CHINA ESQUIRE

Matthew DeFlorio published an article with the ABA International Law Section’s International Law News. It doesn’t directly relate to China, but I think its tips are very applicable. A number of his suggestions are based not only in common sense, but quite a bit of experience as well. However, a number of them are not cheap… and so it’s up to you to decide whether its worth it to protect your IPR. I am going to get the answer will be “yes” in a number of cases.

The article, entitled “Supply Chain Security and Its Impact on IPR” reads in part:

Protecting IPR through supply chain security can occur in a number of ways, either through tangible investments or as intangible process changes. . . . Developing new or improving existing processes for business partner selection and internal communications and data flow represent typical intangible enhancements that can provide additional security. Owners have improved their IPR protections by emplying some or all of the following options.

Visibility. Making assets and products more visible throughout the supply chain can protect against cargo theft and damage and prevent products from becoming instruments of illegal trade. Companies achieve this by investing in satellite tracking systems such as GPS, product protection technology such as EPC, or RFID. These systems provide real-time location status and tamper evidence that enables their use greater control over a shipment’s chain of custody from production to point of purchase.

No argument here. However, I just want to note that these sort of systems will cost more. Not a big revelation. But when profit margins are getting thinner by the day, a number of businesses–likely SMEs–won’t want to pay for these costs. At that point, you need to think about just how valuable your IP is and make a proper business decision.

Physical protection. Businesses protect building structures and cargo handling areas by installing fences and video surveillance equipment, and by controlling access to sensitive areas by employees and visits. These measures benefit IPR by protecting product and shipment integrity while discouraging access by unauthorized personnel.

Again, no argument. However, this needs to be strictly done at all levels. Including, your Chinese manufacturers/suppliers. Sourcing from China is likely a weak link in your chain. How many factories are going to protect in this way? Not many. So be careful and make sure you trust your suppliers. I really expect most companies, even SMEs, to be doing some of these things… but only in the US and not overseas.

Standards. Many companies will benchmark processes and activities, thereby establishing minimum performance requirements . . . . Specific methods for reporting fraud and illegal pursuits have become commonplace and are required for public companies under Sarbanes-Oxley. Such process discipline leads to quicker, more assured compliance while reducing confusion and inefficiency in the movement of goods through the supply chain.

Note that this is true for companies under SOX. In other words, U.S. publicly traded companies. Not your Chinese manufacturers. Reporting requirements and processes are not easily implemented in China. It’s not the same as doing it in the U.S. or even Japan. Chinese work culture is very different. Trying to convince your satellite office employees in China to do so… that’s going to be directly related to the effectiveness of your local manager.

Business Partners. Increased scrutiny of current and potential business partners leads companies to investigate beyond financial soundness and into the previous business conduct and security measures undertaken by the potential partner. Due diligence with this investigation will ensure a secure supply of materials, prevention of unauthorized characters tainting your supply chain, and enable early detection of security breaches due to enriched communication and collaboration. . . . IPR owners benefit through cost avoidance; smoother transit means quicker time to market, allowing for decreased inventory levels and the redirecting of funds previously earmarked to compensate for potential criminal activity.

I cannot reiterate this point enough. First, due diligence–thoroughly done–is your friend, even if it costs time and resources. Do it. And of course, do it regularly… check up on your suppliers on a routine basis. Quality fade isn’t the only problem if you are trying to protect your IP. Really, intellectual property is as valuable as your weakest link. So make sure your partners are doing a good job. Drop in unannounced regularly. Second, it also means that you can’t just go onto Alibaba and expect that this is good enough. It isn’t. Don’t think you can just find someone off a directory listing or at some trade even… it’s never that simple. Whoever you go to, do your due diligence.

And of course, as many people have reiterated time and again… Register your IP in China. (Thanks Dan!)

Trackback URI | Comments RSS