Too much of a good thing

The patent law in the US is one that the country is justifiably proud of. Over decades it has nurtured and rewarded inventors for inventing things that improve the lives of their fellow beings by granting the inventors a limited time monopoly over the uses of their inventions.

But it seems like the pendulum has swung too far to the other side. The range of innovation that is now addressed by patent law is vast and extends to things like business methods. The duration for which the inventor has monopoly rights to exploit his invention keeps going up (now 17 years).

Michael Crichton  (of Jurassic Park fame) recently wrote a piece where he talks about the need to reign in the patent law. In a recent ruling a federal court ruled that an existing patent that simply links elevated homocysteine to vitamin B-12 will stand. Just to be clear, this patent is not about a novel test to check for elevated homocysteine. It is simply the causal link between it and B-12, which is a natural phenomenon in the human body. And the court is allowing the patent on it.

Earlier this week, Netflix sued Blockbuster for patent infringement. The patents are on its business methods of unlimited rentals with no late fees and a ‘range of automated interaction with its customers’. Now I am no friend of Blockbuster and actually think Netflix has reached its dominant position in online DVD rentals through grit and gumption. They deserve every bit of what they have achieved so far. But do they deserve 17 years of untramelled access to the online rental market for some hohum ways of interacting electronically with customers? I don’t think so. An earlier and bigger brouhaha on a similar award of a business method and software patent was Amazon’s 1-click ordering.

These may be one-off exceptions and don’t necessarily prove anything. But if you look at the facts, US patent law (and other IP laws like copyright laws) have become looser, more wide-ranging and give the owner of the patent longer exclusive protection. This, it is claimed, encourages innovation.

But it doesn’t. All innovation is accretive. All creativity is remix. Great inventors stand on the shoulders of inventors before whose inventions allow them to see further. Restricting the use of an ever-widening range of patents for longer reduces innovation because new inventors will not have free access to the inventions. Businesses will spend too much time trying to figure out what to patent or how to side-step others’ patents.

In some industries like healthcare, the upfront time and costs of FDA approval make it hard for the inventor to commercialize a patent quickly. But in most of the world of commerce, 17 years is many lifetimes. The speed of business is faster than at any other time. A shorter period of patent protection should be very doable. Jeff Bezos had some very good suggestions back in 2000 when the 1-click ordering patent controversy broke.

The patent law needs some serious attention from Congress. Otherwise, be prepared to see poorer inventors and richer lawyers.

Indian-Americans and the Spelling Bee conundrum

In the US there is a closely watched annual contest for school kids called the Spelling Bee. Over the years, whenever I have seen the results of a Spelling Bee contest I have always noticed that there were quite a few Indian kids in the final rounds. It seems like other people have also noticed this.

One of my favourite programs on TV is the Daily Show with Jon Stewart on Comedy Central. The program covers current affairs and manages to be both funny and incisive. A few weeks back when President Bush was in India the show covered his trip. Here is a clip from one of those shows (you will need a broadband connection). On the same show there was another segment where Stewart, talking about the US-India nuclear deal, says, "We’ll help India build nuclear reactors if their children stop crushing us in Spelling Bees." He then goes on attribute Indian kids’ spelling prowess to their long names. Sivaramabalamuralikrishnan Aghilandanayagaswami Iyenggar anyone?

I decided to investigate this further. I looked at the top 10 contestants in the Spelling Bee contest from 2001 to 2005. Since the contest has elimination rounds, I had to take more than 10 contestants when they were tied for positions. Of the  59 kids, including repeat participants, who made it to the final rounds in these  years, 12 had Indian names. Or roughly 20%.

So I then went to Wikipedia and looked at their entry on Indian-Americans. According to Wikipedia, there are 2.4 million Indian-Americans in the US, or just 0.8% of the population of the United States. Well that doesn’t compute, I thought. I then normalized for the college educated section of the population. According to the US Census 28% of the US adult population has a college degree. According to the same Wikipedia entry 64% of the Indian-American population is college educated. So college educated Indians are 1.8% of the total college educated population in the US. That is still a far cry from 20%. Clearly demographics don’t even begin to explain the Spelling Bee conundrum.

There are some other reasons that could explain this difference but in my opinion don’t do it adequately. The college educated Indian immigrant population is not a random sample from the college educated population of India. They represent the cream of the crop. I would have said ‘immigrant vigour’ was another contributing factor, but then America is a land of immigrants, so that doesn’t count.

How do you explain this mystery? Do Indian genes or the Indian family environment predispose us to be good at rule-based logical tasks (spelling bee contests are all about spelling rules and not about memorizing wayward English word spellings)? Does that explain the success of the Indian computer programmer as well?

I can’t say that I know the answers to these questions. All I know is that I would like Spelling Bee to be included as an Olympic sport. It would be nice to get a gold medal for a change.

New Bombay or Renew Bombay

A couple of weeks back I spent a day in Navi Mumbai with a friend. Every time I go there I am elated by what I see there – a great city in the making. But I am also saddened. Is the only hope of urban India to build new cities? Are today’s cities doomed?

For those not familiar with it, Navi Mumbai is a 344 sq. km area on the mainland next to Mumbai. It was developed with the objective of decongesting Mumbai, which was (and still is) the land of promise in India – a cross between LA and New York with its Bollywood and Dalal Street. Unfortunately, it is a strip of land largely surrounded by the sea and its growing population had no room to expand.

CIDCO (‘we make cities’), the organization that was entrusted with the task of developing Navi Mumbai has done an all around fantastic job. It not only planned and developed the land, it also undertook much of the housing construction there, when no builders thought it would be worth their while. CIDCO continues to plan and develop and run civic services in Navi Mumbai. The results are fantastic and are noteworthy in three seminal ways.

One, Navi Mumbai is a planned city. It is laid out with what I am sure is a Master Plan behind it. It reminds one of the Chandigarh in my school days with numbered sectors and roads intersecting at right angles. Two, the infrastructure is remarkably good – roads, bridges, rail, optic fiber…it’s all there and well maintained. The administration actually runs a surplus and at this time the sale of land must be so profitable for it that investing in very good infrastructure is feasible.

But the most visible difference between Navi Mumbai and Mumbai itself is the almost complete absence of illegal construction and slums. Enforcement of property rights is complete. And that is what is amazing.

I see a great future for Navi Mumbai. There are big corporates like Reliance that are making big bets on Navi Mumbai. I think that is good for Navi Mumbai and for Mumbai itself. Mumbai can’t handle its urban crisis itself, so a helping hand from a satellite city should be welcome.

Cities like Mumbai and Bangalore are crumbling under the pressure of rapid growth. But growth is really a handy excuse. Its not like you couldn’t see it coming. Its just that it was nobody’s  problem. Unfortunately, urban development is a long cycle endeavor. Developing urban infrastructure with foresight is a waste of time for an elected government. Its benefits are not seen by the electorate in time for the next elections. On the other hand urban development is a most lucrative opportunity for corrupt politicians and bureaucrats. Planned development that benefits future administrations versus builder driven development that lines ones pockets today – the choice is easy. Even if one is an honest administrator, doing the right thing will require you to fight so many vested interests, why not let sleeping dogs lie?

Which is what saddens me. Is the difference between Navi Mumbai’s rise and Mumbai’s meltdown a matter of new versus old? Or is it the difference between governance by an elected government and a state corporation (CIDCO)? Either way, the odds are stacked against today’s Indian metros. We need strong leaders and able adminstrators. And citizens who care.

Paperbacks in India

Every trip to India, I bring back half a suitcase full of books. My wife is a voracious reader of fiction and she reads a lot of Indian fiction too. Also, we want our children to read Indian mythology and other Indian stories and it’s impossible to get Indian childrens’ books in the US (there’s eBay retail opportunity for someone out there).

Of all the reasons why I buy books in India, cost is not one of them (unlike for Hindi film music and DVDs where there is a cost arb opportunity). But I think I may have to reconsider. I had just bought The Argumentative Indian’ by Amartya Sen in the US before going to India. It was the hardcover edition and cost about $25. In India the same book was available in paperback for less than half that price.

I know what’s going on of course. A book is an information product (like music, magazines, software and cinema). All of them are digitizable and the medium that carries them is immaterial (more or less) to the enjoyment of the product. All information products have a similar business problem. The marginal cost of producing the next copy is minimal and so variable cost has no bearing on the pricing of the product. For instance, the cost of a blank CD disc is insignificant compared to the price of the CD. So how does one price such a product?

In the case of books, the cost is not insignificant but it is much less than the price of the book (20% of the cost of a hardcover). So how does one price a book? The main technique is what I will loosely call ‘windowing’, though this is a term more widely used in the movie business. Publishers first come out with hardcover editions for (in the US) a $20+ price. With this they cover the well informed, price insensitive crowd. After a year or so comes the paperback with a price of around $10 that caters to the more price sensitive crowd.

However, there is another problem that publishers must deal with. Readers in different countries have vastly different purchasing power. How do they preserve their pricing model in the developed world without losing readers in developing countries like India? In the past they would just delay the launch of the book in India. However, in today’s global village, the media buzz around the launch of a new book creates demand everywhere at the same time. Postponing the book launch in India could mean lost sales.

So the solution is to launch relevant books in India simultaneously (or closely after) with the US market, but go straight to paperback. The different covers in a way justifies the different prices. For me, this is great news. I hate buying hardcovers because I do most of my reading on long flights and that is just extra weight to lug around. But many times, I just can’t wait. Paperbacks in India are like having your cake and eating it too.

Pricing of information products is one of the most fascinating subjects in business. My own company sells an information product. Many an hour has already been spent on how to price it. I’m sure this is not the last time I’ll be talking about this subject on this blog.

The Competitive Indian

Last week I did some travel within India while on my trip here. On the Mumbai to Bangalore trip I saw something really fascinating. The flight was more or less on time. When it landed in Bangalore, the airplane had barely steadied itself after landing (still taxiing) when about a quarter of the passengers on board stood up and started taking their things out of the overhead compartments. The plane was still taxiing when there had formed a line at the door. The stewardesses repeatedly announced that the plane had not reached the gate and that passengers were required to be in their seats, but to no avail. These were people in a hurry.

On the next leg of my journey from Bangalore to Delhi I did not see this rush for the exit. Which is surprising if you know Dilliwallahs. So I wondered a little about it.

Later, I came to this conclusion – the people who formed the line knew that there was an aerobridge at the Bangalore airport. Therefore, if they got off the plane first they would actually get out of the airport first if they didn’t have checked baggage. In Delhi there was a bus to ferry us to the terminal and so there was no advantage in trampling over old women and children to be first off the plane. If my conclusion is correct, we are in for more stampedes as our airports modernize and have more aerobridges. Sobering thought, that.

In a more serious vein, is all this competitiveness good or bad for us as a nation? (Some of you may contest this conclusion that we are ultra competitive simply by pointing to our cricketing performance). I think that on balance it is good for us. While we do have to put up with the occasional dent in our Honda Accords from aggressive SUVs, it still has its advantages. It is Darwinism at its best. The students coming out of colleges today are tough. They know that if they don’t make it in the job market there is no social security safety net to break their fall. They also know that in the growing private sector the only thing that matters is merit. Hard work will pay. And when they do start making the big bucks, the marginal rate of tax is a moderate 30-35%. Compare this with the European social states where you can maintain a pretty good lifestyle on dole but if you make the mistake of working hard for a decent income, the state can take more than half of that away from you in taxes.

So the next time someone cuts into the check-in line at the airport in front of me, I’m going to think calm thoughts. Here’s someone who wants to get ahead in life, I’ll tell myself. May his tribe increase.

Back to school

I am on a trip to India. We just closed our funding. Now the action in India is going to be thick as we build our team in Mumbai. The quality of people we hire is going to be the single most important determinant of our success. And so the opportunity to go talk to students at the premier business school in the country was almost impossible to turn down.

One of us was invited to go talk to a forum at IIM Ahmedabad that comprises of students interested in startups. Either doing a startup or joining one. Since I was in Mumbai and this was over the weekend, I decided to go as well. I hadn’t been there for over 10 years (I graduated in 1989) and needed just an excuse to visit the alma mater.

I went there with some trepidation. IIM A is not known to produce your entrepreneurial sort. Most students have little or no work experience, and perhaps rightly so, seek to get some. And there are all kinds obscenely high-paying jobs in India and abroad in investment banking, management consulting and other spheres that are just waiting to be landed.

I was pleasantly surprised by the turn-out. There were about 40 students from both PGP I and II (first year and second year). They were engaged and had good questions. In the break I learnt that many of them were choosing not to take up jobs but instead start a new venture immediately. I thought that was just great.

I also caught up with Prof. Arvind Sahay who teaches Marketing at IIM A. Arvind and I were in the same graduating class from IIM A. Since then he had done a Ph.D from UT Austin and had taught for a while at London Business School. Next stop – Ahmedabad. It seems many Indians abroad who are doing well in academia are heading back to quality institutions like IIM A. Arvind reeled off an impressive list of recent hires. This is great news. The 1990s weren’t the most exciting times for IIM A. Now a new generation of faculty is injecting much needed change. There are new courses, new programs (like the PGP Ex on the lines of ISB) and a lot of investment in the right things. The new campus is still not done but it looks quite impressive. Different architectural theme from the old campus, but retains some of the old flavour.

It felt good to go down memory lane a bit too. For those in the know, the magic of Louis Kahn Plaza at night does not diminish with time.

Technology and Democracy

In the last two weeks much has been said about the actions of Google, Yahoo, Cisco and Microsoft in China that are apparently aiding the Chinese government in repressing dissent. In the congressional hearing Congressmen, playing to the galleries, subjected representatives from the four companies to some pretty intense questioning. When politicians ask questions in a public hearing that is being televised they are more interested in making political statements and less in the companies’ answers to the questions. Rhetorical questions like ‘how can you sleep at night?’ which was one of the questions, can be translated as ‘Voters in my constituency, I am concerned about freedom of speech around the world, an American value that I know is dear to you.’

The American press, in general, has found the companies to be at fault. This is not surprising given that the media is the biggest commercial beneficiary of free speech. You’d expect them to be less balanced about something that threatens their raison d’être.

So are the four technology companies at fault for aiding the Chinese government curtail freedom of speech? I think this is a complex issue that does not lend itself to a snap judgment. What the four tech giants were doing was obeying the law – the Chinese law. Not complying with China’s law, would have harmed their business interests in China and perhaps the well-being of the company’s senior officials in China. It was lawful and pragmatic. Is that so bad?

It could be. A company’s management often faces choices that may be all legal, but are not all equally ethical. Some of those choices may violate the stated values of the company. In a rapidly evolving industry sometimes the laws have not ‘caught up’ with the state of evolution of the industry. In such cases, very often the industry will come up with self-regulatory mechanisms. For instance, in the early days of the e-commerce boom, customer data privacy was a big issue that was first tackled through self-regulatory mechanisms before laws could be enacted. E-mail spam went through the same cycle. In these cases, ‘good’ business behavior emerged before the governing laws were framed. Similarly, some commentators say that American businesses adopted a self-imposed economic boycott of South Africa in the days of the apartheid. This was well before the US government and the UN mandated a boycott.

China, however, is not South Africa. The stakes are much higher. We are talking about a country that will soon become the second largest economy in the world. I can just picture the management of Google on an investor conference call saying that they had decided to pull out of China because complying with Chinese laws on censorship would put them in conflict with one of Google’s values (‘Don’t be evil’?). It would be ugly. Guaranteed.

Then there’s the question – is what they are doing really ‘evil’? If so, how evil? On a scale of 1 to 10 where would you put Yahoo aiding the Chinese government in identifying Falun Gong web-site owners? On that same scale, where would you put the US government asking Google to hand over usage data related to terrorist like activities (I guess they want to know about anyone searching for ‘build a nuclear bomb in your garage’)? How about if the US government asked Google to hand over search phrases and click-stream data on suspected terrorists? To Google’s credit they have staunchly refused to do this. The matter is now in the courts.

Obeying the laws of a country is has binary states. You either do or you don’t. Being ethically or morally right is not binary. There are vast grey areas. And when the stakes are high like they are in China and you are managing a publicly listed company it is not easy to take the high ground.

What could make it a lot easier is if the US government stepped in and made some rules here. Like the Foreign Corrupt Practices Act, maybe there should be a Foreign Abetting Repression Act which prohibits American companies from collaborating with repressive governments. I see serious implementation problems here, but that’s what Congressmen are good at – legislating on complex matters. Such a law would make it a level playing field, so Yahoo wouldn’t have to worry that if they took the high ground in China, Google would eat their lunch. These four companies are great companies and I’m sure that given the chance they would do the right thing.

After all, the softest pillow is a clear conscience.

Infosys getting the attention of class-action lawyers

In another development it seems like my old employer Infosys,
like TCS, has also caught the attention of the class-action trial lawyers. Some
law firm seems to be soliciting interest on the internet from Infosys employees
who, in the past have worked overtime in California and have not been paid
overtime. Interestingly, if you search for ‘Infosys’ on Google, the top-most
sponsored link is from this web-site. Someone obviously thinks this is worth
the trouble.

 

Interestingly, IBM has a similar overtime class-action
lawsuit
brewing. Many law firms are behind this one, including Lieff Cabraser,
the firm suing TCS. So Infosys is in good company on this one, with IBM.
Unfortunately, that is the only good thing you can say about the situation. A
lawsuit like this, if indeed it materializes, can be expensive, distracting for
management and can damage the company’s reputation.

 

The claim itself, that the company’s employees were asked to
work overtime without payment, is not going to get more than a shrug, at least
in the Bay Area. Silicon Valley runs on Jolt Cola and other higher forms of
caffeine that allow IT workers to minimize sleep and maximize work. Whether its
IBM, Infosys or the latest start-up, IT workers in general put in more than 8
hours of work a day. Before we start feeling sorry for them, we should remember
that an IT worker is well paid and in-demand. His skills are highly
transferable in a huge global market for IT workers. I don’t believe he needs
the kind of protection a unionized auto worker has (and see what that’s done to
Detroit) – neither in the US, nor in India.

 

I do hope the Infosys overtime ‘fishing expedition’ fails.
Otherwise, it will be bad news all around – for IT services companies, for
clients and yes, for employees as well.

Class action lawsuit against TCS

Last week was a pretty interesting week for the business of global business
– our focus in this blog. Google, Microsoft, Yahoo and Cisco were raked over
the coals in a congressional hearing for aiding censorship in China. More on
this later. First let’s look at the class action lawsuit against TCS in
California.

An Indian employee of TCS America sued TCS for ‘unjustly
enriching itself by requiring all of its employees in the U.S. who are not U.S.
citizens to endorse and sign over their federal and state tax refund checks to
Tata’. The law firm involved, Lieff Cabraser is a well-known plaintiff’s law
firm that pursues class-action lawsuits and has quite a track record doing it.
It regularly features on the National Law Journal’s ‘Plaintiffs’ Hot List’.

A law firm specializing in class-action lawsuits takes no
upfront fees from its clients (the plaintiffs – in this case the TCS
employees). It works for a cut of the settlement that the plaintiffs get. Since
they are dealing with individuals, they could get as high as 30% of the
settlement. Since this is an all or nothing game, the law firm will be very
careful in picking their lawsuits – the target should have deep pockets and
there should be a reasonably good chance of winning the case. Once they sink
their teeth into something they are very hard to shake loose. All of this is
bad news for TCS.

The news on the lawsuit has few details. It seems like TCS
had contracts with Indian employees working in the US that allowed TCS to take
the tax refunds from the IRS (US tax authorities) back from the employees. To
the American public this will sound totally egregious. So why would TCS do
this?

My guess is that TCS had good intentions. They probably
wanted to guarantee a certain post-tax income to their Indian employees in the
US. The amount of tax one pays in the US can vary widely depending upon not
just your monthly income but also the duration of your stay (if it is less than
a year), which state you are resident in and dozens of other federal and state
tax rules. The employee’s tax can vary widely depending upon which client they
are assigned to and the duration of their engagement. So (TCS perhaps thought)
why not relieve the employee from worrying about all this? Why not guarantee a
post tax income to every employee? To do that TCS would have to be able to take
employee tax refunds back from employees if the refunds pushed the employee’s
income including the refund over the promised post-tax income.

Noble intentions, but they seem to have had unintended
consequences. I hope TCS resolves the matter quickly and satisfactorily. PR is
a major weapon for trial lawyers. If this thing goes all the way, they will
drag the Tata name through the American press. There will be collateral damage
to everyone in the Indian offshore industry. I hope it doesn’t come to that.

Another TTDMSTM

Here’s another one for Things That Don’t Make Sense To Me.

In Indian restaurants, why is the quarter plate kept on the left of the plate? Think about it. We’ve been brought up eating with one hand – the right hand. Assuming the rotis go on the quarter plate shouldn’t they be on the right? Why should the table be set by Western customs?

And while we’re on the subject, should the glass be on the right or the left? My vote is it goes on the left.