the death of the pharma companies. They would still have phenomenal strengths in terms of industry expertise, manufacturing capability and marketing know-how. Just as the consumer electronics companies had got used to surviving on thinner margins, so the pharma companies might have to adopt a new business model.

2)Software

The IT entrepreneurs in the room reckoned that the differentiation between highly sophisticated software and commodity output would widen in an IPR-less world. People would still pay good money for critical software that ensured your aeroplane landed safely or helped a surgeon operate on your kid (or for that matter they would happily buy a drug of trustworthy provenance that was proven to work). But it would be extremely difficult to protect non-critical software, just as it is almost impossible to stop DVDs being pirated. Releasing software to the public and then providing support services to customers might provide one alternative income stream.

Companies could attempt to increase the barriers to copying. They could do more to protect their trade secrets by “in-sourcing” all development, and splitting research between different teams so that none had a view of the entire project. They could also try to bundle hardware and software just as the iPod personal players only work with iTunes software. Or they could create “chains of trust” with consumers enabling their products to be approved by electronic word of mouth as currently happens on the eBay auction site. There seemed to be unanimity that personalisation of products would help retain consumer loyalty.

One particular challenge for both the pharma and the software industries in this new world would be how to treat their employees. How could you stop them from using valuable information gained at the workplace for personal gain? Two solutions were suggested: hire members of your family or reintroduce slavery. They were joking (I think).

3)Media and entertainment

Several strategies were floated. First, steal whatever is out there yourself. Inward-looking organisations could benefit hugely from copying ideas (or even products) from rivals. But media and entertainment companies would also need to personalise their products or experiment with new financing mechanisms (such as electronic “tipping” for articles on websites). “You have to have something unique so that people come to you. It being secret is one. But it may only be one way of many.”

Davos

Companies could also aim to make money from context rather than content. A film company, for example, could generate income by providing a stimulating cinema experience rather than selling the film itself. But the film industry might also have to face some unpleasant truths.

“Since the time of the pharaohs the pyramids have not been built. We should expect the death of Titanic the movie. The idea of spending a quarter of a billion dollars on a film about a sinking ship” is no longer going to work, said Jonathan Zittrain, professor of internet governance at Harvard and Oxford universities.

The participants seemed exhilarated – if not terrified – by glimpsing over the edge of the abyss. Some argued that the public interest would definitely be harmed: why would a company invest $3bn in inventing technology to produce cheap solar power if it could be copied in China the next day? Others argued that it would result in incredible upheaval to established business models. “There was an assumption in our discussions that large organisations would continue to exist. But I am not sure that is a given,” one of the moderators concluded. “The transition could be ugly.”

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