Tag Archives: intellectual property rights

America Inc. and its Moat

moat

Warren Buffett, the 21st century’s best-known investor, extols firms that have a “moat” around them—a barrier that offers stability and pricing power.One way American firms have improved their moats in recent times is through creeping consolidation. The Economist has divided the economy into 900-odd sectors covered by America’s five-yearly economic census. Two-thirds of them became more concentrated between 1997 and 2012 (see charts 2 and 3). The weighted average share of the top four firms in each sector has risen from 26% to 32%…

These data make it possible to distinguish between sectors of the economy that are fragmented, concentrated or oligopolistic, and to look at how revenues have fared in each case. Revenues in fragmented industries—those in which the biggest four firms together control less than a third of the market—dropped from 72% of the total in 1997 to 58% in 2012. Concentrated industries, in which the top four firms control between a third and two-thirds of the market, have seen their share of revenues rise from 24% to 33%. And just under a tenth of the activity takes place in industries in which the top four firms control two-thirds or more of sales. This oligopolistic corner of the economy includes niche concerns—dog food, batteries and coffins—but also telecoms, pharmacies and credit cards.

The ability of big firms to influence and navigate an ever-expanding rule book may explain why the rate of small-company creation in America is close to its lowest mark since the 1970s … Small firms normally lack both the working capital needed to deal with red tape and long court cases, and the lobbying power that would bend rules to their purposes….

Another factor that may have made profits stickier is the growing clout of giant institutional shareholders such as BlackRock, State Street and Capital Group. Together they own 10-20% of most American companies, including ones that compete with each other. Claims that they rig things seem far-fetched, particularly since many of these funds are index trackers; their decisions as to what to buy and sell are made for them. But they may well set the tone, for example by demanding that chief executives remain disciplined about pricing and restraining investment in new capacity. The overall effect could mute competition.

The cable television industry has become more tightly controlled, and many Americans rely on a monopoly provider; prices have risen at twice the rate of inflation over the past five years. Consolidation in one of Mr Buffett’s favourite industries, railroads, has seen freight prices rise by 40% in real terms and returns on capital almost double since 2004. The proposed merger of Dow Chemical and DuPont, announced last December, illustrates the trend to concentration. //

Roughly another quarter of abnormal profits comes from the health-care industry, where a cohort of pharmaceutical and medical-equipment firms make aggregate returns on capital of 20-50%. The industry is riddled with special interests and is governed by patent rules that allow firms temporary monopolies on innovative new drugs and inventions. Much of health-care purchasing in America is ultimately controlled by insurance firms. Four of the largest, Anthem, Cigna, Aetna and Humana, are planning to merge into two larger firms.

The rest of the abnormal profits are to be found in the technology sector, where firms such as Google and Facebook enjoy market shares of 40% or more

But many of these arguments can be spun the other way. Alphabet, Facebook and Amazon are not being valued by investors as if they are high risk, but as if their market shares are sustainable and their network effects and accumulation of data will eventually allow them to reap monopoly-style profits. (Alphabet is now among the biggest lobbyists of any firm, spending $17m last year.)…

Perhaps antitrust regulators will act, forcing profits down. The relevant responsibilities are mostly divided between the Department of Justice (DoJ) and the Federal Trade Commission (FTC), although some …[But]Lots of important subjects are beyond their purview. They cannot consider whether the length and security of patents is excessive in an age when intellectual property is so important. They may not dwell deeply on whether the business model of large technology platforms such as Google has a long-term dependence on the monopoly rents that could come from its vast and irreproducible stash of data. They can only touch upon whether outlandishly large institutional shareholders with positions in almost all firms can implicitly guide them not to compete head on; or on why small firms seem to be struggling. Their purpose is to police illegal conduct, not reimagine the world. They lack scope.

Nowhere has the alternative approach been articulated. It would aim to unleash a burst of competition to shake up the comfortable incumbents of America Inc. It would involve a serious effort to remove the red tape and occupational-licensing schemes that strangle small businesses and deter new entrants. It would examine a loosening of the rules that give too much protection to some intellectual-property rights. It would involve more active, albeit cruder, antitrust actions. It would start a more serious conversation about whether it makes sense to have most of the country’s data in the hands of a few very large firms. It would revisit the entire issue of corporate lobbying, which has become a key mechanism by which incumbent firms protect themselves.

Excerpts from Too Much of a Good Thing, Economist, Mar. 26, 2016, at 23

Stealing Superbly Artificial Seeds

field

A Chinese man pleaded guilty in a US court on January 27, 2016 to stealing patent-protected corn seed from agribusiness giants Monsanto and DuPont to take back to China for commercial use.  Mo Hailong, 46, participated in a plot to steal inbred corn seeds from the two US companies so that his then employer, Beijing Dabeinong Technology Group, could use them in its own seed business, the US Department of Justice said.Mo “admitted to participating in the theft of inbred – or parent – corn seeds from fields in the southern district of Iowa for the purpose of transporting those seeds to China,” the department said in a statement.“The stolen inbred seeds constitute the valuable intellectual property of DuPont Pioneer and Monsanto.”..

Man admits stealing patented corn seeds from US fields to take to China, Guardian, Jan. 27, 2016

The Nightmare of Preserving Biodiversity

Fruit of Myristica Fragans

Botanists think there are up to 80,000 wild species of flowering plant left to discover. But a scarcity of funds hampers efforts to collect them. The UN Convention on Biological Diversity of 1992, ratified by 195 states and the European Union, made things more complicated. It recognised plants as part of countries’ national heritage and outlawed “biopiracy”—profiting from plants without compensating the countries in which they were found.

That made exploiting plants fairer but collecting them harder. Some officials saw a chance to get rich. “Suddenly everyone thought these plants were incredibly valuable,” says Mr Hawtin. Getting permission to go on a collecting trip became nearly impossible. “Anybody could say no to a collecting expedition and very few people could say yes.”

Permits became sine qua non, but in poorer countries the environment ministries that were expected to issue them did not always exist. Collectors might see their applications bounced from one department to another, each unwilling to wield its rubber stamp. “No one wanted to be accused in their local paper of helping the biopirates,” says Mr Hawtin.

Persistent botanists have since earned some governments’ trust. It is now much easier to get approval for expeditions than it was in the 1990s, though often with restrictions on what may be collected. “Things are much better now than they were ten years ago,” says Sandy Knapp, head of the plants division at the Natural History Museum in London. A three-year permit from the Peruvian government allows her to collect specimens of Solanaceae, the family that includes tomatoes, potatoes and aubergines…The Millennium Seed Bank now holds workshops in many countries on collection and conservation techniques. It collaborates on expeditions and produces guidebooks to help locals locate and collect seeds for themselves. Yet some countries persist in imposing self-defeating restrictions. India’s biodiversity law, passed in 2002, makes exporting seeds very difficult and sits poorly with its international obligations. If governments fail to understand the urgency of preserving—and sharing—their biodiversity, there may soon be precious little left to collect.

Excerpts from Botany and bureaucracy: A dying breed, Economist,  Sept. 12, 2015, at 55

Multinationals and their Stateless Income

Cross-border corporate taxation is fiendishly complex, the lobbying around it furious. Several recent academic studies show just how pervasive tax avoidance is.  The ability to shift profits to low-tax countries by locating intellectual property in them, which is then licensed to related businesses in high-tax countries, is often assumed to be the preserve of high-tech companies. Yet in “Through a Latte, Darkly”, a new study of how Starbucks has largely avoided paying tax in Britain, Edward Kleinbard of the University of Southern California shows that current tax rules make it easy for all sorts of firms to generate what he calls “stateless income”: profit subject to tax in a jurisdiction that is neither the location of the factors of production that generate the income nor where the parent firm is domiciled. In Starbucks’s case, the firm has in effect turned the process of making an expensive cup of coffee into intellectual property.

In another new paper Harry Grubert of America’s Treasury and Rosanne Altshuler of Rutgers University delve into tax returns by American multinationals in 2006. They examine all the foreign profits held abroad by these firms (because bringing the money home would incur tax). A remarkable 36.8% of these profits were recorded in countries taxing them at a rate of 0-5%, and a further 9.1% were in countries taxing at 5-10%. Given how much more aggressive their tax-avoidance strategies are believed to have become since, it seems likely that the proportion of foreign profits held by American firms in low-tax countries is now well over half. It will take more than fine words in a communiqué to change behaviour when so much is at stake,

Excerpt, The G8 summit: T time, Economist, June 22, 2013, at 72

Hackers in Demand: industrial espionage

keep calm and self destruct

American firms wage private cyber-combat against Chinese rivals…precisely that scenario is being considered by former senior American officials, who report that intellectual property (IP) is being stolen on an unprecedented scale, and that passive defences no longer work.  Annual losses from the theft of American IP are probably on a similar scale to America’s total exports to Asia, at around $300 billion a year, concludes a report by a Commission on the Theft of American Intellectual Property, a private initiative led by Dennis Blair, Barack Obama’s first director of national intelligence, and Jon Huntsman, a former ambassador to China and unsuccessful contender for the 2012 Republican presidential nomination. “Extraordinary” numbers of commercial and government entities are bent on stealing American IP. Between half and 80% of them are Chinese, depending on the sector, commissioners say. They also

To date victims have been loth to retaliate. Companies do not want to be seen as “weak” and fear being singled out for punishment as they seek access to Chinese markets, says Mr Huntsman. Companies under attack also face legal constraints that defy common sense, says Admiral Blair. Victims face prosecution if they accidentally damage hackers’ American-hosted computers when trying to recover stolen files, let alone if they deliberately tell files to self-destruct.

Changing the law to permit aggressive counter-measures would be controversial…, recommendations include denying repeat offenders access to America’s banking system, or blocking IP abusers from making big American investments.

Intellectual property:Fighting China’s hackers, Economist, May 25, 2013 at 31

Drug Markets, Patents and the Developing World; the HIV Virus

Sales of antiretroviral drugs in America and the five biggest European markets reached $13.3 billion in 2011, according to Datamonitor, a research outfit…. Publicly funded research has played a larger role in developing drugs for HIV than for other diseases. A study published last year in Health Affairs found that HIV drugs were three times as likely to involve a patent from the public sector. HIV also has special status among regulators. America’s Food and Drug Administration (FDA) created a faster way to review HIV drugs, allowing them on the market before the most expensive stage of clinical trials.

In total, public and private investment has yielded more than two dozen HIV drugs. In 1987 Burroughs-Wellcome (now part of GlaxoSmithKline) introduced the first one, tackling an enzyme that helps the virus progress inside human cells. In 1995 Hoffmann-La Roche, a Swiss drug firm, launched the first protease inhibitor, which interrupts the virus at a later stage of replication….One company stands out: Gilead, of California. A late entrant to the HIV race, Gilead quickly took the lead. Its strategy was simple: the more convenient the treatment, the better. In 2004 Gilead launched Truvada, a once-a-day, one-pill combination of two drugs. In 2006 it introduced Atripla, a once-a-day, one-pill combination of Truvada and another treatment. Atripla’s average wholesale price in America is nearly $25,000 per patient, per year. In 2011 its global sales reached $3.2 billion.  More good news for Gilead has come in recent weeks. An FDA panel recommended Truvada for preventive use: ie, to protect healthy people from contracting the virus. Another FDA panel endorsed Gilead’s new Quad pill, which is the simplest, most effective combination drug to date.

If the process for developing HIV drugs has been unusual, selling them has been even more so. America is the rich world’s biggest market, with 841,000 patients diagnosed—ten times as many as in Britain. More than 60% of HIV drugs in America are bought with public money. Insurers give HIV special treatment: patients are rarely pressed to buy the cheapest pills, as they might be if they had another disease.

Distributing drugs in poor countries is harder. A decade ago, hardly any poor people could afford them. At first, drugs firms handled this badly. In 1998, 39 big Western firms sued South Africa to protect their HIV patents. Global uproar ensued; the firms backed down in 2001.  Then two things changed. First, rich countries started donating vast sums to fight AIDS in poor ones. In 2000 there was less than $2 billion for HIV programmes each year; by 2010 there was $15 billion, thanks to the Global Fund to Fight AIDS, Tuberculosis and Malaria and George Bush junior’s President’s Emergency Plan for AIDS Relief (PEPFAR).

Second, the price of AIDS drugs plunged. In May 2000 a year’s “triple cocktail” therapy cost $10,000 or so. By 2011 the same pills sold for $62 in poor countries. PEPFAR cash buys generic versions of patented drugs, which may be supplied only to poor countries. Last year two drugmakers won most of PEPFAR’s contracts: Aurobindo, an Indian firm, and Matrix, an Indian firm acquired in 2007 by Mylan, an American one. PEPFAR’s bidding system keeps margins slim even by the standards of the generics industry, says Rajiv Malik, the president of Mylan. But volumes are huge.

Can treatment expand further? Despite the subsidies and the plunge in prices, less than half of those infected with HIV take HIV drugs. Those who do, however, live a long time, and they have to keep taking the pills. What’s more, new studies show that it helps to start treating patients early, so demand is sure to rise.  Alas, aid dipped in 2009 and 2010, thanks to the financial crisis. To make matters more complicated, there is a trade-off between more drugs and better ones. Most patients in poor countries get outdated pills, according to Médecins Sans Frontières. Allowing generics firms to copy yet more patented drugs might help. Since 2006 Gilead has licensed drugs to generics firms for 5% royalties. Last year it went further, agreeing to license drugs to a “patent pool” to centralise royalty deals for a range of firms. So far, however, Gilead is the only Western company to join….

There are two distinct HIV markets. In rich countries, many good treatments jostle for market share. The best will generate fat profits, since patients have to take their pills every day. But Datamonitor predicts that growth will slow after 2017, as many drugs lose patent protection and prices crash. In poor countries, by contrast, Big Pharma makes very little money but the most efficient copycats thrive. Meanwhile, the world still waits for a cure.

The business of HIV: Battling the virus, Economist, June 2, 2012,at 80

India versus Mosanto: the Bt Eggplant

The National Biodiversity Authority (NBA), India’s biodiversity-preservation watchdog, has finally woken up to its job. It has decided to prosecute multinational seed company Monsanto for allegedly using Indian brinjal varieties for commercial purposes without permission.   The decision was taken in a vote at a meeting on February 28, 2012. The majority of the members voted in favour of initiating action against Monsanto for violating India’s biodiversity law. The Ministry of Environment and Forests, too, is in favour of prosecuting the seed giant. The vote was essential as some board members of the NBA were against holding Monsanto to task, sources said. The decision is bound to send a clear cut message that any attempt to fiddle with the country’s biological wealth will not go unpunished.

The Indian law says it is essential for anyone desirous of using India-produced biological goods for commercial purposes to seek permission from the NBA. The authority’s nod is required even if, as in Monsanto’s case, the material has been modified by Indian universities.  The voting will reverse an earlier judgment, taken by the Karnataka state biodiversity board on January 20, 2012, that spared the alleged violators the rod.

The complaint against Monsanto, its Indian subsidiary Mahyco, and University of Agricultural Sciences, Dharwad, was filed by the Environment Support Group in February 2010. It had alleged that the accused illegally accessed and genetically modified six varieties of Indian brinjal to produce Bt Brinjal.

BT brinjal row: National Biodiversity Authority decides to prosecute Monsanto, India Today, April 17, 2012

See also Indian Abandons Case Against Mosanto

Biopiracy Claims Against Mosanto

Anti-GM India

The Global Marketing of Indigenous Tourism, who is ready to profit?

As today’s conscientious travellers seek authentic experiences with the people of the lands they visit, tourism can be a vehicle for preserving ancient cultures, while socially and economically empowering marginalised or remote indigenous communities.  At the first Pacific Asia Indigenous Tourism Conference (PAITC) held on the traditional land of the Larrakia people in Darwin, Australia from Mar. 28-30, participants noted the rising demand for indigenous tourism and the need to ensure sustainable and equitable business partnerships that respect indigenous intellectual property rights, cultures, traditional practices and the environment while simultaneously enriching visitor experiences.

With one billion people expected to cross international borders in 2012, tourism will create 1 in 12 jobs worldwide and generate trillions of dollars in exchange and investment, according to the United Nations World Tourism Organisation (UNWTO)….

The conference, attended by 191 participants from 16 countries, issued the Larrakia Declaration on the Development of Indigenous Tourism, which recognises that whilst tourism provides the strongest driver to restore, protect and promote indigenous cultures, it has the potential to diminish and destroy those cultures when improperly developed.

“In some ethnic communities in China and in other countries, it is the non-indigenous parties that promote indigenous tourism and utilise the attractiveness of indigenous people to achieve their own interests, normally for economic profits. A balance of interests between stakeholders needs to be addressed as otherwise (there might be) tensions between indigenous people and the non-indigenous parties”, Jingjing Yang, an international doctoral student at New Zealand’s Waikato University, told IPS.

Her ethnographic research focuses on the impact of tourism on ethnic (indigenous) communities, specifically the Kanas’s Tuva and Kazakh peoples’ settlements in China’s Xinjiang Uyghur Autonomous Region.  New Zealand is perhaps a world leader in indigenous tourism, where the industry has acted as a catalyst for preserving Māori culture and engendering a sense of pride in the youth, who are learning history, legends, language, music and arts.  or example, the well-known Māori haka is a fierce dance-chant that has become internationally recognised among sports fans that follow New Zealand’s national rugby team, the All Blacks.  Many countries across the Pacific region are learning from New Zealand’s successful model in taking indigenous tourism from the margins to the mainstream.  “For the first time, the indigenous people have a traveller genuinely interested in hearing their story and willing to pay for it. People want to have an authentic local experience and the greatest challenge for indigenous tourism is how to gear itself for that kind of demand,” Mike Tamaki, director of Global Storytellers, told IPS.  Tamaki got involved in indigenous tourism 30 years ago. He claims that, though his people (Māori) have great ideas and extend exceptional hospitality, they have no money.  “This has been a disadvantage in terms of development of indigenous experiences worldwide, as indigenous people find it difficult to market their ideas into a product.”  Over a century ago, the tangata whenua or the indigenous Māoris, began guiding visitors to snow- capped peaks, across lush-green undulating terrain, to crystal clear waters of the rivers and geothermal hot spots.  Today, a new generation of Maori are leading overseas travellers through Aotearoa or Land of the Long White Cloud, the Māori name for New Zealand, as forest, rafting and fishing guides, entertainers and artists, transport operators and Marae (meeting place) hosts.

A leading academic in the field of traditional medicine, Gerry Bodeker, a professor at Oxford University, suggests expanding the scope of indigenous tourism. He says indigenous people have preserved thousands of years of generational knowledge about plants and natural ingredients, which can be a treasure trove for the global wellness industry.  “In 2011, the global wellness economy was valued at 1.9 trillion dollars. This money can go back into the development of indigenous communities and it is happening where corporate ethics are aligned with indigenous priorities and development. Asia is in the forefront of this kind of approach.”  “It is also happening in Africa, Latin America, the Pacific and Australia”, Bodeker, chair of the Global Initiative For Traditional Systems (GIFTS) of Health, Oxford, told IPS.  He elucidated his comment with examples of wellness resorts such as the Six Senses Spa in Hua Hin, Thailand, which is committed to investing back into local village communities that provide the herbs, local produce and workforce for the spa; The Farm in San Benito in the Philippines, where each doctor volunteers a day each week to provide healthcare services to rural low-income communities and train local healthcare workers; and the Sambunyi Spa in Malaysia, which buys its products from a local women’s cooperative supporting single mothers and commissions them to cultivate and supply spa products.

Excerpts, By Neena Bhandari, Tourism Goes Indigenous, IPS, Apr. 4, 2012

Indigenous Peoples as Human Zoo, the human safaris

Is India Abandoning Legal Action against Biopiracy?

From the Press Release of Environmental Support Group Feb. 7, 2012

In a shocking development, the Karnataka State Biodiversity Board [India] has resolved in its 19th meeting held on 20th January 2012 that it will not prosecute institutions and companies who violate the Biological Diversity Act.This highly controversial and illegal decision was taken in the context of reviewing [Environmental Support Group] ESG’s complaint of biopiracy against Monsanto and its Indian subsidiary Mahyco who along with their collaborators (University of Agricultural Sciences, Dharwar; Tamilnadu Agricultural University, Coimbatore; Indian Institute of Vegetable Research, Lucknow; Sathguru Foundation, Hyderabad; United States Agency for International Development and Cornell University, New York) wilfully violated the provisions of the Biological Diversity Act by illegally accessing 12 varieties of brinjal endemic to India and genetically modifying it, resulting in a patented product – B.t. Brinjal. This constitutes biopiracy, a criminal violation punishable with prison sentences.

The resolution passed by the Board is as follows: “The subject was deliberated and it was clarified that the subject comes under the purview of the National Biodiversity Authority. Therefore, it was resolved that it is for the National Biodiversity Authority to take necessary action at their end against institutions/companies regarding alleged violations of provisions under Biodiversity Act 2002.”

There is little doubt that this controversial resolution was passed to unhook Monsanto and its collaborators from biopiracy charges. It is tenable to draw such a conclusion as the current action agitates against the consistent position held by the Board that ESG’s complaint of biopiracy has merit and action must be initiated against the violators per the advise of the National Biodiversity Authority….This retrograde decision flies in the face of an assurance given to Parliament by Smt. Jayanti Natarajan, Indian Minister of State for Environment and Forests, as recently as on 28 September 2011. The Minister had stated that “(b)ased on preliminary information placed before it, the National Biodiversity Authority has recommended in principle to initiate legal action against alleged violators for violation of various provisions of the Biological Diversity Act, 2002”. …

This is more than likely to encourage more cases of biopiracy by corporates and thus seriously compromise biodiversity heritage and the food and social security that it extends to millions. Further, it will allow the loot of our natural wealth for maximising corporate profits by agricultural, biotech and pharmaceutical companies, while irreversibly jeopardising the economic and ecological security of present and future generations.

Excerpts from PRESS RELEASE, Karnataka abandons obligation to prosecute violators of Biological Diversity Act, Environmental Support Group, Feb. 7, 2012

Protesting the Anti-Counterfeiting Trade Agreement

Lithuania’s central bank said Friday (Jan. 27, 2012) it had been hit by a cyber-attack, but had eventually overcome the assault on its website and other online services.  In a statement, the bank said that the denial-of-service attack — in which many outside computers overload the target’s IT system — from a group of countries took place early Friday morning…The bank said that the attacks were launched from computers apparently located in countries including Canada, China, Russia, Switzerland, Ukraine and the United States…No public claim of responsibility had been made for the attack so far.  It was not clear if it was linked to Lithuania’s signature Thursday of a controversial international online anti-piracy accord.  Critics of the Anti-Counterfeiting Trade Agreement (ACTA) warn that it could significantly curtail online freedom, and several governments have come under attack by groups including “hacktivist” grouping Anonymous.

Lithuanian central bank hit by cyber-attack, Agence France Presse, Jan. 28, 2012

Text of ACTA (pdf)

Negotiating History

Rapporteur

We Have Every Right to Be Furious About ACTA