Product and Brand Piracy in the B2B-Sector
Only protected features can be legally asserted
Business with fakes and plagiarisms is booming – also in the B2B-Sector. Globalization, the internet and increasing industrial automation allow the counterfeiters world-wide sales and multi-billion gains. The damages on behalf of original producers are immense, just as much as the serious risks for users. As the principle "market access vs. know-how-transfer" often applies in China, enterprises should carefully plan their China engagement and actively protect their innovations against IPR infringements.Christine Lacroix, General Manager of Plagiarius Consultancy GmbH, explains why the protection of property rights is essential.
Vacuum pump or pressure gauge, pneumatic cylinder, toothed belt axes or level measurement radar – with regard to technical and electronic products of all kinds, that are used in the B2B-sector, highest quality, precision and safety are essential. Plagiarisms – often characterized by inferior materials, poor manufacture and a lack of quality controls – that infiltrate the supply chain without being noticed may develop into an extremely expensive endeavor for the companies affected. The production flow may be disturbed and results distorted, partly with immense impact on product safety.
Product- and brand piracy and the often involved economic espionage have, without any doubt, developed into one of the most serious forms of white-collar criminality of the 21st century. Unfair counterfeits severely sap the innovative capacity of renowned brand manufacturers and threaten both their competitiveness and jobs – especially with SMEs. Companies invest a lot of money, know-how and experience to develop new products. They make huge (advance) capital investments and therefore depend on sufficient commercial success in order to be able to reinvest into future product development to secure progress and market shares. What once was a cottage industry has now developed into a highly sophisticated network of manufacture, logistics and distribution. Almost all sectors are affected by imitations nowadays: From classical consumer goods, household articles and sanitary products to pharmaceuticals, food and up to tools, automobile fittings and technically highly complex machines and equipment.
From workbench of Western countries to technology-leadership
Western companies should not underestimate the fact that China and other emerging countries have gathered a lot of know-how and experience over the past decades. According to the motto "learning by copying", these countries are unerringly developing from the so called ‘extended workbench of Western countries' towards nations with global players that are creating innovative high-quality products. Furthermore, Chinese enterprises increasingly buy technical know-how through acquisition of Western companies. All in all, the awareness of Chinese firms for the significance of Intellectual Property has risen substantially. Statistics show that they increasingly register and rigorously defend their IP rights – on a global basis. According to the WIPO (World Intellectual Property Organization), in 2012 China has been granted more international patents than the USA. China consistently regulates its objectives and develops towards (technology-) leadership
China-activities of western companies differ a lot and vary from mere representative and sales activities to manufacturing plants and up to the outplacement of Research & Development. For many enterprises an investment in China is no longer a question of "if" but rather of "when and how". Whatever sort of activity companies choose, China offers great prospects with regard to (still) comparably low wages and especially a huge and developing new sales market. Nevertheless, business with and in China bears considerable risks. Therefore, companies should thoroughly prepare their activities; a solid knowledge of one's rights and possibilities is vital.
Concerning the protection of intellectual property, it is essential for companies from the B2B-Sector to pursue a holistic strategy where legal, organizational and technical measures are well-matched. It is important that all relevant markets – production and sales countries – are integrated into this strategy. Also, companies affected by counterfeits should clearly signalize that they do not accept product imitations but rather fight them with all means.
The most urgent recommendation is the early registration of Intellectual Property Rights (IPR). If this is neglected, a Chinese competitor may register a renowned brand or a successful product in his name. He then has two choices: He may either ban the legitimate rights holder from using its brand or product on the Chinese market – or he sells the IP rights at a profitable price. Both cases are avoidable.
In the industrial goods sector technical products should not only be protected by patents, but additionally by utility models and design patents. The last mentioned IP rights are inexpensive and above all easier and quicker to enforce. As the imitators often act according to the principle "It's all on the surface" the design patent, which protects the appearance of a product, is generally a strong instrument against plagiarisms.
Basically, only features that are protected can be legally asserted. It is therefore crucial to invest in a professional translation of one's IP rights. Additionally, brand owners increasingly register their trade marks in Chinese letters. When it comes to choosing a place of jurisdiction it is highly recommended to stick to the large cities like Beijing or Shanghai. There, the judges have gathered know-how and experience dealing with IPR cases and numerous Western and also Chinese companies have successfully asserted their rights. As an alternative to legal proceedings – and also considering the cost-benefit-ratio – it has proven successful for many companies to work with the local authorities and take civil action.
Customs Authorities as a strategic partner
Registered IP rights are also a prerequisite in order to cooperate with customs in the form of seizures - a very effective instrument to already ward off counterfeits at the borders. In this context companies have to file an application so that customs is allowed to stop IPR-infringing products. It is also essential that enterprises provide customs with crucial information, such as distinctive features of the original product, suppliers and licensees, typical delivery times and –channels, examples of fakes etc. Customs is also in the position to support companies at trade fairs and to remove infringing products from a booth. In cooperation with public authorities a lot of factory raids have been carried out successfully and counterfeits and their production tools were seized.
A regular monitoring of markets and competitors is part of the business. In this context, B2B companies should continuously investigate wholesalers, the internet and trade fairs for plagiarisms and fakes. Companies with trustful relationships with suppliers, merchants and customers can also integrate these groups. Experience shows that often third parties deliver important hints concerning illegal imitations.
Companies that are currently planning China activities should intensely prepare their first steps and make themselves familiar with typical Chinese (business-) practices. Furthermore, on-site in China it is more than reasonable to work with experts, be it with regard to important business contacts, the choice of the right contract partners or the negotiation and wording of contracts. Again, professional translators are essential. The aim is to secure one's know-how through contracts and non-disclosure agreements.
Companies that have a manufacture plant in China should regularly control the fabrication and check, for instance, what happens with a production surplus. The same holds for digital know-how. A restriction of access privileges and the protection from external exploration are indispensable. The employees' know-how is the most precious capital of any company. Therefore, the managers should strive to retain their employees in the long term by attractive salaries and additional benefits.
Technical features and barriers
With regard to the problem of product liability, it is recommended to mark products with security features. Many companies combine visible (hologram, RFID, etc.) and invisible (color codes, genetic codes etc.) solutions. In case of unfounded product liability claims a firm is then able to prove that the defective product is a fake and not an original. So-called track-and-trace systems allow a complete documentation of the supply chain and to ward off the infiltration of plagiarisms. Moreover, there are numerous possibilities to construct processes and products in a way that the creation of fakes and plagiarisms will be difficult, if not impossible. These include for example technical solutions that may prevent Reverse Engineering or Embedded Security Systems for the protection of know-how in (machine-) software. Also, companies may employ authentication mechanisms that explicitly identify original spare parts. A further possibility is a time limit or a quantitative restriction of machine running time, in order to avoid unwelcome nocturnal overproduction. Detailed information about the aforementioned technical solutions can be found at the website of the VDMA (German Engineering Federation) http://pks.vdma.org.
Aktion Plagiarius highly recommends innovative companies to make use of the available possibilities and actively protect their products against counterfeits. Economic espionage and product piracy are no trivial offence.
About the author:
Christine Lacroix is the Managing Director of Plagiarius Consultancy GmbH. She is also responsible for the conception, installation and development of the Museum Plagiarius in Solingen, Germany. Since 1977, Aktion Plagiarius e.V. grants the negative award "Plagiarius" to those manufacturers and distributors whom the jury has found guilty of making or selling "the most flagrant" (design) imitations.
More information: www.plagiarius.com oror