As we move forward into a world of greater complexity filled with rapidly developing inventions and innovations, product owners and manufacturers are modifying their supply-chain models to complement the changing global economy. This post will discuss how both the high-tech and intangible intellectual works sectors are re-thinking their distribution models and suggest how these changes might affect intellectual property rights.

A recent McKinsey & Co. article focuses on the benefits of original equipment manufacturers (OEMs) in the high-tech sector using two-tiered distributors in emerging markets. Two-tiered distributors buy from manufacturers and sell to resellers. While two-tier distributors can be the key to success in emerging markets, there are potential intellectual property issues, especially if the distribution is on a global scale. Because of the wide global reach of two-tier distributors, and the additional steps in the supply chain, there is a possibility that OEMs would have less control over which country their products may end up in. As such, the scope of protection of intellectual property rights can be uncertain and unpredictable. Some foreign countries have laws that are not as protective of intellectual property rights as they are in North America and mechanisms to enforce these rights may not be as effective. Because of this, there may be significant challenges in protecting the OEMs’ proprietary technology and brand. Any intellectual property infringement could adversely affect the OEMs’ business and position in the global marketplace.

In addition to the high-tech sector, another area that has seen significant changes in distribution models is that of intangible intellectual works. Intangible intellectual works include a broad range of information-based products and services that people can receive electronically. Some examples include stock market information, videogames, music, films, etc. These are items that once had been distributed in tangible forms, but are now increasingly being distributed electronically. There are many benefits of electronic distribution. First and foremost, the intellectual work is distributed directly from the copyright holder. Because of this direct distribution, the copyright holder can more easily set and control prices, without the additional cost effects of having different wholesalers or retailers as part of the distribution process. Other benefits include the elimination of the costs associated in manufacturing and packaging a physical item, as well as the shipping of such items. However, the benefits of electronic distribution, come at a price. When distributing electronically, a copyright holder may have less control over their intellectual property and the risk of illegal distribution by a third party may increase. 

It seems that the new distribution models of both high-tech products and intangible intellectual works could benefit from open source distribution. Open source describes a general type of license that makes source code/schematic/files available to the general public for free, with relaxed copyright restrictions. Some examples of open source products include Red Hat’s Linux (operating system), Mozilla’s Firefox (software) and Arduino’s microcontrollers (hardware). So far, the business prospects of these companies are extraordinary. You can read about their successes here, here and here.

Open source products are generally licensed under a Creative Commons license, something that represents a middle ground between full copyright and the public domain. These licenses allow creators to choose which rights they would like to keep and which rights they would like to waive for the benefit of other creators. For example, under their Creative Commons License, Arduino inventors allow anyone to produce copies of their product, redesign it, or even sell products that copy the original design. No license fee has to be paid to Arduino, and permission does not even have to be granted. However, if the reference design is republished, credit must be given to the original Arduino inventors. Additionally, if the design is modified, the new design must also use the same or similar Creative Commons license to ensure that new versions of the Arduino design are equally free and open. The open source movement began in the realm of operating systems and software and has now expanded to include hardware like the Arduino products. If this trend continues, we can only begin to imagine the multitude of other industries that may jump on the open source bandwagon in the near future. The music industry would be an example. Opsound is a project that applies the open source model to music. Under a Creative Commons license, musicians and sound artists are encouraged to contribute their own music to the Opsound pool and are invited to download, share and remix the music that is available in that pool.