Indexing Innovation Globally: Role of Law

Last week, the Global Innovation Index 2018 was released. This index is sponsored by World Intellectual Property Organisation (WIPO), Cornell University, and INSEAD Business School. The purpose of this index is to understand innovation better and as to how it can help in economic and human development.

According to this index, China has risen as one of the highly innovative economies of the world, which is quite surprising because it is very well known, and often raised by the developed world, that the intellectual property regime in China is extremely weak. Unfortunately at times, India is also clubbed with China as one of the weakest intellectual property regimes. However, India being a democratic country, committed to the rule of law, it can somehow try to convince the developed economies about its free and fair judiciary. Despite the reputation of the courts in India of being independent of the intervention and control of the government of the day, though quite slow in decision-making, developed world and multinational companies have generally alleged that the Indian courts do not decide in favour of very strong protection of intellectual property, owned by foreign companies, and let go, legally, reverse-engineering in pharmaceuticals and even copyright violation on the grounds of fair use.

If this is the situation in India, one can easily imagine the situation in China, where independent judiciary is simply non-existent, and, hence, it is not possible for foreign companies to even contest, in a fair manner, intellectual property violations. Given this background, it is difficult to comprehend as to why global companies would like to continue doing business with Chinese companies, primarily for manufacturing and also for consumption. It is the manufacturing part that is making it incumbent on the foreign companies to share most of their intellectual property with the Chinese manufacturing units and thereby reveal almost all their trade secrets, along with strict manufacturing protocols. A number of stories, which tell us that the Chinese companies have very easily received a lot of intellectual property on the platter, and, thereafter blatantly violated both the contractual clauses and the globally acclaimed intellectual property of multi-national corporations (MNCs).

In such a scenario, it would be quite obvious for any multinational company not to continue to do business with China, but we have seen that an extremely weak legal regime for the protection of intellectual property is not acting as a barrier for global companies to continue doing business with China — both for manufacturing and also dumping their products in the Chinese market, which definitely by Western standards is humongous. Developed economies, until and unless on a suicidal path, cannot decide to shun China, irrespective of blatant intellectual property violations. The impact of the recent moves regarding tariff barriers by the United States, the European Union, China, India, and other countries can only be analysed after the elapse of a reasonable period of time. Truly speaking, it appears to be more of posturing or a tactical move to bring the other party to the negotiating table. Intellectual property is simply being used as a legal weapon to achieve business goals.

Smart global business leaders may not be very much affected by these types of reports as a lot of things which are stated in the report have to be taken with a pinch of salt. Though such reports may have some impact somewhere in compiling data and making better presentations, real decision-making regarding business aspects is done after taking into consideration a lot many other factors, which may not be apparent at all. For a business leader, the most important thing is to make profit and let the business flourish rather than keep harping on protection of intellectual property and the innovative index. Intellectual property is merely a tool or a weapon in the hands of businesses and must be used in such a manner only.

No company in the world conducts business just to prove a point about the protection granted to intellectual property in a certain jurisdiction. Thus, we should never forget that the business leaders are more concerned about letting their business survive and thrive, whether their intellectual property is protected or violated. It is, of course, the ideal situation to make profit and also let your intellectual property be protected, but in case one of these two has to be sacrificed, intellectual property is chosen for sacrifice. This really explains why a large number of global companies are willing to do business in China and that this report will not give a completely clear picture for business decision-making. International law has a definite role in indexing innovation.

The author is a professor at IIM-A,
akagarwal@iima.ac.in