It may be that information wants to be free, as technology guru Stewart Brand contends. But when it comes encased in patent and copyright protection, it needs pirates and freelance copyists to facilitate its escape. In developed nations, it is the pace of innovation that enables the pirates and bedevils the owners of intellectual property: a new technology like file sharing can threaten the viability of an entire industry. In developing nations, where the incidence of theft is far greater, the problem is halfhearted enforcement, weak sanctions, and laws that are full of holes. Nintendo estimates that counterfeiting in China alone cost it $720 million in sales last year. Perhaps five out of six motorcycles sold in China bearing Yamaha nameplates are fakes. And, according to the trade group Business Software Alliance, more than half of all installed software programs in Asia Pacific, Latin America, and Eastern Europe are pirated versions of some company’s legal property. The challenge that owners of intellectual property face is that it’s more expensive for them to produce a first copy than it is for counterfeiters to reproduce it. In the case of digital intellectual property, the expense of reproduction can be minuscule.
How Market Smarts Can Protect Property Rights
Reprint: R0412D
Intellectual property comprises an ever-increasing fraction of corporate wealth, but what’s the good of that if an ever-increasing fraction of the property is copied or stolen? Faced with developing countries’ limited and inadequately enforced patent and copyright laws, some companies are resorting to market-based strategies to protect their intellectual property. These include preempting or threatening competitors, embedding intellectual property in environments that can be protected, bundling insecure intellectual property with its more secure cousins, and actually entering the businesses that pose a threat.
The authors urge companies coping with weak property rights to follow a decision tree when choosing which strategies to use and when:
Start by thinking of the strategies that will protect your business’s core. If, for example, a first-mover advantage is within reach, making yourself more committed to intellectual property could be the answer.
If you and your rivals are equally matched, ask yourself, “Can those that threaten me with copying be copied in turn?” The knowledge that each of you can hurt the other may dampen the competitive intensity or even lead to voluntary sharing of property.
If these solutions fail or don’t apply, try forging a connection with a product or business closely related to your own. Doing so may prevent a valued asset from falling into a rival’s hands or make the asset harder to misappropriate. This approach can even help you expand your piece of the market pie or reduce the cost of making the threatened product, perhaps to the point where you can compete against pirated goods.
Finally, if there still doesn’t seem to be a way of making money from your threatened product, you may choose to move into the very business that has hurt your own.
Such strategies are behind the economics of successful companies like Intel and NBC, say the authors.