Opinions and Legal Insights

IP Protection in Emerging Markets: The Extreme Basics

11Doing business with China

Virtually every has intellectual property requiring protection. Let’s first get clear what we mean by “intellectual property.” IP is not patents, trademarks, copyrights, etc. These are simply tools for protecting intellectual property.

So what is intellectual property?

  • A better term might be intangible property or intangible assets. This includes everything about your business that has value that cannot be reduced to a physical asset or to a monetary cash flow, with the exception of things like Goodwill or reputation.
  • For creative industries, IP can include virtually all of the assets of the business:
    • Music
    • Film
    • Books and magazines
    • Research and analysis
    • Design of any kind: interior design, clothing design, product design
    • Architecture and engineering drawings
    • Software of all kinds: industrial, retail, video games, phone “apps”
  • For traditional industrial firms, it includes:
    • Inventions
    • Formulas
    • Industrial processes and know how
  • For all businesses, it includes:
    • Brand and image
    • Business planning and corporate strategy
    • Pricing plans

IP is a substantial portion of the value of most modern businesses. For many businesses, such as those in creative services, it forms the core value of the company. Consider some of the stars of the modern business world: Apple, BMW, Microsoft, IBM, Boeing, Siemens, Nestle, General Electric, Dow Chemical, Starbucks, Amazon, and SAP. Huge portions of their value is in their intangible assets.

However, even for hard asset, resource-based companies, IP is still a major component in company value. Take something like the big oil companies. A major portion of their value lies in their pricing plans, their internal data on their resources, their techniques of extraction and transport, their future exploitation plans and the like.

Active and careful cultivation of intangible assets is mandatory to survive in the modern business world, particularly if those that conduct business internationally. There is much more to protecting intangible assets than the traditional IP tools.

The traditional intellectual property tools are:

  1. Patents
  2. Trademarks
  3. Copyrights
  4. Trade Secrets

Though these tools are essential in the IP world, there is a far wider set of techniques that can be used, including the following:

  1. Secrecy and refusal to disclose
  2. Licensing and trade secrecy agreements
  3. Trade secrecy and related agreements with employees and joint venture partners
  4. Physical techniques such as encryption and related data protection techniques

Many companies believe protecting their IP involves just securing their IP rights in North America and Europe. This is a mistake.

The key concept is that IP protection is local. Since all IP protection is based on local law and practice, you must adopt an effective and realistic protection program for the country in which you are operating. If you are in Vietnam or Mexico (or anywhere else), you must consider the situations in Vietnam or Mexico. Many countries are dangerous when it comes to protecting intangible assets, but that does not mean you can afford to throw up your hands and do nothing. Your IP risks can and must be managed. Your goal in every country should be to realistically assess the risks and take practical steps for protection.

To protect your IP in Vietnam or Mexico, you must make use of the Vietnamese and Mexican systems. You must act within Mexico and/or Vietnam for creating rights, enforcing rights, and monetarily exploiting rights. You must deal with Mexico and/or Vietnam the way they are, rather than hoping to rely on a perhaps more perfect system that simply does not exist. This is true of pretty much every country.

IP protection can be divided into the following four categories in terms of the effectiveness of the system of legal protection:

  • Trademark protections generally work well for protecting against large scale infringement in emerging markets, though small time infringement is often difficult to prevent.
  • Contractual measures (such as trade secrecy agreements, non-disclosure agreements, licensing agreements, and technology transfer agreements) typically work extremely well if — and only if — properly implemented.
  • Software copyrights and copyrights in creative works in emerging market countries typically does not has not worked well at protecting creative works in the retail sector. Movie, film, and music products tend to be cheaply available in emerging market countries in pirated form. On the other hand, copyrights tend to be fairly effective against specific violations of copyright in business settings. However, effective protection of copyright requires careful attention to each country’s registration regulations. In most emerging market countries, it does little good to rely on the general right of copyright for creative works.

Businesses must focus on the realistic risks within emerging market countries. These risks vary by country and on the type of intellectual property. The general situation is as follows.

1. If your IP has value, and if it can be copied with minimal effort, it will be copied and you should prepare for this. The following assets are particularly susceptible to copying:

  • Trademarks, trade names, and logos;
  • Exterior product design (design patent and copyright);
  • Books, photos, reports, drawings/plans — any other medium that can be photocopied and reproduced;
  • Any material that can be copied in digital form: music, film, CAD drawings.

2. Counterfeiters usually do not put much effort into independent copying of inventions and other technical IP that cannot be copied easily. You do not want to make it easy for the companies with which you work to be able. to acquire your technology, trade secrets, and know-how. IP theft occurs in virtually any area where companies work with foreign businesses, including the following:

  • Technology licensing projects;
  • Joint venture manufacturing or services;
  • OEM manufacturing;
  • Product design and development agreements;
  • Employee training; and
  • Distribution and sales agreements.

Much technology, know-how, and trade secrets are lost to companies and employees trained by the foreign owner of the intangible asset. This loss usually could have been prevented with proper agreements and business practices.

No protection will be perfect and companies often discover their preferred and customary method of technology protection is not available to them in particular emerging market countries:

  • Patent protection is often not available because many countries require patents be filed within a year or two of the patent having been filed elsewhere.
  • Copyright protection is often not effective for easily copied digital media.

Faced with this, many foreign companies simply give up and operate in emerging market countries with no protection at all. This virtually always leads to disaster. The correct approach is to work to find an alternative form of protection. This can be achieved in many ways, including the following:

  • Licensing agreements;
  • Secrecy and non-use agreements;
  • Technical controls, such as encryption; and
  • Direct manufacture rather than OEM or joint venture.

Many foreign businesses think emerging market countries have no “real” IP laws and companies in emerging market countries do not file lawsuits. Not true. Local companies are often quite adept at using their home-country IP system to their own benefit, by employing the following tactics:

  • If a foreign company fails to register its intellectual property in their country, they will register the IP in their own name. In this way, the local company can cut the foreign company out of the market. This happens regularly with trademarks, patents, and commercial copyrights.
  • Many companies mistakenly believe the emerging market country in which they do business does not have a developed IP protection system and so they do not adequately investigate to ensure they are not infringing the rights of others in their operations in that emerging market country. When the company hires a contractor to perform services or engages in cooperative design or manufacturing operations with a local company it often learns later that it has infringed on the IP of another. The resulting damages can be significant. For how this can play out on the trademark front, check out this article regarding Tesla.

Though the quality of IP protection is all over the map, there is IP protection in emerging market countries and if you are going to be doing business in or with such a country, it behooves you to figure out how best to protect your intangible assets/IP before you do so.