Intellectual Property and the Indian Handicraft Industry

1. Intellectual Property 2010
Contents
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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
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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
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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
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(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
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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.
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(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.
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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
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• 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.
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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.
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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
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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.
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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.
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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
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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
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