Johannesburg — SOME of the most creative and productive companies in the world own hardly any physical assets, so I would be the last to rubbish the value of intellectual capital.

And I have no problem with legal protection being given to the owners of nontangible assets to prevent wholesale copying of other people's original ideas.

It makes no sense to allow local companies to override international patents on medicines, for example, since that would remove any incentive for multinational pharmaceutical groups to invest in research and development. Developing countries need to be particularly careful in this regard, as there are often short-term gains to be had by refusing to honour patents over products that have the potential to save more lives if they were less expensive. In the long term, denying privately funded companies the right to make a reasonable return on their investment in intellectual property results in the capital being diverted , leaving the poor in particular worse off.

There is a limit to the protection that should be afforded to knowledge and ideas, though, and that is the point where ideas have been around so long that they can be considered common property, or they are improved upon by others, or enough time has elapsed for the originator to have covered his costs and turned a reasonable profit.

The US, in particular, tends to take copyright and patent protection too far, either granting exclusivity to ideas that are not really new or original, allowing right-holders to rake in the profits for too long, or using protection as a form of trade barrier, blocking market entry for potential competitors whose presence might force prices down.

A civil case being heard in the Cape High Court epitomises the US approach. Mr Video, the local rental franchise operation, is being sued by US-based film producers Universal City Studios for alleged copyright infringement. In a nutshell, the complaint is that Mr Video has been buying DVDs in the US at a fraction of their cost in SA, and distributing them to franchisees as rental stock.

That may seem fair enough to you and me, but Universal has a cozy arrangement designed to maximise profits, and it is determined to prevent it being undermined. The company's practice is to release its films on the cinema circuits of certain more lucrative markets before others. To prevent such DVDs finding their way here before it is convenient for Universal, they are created in a different format, which means they can generally not be played on equipment sold in SA. But Mr Video has found a way around this -- franchisees give clients instructions on how to unlock their DVD players so they can play the imported DVDs.

Universal wants the court to interdict Mr Video from importing its DVDs for this purpose, claiming the practice is damaging its business by reducing the profits that will be made when the films are eventually officially released in SA.

I'm with Mr Video on this one. On principle, it seems wrong that a foreign company should be allowed to hold SA to ransom in this way. It wouldn't be worth Mr Video's while to go to the effort of importing DVDs if Universal or its local agents were not charging substantially more for the same product in SA than in the US. And the fact that Universal has chosen to delay the distribution of its product in some countries is surely its problem, not ours. If that is giving opportunists such as Mr Video an arbitrage opportunity, then the remedy is for Universal to change its distribution practices, not demand that a South African court intervene to the detriment of its own consumers and businesses.

Apart from its immorality, Universal's approach to markets such as SA is in any event doomed to failure, just as the US-dominated music industry is failing to resist the effects of technological progress by playing hardball with users of internet music-sharing sites.

What both industries need is a new model for their businesses that makes use of sales volumes to generate profits, rather than seeking to protect artificially created monopolies and setting prices as high as they think the market can bear.

Marrs is Cape editor.