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Intellectual Property and the Indian Handicraft Industry

Intellectual Property and the Indian Handicraft Industry

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  • 1. Intellectual Property 2010 Contents 1
  • 2. Intellectual Property 2010 Acknowledgements...........................................................................................3 1. Introduction....................................................................................................4 2. Importance of the Traditional Knowledge……………………………………...4 3. Brief Analysis of the Indian Handicraft Industry……………………………….5 4. The Design Act in India…………………………………………………………..5 5. Company Profile.............................................................................................6 6. Sullivan Model to Analyze the Intellectual Capital of A. V. Inc........................7 6.1 Structural Capital......................................................................................7 6.2 Human Capital..........................................................................................8 6.3 Intellectual Assets.....................................................................................8 6.4 Intellectual Property..................................................................................9 6.5 Complementary Business Asset...............................................................9 7. Annie Brooking Audit Questions....................................................................10 8. Analysis of A. V. Inc. using the framework of Shultz and Saporito.................11 9. Conclusion......................................................................................................12 References..........................................................................................................14 Appendix 1..........................................................................................................16 Acknowledgements 2
  • 3. Intellectual Property 2010 I would like to extend special thanks Ms. Jessyca Van Weelde, Mr. Wendland (Director of the TK Division) and Mr. Nuno Pires de Carvalho from the Geneva based office of World Intellectual Property Organization (WIPO), for helping me throughout the project. I would also like to thank the module lecturers Mr. Adam Cross and Ms. Liz Mason for providing valuable assistance. 1. Introduction 3
  • 4. Intellectual Property 2010 India is a land of a rich and highly diversified culture, the roots of which are based on its history and traditions. For decades it has been one of the major producers and suppliers of handicraft products in the world. The Indian handicrafts industry is highly labor intensive cottage based industry and decentralized, being spread all over the country in rural and urban areas (india-crafts.com). This industry is based on the traditional knowledge (TK) and one of the important sources of income for the people from rural background in Kashmir, India. As this knowledge is poorly secured in the form of an IP, the matter of protecting traditional knowledge (TK) came up indirectly through statements seeking to formalise links between the Agreement on Trade- related Aspects of Intellectual Property Rights (TRIPs) and the Convention on Biological Diversity (CBD) (Intellectual Property Quarterly, 2009). Despite of being one of the leading suppliers of handicrafts, the Indian handicraft industry is lagging far behind in managing and exploiting its intellectual capital. As argued by Bontis (2001), popular use of the terms like knowledge capital, organization learning, knowledge era, information assets, intangible assets, human capital, etc., hint the increased importance of knowledge assets in an organization. This project focuses on the intellectual property issues related to the Industrial Design rights in India, and the handicraft sector is chosen because of its traditional touch and connection with the rural parts of the country. Also, the project tries to analyze whether “Most firms do not know how to describe or define their intellectual capital, much less how to manage or report it” (Patrick Sullivan, 1998, Profiting from Intellectual Capital: Extracting Value from Innovation, p. 4), by evaluating the Intellectual Property Management of A.V. Inc., a leading firm in this industry. The project concludes by analyzing the data obtained throughout the research, and providing recommendation in the context of intellectual property management to A. V. Inc. 2. Importance of the Traditional Knowledge As defined by the WIPO, traditional knowledge is the “… tradition-based literary, artistic and scientific works, performances, inventions, scientific discoveries, designs, marks, names and symbols, undisclosed information and all other tradition-based innovations and creations resulting from intellectual activity in the industrial, scientific, literary or artistic field”. It is an important aspect of the cultural and traditional values of a society and is passed on from one generation to another. The artistic prowess related to traditional knowledge is a result of the continuous efforts of the people related to it, and is a major source of their household income. With rigorous training and practice sessions, this knowledge can also be taught to people who want to make it their livelihood. However, the relationship of guardians or custodians of knowledge to the intellectual commons is quite different from that of creators, inventors and innovators. The TK holders can be termed as the custodians or holders of the specific traditional knowledge, but they are not its creators 4
  • 5. Intellectual Property 2010 (Intellectual Property Quarterly, 2009). WIPO (World Intellectual property organization) is one of the most important international organizations working towards the protection of TK and IP issues related to it. 3. Brief Analysis of the Indian Handicraft Industry According to the UNESCO/ITC International Symposium on "Crafts and the International Market: Trade and Customs Codification", handicrafts can be defined as products which are produced either completely by hand or with the help of tools. Mechanical tool may be used as long as the direct manual contribution of the artisan remains the most substantial component of the finished product. Also, as mentioned in the 2001 report by the UNCTAD (United Nation Conference of Trade and Development), “the importance of traditional handicraft and folklore lies not only in their economic and aesthetic functions, but also in the fact that they often use materials from renewable resources and are more friendly to the environment”. The Indian handicraft industry is primarily based on small and medium scale firms which operate with less than 50 employees. Most of these employees come from the rural areas and possess traditional dexterity in their art of specialization. However, the upper management of these firms is highly qualified in their respective fields because they basically deal with the foreign clients for exporting their products. In the recent years, the Indian handicraft industry has exhibited a staggering growth of 20% p.a. 4. The Design Act in India According to the WIPO, “an industrial design (or simply a design) is the appearance of the whole or part of a product resulting from features of, in particular, the lines, contours, colours, shape, texture and/or materials of the product itself and/or its ornamentation. Industrial designs, as objects of IP, can usually be protected for up to a maximum of 15 or 25 years”. As a member of the WTO and under the TRIPs agreement, the Design Act of 2000 in India allows the registered proprietor of the design can have copyright in the design during ten years from the date of registration. On the payment of a prescribed fee, he can also file for an extension on the period of copy-right for a second period of five years from the expiration of the original period of ten years. The act prohibits anyone “for the purpose of sale, to apply or cause to be applied to any article in any class of articles in which the design is registered, the design or any fraudulent or obvious imitation thereof, except with the license or written consent of the registered proprietor, or to do anything with a view to enable the design to be so applied” (patentoffice.nic.in). As per the Design Rules, 2001, the application for registration of design under sections 5 and 44 costs 1,000 INR (Appendix 1). Furthermore, the Schedule III of The Designs (Amendment) Rules, 2008, divides the 5
  • 6. Intellectual Property 2010 goods into 31 different classes. It takes around six months for the application process for the registration of every novel design by an organization. Besides Design Act, the Copyright Act in India also provides an opportunity for the firm or an individual to register an industrial design. Under the Copyright Act, the one can protect and exploit his intellectual property for a period of the lifetime of the applicant plus sixty years. 5. Company Profile The chosen organization A. V. Incorporation is a leading Manufacturers & Exporters of high quality handicraft products. It has been serving the international and Indian market for more than 20 years. The company exports most of its products to the UK, France, Sweden, Denmark, Holland, Australia, Canada, USA and Japan. The complete range of items include Our wide range of handicraft items include Costume Jewellery, Beaded Jewellery , Fashion Jewellery, Fashion Bags, Candle Stands, Perfume Bottles, Costume Jewellery, Pottery, Wooden Items, Bead Work, Watches, Christmas Decorations, Photo frames, Boxes, Pill/Ring Boxes , Kashmere boxes/ Metal Trinket-Jewellery Boxes, Rose Wood Craft, Blue Pottery, Metal Craft, Beaded Pouches and Purses, Napkin Ring Holders, Mirror Frames, Ball pens, Bindis, Wind Chimes, Key Chains, Glass Items, etc (avinc.in). Some handicraft products made by A. V. Inc. (Source: www.avinc.in) 6. Sullivan Model to analyze the Intellectual Capital of A. V. Inc. 6
  • 7. Intellectual Property 2010 (Source: Sullivan, 1996) 6.1 Structural Capital According to Edvinsson and Sullivan (1996), structural capital of an organization is the infrastructure that it develops to commercialize its human capital, and is the part of the firm that remains when the human resource goes home (like IT, desks, systems, customer databases, organizational structures). A. V. Inc. has a small but elegant office in the Lado Sarai area of New Delhi.  Physical Structural Capital The firm possesses a spacious production unit close to its head office. It is big enough to provide a comfortable environment for the employees, and possesses the basic tools used to in the manufacturing process.  Intangible Structural Capital Edvinsson and Sullivan (1996) define intangible structural capital as elements of organization which include its culture, history and the portion of the intellectual assets that relate to the management of the firm. Moreover, Joachimsthaler and Aiker (1997) argue that “a clear and effective brand identity, one for which there is an understanding and buy-in throughout the organization, should be linked to the business's vision and its organizational culture and values”. The corporate culture of A. V. Inc. reflects low power distance as the employees have a say in the company’s decisions. As a result, the organization produces high quality distinctive products which have a brand identity amongst its current and prospective clients. 7
  • 8. Intellectual Property 2010 6.2 Human Capital Edvinsson and Sullivan (1996) define human resource as “the collective capabilities of employees to solve customer problems”. The organization consists of 18 employees including the upper management which comprises of Mrs. Suchitra Chandra, Mrs. Sudha Dang and Mr. Akshat Chandra. All the employees have a great deal of experience and interest in the production of handicrafts and Mrs. Chandra has over 25 years experience in the field of designing hand-crafted items. The organization does not have a legal department; however, the legal issues are looked after by a law consulting firm hired by the company. The employees working in the domain of production are highly skilled craftsmen, and are considered to be a valuable intellectual capital of the organization. They design 30-40 different styles of handicrafts and work in a highly innovative ambiance. As it is a small organization, the management roles are closely interlinked. The experience and skill of the managers, in the field of handicrafts, allows them to exchange roles and work in different areas of the organization. These areas include HR, marketing and finance; however exclude the production domain because of the required skill-set. According to Mr. Chandra from the marketing department, “human resource is one of the most important intellectual properties of A. V. Inc. because of its high-level of skills and creativity”. 6.3 Intellectual Assets According to Edvinsson and Sullivan (1996), “Intellectual assets are the codified, tangible, or physical descriptions of specific knowledge to which the company can assert ownership rights and that they can readily trade in disembodied form”. They are the documented version of the knowledge possessed by an organization. The various aspects of the intellectual assets of A. V. Inc. are analysed as follows (it should be noted that none of these assets are ‘legally protected’):  Commercializable Assets • Products: The range of products offered by the company is able to attract consumers from all over the world because of its distinctive style and quality. The handicraft items can also be customized according to the buyer's requirement, without compromising on quality and finesse. • Processes: Production process is one of the most important aspects for the organization. The company has worked hard on making its production process more efficient, in order to avoid over or under production. The managers also focus on the efficient utilization of the raw material and have been successful in lowering down the cost of production.  Customer-Related Assets 8
  • 9. Intellectual Property 2010 • Relationships: Brooking (1996) argues that the “customer loyalty is measured by repeat business and the percentage of the customer base which represents repeat business is an asset”. As the company primarily deals with foreign clients, the management system is designed in a way which takes good care of customer relationships. The highly qualified managers maintain the customer loyalty which is reflected by the high percentage of total revenue from repeat business.  Structure-Related Assets • Plans: The organization has grown significantly in the past few years but has no expansion plans in the near future. Instead, it plans to maintain its product quality and customer base before expanding its production units. • Procedures: The organization is also not planning any significant changes in its current procedures. The management is satisfied with the performance of the production team and wants to stick to the same procedures for some time. 6.4 Intellectual Property As shown in the Sullivan’s model, the human resource and the intellectual assets are an integral part of the intellectual property of A. V. Inc. The intellectual property is a very important aspect of any firm which uses knowledge as the source of its competitive advantage. 6.5 Complementary Business Asset Edvinsson and Sullivan (1996) define complementary business assets as the structural capital assets of the firm which is used for the creation of value in the commercialization process. He further adds that “no matter how exciting an intellectual asset itself may be, it will have little commercial value unless paired with the appropriate complementary asset”. The complementary business assets can be further divided into two parts:  Generic Complementary Assets Most of the complementary business assets of A. V. Inc. belong to the class of generic complementary assets. These assets are bought by or contracted for on the open market, which helps the firm to commercialize its wide range of products.  Specific Complementary Assets Some of the complementary business assets of A. V. Inc. belong to this class. These assets include certain tools and machineries which are used specifically for making certain types of products. 9
  • 10. Intellectual Property 2010 7. Annie Brooking Audit Questions According to Brooking (1996), the prime reasons for the shift in paradigm are information-age technology, media and communications, which have provided tools with enormous intangible benefits to organizations. In the domain of Industrial Designs, she argues that “a registered design, or design patent, is a monopoly of the outward appearance of an article or a set of articles of manufacture to which the design is applied, and it protects the design which has eye appeal” (Annie Brooking, 1996). The audit on A. V. Inc. was carried on out April 28, 2010, using the Annie Brooking questionnaire. Mr. A. Chandra, the marketing head of the organization, was interviewed for the same. In his interview, Mr. Chandra made it clear that his company has never filed any patent, and does not intend to do so because of various reasons. He said that “of course factors like cost and time prevent us from filing application for a design, but the most important issue is the non-necessity of doing so”. He further clarified that none of his competing firms protect their designs as a part of their intellectual property. Nevertheless, he is aware of the exact procedure which needs to be followed in order to leverage the benefits of design rights. Q.1) What aspects of your company’s products could be protected via one of the design rights? Ans. 1) We have a lot of ideas about various novel designs for handicrafts which can be exploited commercially. If the need arises in future, these designs will surely be one of the most important aspects of company’s products which we would like to protect via one of the design rights. 10
  • 11. Intellectual Property 2010 Q. 2) Would a design right give your company a competitive advantage in some area? Ans. 2) Maybe it will. As neither we nor our competitors have ever tried to protect our intellectual capital through the design rights, I am not sure whether it will give us a competitive advantage or not. However, it might lead to firms focussing more on suing their competitors by using the design rights, instead of maintaining and improving their product quality. Q. 3) Are your product designers all familiar with benefits of protection afforded by design rights? Ans. 3) Not all, but most of them are aware of such benefits. However, they also don’t think hat it will be a good idea to protect the company’s intellectual assets through one of the design rights, when most of the firms are cutting costs. By analyzing these answers it can be clearly seen that the employees of A. V. Inc. are aware of the Design Rights in India, however, they are not very keen on using these rights due to various reasons. This seems to be a feasible choice considering the size of the organization and the activities of its competitors. 8. Analysis of A. V. Inc. using the framework of Shultz and Saporito Shultz and Saporito (1996) provided a framework for analyzing the counterfeiting and brand piracy environment. Out of the ten different strategies provided by them, considering the current competitive scenario, the Strategy 1 (do nothing) suits the best for A. V. Inc. Strategy 1: Do nothing According to Shultz and Saporito (1996), Strategy 1 is the best one to follow if “factors like market size, associated costs, with litigation and enforcement, negligible levels of damage to authentic goods or the company’s brand and image and/or reputation”. Considering the case of A.V Inc., it can be clearly seen that the management is not threatened by the prospects of counterfeiting because of its mode of operation and the target market. Also, according to the Marketing Manager of the company, the process involves a lot of time and expenses, which simply outweigh the benefits which the firm may receive. On the framework of IPR strength 11
  • 12. Intellectual Property 2010 and product differentiation, the attributes of the firm lies close to the middle of the first quadrant. It does not lie close to the lower end because the IPRs in India are fairly well protected. Implementing the Strategy 1 is justified by the facts that high litigation costs are involved in the process and there is negligible damage to brand/image/reputation in the case of counterfeiting. 9. Conclusion Considering all the aspects of A. V Inc, analyzing the Sullivan’s model for the firm, and conducting a simple audit using the Annie Brooking’s questions has revealed many interesting facts about the Indian handicraft industry. The organization has never filed a patent and does not plan to do so in the future. Considering the cost, time required and the legal hassles, this seems to be a prudent choice for the small- scale companies in this sector. As we have discussed in the previous sections, even if A. V. Inc. finds that some other firms are trying to make replicas of its products, Strategy 1 will be the best to follow. By evaluating the Intellectual Property Management of A. V. Inc., the statement “Most firms do not know how to describe or define their intellectual capital, much less how to manage or report it” (Patrick Sullivan, 1998, Profiting from Intellectual Capital: Extracting Value from Innovation, p. 4), holds to a certain extent, however, it is evident from the research that the organization does not need to change its policies at this stage. In case if need arises in the near future, it can definitely take help of its law consultant and file an application under the Design Act (2001) to protect its designs. 12
  • 13. Intellectual Property 2010 References Edvinsson, L. and Sullivan, P. (1996). Developing a Model for Managing Intellectual Capital, European Management Journal, Vol. I4, No. 4, pp. 356-364 Bontis, N. (2001). Accessing knowledge assets: a review of the model to measure intellectual capital, International Journal of Management Reviews, Volume 3, Issue 1, pp. 41-60 Joachimsthaler, E. and Aaker, A. (1997). Building Brands without Mass Media, Harvard Business Review (January-February), pp. 39-49. 13
  • 14. Intellectual Property 2010 Shultz, C. and Soporito, B. (1996). Protecting Intellectual Property: Strategies and Recommendations to Deter Counterfeiting and Brand Piracy in Global Markets, The Columbia Journal of World Business, pp. 19-28. Creative Industries and Development, United Nations Conference of Trade and Development, 11th Session, Sao Paulo, 13-18 January 2004. Milius, D. (2009). Justifying intellectual property in traditional knowledge, Intellectual Property Quarterly, Volume 2, pp. 186-216 REPORT OF THE EXPERT MEETING ON SYSTEMS AND NATIONAL EXPERIENCES FOR THE PROTECTION OF TRADITIONAL KNOWLEDGE, INNOVATIONS AND PRACTICES, UNCTAD, 2001 [Online] [Accessed on April 25, 2010] Available at: www.unctad.org Marketing Crafts and Visual Arts: The Role of Intellectual Property: A practical guide, World Intellectual Property Organization, Geneva: ITC/WIPO, 2003. xiii, 135 p. [Online] [Accessed on April 30, 2010] Available at: http://www.wipo.int/sme/en/documents/guides/marketing_crafts.html Designs, Patent Office, India [Online] [Accessed on April 20, 2010] Available at: http://www.patentoffice.nic.in/ipr/design/designs.htm IP and Handicrafts, WIPO [Online] [Accessed on April 20, 2001] Available at: http://www.wipo.int/tk/en/folklore/culturalheritage/ip-handicrafts.html Handicrafts: An Overview [Online] [Accessed on April 21, 2010] Available at: http://www.india-crafts.com/business-reports/indian-handicraft-industry/handicraft- overview.htm IAR Handicraft [Online] [Accessed on April 21, 2010] Available at: http://www.scribd.com/doc/25338976/IAR-Handicraft Skriti Handicraft [Online] [Accessed on April 22, 2010] Available at: http://www.scribd.com/doc/16315056/Skriti-Handicraft IPR in Indian Handicraft Industry [Online] [Accessed on April 22, 2010] Available at: http://www.scribd.com/search? cat=redesign&q=IPR+in+indian+handicraft+industry&sa.x=0&sa.y=0 Indian Handicraft Exporter [Online] [Accessed on April 25, 2010] Available at: http://www.india-handicraft-exporter.com/ Overview on Indian Handicraft Industry [Online] [Accessed on April 22, 2010] Available at: http://www.articlesbase.com/furniture-articles/overview-on-indian- handicraft-industry-856660.html Handicraft Industry [Online] [Accessed on April 24, 2010] Available at: http://technicaltarun.blogspot.com/2008/12/handicraft-industry.html 14
  • 15. Intellectual Property 2010 Indian Handicrafts Shop [Online] [Accessed on April 22, 2010] Available at: http://www.avinc.in/ Picture on the Cover Page [Online] [Accessed on April 30, 2010] Available at: http://redyellowexports.com/x/images/stories/website/handicrafts.jpg Annie Brooking (1996), Intellectual Capital, London: International Thomson Business Press Appendix 1 Cost involved in the Design registration process in India 15
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