As the economy becomes increasingly global, protecting your company’s intellectual property from theft is becoming increasingly important.
Small-business owners often think it’s only the Big Boys who have to worry about these issues. But IP theft can do more damage to a small business than to a large one, because the Little Guys typically lack the resources required to chase down the thieves and extract fair compensation in court.
Take, for example, what happened to Mac-Tech. The Milwaukee-based company makes highly specialized machine tools for niche markets. Mac-Tech’s management was distressed to learn that a competitor in Europe had swiped its design and begun selling virtually the same product without paying a licensing fee. After considering his options, Joel Wittenbraker, president of Mactech decided that suing in a foreign jurisdiction to make up for the estimated $15,000 loss simply didn’t make financial sense.
Experiences like Mac-Tech’s are a big reason the International Trade Administration has identified IP theft as a major problem for U.S. traders. The situation is likely to get worse before it gets better, too, because increasingly bold and resourceful thieves are becoming more adept at skirting the restrictions imposed by patents, trademarks, and copyrights.
The Costs of Offshoring
According to the U.S. Patent and Trademark Office, ongoing IP theft diverts some $250 billion away from U.S. companies every year. Smaller companies can be seriously hurt or even knocked out of business as a result of lost revenue.
Trademarks and patents can be obtained for approximately five figures, but to use one to pursue an IP thief, haul the offenders into court, and win the case can require the victim to pony up seven figures or more, according to lawyers involved in such actions.
One big problem is what some are calling “the China Syndrome”: If you work with a Chinese partner to manufacture a product, some of your production stream may be siphoned off and sold to others without your permission or participation.
Some culprits make whole careers out of counterfeiting items without licenses or permissions. “Fakes” of products based on American-owned IP have been found in Belarus, China, the Czech Republic, Russia, Singapore, Taiwan, and the Ukraine, among others. To some U.S.-based companies, trade lawyers report, that’s reason enough not to offshore their manufacturing.
If you’re inexperienced in global trade, you may be unhappily surprised by how people do business in other parts of the world. The rules and general practices that we follow in the U.S. often differ from those of other nations. Learning this through trial and error can be expensive.
For example, savvy global traders know not to discuss the finer details of product ingredients, manufacturing processes, or contacts for distribution and supply with anyone outside your company. Loose in the world, trade lawyers say, such tidbits of information make it easier for thieves to take unfair advantage of you.
To educate small-business owners about protecting their IP, many private law firms, as well as the U.S. Department of Commerce, the U.S. Patent and Trademark Office, and the U.S. Department of Homeland Security now offer seminars and websites about how to protect your IP.
Beefing Up Your IP Protection
There is no “one size fits all” strategy or solution for protecting your company’s IP. Each business must weigh the costs and potential benefits related to its particular situation.
- Where to file patents, copyrights, and trademarks: It’s important to determine whether defenses are best established in the U.S. and/or in other countries where you do business.
- When to file: The best time to establish legal protections for IP is usually before you bring a product to a new market.
- What to file: Patents, trademarks, copyrights — each have different strengths. A good deal of your business’s IP may be suitable for more than one type of protection.
- How to react to IP theft: As a victim, it’s important to document your discovery of the theft, to preserve any evidence, and then to contact the appropriate law-enforcement officials.
- Where to report problems: Most IP protections depend on federal laws, which vary by country. It’s up to the victim to report IP theft in the relevant jurisdictions. This usually requires hiring a lawyer who knows the ropes.
The World Intellectual Property Organization is a good starting place to learn more about global IP protection. There’s also a United Nations Convention on Contracts for the International Sale of Goods that’s a useful reference.