MindWealth; Wealth, IPR, Brexit and Trump

MindWealth; Wealth, IPR, Brexit and Trump

What decisions do you take as a business or individual in investment or, creating #wealth from intellectual property rights (#IPR), in the context of #Brexit and a #Trump Presidency?

This is a framework for questions, from which one can develop answers for investment decisions and creating wealth.

It depends on economics, law, politics and IPR. Your business works within this rapidly changing ecosystem.

Brexit decouples Britain from the European Union but not Europe. A Trump Presidency has promised to abandon the drive for free trade agreements such as NAFTA, TTIP and TPP. Since Kissinger, America has wanted one person to call in Europe. Regional trading blocs have become the preferred structure since the collapse of global trade agreements. IPR is at the heart of this.

How are these connected in the context of investment and creating wealth? Whether you act individually or, as a corporate entity.

Fundamentally how and where do you invest? It reaches into the core of the business. Which questions do you ask to determine your strategy?  

So many decisions are a bet against the government and non-governmental organisations wherever they may reside. We now have major governmental shifts in US, Europe and beyond. And, despite the Brexit referendum result, inevitably forces are at work to manipulate the outcome. Professionals call it regulatory or political risk.

UK politicians are now back from their party conferences. They discussed hard or soft Brexit, freedom of movement of people, control and, the reasons for GDP’s movements. Academics have difficulty defining and measuring GDP in a digital world.

Yet there was little discussion of wealth creation, industrialisation, and intellectual property. It probably falls into the “too difficult” tray, whilst business people have to grapple with it daily.

GDP and, the freedom of movement of people, are key components of economic theory. That modern economic theory is anchored in Adam Smith’s work “The Wealth of Nations”. It discussed land, capital and labour – the argument being that if one had free movements of capital and labour, then the economic benefits of lower prices would visit the economy and its people and jobs would be created. The invisible hand would be at work. In reality it was also partly a critique of central banking.

Since then the world has moved on. 70% - 90% of the value of the firm is now in its intellectual property. It’s mainly priced into the products.

Economics considers intellectual property an irritant since it creates monopolies. Yet economics also wants more innovation to create jobs and wealth, but not the resulting monopolies. In this respect #innovation is narrowly focused on the patents and is an input into the firm. Competition theory wished it didn’t exist and prefers to make it an exception. Yet business schools teach differentiation and price discrimination which is achieved through intellectual property.

So what’s your bet against economic theory and dynamics in the context of Brexit and Trump?

Yet IP is such a dominant component of value today.

The European Union’s constitution mandates initiatives leading to lower prices for consumers. In that regard it is thus hostile or, grudgingly accepting of intellectual property, as we see in its legal tussles with corporates. But it also finances IP creation or more specifically innovation.

Therefore separate arms of EU government have differing IP goals and objectives and are in essence in conflict with each other.

The UK led the world in creating IPR regimes such as the 1st national patent, 1st copyright act and 1st trademark acts etc. They were a key enabler of the industrial revolution which Adam Smith commented on in his book, yet he largely ignored (1/4 sentence). The US, following its birth, also depended on British intellectual property to create its own industrial base. And the UK has continued to be a global leader across all its creativity in all areas of IPR.

IPR is the product of a mind. However IPR cannot be physically enforced like an apple, and is solely dependent upon law.

Parliament is UK’s sovereign law maker. This law depends on the meanings of English’s 1 million words. Its administration was left to highly respected judges, developing through interpretation and shared case notes, an agile law, which then fed back into Parliament. The UK’s English language and common law approach also gave it a highly respected position in IPR protection globally.

Then the UK became a founding nation of the European Union at Maastricht in 1992.

That system uses civil or codified law where the core principles are codified into a referable system often a Constitution. In Europe this law is created more by civil servants than politicians, endorsed by parliaments and, administered by judges. More become regulations. Judges have less opportunity to interpret and, in some systems, are forbidden from exchanging case notes to learn from each other. We know it to be less flexible than common law, since change is more tortuous. The US has a particular version of civil law and is often seen to be unwieldy but its Constitution promotes IPR.

Civil law has a centralising tendency whereas common law a decentralising one - hence the British keenness on laissez faire economics. Civil law by its nature is uncomfortable being laissez faire. Therefore firms become closer to governments in a civil law world. Some businesses thrive by being closer to government; others thrive in a laissez faire world. Some thrive in both particularly if they have good IP.

Since 1992, UK’s common law has been increasingly superseded by EU law, which has subsequently been codified into English law. English law remains common law, resistant as it is to a written constitution and civil law.

It’s a moving target for businesses and individuals.

Whereas previously UK citizens and businesses obtained and, dealt with IPR issues domestically in the UK, the EU has been implementing a network of distributed courts and regulators. Many of their judiciary are still in training. Experience in IPR is a rarer commodity. This means that the ultimate decision makers operate under a different legal system and are no longer in the UK. The EU has annexed UK competence and, called it its own. The courts that judge UK’s IPR are now dotted around Europe. They are physically, culturally and intellectually more distant. All this has been encouraged by the US. That impacts wealth creation everywhere.

These courts and regulators include

·      the European Court of Justice in Luxembourg increasingly assuming IP competence under mission creep

·      the newly created European Unified Patent Court (UPC) (2013) which is being implemented from 2015 through to 2017,

·      the UPC Court of First Instance Central Division in Paris with thematic divisions in Munich for mechanical, London for Chemistry, and Biotechnology in Rome and, patent arbitration in Ljubljana, Slovenia

·      the European Union Intellectual Property Office (EUIPO) covering TradeMark and Design with regulators and courts which has recently been implemented in Alicante, Spain

·      Plant Breeder’s Rights in Angers, France;

·      Geographical Indications in Brussels,

·      Database IP in Brussels and Paris,

·      Court of Appeal in Luxembourg,

·      The Human Rights Court in Strasbourg, France.

Interestingly, the European Securities and Markets Authority (ESMA) regulator is also based in Paris. And we know that access to finance (capital) and IPR are the bedrock of industrialisation, wealth creation and economic growth, particularly in a robotic age. Successful investment is dependent on it. #Industrial strategy brings it together.

I think you could come to the conclusion that this European IPR world is now generally controlled from Brussels and Paris/France under a different law. And as the new practitioners become more experienced and informed their knowledge base naturally increases relative to others.

And whilst new laws, courts and regulators have been created, EU President Van Rompuy has wondered whether it will ever work, and professionals say it’s a mess. There’s no clarity on which procedures, process, language, and enforcement they will use, when they all vary by country. A single legal process in one country may be bifurcated in another.

What’s your bet on the future jurisdictions of the regulators and courts which facilitate your businesses reach into global markets post Brexit and Trump?   

And the upcoming proposed harmonisation of European national civil laws – note this is not common law as in the UK – may change some of this if done pre Brexit.

So what’s your bet against the law? Which direction and what timescales? What will change and what will remain, and how will it impact on your wealth creation and businesses? If you wait for certainty you could wait for ever. The assumptions you make will determine your success.

And the European Union’s Euro 200 bn Horizon 2020 Research and Innovation program which finances some IPR creation is also centrally controlled from Brussels. Rightly countries and institutions input into its plan. The UK Treasury has pledged to continue funding Horizon 2020 projects as the UK moves through Brexit.

Under which jurisdiction will the IPR now be governed?

These European Union initiatives have a few key goals

1.   A common IPR system across Europe thereby reducing costs

2.   Lower unit costs of IPR application and administration

3.   Benefit to consumers

4.   Benefit to SME’s

These in turn should lead to common standards across Europe thereby also leading to reduced costs. Standards are based on a range of IPR. Lack of common standards across national borders had been seen as a barrier to consumer benefits.

Whilst in 1992 when the EU was formed, there may have been cost benefits in the above, the world has now changed. The digital world of today has done some of the administrative cost reduction for the EU so that more business expense can be focused on productive output and wealth creation. The economy has moved more online. Conversely newer standards in newer industries have been created elsewhere, particularly in the US and Far East.

Here the EU’s goal is an economic one. Free trade mentioned earlier implies lack of economic friction. This in turn should result in consumers differentiating their purchases only on price i.e. more items becoming commodities.

But IPR moves an offering away from being a commodity. And legal friction is a necessity of quality IPR since it depends on expertise.

Note the current trade agreement’s (CETA, TTIP, TTP, NAFTA etc.) emphasis on a new court structure which is outside national jurisdictions. This is so that companies may take national governments to court on standards and other issues, particularly those related to IPR.

President elect Trump has pledged to abandon these inter block trade agreements to bring jobs back on shore to the US. These sentiments are echoed elsewhere. This has implications for how wealth is created from IPR.

But the reality is different.

As in all things “you get what you pay for” and the EU objective of lower costs predicated on higher volumes, works somewhat in an opposing direction from higher quality, differentiated offering.

So from the UK wealth creating perspective, the IPR instrument, law and its administration has moved mainly offshore.

Will it move back on shore under Brexit and Trump? Will new treaties govern IPR in a different way and change the way investment is made and wealth is created? What are the implications for other nations post Brexit and Trump?

As an example a UK plant genetics company developing a new process, product and brand, would have to deal with regulators and courts in different locations in different countries a flight away, whereas previously it was a day trip down the road to London.

So we can see that the UK’s ability specifically, to create wealth from intellectual property has become much more complicated since the EU became involved although the original intent was simplicity. And we know that complexity and delays in industrialisation can lead to a loss of wealth. Compare this with the US system which prides itself on agility and speed to market.

Therefore with IPR being 70% - 90% of the value of the firm, and carried in the price, focusing on the free movement of labour and capital of Adam Smith’s 18th century world focuses on only a minor part of wealth creation in the 21st century. It misses the point in a 21st century economy. The key is our ability to create wealth from intellectual property. President elect Trump and others do not favour free movement of labour.

The UK’s Prime Minister has said that the law will remain the same post Brexit. However by moving out from the European Union, its administration will very probably revert to UK common law as was previously the case. Delays and complexity could be reduced. The UK will thus redefine again its IPR relationship with the European Union and the US in a post Trump era. Existing arrangements may be replaced by a series of bilateral treaties and trade agreements as was previously the case. This could be seen as a return to the nation state. But decoupling from the EU IPR mess could provide a different platform and a return to the flexible agile decentralised IPR regime which enables rapid industrialisation and wealth creation. It may miss out from large scale higher volume unit costs benefits.

IPR is an expanding universe. It may not conform to international economic theory.

Elsewhere, other European nations are looking at the Brexit experiment of decoupling from the European Union. Some of these have key IPR institutions as indicated above. Therefore the EU IPR system is in any event vulnerable to destabilising forces. And so our ability to create wealth as does our investment criteria.

Over in the US, a post Trump economy will focus on using IPR to create jobs in the US, reduce imports and, free movement of people. This impacts wealth creation onshore and offshore – the US being the largest economy pro tem.

That in turn impacts investment decisions and investment performance globally. And IPR is 70% - 90% of the value of the firm.

So what is your bet on how to create wealth from IPR? What do you invest in? Where do you create, own and exploit IPR?

More importantly which questions do you ask to articulate a new strategy in an evolving world?

Your answers are only as good as the questions you ask.