Geolegal Developments Impact On Industrial Life Sciences
Despite the challenging economic and geopolitical environments, the life sciences sector remains resilient—as it had been at the height of the COVID-19 pandemic. A persistently strong appetite for innovation, irrespective of the economic climate, continues to provide a sustainable level of activity that continues to attract investment. In addition, leading companies have strategic reasons to pursue acquisitions in order to fill the growing gap in the next 5 years in view of, for example, (a) the erosion of exclusivity rights that may present market competition with follow-on products and (b) the necessary growth of the unmet-need market to benefit patients. Certain industry players have announced potential acquisition opportunities in 2023 which focus primarily on immunology and oncology, but other therapeutic areas such as neurology, cardiovascular diseases, orthopedics, and vaccinology could also be in play. Products developed for rare diseases are of particular interest. Orthopedics and cardiology remain key areas for growth in the medical technology sector. The normal market sweet spot for deals in the range of US$ 5 to 15 billion will likely continue, but some expect more deals in the region of US$ 30 billion-plus in the latter part of 2023. Promising science and technology with significant differentiating features will remain the key driver for strategic transactions. Contract firms specializing in research and development (“R&D”), manufacturing, and distribution activities are becoming attractive targets for investment. Thanks to the continued momentum in advancing the genomic revolution and in the advent of next-generation sequencing that has made it possible to cheaply and reliably sequence entire genomes, transcriptomes, proteomes, and metabolomes, there is a continuing interest in the development of the next generation of products based on advanced therapies and targeted therapies. A considerable number of these innovative products are approved in the United States, the European Union, and other key international markets. Combination approaches are increasingly being developed and adopted to maximize therapeutic effects and improve patient outcomes. Interest in R&D of nucleotide-based technologies, particularly ribonucleic acid therapeutics, to repair gene defects or modulate gene expression, has intensified. Equally significant advances are observed in the medical technology sector such as mechanobiology to enable high-precision measurements of a broad range of soft biological tissues; MRI-guided radiotherapy to enhance precise targeting capabilities and reduce toxicities; and wearable skin patches to monitor specific markers in blood chemistry. New technological approaches are being adopted by researchers to improve efficiency in R&D, including greater use of artificial intelligence (“AI”), machine learning, and robotics being applied at various stages of the product life cycle. Digital transformation is being pursued within the healthcare setting with the aim of improving patient care and management. Digitalization coupled, with other technological platforms, is revolutionizing the way big data are collected, collated, synthesized, and managed which may be helpful to inform regulatory decision-making concerning product approval and market access; specifically, researchers and regulators are embracing alternative methodological approaches to generating big data in a real-world setting. Real-world data bridge the gap between clinical research conducted in an artificially homogeneous setting and practice in health care by allowing manufacturers to study how patients actually use and respond to an approved new product.
In view of the ongoing R&D efforts, unsurprisingly, regulators and payers deciding the fate of market access to new therapies will need to respond to the continuing scientific endeavors and medical advances to ensure that the regulatory and market access systems remain relevant to foster research into new technologies and treatments. The evolving regulatory environment will have a significant bearing on timely access to effective treatment for patients. With these considerations in mind, this outlook identifies a number of key regulatory developments to look out for in 2023 and beyond. Although the focus of this update is placed on the European Union and the United Kingdom, these considerations would similarly resonate in other geographical regions in view of increasingly globalized cooperation amongst authorities via various harmonization and coalition initiatives.
In order to embrace new therapeutic approaches to benefit public health and patients, there is greater recognition for regulatory innovation to ensure agility of the regulatory framework to support access to novel health technologies whilst continuing to protect public health and patient safety. Indeed, the pandemic reinforced the need for regulatory agility to support timely access to necessary healthcare products without compromising safety, quality, and efficacy, and this position resonates across the globe.
Following the European Commission’s Pharmaceutical Strategy for Europe, plans are in place to reform the European Union’s general pharmaceutical legislation. This legislation, which was last reviewed in the early 2000s, has not kept pace with technological advances. Its deficiencies were laid bare by the pressures of the COVID-19 pandemic. The current plan is for the proposed revision to be published in the first quarter of 2023. The proposal is expected to address issues concerning improved access to medicines, revision of the wholesale distribution licensing system, and novel incentives for the development of antimicrobials addressing antimicrobial resistance. In addition, the regulatory exclusivity rules will likely be reconsidered to balance incentivizing innovation on one hand and market competition on the other.
In order to accelerate clinical trials, many key global regions or countries have developed regulatory policies to facilitate decentralized clinical trials (“DCTs”). Through greater use of digitalization, including telemedicine and health mobile applications to enable remote patient monitoring, DCTs aim to make it easier for eligible subjects to participate in clinical trials by reducing the need to travel to trial sites, thus widening the demographic of participants and reducing dropout rates. In addition, as part of the broader agenda relating to good clinical practice modernization, regulatory authorities recognize the new opportunities for novel and innovative clinical trial designs and methodologies. It is envisaged that there will be regulatory policy development on complex trial designs, such as umbrella trials and basket trials, or master protocols, including advanced biostatistical and data analytics. Recruitment of patients may also change with the use of new technologies to identify eligible study participants and new ways to capture data during clinical trials. In response to the increasing use of big data derived from various sources to support regulatory and market access decision-making, greater scrutiny will be placed on the quality of the data sources to determine whether the data can be relied upon to inform regulatory decision-making. Additionally, in May 2022, the European Commission proposed a regulation that would create a health data ecosystem known as the European Health Data Space (“EHDS”). If adopted, the EHDS would fully harmonize electronic patient records throughout the European Union and facilitate the portability of patient records across member state borders. This colossal database could be accessed for the purpose of providing health care as well as secondary purposes such as policymaking and research by industry. Each use would be underpinned by clear rules, common standards, and practices, infrastructure, governance, security, safety, and privacy. The Commission has ambitiously communicated that its “target is for the Health Data Space to start functioning by 2025”. However, significant challenges will need to be overcome before the launch of the EHDS. Currently, the proposal is in draft form awaiting the Committee’s decision. Conduct of clinical trials in the European Union has transitioned to the new framework under Regulation (EU) 536/2014, the EU Clinical Trials Regulation (“CTR”), and, on 31 January 2022, the Clinical Trials Information System (“CTIS”) went live. After 31 January 2023, sponsors must submit initial clinical trial authorization applications via CTIS. By 31 January 2025, all ongoing trials approved under the old regime will be governed by the CTR and will have to be transitioned to CTIS. In the United Kingdom, the Medicines and Healthcare Products Regulatory Agency (“MHRA”) ran a public consultation in Q1 2022 on proposals aimed at updating the regulatory framework applicable to clinical trials in the United Kingdom. The results of that consultation are in the process of being analyzed. If the proposals are taken forward, they would be subject to parliamentary scrutiny prior to becoming law.
As part of the European Union’s AI Strategy, the Commission has proposed a first-of-its-kind regulatory framework on AI comprising a Regulation laying down harmonized rules on AI (the “AI Act”) and a Directive on its associated non-contractual civil liability profile (the “AI Liability Directive”). In its current draft, the AI Act distinguishes between uses of AI that create an unacceptable risk, high risk, and low/minimal risk. If adopted, high-risk AI systems will need to meet comprehensive requirements, such as those related to data governance, recordkeeping, transparency, accuracy, and security. Low/minimal-risk uses of AI will need to abide by transparency obligations. The AI Liability Directive seeks to give businesses legal certainty on their exposure to liability, whilst simultaneously ensuring that the legal framework is fit for the increasingly digitized economy. The new regime lays down uniform rules for access to evidence and alleviation of the burden of proof in relation to damages caused by AI systems, thus establishing broader protection for an injured party to seek redress. It also introduces a presumption of causality against the developer, provider, or user. Given the novelty of these proposals, their impact on businesses, and their cross-sector application, it is anticipated that the progression of the AI Act and the AI Liability Directive through the legislative process over the course of 2023 will be protracted. In contrast to the European Union, the United Kingdom is currently pursuing a decentralized approach to the regulation of AI. Industry regulators, such as the MHRA, are charged with developing regulatory regimes specific to the industries they regulate. The MHRA’s Software and AI as a Medical Device Roadmap details 11 work packages covering items such as regulatory guidance, secondary legislation, and pre and post-market obligations. Certain of these deliverables will be covered by the new medical device legislation which is currently being prepared in the United Kingdom.
Complex medicines currently being developed will require either new approaches or the adaptation of existing approaches to the evaluation of product quality through catalyzing the integration of science and technology in medicines development and control to facilitate the implementation of novel manufacturing technologies based on physical and material science. Modernization of good manufacturing practices would need to be critically considered to fully embrace emerging technology in the evaluation of product quality.
Practical implementation of the new regulatory framework provided by Regulation (EU) 2017/745 on medical devices (the “EU MDR”) and Regulation (EU) 2017/746 on in vitro diagnostic medical devices (“IVDR”) remains controversial. The new regulatory regimes overhaul the pre-existing framework under the Directives governing general medical devices, active implantable medical devices, and in vitro diagnostic medical devices (the “EU Device Directives”). However, the deadlines set out in the transitional arrangements of the EU MDR are now recognized by the EU legislature in the European Health Council and the European Parliament to be unrealistic, with the potential to cause significant harm to health systems and patient care in the EU Member States. On 6 January 2023, the European Commission issued a proposal that, if adopted, would significantly extend the deadlines of transitional provisions. For a detailed analysis of these proposed deadlines, please refer to our earlier alert. The existing medical device legislation in the United Kingdom, the Medical Devices Regulations 2002 (the “UK MDR”) was passed in order to give effect to the EU Device Directives, which preceded the EU MDR and which were originally drafted in the 1990s. Since the EU Device Directives and UK MDR took effect, the pace of technological advancement and the intensity of innovation in the medical technology sector has been significant. As mentioned above, this led to regulatory reform at the EU level in the form of the EU MDR and IVDR. In practice, this means that the regulatory framework applicable in the United Kingdom is based on the outdated EU Device Directives. In order to correct this, from September to November 2021, the MHRA launched a public consultation on proposals for reform (see our earlier alert for a discussion of the proposals), the government response to which was published on 26 June 2022 (see our earlier alert for a summary of the key points). Originally, the new framework was scheduled to coincide with the last date that EU-approved devices could be placed on the UK market. However, it has recently been decided that this will be delayed by 12 months, with the new regulations now planned to enter into force in July 2024.
There is an increasing need to engage external stakeholders, such as patient organizations and health care professionals, to assist in assessing the clinical relevance of outcome measurements. The regulatory scrutiny over the probity of such engagements will not be diminished. In an increasingly globalized market where diseases have no geographical borders, increased international cooperation and partnership amongst regulatory and enforcement authorities will continue to avoid duplication of efforts and to ensure alignment of regulatory approaches to promote the best use of limited resources.
The controversy surrounding pricing and reimbursement in determining market access to innovative medicines and technologies will continue to attract a great deal of debate. Significant pricing controls, including significant clawback payments, to contain healthcare costs have been increasingly applied in many European countries in order to respond to acute pressure on budgets. New national laws and/or policies are being considered or passed with the effect of tightening drug pricing and reimbursement rules. Some have already called for sustainable pricing policies to incentivize investment in innovations. In the United States, aside from the Inflation Reduction Act, which introduced price negotiation on some drugs, the Institute for Clinical and Economic Review reported that whilst many key elements of fair access were not able to be assessed, there is high concordance amongst major payer coverage policies in respect of fair access criteria related to cost-sharing, clinical eligibility, step therapy and provider restrictions.
Whilst the United Kingdom is a relatively small market, it's standing in global life sciences regulation remains influential. That said, the local regulatory and market access environment may need to be adapted in order to achieve the Government’s stated ambition of making the United Kingdom an attractive country to conduct clinical development and to launch new products. The local market access environment must be sufficiently flexible for new products to be adopted for use in the National Health System. The success of the newly created flagship initiative, the Innovative Licensing and Access Pathway, created to accelerate the time to market, is critical to the future of the UK life sciences ecosystem. In addition, Brexit continues to reverberate within London and Brussels. Apart from the current debate on the Northern Ireland Protocol, the most impactful legislative challenge would be the status of retained EU law in the United Kingdom. The UK Government’s stated policy is to capitalize on Brexit so that the rules and regulations best serve the UK national interest. In the context of the life sciences sector, the United Kingdom’s pharmaceutical regulatory regime is firmly rooted in EU law as well as applicable EU-derived soft law guidance. However, on 22 September 2022, the United Kingdom’s Department for Business, Energy & Industry Strategy published the Retained EU Law (Revocation and Reform) Bill 2022 (the “Bill”). The Bill seeks to provide a basis for amending or revoking over 2,400 well-established retained EU laws (“REUL”) that operate across 21 sectors of the UK economy, including the life sciences sector, by 31 December 2023. The Bill, if passed in its current form, will mean that the majority of REUL must either be reformed, adopted, revoked or left to expire on 1 January 2024, which would have significant ramifications for the life sciences industry and others. Over the past several years, life sciences companies have faced mounting pressure from many directions, including increasing regulatory requirements, nonstop technological advances, and intense pricing pressure. And the unprecedented events in recent years have only provided more reason to modernize compliance and elevate the value and partnerships within your companies and external stakeholders. To continue thriving and leading, life sciences companies must continue to meet the industry’s new challenges head-on. Now is the ideal time for the compliance function to evolve its focus from hindsight to foresight. In the 2021 regulatory outlook, the overarching theme was for life sciences companies to take a closer look at their compliance activities. Download the report to see how companies can make compliance an integral part of their overall business strategy. In the face of rapidly evolving regulatory and marketplace demands, compliance teams are under constant pressure to do more with less, requiring a fundamental shift that involves the use of technological accelerators. Once these new technologies are up and running, they can not only help drive efficiency and effectiveness, but also help improve a compliance organization’s ability to protect its business and deliver measurable value. Such transformative technologies include robotic process automation, natural language processing and generation, predictive analytics, and artificial intelligence and machine learning. Read our full report to learn how these technologies can be (and already have been) used to help modernize and enhance compliance monitoring procedures across the industry.
So, what should IP owners do about this? First, they have to engage at local level with the online marketplaces. This is time consuming, joining all the different platforms' IP owner programs, setting up identification verification systems and notice and takedown processes. Some international Notice Takedown companies can help with this, but rarely can they cover all these platforms due to language, identification and other reasons. Local platform engagement is therefore critical. Marketplaces need to feel more pressure from IP owners to improve their processes, transparency, vetting and cooperation. Secondly, better regulation is needed. Different countries use different ISP liability rules, so there is a lack of clarity when safe harbour arises in some countries. Indonesia's laws are a mess of 3 parallel regimes for example. EU FTAs require a full ISP liability regime, but only Vietnam and Singapore in SEA have these trade deals in place. ASEAN has started to look at the issue regionally but with slow progress. Apart from the laws, some enforcement is needed. Two options are available. IP owners must either apply for injunctions when, for example, despite repeated reports widespread and obvious counterfeit availability remains. Alternatively, authorities must pursue administrative remedies – for example over inappropriate vetting – where merchants supply false information, use multiple identities, and run schemes to avoid getting caught. Online marketplace merchant vetting is too weak worldwide. This means obtaining and making available identifiable information on merchants, just as you would have for a retail business. Far too many merchants hide behind false identities, poor documentary evidence, even fake profiles; and most marketplaces make that behaviour far too easy. Marketplace should turn this into a positive commercial benefit for consumers, that is, verified vendors get preferences to encourage good behaviour. Many organisations such as the ASEAN EU Business Council call for an ASEAN-wide Memorandum of Understanding on tackling counterfeit and pirated products. Such a MOU would build on those in Thailand and Philippines to provide a code of practice among online marketplaces, brand owners, and governments. Customs activity needs to improve generally and in certain specific ways. At present, most countries in SE Asia, with the exception of Thailand, do almost nothing to stop huge volumes of counterfeits entering their markets. First, an effective customs procedures in all major markets is needed. Secondly, there need to be specific improvements for small parcels. The ASEAN Low Value Shipment Programme has been suggested as one way to do this, if it could be improved with simpler procedures to stop illicit shipments. China needs to make specific improvements to raise the % of seizure rate for recorded brands as a way to improve its measures of success. A vital end goal is for online marketplaces to take on more of the burden of proactive monitoring and removal.
Ali Express, Alibaba's international B2C sales platform, is recognised as having extensive IP protection tools, but the sheer volume of products listed allows traders (mainly drop shippers), to advertise and ship huge volumes of counterfeit goods around the world. Despite Alibaba's efforts, lax merchant vetting and weak penalties do not act as a deterrent. DHgate is a B2B cross-border e-commerce platform where bulk counterfeit orders are easy to make. DHGate claims to be making improvements but IP owners cite weak seller vetting, ineffective proactive anti-counterfeit processes, and lack of transparency as leading to high volumes of counterfeit sales. Pinduoduo, a "social commerce" app, is China's second largest e-commerce platform. IP owners complain of takedowns delays and weak takedown transparency increasingly burdensome and expensive processes, weaker seller vetting, and less cooperation through their Brand Care program as well as little follow up with offline enforcement. Monitoring the platform is difficult for overseas rightsholders as it is only available on mobile and in Chinese language. Alibaba's Taobao, the huge domestic China B2C platform, may have Alibaba's best anti-counterfeiting features and processes but is still a major source of counterfeit goods. Recent more stringent rules for takedowns have blocked IP owners' efforts, yet counterfeits are as pervasive as ever. We Chat, (in China Weixin) the instant messaging app, is increasingly a method of selling counterfeit goods, through links to images and purchase information, through livestreams sales, its Moments, Channels feature, and other communication tools. This allows large volumes of counterfeit goods to be sold on the profile pages of Official Accounts, via Mini Programs and through private direct messaging. We Chat provides integrated features such as catalogues, shopping cart, and payment processing. IP owners complain that vetting for Official Accounts and Mini Programs is insufficient, and documentary requirements not implemented. The inability of IP owners to search for IP violations, low penalties and lack of support for offline cases is also cited.
Bukalapak in Indonesia is a platform with large volumes of fake branded products, often openly labelled as "replica". Bukalapak has improved takedowns and IP owner cooperation, but suffers from weak merchant vetting, merchants being allowed to use multiple accounts or just re-register after being caught, no proactive anti-counterfeiting processes, a slow non-transparent and inefficient notice-and-takedown and limited follow up actions against infringers. Tokopedia is Indonesia's biggest e-commerce marketplaces and suffers from freely available counterfeit goods. Recent improvements to the notice-and-takedown system and better IP owner engagement helps, but the problems are still substantial. Takedowns are too slow and insufficiently transparent; merchant vetting is weak and penalties are too low to deter.
Shopee, a leading Southeast Asian (SE Asia) e-commerce platform, is headquartered in Singapore and NYSE listed but operates semi-independent country sites across the world. In SE Asia, many Shopee sites have poor, slow notice and takedown procedures. Merchant vetting is weak, repeat sellers are common and penalties are non-deterrent. Poor cooperation with Shopee for IP owners on their own investigations into infringing Shopee merchants is a major challenge in some of their country sites.
Tokopedia in Indonesia claims to be developing proactive systems for this. Alibaba trumpets its AI based tools that they say blocks large number of adverts. But this is still not enough given the millions of counterfeit goods available. Real deterrence from online marketplace penalties is a key missing link. Exclusion of merchants altogether is very rare. Offline criminal prosecutions at the marketplaces' initiative or with their cooperation needs to increase significantly (at present it is so rare as to not to be meaningful at all). The balance always falls in favour of letting the merchant continue to trade and never in favour of stopping counterfeiters. The commercial challenge is that IP owners are fighting a battle with online marketplaces for resources. Marketplaces want to allow merchants to trade unfettered in any goods (despite what they say). IP owners need them to divert some of their huge billions in revenues into meaningful monitoring, vetting, ejection, investigation, and enforcement programs. This is a problem of scale. Hundreds of thousands or maybe even millions of counterfeits goods are sold daily on e-commerce platforms in Asia. Stopping 1% of them would mean tens of thousands of cases a day by all the major platforms. Most are not even doing that in a year. Some Shopee sites can take weeks to block just a few adverts! A lot more work by the IP industry is required. Industry lobbying (e.g., by INTA, local Chambers and business groups), publishing reports like those of the EU and USTR, and IP holder engagement with platforms and governments will determine how fast this problem is addressed. Recent policy changes by Alibaba and other platforms in China put more burden on rightsholders to 'prove' goods sold by sellers are counterfeit. This is partly due to concerns from the platforms about getting sued by their sellers. They may request, for example, where the infringement is not obvious on the page, notarized test purchases to prove the seller actually delivers counterfeit goods. Bad faith counterclaims and fake authorisation documents from sellers are common – and China's recent e-commerce law leaves rightsholders with no choice but to either allow the listing to be reinstated or engage in litigation or administrative action. Such requirements are simply not feasible for many rightsholders to complete for every single infringement they find on the platforms. Copyright infringement takedown claims are now less effective in China since the takedown only affects the specific copyright asset used and the seller can continue to sell others. The Alibaba, Three-Strike, and other penalty points systems in place by other platforms are ineffective, with sellers finding various workarounds such as voluntarily taking down their own listings and relisting to avoid penalties. The requirement on Alibaba platforms for Three Strikes to be within a fixed time period and a yearly reset on penalty points means that sellers are rarely banned. When they are, they can usually just set up a new account under a different ID or change platforms. It is instructive to see that the biggest platforms outside China are in Indonesia. That is, after all, the largest consumer market in the SE Asian region by a large margin. The USTR does say other countries have online counterfeit goods markets of concern and may have poor e-commerce marketplace regulation. It's not all bad news. For example, the report cites the Philippines MOU with brand owners and e-commerce platforms to improve notice-and-takedown procedure and with a feedback mechanism to help coordinate actions against online counterfeiting. Another clear conclusion from the China/Indonesia prevalence is how Indonesia e-commerce traders are sourcing counterfeit goods from China (either bulk buying from places like DHGate, or small volumes from AliExpress) and importing them without any Customs interceptions through the large logistics infrastructure for sale around Indonesia. IP owners report in almost every case that the counterfeit goods found in Indonesia come from China. Given Indonesia's e-commerce market is now many tens of billions of dollars, it wouldn't be a surprise if the e-commerce counterfeit market was now over a billion dollars in value in that country. A lot of merchants are making a lot of money from crime, while the authorities take almost no enforcement action. A clear new e-commerce infringement trend is on the rise in social commerce includes social media platforms with integrated marketplaces (e.g., Facebook is not identified in the report but is a source of fake goods in the Philippines for example) is hidden link sales, with which counterfeit sellers advertise a product on social media or image hosting platforms, files with photos links and purchase information.
China's platforms remain the largest and most serious IP problems for IP owners. That's no surprise given the high proportion of the worlds' counterfeits made in China (usually estimated at over 75% of counterfeit goods globally). E-commerce has made sourcing counterfeit goods so much easier whether direct to consumer through Ali Express, or in bulk through Ali Express and DH Gate. The logistics and supply chain delivery systems the platforms have funded means Customs have very little chance of stopping these goods as they ship worldwide. Ali express' new logistics system launched in 2021 offers deliveries within 10 days through smart warehouses in China for sellers to pre-stock their products, as well as overseas warehouses to improve delivery times. Rising shipping costs and congestion when shipping by sea, as well as a customer demand for faster shipping times, has led to an increase in the number of deliveries made in smaller quantities by air, especially for smaller lighter items like clothing, luxury goods, jewellery and small electronics which are frequently counterfeited. Ali express alone has 80 chartered flights per week between China and Europe. This causes difficulties for Customs inspection efforts, since there are many small packages more frequently sent with many different types of goods to inspect and check on the database – in reality, only a fraction of shipments are flagged for IPR infringement risk and checked by Customs. IP holder demand for more customs activity is at an unprecedented level according to China Customs data; the number of rights (mostly trade marks) recorded with China Customs has risen to 72,328 recorded IP rights – increasing at 16% p.a.
The enforcement of intellectual property (IP) rights varies widely from country to country. This article will examine the cultural context enveloping the enforcement of IP rights in the Middle East and posit some ideas for companies looking to understand or protect their IP in this region. While not an exhaustive list, several impacts on the legal systems of the Middle East in relation to the protection of IP will be explored, namely: (1) collectivism and individualism; (2) economic development, history, and age of population; (3) shari’a, or Islamic, law; and (4) corruption and culture. While these topics are approached from an academic perspective, as many legal practitioners know, it is of vital importance to have practical implementation and a local on-the-ground network in the Middle East consisting of lawyers, investigators, and others who might aid in intelligence gathering or preparing other information for IP enforcement cases.
Collectivism and individualism are terms that are used to describe the worldview of an individual or society. Much research has been done in this space by a variety of disciplines. This section examines some of this research that pertains specifically to the Middle East region, applies it to the understanding of trade and IP rights, and argues that it is important to understand the worldview of the society in which a company is seeking to do business and enforce its IP rights. Empirical research conducted on the Greater Middle East and the impact of collectivism and individualism on management shows how complex these issues are across countries in the region.2 In a study by Ralston et al., collectivism (the idea that the group is more important and binds the individual),3 individualism (which focuses on the individual and personal decisions and actions),4 and universalism (which focuses on the well-being of everyone)5 were examined to show whether historical influences, economic development level, and political systems were predictors of these values of collectivism, individualism, or universalism.6 This study is important because it seeks to show why countries in the Middle East and individuals within these countries have certain perceptions or make certain decisions and whether their decisions can be predicted—all of which could have an impact on a company’s legal strategy within a given country in regard to its IP protection. Some have argued that the cultural factor of collectivism hampers IP protection in Arab countries.7 This can certainly be the case, particularly if a company is seeking to protect its IP in the same way it might do in its home country, expecting a similar process and similar results. However, there may be some other ways to approach IP protection, albeit not in the same manner that one might approach in a non-collectivist society. The Ralston et al. study found that collectivism is higher for Arab Islamic nations than non-Arab Islamic and more religiously diverse countries.8 This finding has an impact on what IP enforcement may look like in a given Middle Eastern country. A higher level of collectivism in a country may impact whether a government is willing to protect IP rights at all, but also whether individuals within the country feel that it is acceptable to steal IP since it may be better for the community in which they live (as opposed to an individual or an individual company).
Many argue that both economic development and the complex history of the Middle East region could have an impact on the worldview of the governments and population. This article notes that while economic development may influence elements of trade or governmental protection, it may not have an impact on the point of view of collectivism or individualism, which could have an impact on IP enforcement.
Economic development is often cited as a reason for different worldviews, particularly IP protection. Some have argued that the lack of economic development in the Middle East impacts IP protection.9 Additionally, studies conducted on other parts of the world show economic development to be a predictor of individualist or collectivist values; in the Middle East, however, it has not shown to be a predictor. In another study by Hajikhameneh and Kimbrough on individualism and collectivism within the context of trading partners, individualism and collectivism were studied to see if they had an impact on whether an individual would seek a more lucrative trading partnership with a stranger (for example, an outside merchant). Although much has been researched on the economic impact of collectivism or individualism, most of that research has focused on personal exchange; whereas Hajikhameneh and Kimbrough’s study looked at “impersonal exchange, characterized by one-off interactions with strangers and mediated by formal institutions, often involv[ing] severing (or weakening) ties to local trade partners in order to form new, potentially more lucrative, ties with an unknown party.” This is important to examine because the concept of being interested in trading with a stranger might also be extended to protecting trade through IP enforcement and how an individual would perceive this being economically beneficial or not based on his or her collectivist or individualist worldview in mind. The findings of this study note that individualists are more willing to trade with the theoretical outside merchants than collectivists; specifically, collectivists are concerned with the cost to local merchants when considering trading with an external merchant, and their perception of the outside merchant is impacted by behavior of others in the merchant group, since the collectivist focuses on group characteristics. As applied to IP protection, the behavior could be a predictor in areas in which a local businessperson would either seek to protect an outside company’s IP or be more concerned with whether a local company, which perhaps was counterfeiting that product, would lose business or income. The collectivist businessperson would be likely to seek to protect the counterfeiter in this case if there were no other intervening factors. Hajikhameneh and Kimbrough’s study additionally suggests that stronger formal enforcement could help mitigate the unwillingness to pursue enforcement outside of the traditional community route; it has not yet been finished, but preliminary research is showing that the collectivist would still choose informal enforcement over formal if given a choice. This reflects what many businesses and brand owners already practically know—for example, that tribal or family systems seem to be more powerful than the court systems, or that government officials may protect a group that is committing IP violations because they do not want to hurt the group economically. These behaviors and many more can be explained by the collectivist worldview. But, generally, this study can give us some insight into why and how trademark enforcement is executed or not executed in collectivist societies, including the Middle East.
Additionally, the history of a Middle Eastern country and its relation to colonizing countries (such as Great Britain or France), as well as the level of democratization, were found to be relatively impactful on whether a country is more collectivist or individualist. The Ralston et al. study found that historical social-cultural influences and democratization were a moderately strong predictor of individualist values,16 which could vary widely by country based on the history of colonization, impact of the colonizing countries’ influence on the legal system, and viewpoint of the population toward the former colonizers. Others have argued that “violating intellectual property rights could be seen as a means of revenge to balance the West’s conquest of Arab countries, commercially or otherwise.”17 Although there are few empirical studies to support this, this could be a viable sentiment in some locations. Because each country in the Middle East has a differing and complex history, they should be examined individually. At the end of the day, it is important for legal practitioners to understand the general historical overview of the country in which they are doing business and how that can impact the individual’s and society’s view of IP.
Finally, age was an important predictor of these values, with the younger population leaning more toward individualism, which is an interesting point given that approximately 65 percent of the populations of the Middle East are under age 30. This has the potential for a major worldview shift for the Middle East in their viewpoint on IP, meaning that a company’s approach to IP enforcement in the region, even if effective today, may have to undergo a rapid shift when these worldviews start to shift.
The main source of law in the Middle East is shari’a law, or Islamic law. Although many Middle Eastern countries have a combination of shari’a and other civil code systems, this is the predominant system and it does not specifically protect IP rights. However, it has been argued that shari’a law’s norms and concepts equivalent to other systems’ laws and rights do protect IP rights, while any barriers to IP protection are instead due to religious beliefs (not law), culture, and economic development. Some scholars have noted that most shari’a schools of jurisprudence recognize IP as pieces of property, which can be a useful argument but falls short in application to intangible property. Conversely, some scholars argue that the shari’a law system regards property as “communal and owned by Allah . . . , thus piracy is not considered stealing,” providing no protection for IP rights. One of the issues surrounding some perceived tension between shari’a law and enforcement of IP rights is the concept of compensation. From a classical shari’a law jurist perspective: A holder of intellectual property rights cannot be compensated beyond his initial investment. However, it seems logical and in line with modernist jurists to allow a holder of intellectual property the right to recover an amount that goes beyond his initial investment, as long as that amount is fair and balanced with the time and effort exerted. The holder of intellectual property should be allowed a reasonable return on his investment. While the modern interpretation seems to make sense, interpreting what is fair and balanced against the time and effort exerted becomes a complicated decision, particularly around ideas of trademark and when a company, rather than an individual, owns the IP rights. Any concept of interest, however, would not be valid given that generally “[c]ompensation for loss of income includes opportunity costs and would equal interest, which is prohibited under [shari’a].” Despite not having articulated IP law and doctrine under shari’a, governments in the Middle East have enacted IP laws in conformity with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) but, in most cases, the laws are “relaxed and tend not to be enforced” or are deemed ineffective. Interestingly, and in line with the above-referenced theories on collectivist and individualist cultures, trademark counterfeiting and other IP violations of Western or American products seem to be widespread in the Middle East, but local “intellectual property” is often not duplicated illegally.30 This demonstrates the tendency to provide protection for the local economy and known businesspeople and none for outsiders to the culture. Intriguingly, one researcher notes that while the West expected “an expansion of their intellectual property rights into the [Middle Eastern] states, this expansion did not occur because the [Middle Eastern] states failed to enforce the intellectual property rights of foreigners. And contrary to the desires of the developed nations, the [Middle Eastern] states actually benefitted from the newly enacted laws”31 and their lack of enforcement. The reasons why this occurred and still occurs are vital for a company looking to protect its IP rights and do business in the Middle East. A successful venture may not just include registering, recording, and traditional enforcement of trademarks in order to launch a product in a Middle Eastern country, but instead must include working with the local population and the local government in a way that would not only not be in conflict with the local interpretation of shari’a but also involve local ownership.
“Conventional [Western-style] approaches to fighting corruption, such as legal and administrative reforms that promote democratization, transparency, and the rule of law” may not work for legal professionals or corporations trying to do business in the Middle East, as those approaches “risk missing some key factors that contribute to popular perceptions of corruption.” In Transparency International’s Corruptions Perceptions Index of 2018, the Middle East and North Africa continue to have systemic corruption, which weakens their institutions. While the United Arab Emirates leads the region with a score of 70 (being less corrupt than others), Syria, Yemen, and Libya are in the bottom five of the index. Areas such as Dubai where there are active free trade zones may be active global hubs for money laundering and use a largely unregulated system called hawala, a type of banking practice in the Middle East, which is often cited as a mechanism for the flow of criminal financing but can be much more complex if understood in its cultural context. Hawala, which comes from Islamic traditions, is essentially based on a trust system that allows a party to transfer or remit money quickly and cheaply without a bank.37 This system was created as a trust system in a collectivist society, and as mentioned above, collectivists tend to lean more toward informal enforcement mechanisms for trade than to formal ones from the government. Thus, the people engaging in this activity may perceive “illicit” or “criminal” behavior differently from global regulators, especially in contexts where many activities are deemed criminal by the Western world. Hawala is not the panacea in the fight against organized crime; criminal money flows through the hands of hawaladars just as through any other conventional financial mechanism. Another Middle Eastern concept, wasta (which often manifests as interceding on behalf of an individual to obtain some benefit from a third party), like other non-Western legal concepts in the Middle East, has its roots in tribal chieftainship predating the modern nation-states. The foundation of wasta is based on personal relations, and “organizational life in the Middle East relies heavily on personal relations, in both the private and the public sector.” Understanding this cultural element and how it plays into the Middle Eastern legal system can have an impact on how multinational corporations approach their legal cases. Additionally, it is of vital importance to have a local on-the-ground network in the Middle East.
Understanding the legal structure, corruption, and cultural remnants of the past and present, and ideas why IP theft may be seen as a benefit, are all important when looking to address trademark counterfeiting in the Middle East. While these issues are complex and vary between country, and even within a country, a greater understanding in how and why they occur can perhaps lead to a better proactive legal and business strategy in protecting IP in the region.