The cost of protecting intellectual property

While in New York recently, I walked around Times Square and saw many street vendors selling fake luxury brand handbags. The real items would probably cost thousands of dollars, but these vendors were selling them at less than US$50 (S$71) each.

This experience is not very different from what can be seen in many ASEAN (Association of South-east Asian Nations) countries. When the desire to own a product is hindered by high cost, we end up with replicas at knock-down prices.

It is thus not surprising that in the recently concluded Trans-Pacific Partnership (TPP) Agreement — a trade deal involving 12 Pacific Rim countries including the United States, Japan and Singapore — intellectual property (IP) is a contentious topic.

A stronger IP protection regime means it would be more difficult for genuine products to be copied legally. The TPP wants to ensure IP owners can benefit from their inventions longer.

Obviously, TPP critics are not opposing the pact because they want to buy fake handbags. Their complaint is far more substantive, centering on the impact on the price and access to medicine.

They worry that pharmaceutical companies will control the supply of their medicines for an extended period, which in turn means generic manufacturers will have to wait longer before they can legally produce copies. As a result, the poor in developing TPP countries such as Vietnam and Malaysia may have delayed access to the cheaper generic versions.

This concern is valid. Those at the bottom of the pyramid are usually the ones who suffer the most when producers are given a monopoly on products. They cannot afford the high cost.

But there is a flip side to the issue. If the IP rights of inventors are not respected, then there is no incentive for inventors to innovate. Without the incentives to produce new products and improve existing ones, not only will there be nothing for generic producers to copy, there will be no motivation for inventors to develop new drugs at all. If we go back to the fake handbags in New York, if everything can be copied and sold cheaply immediately, Gucci and Coach would not even bother to invest in new designs at all.

Within ASEAN, the importance of IP is recognised at many levels. Regionally, the ASEAN Working Group on Intellectual Property Cooperation has existed since 1996. Its mandate is to transform ASEAN into an innovative and competitive region through the use of IP.

In Malaysia, Prime Minister Najib Razak announced in September that he wants to see IP being used as a new source of wealth to help the country escape the middle income trap. He also acknowledged that this is an important element if Malaysia is to become more competitive.

Singapore, on the other hand, is far ahead of other ASEAN countries when it comes to protecting and benefitting from IP. In 2012, the Ministry of Law set up an IP Steering Committee, which subsequently submitted to the Government an IP Hub Master Plan.

In his response to the submission, Minister for Law K Shanmugam stated that the Master Plan will “provide a robust framework to guide the continued growth of Singapore’s IP sector, and cement Singapore’s position as a vibrant global IP hub in Asia”. The focus is to make Singapore a hub for IP transaction and management, quality IP filings, and IP dispute resolution.

Since 2010, I have been involved in global research led by the Property Rights Alliance to look into property rights protection around the world. A report is produced annually in the form of the International Property Rights Index. This year’s index was released on Monday in Kuala Lumpur and a briefing session will be held in Singapore tomorrow.

The global study of 129 countries shows that Singapore is indeed fast cementing its position as a global IP hub. It is once again ranked as No 1 in ASEAN, and fifth in the world. The closest ASEAN country is Malaysia, which is still quite far behind in the 28th spot. In terms of specific scores for IP protection, Singapore’s performance this year is better than many developed countries, including Germany, the US and UK.

THE IP CONUNDRUM

However, there is one policy dilemma that makes Singapore an interesting case study to observe. In March this year, the Health Ministry announced that they will initiate a public consultation on standardised packaging for tobacco products. This idea is similar to what was implemented by Australia in 2012, where tobacco products must be packed in a way that does not allow for differentiation. The aim is to reduce smoking, but the move raises questions of whether it will be an infringement of the intellectual property rights of companies who have invested a huge amount of money to build their brands and trademarks.

The desire to protect public health is respectable, but introducing standardised packaging could damage Singapore’s IP ambition without achieving the public health targets. Last year, a study published in Economic Papers, a journal of applied economics and policy, found that, contrary to the Australian government’s desire to reduce smoking, the country actually saw increased consumption after the policy was introduced.

This contradictory outcome was actually predicted by an academic study was published in 2012. Standardised packaging reduces brand loyalty and people start looking at price. Suddenly a new situation is created where consumers discover they can actually afford to buy cigarettes if they ignore brand loyalty, therefore contributing to increased consumption.

There is also the risk that the IP of other industries could be affected once one industry is deprived of its IP. There could be a slippery slope from tobacco to other products that have a possible health impact, such as alcoholic beverages, sugary drinks or fast food.

Where should one draw the line in this IP saga? Should the government deny IP protection to some companies but strengthen it for others? How will that affect the rule of law and trust in government? Should chocolate makers worry because their products may contribute to obesity? There are no easy answers.

The ambition to make Singapore a global IP hub is well within the country’s reach. But the new dynamic between public health campaigns and preventing a drop in investors’ confidence is one that is being carefully watched by many Singapore observers.

ABOUT THE AUTHOR:

Wan Saiful Wan Jan is director of Southeast Asia Network for Development (SEANET), a regional research centre promoting ideas to make ASEAN’s growth more inclusive and sustainable. The Singapore briefing of the International Property Rights Index at The Ritz-Carlton Singapore tomorrow is open to the public.