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Sourcing >> Intellectual property (IP)
protection when importing from China

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Intellectual property (IP) protection when importing from
China

Posted: September 30, 2016

By Fredrik Grönkvist

Intellectual
Property (IP) theft is a main concern for Startups and Small businesses
importing from China, and other Asian countries.

We
all know that manufacturers in the region have a reputation. However, what’s the
real chance that your supplier will flood your market and make millions – using
your IP?

In
this article, we explain what every Startup and Small business must know about
managing Intellectual Property risks when importing from Asia.

Keep
reading, and learn more about how you can protect your IP and why most importers
overestimate the risk of IP theft. You will also learn why the real risk might
not be a supplier stealing your IP – but you (unknowingly) infringing on the IP
of another company.

What
is Intellectual Property?

Intellectual
Property provides protection to the intangible creations of a person or company.
This may, for example, include patents, trademarks or business
secrets.

It
also includes the article you’re now reading. I wrote it. Hence, I hold the
copyright.

So,
what are we referring to in the context of ‘importing products from
Asia’?

Essentially,
anything that is included in your product specification:

• Product design
drawings

• Logos and brand
names

• Functional
descriptions

• Circuit
drawings

• Packaging
design

Sharing
and protecting your IP with Chinese suppliers

Sharing
your product specifications with your suppliers is not a matter of choice. For
obvious reasons, a supplier cannot calculate a price – much less produce a product sample – if they don’t have
your product information.

Below
follows an introduction to 3 common methods for Intellectual Property
protection:

1.
Sign a Non-Disclosure Agreements (NDA) with your suppliers before sharing your
Intellectual Property

An
NDA is a confidentiality agreement that (depending on
how it’s outlined) ‘prohibits’ the supplier from manufacturing replicas of your
product, using your trademark and/or sharing your product information with other
buyers.

A
supplier can’t quote a price, and much less make a prototype, before they have
access to your product specification.

Hence,
the NDA must be signed by the supplier before you share any product
information.

Assuming
you are sourcing manufacturers of a certain product, and is still in a price
research phase, that means you need to get a lot of NDAs signed before you can even get a quote.

If
you are a Startup or Small business, you might need to work hard to convince you
supplier to sign an NDA, only for the chance of providing you with a
quotation.

In
short, requiring all suppliers to sign NDAs can greatly slow down the process
and make a few of them drop out.

That
is, of course, much less of a problem if you are a funded tech company – but
this article is written for the up and coming Amazon seller – not Tim
Cook.

But
that’s not the only problem you’ll face.

At
best, the NDA will make the supplier think twice about using your designs or
brands. If they really want to replicate your product and/or brand, they
can.

First,
they know you don’t have the financial muscles and time to pursue them in
court.

Second,
they can sidestep by the NDA by having your goods manufactured by another
company. One that is not covered by the signed NDA.

Thus,
you must first prove that they leaked your IP… and collect compensation on top
of that.

Again…
this article is not written for MNCs with an army of lawyers..

So,
is it worth it to sign an NDA?

It
depends, as always.

If
you are a Tech startup with sensitive IP, then yes.

If
you are a new Wristwatch or Private Label brand.. Then not so much. But then
again, the NDA can actually help in the sense that it makes the supplier think
twice about stealing your IP, if a clear penalty (an amount in dollars) is
specified.

2.
Design Patent and Trademark Registration

The
NDA is appealing, because it appears to be an easy and cheap solution to a
complex problem. As explained, it is neither.

There
are, however, remedies that are more efficient. And, costly.

By
protecting your IP in your target markets, for example the United States or the
European Union, you solve the main problem: The risk of your supplier using your
IP to compete with you on your home turf.

Trademark
registration is the most basic form of IP protection. This prohibits other
companies from using your brand name – in the market where it’s registered. For
a more complete protection, you must therefore register your trademark in all
major markets.

This
may also include China, if only for the sake of preventing trademark squatters.

If
your product has a unique function or design, you may also apply for a design or
functional patent. This must, again, be done in all major markets.

Notice
that a patent application is far more costly and time consuming than a trademark
application.

3.
Split Up Assembly Among Several Manufacturers

A
century ago, when the British developed the world’s first military tanks the
workers were mislead to believe they manufactured water tanks.

While
you may not need the MI6 on your side to protect your IP, you are at least
making it harder for your suppliers to steal your IP if you contract components
and sub-assemblies to different factories.

These
components may then be assembled by another third party that you are more
willing to trust.

Startups
tend to overestimate the risk (and negative impact) of IP theft in
China

The
honest truth is that most importers I’ve spoken are far too concerned with
Intellectual Property theft than they need to be.

Yes,
we all know that Chinese suppliers have a reputation… but they care much less
for your new T-shirt brand or Private label
product than you might think.

In
fact, I wouldn’t even put IP theft in the ‘top 10’ of risks you are facing when
importing from China. Well, at least not for our audience.

Product
safety, quality issues, payment frauds and transportation damages. These are the things
that should keep you sleepless at night.

Just
for the sake of it. Let’s take this one step further. So what if a replica of
your product ends up on a street market in Shenzhen? Would that really hurt your
bottom line?

Your
private label product may infringe the IP of another company

This
is one thing you might want to worry about.

What
if the product you are importing is the Intellectual Property (in full, in part)
of another company? Say, another company in the US or Europe.

The
importer is legally responsible the imported products. Hence, you may be sued
for IP infringement – even if you never did so knowingly.

We
often get asked whether there’s a simple method to determine whether a Private
label product, or certain technology, is the IP of another company.

Unfortunately,
there is no quick fix to this problem. A while back, we asked that question to
Rachel Greer of Cascadia Solutions. This is what she had to say about this
issue:

Intellectual
property is another issue that especially Private labellers must deal with. How
do you go about to avoid selling a patented product on Amazon?

Typically,
we recommend checking if the product you’re trying to sell is the only version
of that product on the website, and if so, it’s probably
patented.

As
an example, there’s a car seat that uses heavy duty suction cups to hang in a
window. The suction cups are patented, and so no one else can copy that exact
design – only Amazon and the original seller are listing that product for
sale.

Sometimes
you can also see when something is truly innovative that it is likely patented.
There are many traditionally used products, or variations on the theme, that new
Amazon sellers can use to build their brands, it’s not necessary to copy someone
else’s brand or designs.

That
being said, patent infringement is quite hard to prove on Amazon, and typically
Amazon will require some sort of proof of successful legal proceeding. Where we
see sellers get into trouble far more often is trademark and copyright
infringement.

Sometimes,
they’re using someone else’s name brand in their product description (never use
the name Dr. Oz to promote your supplements!), or using someone else’s photo.
Always try to have unique offerings and photos.

We
also see a lot of our sellers targeted by nefarious sellers trying to take their
market share by copying or hijacking their listings. We support our clients by
doing test buys, reporting to Amazon, and filing detailed complaints of
anti-competitive behavior like fake reviews.

Click here to read the full interview with Rachel
Greer

Conclusion

Intellectual
Property is a major concern for companies importing from China, and other Asian
countries.

However,
for most businesses, they’re far more serious risks to tackle.

That
said, I understand where this concern comes from – and at least, any self
respecting business owner should start out with a trademark
application.

However,
don’t let your worries slow you down. Most likely, you care far more for your
own brand than your Asian suppliers ever will.

Want
to learn more sourcing best practices?

Join the Global
Sources Summit that combines conferences and networking, co-located with our
Hong Kong trade shows. The event will be held October 17-19, 2016, and is geared
toward online and Amazon sellers.

Fredrik
Grönkvist is the co-founder of ScandinAsian Enterprise in Shanghai. Since 2010,
he and his team have helped hundreds of companies worldwide, primarily in the EU
and US, to develop and manufacture products in China. He is also the main
contributor on http://www.chinaimportal.com/,
a leading knowledge base for small- to medium-sized enterprises importing from
Asia. For further questions, you can contact him on www.chinaimportal.com/contact-us/.

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