Failure to Protect your Intellectual Property: A Fatal Mistake of International Business

PRA GLOBAL │WHITE PAPER OCTOBER 2020

Introduction

What are the implications of a failure to protect your intellectual property (IP) as it applies to International Business, and how do you protect yourself?

One of the most valuable underpinnings of a company is its IP. Trademarks, copyrights, and patents allow companies to differentiate, ensure authenticity, and maintain long-term revenue streams. Nevertheless, many companies venture into international business without understanding or protecting the value of their IP. When little or no effort is made to protect the IP, they may well find others stealing the IP rights or even worse, registering the IP as their own and the parent company losing rights to its own IP.

It does not have to be like this. There are numerous techniques, regulations, methods, and strategies that minimize, and if you do it correctly, effectively stop the wholesale theft of IP. There are also dedicated IP lawyers whose primary role is to support your thinking, to provide specific guidance regarding trademarks and branding, and to then use legal processes to file and register your IP so that it is, as far as is humanly possible, fully protected.

Even then, in the event that these actions fail, and you find products using your IP coming into the US market, there is one last opportunity to shut down the theft. The Import and Border Protection Department of the US Government can be advised of the illegal use of your IP, and they will then search and work to stop entry of the products into the US Market.

What are the primary consequences of not protecting your Intellectual Property in the international marketplace?
  • Foreign competition resulting in degraded value of your business
  • Knock-off competitive products that create channel conflict, reduce sales, damage brand recognition, and result in long-term reputation issues
  • The loss of your IP such that you are limited or stopped from selling products that you created
  • Law suites challenging you to the rights to your IP that are costly, distracting and legally damaging
Chery QQ vs Chevy Spark

One obvious failure to anticipate IP theft, although a 2005 example, is the Chery QQ car versus the GM Spark.  GM bought the Daewoo Matiz program and put it into production for the Chinese market as the Chevy Spark. Chery reverse engineered the car and sold a virtually exact copy as the Cherry QQ. It was so exact that a door from a GM Spark fitted perfectly to a Chery QQ.

Ultimately, Chery prevailed as they filed the IP for the car in China before GM filed, thereby establishing precedence as far as Chinese IP law was concerned. The lesson is to fully protect your IP at all times. Even blatant IP theft can be vulnerable to legal precedents.

Creating a Competitor

A second example is a Company that entered the Chinese Market without any real due diligence and aligned itself to a supplier of products using similar materials and manufacturing processes but in a totally different market sector. In a spirit of collaboration, the Company provided manufacturing drawings and test criteria to allow products to be manufactured and sourced for its own use in the Chinese Market. Following one successful local sale the Client then provided a much more complete package that divulged the total system capability.

Within months the Client became concerned when communications with the supplier became distant and eventually ceased. Soon they found out that their supplier was marketing and selling copies of the systems throughout the local marketplace at prices that destroyed their market. They now have a competitor that has low-price locked them out of a huge market.

How to Protect against IP Theft

The process of IP protections starts with a detailed understanding the market, the competition, and the local culture to allow you to determine the real threat. A meeting with an IP Lawyer may at this stage be appropriate but not always necessary. If there is a real threat, involve a lawyer. Discuss the protection of your brand, your IP, and your patents. However, it is ultimately your responsibility to establish and maintain your IP protection. The steps below can help you manage this process internationally.

  • Step 1:

    Ensure that the appropriate filings and registrations are made in the applicable country and engage a local lawyer to support the whole process.

  • Step 2:

    Set up internal review processes to evaluate monthly your competition:

    • What are they advertising and selling?
    • What are they claiming in the local press and on websites?
    • What are they talking about at tradeshows and are they actively trying to hire key employees from your company?
  • Step 3:

    If you consider the threat manageable, incorporate your own protection systems. If you have an assembly or complete system that you are planning to produce deliberately, design the whole system so that you can break up the final product into discrete stand-alone sub-assemblies.

  • Step 4:

    Have your products manufactured, at a minimum, in different parts of the country by different manufacturers; different countries is even better.

  • Step 5:

    Do not deliver more manufacturing data than absolutely necessary for the quality production of that sub-assembly, and have the supplier ship the parts to a location that cannot be identified as the final assembly location.

  • Step 6:

    Retain internal control over the essential heart of the system, for example, the chemical process or catalyzing chemistry that results in the finished product or the controls and electronics that link all the systems together.

  • Step 7:

    If the product is coming into the US market, engage the US Customs and Border Protection (CBP) and alert them so that they can stop, impound, and prosecute the company.

  • Step 8:

    If you have followed all of these steps and still suspect IP problems, then you need to make one of two fundamental decisions: fight it hard through the legal system or get out of the market.

Conclusion

The rights to and protection of IP are very clearly defined in law in most of the countries of interest to US businesses. If you engage professional support and are prepared to do the upfront research and planning, your IP can be significantly protected. Not all nations honor or protect the IP of others. It is your duty and responsibility to protect your own IP.