Exchange between Prof. Shamnad Basheer and Thomas Abraham on proviso 2(m) and the Parallel Importation of Books (copyright law)

[Prof. Shamnad Basheer is MHRD Professor of IP law, National University of Juridical Sciences, Kolkata, and founder, SpicyIP. Thomas Abraham is MD, Hachette India; and former CEO, Penguin India.]

                     Part I

SB: I've come into this debate rather late, but have been watching the exchanges on section 2(m) with fascination. Its terrific that IP law making in this country is getting more participatory and nuanced, when compared with a rather secretive law making past.

[ Ref:  http://www.hindustantimes.com/The-death-of-books/Article1-652735.aspx]

--TA: It’s not if this one is anything to go by (the whole process that has rushed this past the standing committee phase). It’s just the blanket assumption of a few IP lawyers who have no idea of ground realities and have not bothered to find out.

I still remember the passage of the '94 copyright amendments when some sections made their way verbatim from a note (passed under the table) by just one IP stakeholder without so much a discussion or debate! Indeed, we've come a long way and i must thank you for fostering this lively debate on this platform.

--TA: It’s not the job of this forum to generate lively debate. Lively debate should be generated by law makers before embarking on framing laws.

I come at this issue from the perspective of an academic who is interested in sound IP policy for India. To me, there is at least one basic norm to any IP policy making endeavour and let me place it before you to seek your views before we dive in any further:

The presumption ought to always favour principles of free market competition. IP norms restrict competition and should be introduced only when the benefits outweigh the costs i.e absent such protection, the rate and production of IP goods would suffer, owing to threats of free riding. In the absence of concrete evidence one way or the other, the fall back position ought to favour free competition. If we're settled on the presumption above,

 --TA: No we’re not. Because that’s precisely the point we’re labouring-- that this cannot be not a one size fits all law summarized by a glib presumption that advocates intangible benefits in the fact that copyright should be on par with patents or trademarks.

Coming to the next point, first let’s examine the definition of competition. In almost every industry except books (and arguably music/DVD) exclusivity in local territories might foster monopolies. So keeping coke out perhaps protected Thums Up; and keeping the car brigade out deprived the country of current technology. No such thing happens in books. Firstly books do not compete the same way as consumer goods (even patented ones) do. Because a Honda city bought is a Hyundai Verna not bought, and a coke drunk is a pepsi not drunk—a palpable loss of sale. A Vikram Seth bought is not an Amitav Ghosh not bought. A consumer may buy both and surely it’s clear that one does not really compete with the other in the conventional business definition of competition. So that brings us to the key questions:

--what competition is being kept out? (Answer: no one. everybody is already here. ‘Foreign’ and local co-exist and both are protesting this)

--does this existing law favour foreign publishers? (Answer: No. From the largest to the smallest everybody is opposing it. If the law makers had only bothered to ask, they would have known this)

--is there scarcity of product? Would this law bring in a wider range? (Answer: No, just the opposite would happen—patterns of stocking would change to reduce range as remainders flowed in. And currently any book in the world is on offer here and cheaper)

--Will it bring prices down to the benefit of societal needs? (Answer: No, as proven by demonstrating existing patterns in price points across every common use segment)

--Are authors different from inventors who register patents? On an average yes! A microwave is a microwave is a microwave is a microwave. A cellphone is a cellphone is a cellphone. Yes there will be patented technology differentiators but certainly not the same as each book being a unique creative object, where the creator has ‘enshrined rights’, or at least so the other part of this amendment (films/music) would lead us believe. So why the discrimination against book authors in terms of a complete disregard as to their interest.  

I want to raise a few issues, mainly to better my own understanding of the situation:

1. What current evidence do we have to suggest that parallel import norms would harm the industry And that the gains to consumers and free market competition would be too modest to effectively outweigh this harm? Please note that when using the term "industry", I restrict myself to industry that is in some way helping the Indian economy and Indian authors by inter alia disbursing its profits in this country and not repatriating it. I don't think Indian policy makers should be too keen on enriching the coffers of foreign publishers and distributors... 

--First what evidence was considered in putting together this law? Where is the slightest credible evidence that it will benefit consumers? The competition question has been covered.

And to answer the other question (re parallel importation), there are plenty of current examples—refer to the ‘trickle’ that currently exists that prove that this will only create spoiler pricing and in the long term will harm the industry with no gain to the consumer.  

That brings me to next to the foreign question; this subliminal jingoism I’ve noticed in quite a few of the debates. Are foreign owned companies some sort of pariahs who should be treated differently? On the one hand we solicit foreign investment. Having allowed  companies to set up, any debate that comes up will inevitably (and generally with no substantiation) move to the rhetoric of ‘foreign’ being some sort of malevolent force existing here.

What is the difference between an Indian firm like Rupa or a ‘foreign’ firm like Penguin outside ownership? Both sell foreign books (distribution business) alongside local publishing. There have been ‘foreign’ publishers here for over a 100 years. And it would be interesting to see how much profit has been repatriated in these 100 years. Not one publisher to the best of my knowledge has repatriated profits back—publishing does not make that much profit! But on a point of legality, either the law has given a company the right to repatriate or it has not. If it has, then it is not relevant to bring this in as an extraneous issue into a debate on copyright amendment. (ironically the amendment will now see such an outflow of forex as multiple wholesalers set up businesses buying remainders and paying for them in forex!)

2. If India anyway has the cheapest editions (and I see this sentiment articulated repeatedly by even the publishers), then what harm can come from parallel imports? If there is no possibility of cost arbitrage, haven't we anyway curtailed the scope for profitable parallel importers? 

--The jesting pilate question, already answered in The Death of Books. But let’s ask the simpler question—books are the cheapest here (and that’s easily proved by listing each key segment) so why is this law needed?

Cost arbitrage:  the simple fact must be kept in sight, that surpluses will be dumped in here. It was not meant for this territory, and now that it’s open market it can be sent in here because its additional sale for the foreign distributor (and they can afford to undercut the local edition slightly). So are we saying that that’s what we want for our consumers? Surplus stocks dumped in here, because it may be marginally cheaper. Not a very just legal system—that will let somebody do the sowing (local publishers pay the advances, build the author, do the marketing and promotion; price low for the consumer at the cost of their margins) and allow somebody else (wholesaler/remainder merchant) to do the reaping. Or get us reciprocity before embarking on this. Every major international market where local publishing thrives operates on the principle of territorial copyright. As did India. If there needs to be a change in law—it presumably follows from some serious lacuna that have been observed and studied. We would love to hear what they are.

3. Does the concern pertain to remaindered copies? Is there evidence of such copies harming markets such as Australia that provided for parallel imports (qua books that were not published in Australia within a month of first publication elsewhere)? And if this is really a concern, can the government not prohibit only "remaindered" copies OR even tax such copies? Or impose anti dumping penalties.

In other words, we retain section 2(m) and provide a carve out from 2(m) only for "remaindered copies"?

--No remainders are the biggest problem but there will also be targeted exports that will undercut existing legal editions; thereby harming local authors, local industry and eventually local writing itself. Australia is not an open market. Australian copyright law merely enforces the consumer’s right to get books quickly—hence the 30 day rule, which says that the copyright holder must exercise his right and publish within 30 days of publication elsewhere. Australia is not a low priced market, and territorial copyright has still been chosen as the way to go in recognition of a thriving local industry and local writing that would suffer.

Already answered why anti-dumping is not feasible to monitor books; please see my discussion with Pranesh Prakash and Prashant.

4. Is the concern that low priced editions would be exported out of India? If true, section 2(m) cannot address it, as it relates to "imports". Exports have to be dealt with separately, as you will appreciate.

--That is a concern  since there seems to debate on the legal interpretation of whether this is implied or inherent in the way 2m has been worded. See Pranesh Prakash’s separate blog on the subject. Let the law be clear if this is not intended. [http://www.cis-india.org/advocacy/ipr/blog/parallel-importation-rebuttal]

5. It may be of interest to note that both patent law and trademark law in India provide a wide parallel import provision. These have operated for years without any palpable damage to industry (at least I haven't seen any evidence and would be curious to see it)... Why should copyright be treated any different?

 --TA: Already explained above. Books are different. It is for those industries to protest should that be the case. Publishers are not making wider judgments—we are merely saying books are different and problems specific to the writers and industry impacted should be studied.

[PS: While I hold a chair instituted by the MHRD, I am an academic enjoying the freedom to harbour independent views, which have often clashed with those of the government. In particular, I've been part of a group that staunchly opposed a key provision in the current bill relating to disability. In short, I don't speak for the government here.]

Part II

Dear Mr Abraham:

Thanks for the insightful responses.

Lets try and see if we can agree on the framework first. I repeat a point I'd already made earlier. Any policy making framework ought to favour free market competition as the default position. If the law decides to curb such competition, it better have good reason. IP ought to be suffered as a monopoly, only if there is concrete and convincing evidence that its existence engenders an accelerated production of knowledge goods.

Unfortunately, owing to a colonial legacy and a general apathy towards IP policy making, our regimes blindly incorporated the formalistic legal regimes of the west, sans empirical validation.

If we were to draft our copyright regime afresh today, our default position would be that of free competition. And we start placing copyright curbs only where there is evidence to suggest that such curbs help promote the production of new knowledge goods.

Given this framework, the default would support parallel trade, not least because the IP owner has already milked that IP good through one sale somewhere in the world. The onus is essentially on you to demonstrate why a restriction on parallel imports (and free competition) is to be placed. In other words, the argument from your side cannot be that "why is the law being amended. show us where the problem lies"?

Rather, the law is simply going back to a default position it ought to have adopted ages back, but simply didn't owing to ignorance and bad policy making. It would have been great if we could do this with a number of other IP norms such as the term of copyright protection for life + 60 years!, but sadly TRIPS prohibits us. But TRIPS does give us the policy flexibility to induct principles of parallel import or international exhaustion. And unless there is concrete evidence to suggest that we will end up shooting ourselves in the foot, we ought to jump at this.

--TA: I choose to disagree—I don’t see this as default position in law with no other debate, the way one sees larceny or assault. The framework is where we (publishers and a handful of IPR lawyers) don’t meet, and hence further debate will probably be just at odds. To me the default position for books will always be author’s rights/wishes first provided societal needs are met. The colonial legacy argument does not work for me, when the Act itself was established in 1957 with five post independence amendments, with the last one being as late as in the nineties.

So are we saying that all the lawmakers who repeatedly examined the law during those amendments didn’t know their job, if this was such a glaring gap. So if it is a glaring gap as a handful of lawyers seem to think, it’s still the law in place right now, and I think the onus is on the ministry to say what rationale there is for changing it. The framing of law has to be to serve society, not be framed in abstraction if ground realities are different and it results in injustice. Why were committees set up to discuss the amendments with the film and music industry? They have not done this anywhere for books (and on the contrary have ignored representations made after publishers discovered this) and if one reads the standing committee report one can discern 3-4 reasons that they cite—and the point is that all of those are either erroneous assumptions with no substantiation or blatantly false (like the statement on current editions not being available).

And the position of author remains the fundamental disagreement—it is our belief the IP owner has not ‘milked’ the benefits of sale elsewhere. The norm worldwide in book publishing is assignment (surely we need to see why every mature market with a thriving local industry has opted for territorial copyright). I’ve explained this in  my HT article—to me the right to assignment is a complementary and linked right along with copyright. One is meaningless without the other. And I believe every author should have the right to economically exploit his/her own work, provided the govt driven societal needs norm (availability/right pricing)  of a developing country is met.

The best evidence that I see being proffered from you and other publishers are:

1. remaindered copies
2. threat of exports of LPE's to the US and EU

Do let me know if there is another countervailing ground for which convincing evidence or argumentation has been offered and which I'm missing here.

--TA: There are plenty more—about 20 questions that the lawmakers should have examined/answered. I will post these later.

In terms of remaindered copies, I gather from your responses to Pranesh that you admit that such copies will not in any case undercut the market too much---rather the prices will only be marginally lower than the LPE in India. Which is why you think that antidumping may not really be an optimal policy solution. If this is really so, then where is the problem? I take it that remaindered copies will flood the market at a time that is quite distant from the time that the book is first published and sold. 

And I take it from several of my publisher friends that "time" is of essence in many of these markets. Sales closest to first publication will be highest revenue earners. Which means the pre determined distribution patterns in India are not terribly upset by remaindered copies....given that they come much later in time and at a price that is only marginally better. Have I got it right? And if pre existing distributors get titles in India much later than the world release, then I guess the threat of remaindering will essentially push publishers to sell quicker in India. A result that will surely be music to the ears of Indian consumers.

--TA: Quite the opposite as I will explain. First I said they will undercut, enough to ruin sales (ergo return on  investments) but not enough to be genuine consumer benefit. I am not talking about LPEs (which are a specific name for Higher Ed educational textbooks—there the issue is re-export and yes remainders will mean old editions being dumped in). I am talking about trade (general/consumer) books which comprise both imports and locally published; and yes both are special priced.

Yes, time is of the essence here, but as I’ve already explained, the fundamental purpose of successful publishing is to make a book last. In the west I’ve explained this earlier, most books are frontlist driven, while India is still essentially a backlist market. So let’s look at both scenarios: a book that is successful here and lasts beyond the three months will be hit by its own competing edition because it is less successful in the west. And even if the book is successful in the west, and is going on and on in the charts, further print runs will still enable a surplus run to dump in here (it’s additional sales, so won’t really impact profitability there, but will kill the local edition here).

Double whammy—so  we will be hit either way. So the author’s royalties are hit, the industry is hit and patterns of pricing clearly show that the consumer is not getting a significant enough benefit.

In any case, assuming that remaindering remains this behemoth of a problem for you, we can always carve out a "remaindering" specific exception from the ambit of section 2(m). Will this work for you? Or we could tax remaindered copies heavily and have this tax distributed to authors who lose out on lost royalties from the Indian market. Solutions are legion, but remaindering needn't cause us to dispense altogether with an overall principle of free market competition through parallel imports.

--TA: Remaindering remains the larger problem but as I’ve explained targeted exports (not yet remainders) will also hit us. And in the books business it is impossible to set a benchmark to fix this anyway by anti-dumping or any other law—neither price, nor quantity nor discount will serve as benchmarks (also already explained why in the Pranesh blog) and we’re talking hundreds of thousands of titles—not one series of cellphones for customs to monitor.
In terms of exports, as you no doubt appreciate, the current law is on your side. John Wiley (Delhi HC case) prevents exports out of India. For good or for bad, that is the law of the land. If you suspect (as I do) that Wiley will soon be overturned, since it conjures up an exclusive right to export out of thin air, then its best that you articulate your claim for a statutory right to prevent exports separately and bring it on the table. Conflating it with imports and international exhaustion will do no good for any of us.

--TA: In terms of imports also the current law is on our side; that is also there in Egmont/Eurokids vs IBD over the parallel and infringing importation of Tintin. It’s the future law one is protesting. And as I said the re-export argument is one of lack of clarity—so let the law just state itself clearly leaving no room for doubt.

1. You make a rather sweeping statement that no further competition needs to be engendered in the market, since it is almost perfectly competitive now. Parallel importation norms always draw in more players, particularly distributors--and its been seen with almost avery other industry...why are books in India any different? So a legal regime that engenders free competition on this count will likely see more new players.

--TA: I do as in all the major players exist here already and nobody is protesting further competition coming in and setting up. Sure let everybody come in go through the same pains of working to build a book, have the same overheads; have the same pricing and margin constraints. No problem; nobody is protesting that. Because please make no mistake, this is not about opening up to foster competition—this is opening up to bring the identical product in, that the copyright owner has exclusively contracted to a local publisher who has made investments, while keeping the book low priced.

This opening up is not an invitation to compete, it is an invitation to every jobber and remainder merchant to come in and undermine a fair structure that exists—a structure that has the author at the top of the pyramid. A nice little gift-wrapped present of our market where they have invested no effort, time or money. But a perfect safe haven now to push their books in.

What we’re saying is that the author doesn’t matter anymore. To international authors (foreign and Indian) we are saying “Because your book was published in the US, tough luck, you don’t deserve home (your contracted exclusive edition in India) royalties—let your local edition be killed”. To Indian authors with just local editions we are saying, “ Tough Luck, now bookshop shelves are filled with the surpluses of the west, so there’s less space for you, and eventually yes, publishers won’t have the money to invest in you, but guess what—we’ve managed to get John Grisham cheaper by Rs 20”. To the local publishing industry we’re saying—“tough luck your prices are higher, and if they can push their books in here at Rs 20/- cheaper then you can just drop the price too”.

Never mind that we have built a print run of thousands balancing these very needs; but cannot compete anymore and once this situation multiplies exponentially across thousands of books (especially our revenue drivers by the 80:20 rule), we will stop building these print runs—it won’t be worth doing the local edition. And when that happens, you are talking of us going the Singapore, Malaysia way—except worse, because those are high priced markets. What we will have as a low priced market is a deluge of remainders filling shelves, and targeted exports to hit the top sellers.

2. Secondly, is your claim is that there is no "availability" problem at all in India, since almost all titles are available in a timely manner in India (at least the titles for which there is some demand)?

--TA: Wider in fact. Yes, my claim is that every major book for which there is general demand is available here on the same day and cheaper. My claim is also that there is absolutely no scarcity if the book is in print. Publishing sales works in two ways—first based on demand and supply (what I call common use) where titles are actively stocked locally. These are available off the shelf in bookstores. Second there is the ‘long tail’—the rarer book, the less popular, the niche interest book. Those are not always stocked but are always available on ‘procurement’. That would remain the case whether the market is opened or not. Given the sheer volume of publishing, stocked and procured will always exist as supply conditions. Currently under procurement you can still get any book still at a local price (marked down i.e). It’s still cheaper than buying off Amazon.

3. Thirdly, if your concern is that an existing publisher or distributor abroad makes extra copies to capitalise on the Indian market or pushes remaindered copies here, can't you simply tackle this through contract and take them to task, should they breach?

--TA: Alas no. How? There are no definite benchmarks—this is a hunch based business and we’d be hit irrespective of scale. Print runs can vary depending on estimate. So whether its 3000 or 30,000 both are legitimate enough—it’s a publisher’s risk there. (with this law we’re in effect insuring the foreign publisher’s risk. Are we suggesting that we have a policing system of defined print runs—that is obviously impossible. The point is if a 5000 print run book (small by standards in the west)  fails there, 2000 copies can still land up here by month three (time cycle explained in detail earlier).

4. The remaindering problem: which I continue to see as really the only key convincing reason advanced so far to counter section 2(m): how big is this? Are we worried only about Indian authors whose books get remaindered causing them to lose royalties? In which case, can we carve out an exception in section 2(m) preventing remaindered copies of Indian authors?

--TA: It is huge. If you will see the Pranesh blog, I’ve explained the magnitude of the problem. We already see a trickle because some remaindered books do come in even now—some inadvertently, some deliberately. Generally a cease and desist letter serves the purpose and the inadvertent ones are withdrawn. The deliberate ones are too small in scale to take action—lawyer’s fees would be too expensive. But the day they reach critical mass, or hit high revenue items we will take action. Just as Egmont-Euro kids did when Tintin (a substantial property) was hit. Please understand the west operates on a returns (unsolds) cycle that is about 30-35%. Their pricing mark-ups can accommodate these. So bookstores who are due to pay in 60-90 days, return the unsolds back rather than pay for them. These returns form the basis of remainders.

No, Indian authors are primary to the cultural development of the country so they are at the forefront of this argument. Equally it is mentioned that 75% of business transacted in the Industry (trade books again) is through imports which also have exclusive territorial rights. And the 80:20 rule means that a publisher is able to subsidize the smaller titles with the successes made on the big ones. So Hachette’s success for example with Stephenie Meyer and John Grisham enables it to publish a full range of scholarly Everyman classics which are barely profitable. That’s the swings and roundabouts nature of publishing. So it’s not just about Indian authors—it’s about this law changing everything—there are clear domino like knock-on effects for the complete cycle.