- Understanding IP
- Assess your IP
- Business Partners
- Business Promotion
- Dealing with Counterfeiting
- Research & Development
- Sales and Distribution
- Support to European SMEs
The main issues surrounding intellectual property development (IP), its protection and enforcement are the same for all SMEs, however, the specifics of how they should be approached will be unique to each. The approach to IP protection outlined is relevant to all SMEs and not only those dealing with ASEAN. As with many other issues, a few basic actions can go a long way and IP is no exception.
IP - The Basics
The first step in developing the value of IP in your business and managing risk is to build awareness within your company, particularly amongst senior management and the board, about what is IP. This will help you to answer an important strategic business issue of why protect IP?. It is true that many companies have developed valuable IP without recognising it, and risk it as a result. Both questions require ongoing review as your business evolves, and are key to understanding how to protect IP .
IP to suit you
Developing a tailored IP approach will depend on your company´s sector of operation, your market positioning, your size, and your stage of development, particularly with regards to your business with South-East Asia. These issues will determine the value of IP within your company. By this stage, IP protection must already have been understood at both board and management levels so that IP enters the mainstream business process.
Developing an IP Strategy
You wouldn´t think of starting a business without a HR strategy, market strategy or financing strategy, and for many SMEs an IP strategy is just as important for planning growth and minimising risk. Regardless of the stage of your business with South-East Asia; be it in early planning or well-developed over many years, it is important to have in place an IP Strategy. This will require you to put in place a series of steps including:
- IP Audit: to assess your current IP status and development needs. Through this you will be able to set out your priorities and rank internal IP assets.
- Having completed an IP Audit you can put in place effective IP Policy and processes as part of the business process and IP quality control. In the early stages of developing the IP strategy, it may appear complicated and time consuming; however, to grow value in your IP assets this must become routine business practice.
- Implementing IP protection must be incorporated into your relationships with all of your stakeholder groups which broadly includes suppliers, distributors, cooperation partners, customers and your employees, particularly where these relationships relate to technology transfer or transfer of business knowledge.
- Business to business promotion must be reviewed to ensure effective risk management.
- At the same time, you need to understand the procedures and investments related to the registration of your IP rights and the monitoring of their enforcement.
What if your IP is infringed?
It is recommended that a standard operating procedure be put in place when you encounter an IP enforcement problem, for example, in relation to how to investigate the problem or how you might select an IP partner company. All the elements described here should be considered as an ongoing cycle of development which will be more manageable when your senior team actively builds an awareness and understanding of external factors, such as technological advances or competitive trends.
Assess your IP
What is an IP Audit?
An IP Audit gives you an overview of the IP owned and/or used by your company.
Why do you need an IP Audit?
An overview of your IP will enable you to determine how important your IP is for your business and what is the value to your business. An IP audit is especially important when deciding to expand the business outside your home market.
- Once you have audited what your IP is it will enable you to manage your IP to maximise value and competitiveness by enabling you to create an IP strategy that works for your company in the short and long term.
- Such a strategy would include determining the extent to which your IP should be registered. Your IP filing strategy should reflect your business needs and take into account both domestic and worldwide strategies. Depending on your company's products and business plan, as well as financial constraints, it may be worth considering also filing certain IP outside of your core markets, taking into account the increasing spread of piracy and counterfeit production of goods.
- Registration ensures legal protection and the ability to enforce as well as reap the financial benefits of licensing your IP to others.
What would be included in an IP Audit?
IP assets you need to consider include any registered and unregistered trademarks, copyrights, designs or patents as well as licenses to third parties, and licenses from third parties. For more information about the types of IP please go to the 'Country Profiles’ factsheets in our publications[gm1] . You may also consider elements such as work manuals, databases, recipes, franchise agreements, publications, product/process know-how, marketing materials and more. For an example of issues to include in an IP audit please visit this website.
How do I carry out an IP Audit?
The first question to be answered is whether your company has IP? No matter the line of business that your SME is in, it is almost certainly in the possession of, or generating, some kind of intellectual property, whether it is a trade name, confidential information or other type.
To carry out an IP audit consider the following aim to create an overview of all IP used in your business, acquired, used and owned in your business by:
- Outlining all of your company's business activities, including areas such as sales, marketing, manufacturing and any other activities.
- For each of those business activities, make an overview of all types of products delivered by your company, including not just the products themselves but also which types of printed material, designs, logos, trade names, product names etc. that you use in your marketing, consumer and other communications.
- List all known specific technology that goes into making your product, whether the technology is yours or licensed to you by someone else. Make a list of all affiliated companies and business partners that you are currently working with and who may be using your technology to produce your company's products either by license or otherwise.
Examples of questions to ask during your IP Audit
- Does your business use a name or logo?
- Do you use any information in your business that you regard confidential? (For example, product formulas, pricing information, financial data etc.)?
- Do you use product names in your sales process?
- Does your company create processes or design tools, machines, graphics, advertising?
- Are your products or packaging unique in some way compared to competitive products?
- Does your company have a website and do you use flyers, catalogues and similar materials?
What is the value of my IP? Issues to consider include: the contribution the asset makes to the business, the license value and the amount invested to develop the asset. Also consider how much you would be willing to invest to enforce against infringement. To come up with an accurate assessment of value, you may also consider discussing with an experienced financial advisor or IP lawyer.
Consider if you need professional help once you have an overview of the various IP assets in your company, in order to decide on the appropriate way to protect it, consider enlisting the support of an IP professional. It is advisable to ensure that the IP professional you choose possesses knowledge of your technical field and is willing to take into account the resource constraints that are often faced by SMEs.
South-East Asia, including Brunei Darussalam, Cambodia, Indonesia, Laos PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam is an increasingly attractive business destination for European companies in Asia. Partnerships are often regarded by businesses and in particular smaller European Businesses as crucial in order to operate effectively in South-East Asia. This is mainly due to a lack of strong regional regulatory frameworks and as such businesses’ often focus efforts on finding the right partners within target markets in the region.
Below are some of the issues which can pose an IP risk:
Contracts in South-East Asia
When looking to identify your supplier, you should consider how you want the relationship to work and what controls you need to put in place to secure your rights. These issues need to be spelt out in a written agreement which can form the basis of a contract. It is not advisable to start any business partnership anywhere in South-East Asia without a signed contract. It is important to keep in mind, that a contract signed in Europe is viewed as legally binding, whereas in some South-East Asian nations it could be viewed as a "guideline for cooperation". Contracts should not be rushed through, but should instead be a process where the contract can work more as a relationship manual.
As an SME you should ensure that the potential business partner really is who they say they are. This can be done in a number of ways, but initially check whether the company is legally registered, and whether it is trading under the registered name. Helpdesk team leader Simon Cheetham from ERINYES INTERNATIONAL, a firm used to performing background checks, says:
"Often we find that we can save SMEs a great deal of trouble and expenditure by doing a simple background check prior to negotiations with a potential supplier. In this way we can ensure that the legal entity that the SME is to enter a sourcing contract with is also the company that can be held responsible for any wrong doing. It pays to know who you are dealing with."
It is best that you or your local adviser conduct due diligence directly with the prospective partner such as requesting certified copies of its incorporation document so that you can decide if there are any red flags that require further verification or investigation.
In the contract, it is advisable to clearly state what Intellectual Property Rights (IPR) are owned in respect of the items to be supplied and to clearly state that any know-how, discovery, invention (whether patentable or not), design, drawing, computer program, photograph, plan or record relating to the development of prototypes and the subsequent final version of products or any future developments to products which are made, created, developed or acquired by the supplier (together with all IPR and any future rights in respect of any such matter) will belong to the SME absolutely.
Preventing disclosure of valuable information
When handing over material to another company or individual in any business matter, it is important to use confidentiality, non-competition and non-disclosure agreements to minimise the risk that the company or individual will disclose such information to third parties or use the information to compete against your company.
Employee contracts in South-East Asia
Local lawyers should be appointed to prepare employee contracts.
Difference in cultural background has often shown to be one of the most important issues in any business partnership. There is a great difference between how Europeans and Vietnamese, or Thai nationals for example view a partnership. The countries of South-East Asia have many cultures, customs, and religious practices. Learning about South-East Asian cultures before entering into a business negotiation with a partner is beneficial if not crucial. If you understand who you are dealing with you will have a better chance of success.
It is important to spend time with your prospective local partners as people of South-East Asian cultures are relatively reserved. Having a good interpreter or local associate will be helpful particularly in making sure you do not make any cultural faux-pas.
As the purchasing power across increases, many SMEs are experiencing increasing demands for their products in there. When promoting your products in South-East Asia, there are certain IP risks that should be kept in mind.
You need to consider the following IP issues when conducting business promotion in ASEAN nations:
Did you check whether you protected your main assets in the South-East Asian markets?
Prior to any engagement with South-East Asian markets your company needs to consider what know-how is valuable for your business and how this is protected in South-East Asian countries. The first step is to:
- identify what IP and know-how is embedded in the component or product to be sold in the target country.
- ensure that correct IP protection is in place in each South-East Asian country. By merely showing your products in South-East Asian nations you increase the IP risks. This can even be the case with your partners – it is not un-common for local partners to register the company’s trade-mark in bad-faith. SO be prepared and register your trade marks early.
Does your product have a name specific to the South-East Asian country?
While English is spoken widely across South-East Asia, it is often beneficial to have a South-East Asian country-specific name for your product introduced to that market. Not having a country-specific name entails an IP risk. If a brand’s country-specific name has not been decided and registered in that country prior to starting promotion the following IP risks occurs:
"When it comes to trade marks, we have seen several different ways where things go wrong for SMEs, for example, that the name that is invented by the consumers are associated with (by the nature of different languages) with issues that the SME does not feel comfortable with; that the A name is developed by a retailer or agent which the European company does not find suitable, and most importantly, that the country-specific name known in the market is registered by third parties, leaving the SME with no choice to either change all promotion material and trade mark or to buy the trade mark back – and this is often very expensive."
The solution is to find out which South-East Asian trade marks your company wants to use for South-East Asian markets and at the same time explore whether the chosen trade marks are available for registration.
Attending trade fairs
Trade fairs are known as a location where infringers are inspired. Therefore, when attending trade fairs certain precautions should be initiated. Avoid showcasing important know-how and ensure that visitors to your stand aren´t allowed to take photos. Some companies even restrict who has access to the exhibition stand to ensure that they have control over who can be introduced to certain products.
Before getting engaged in marketing campaigns in nations across South-East Asia, ensure the registration of trade marks. In South-East Asia, it is often the fact that trade marks are squatted.
Dealing with Counterfeiting
Unfortunately counterfeiting is a problem experienced by most SMEs and it is not an easy issue to resolve. If your company experiences counterfeit products, there is an array of options your company can choose to implement.
Overall factors to consider when choosing to fight counterfeit products
Taking action against a counterfeiting manufacturer and/or distributor is a complex matter, which in general contains three elements:
- In depth knowledge of the SME´s product and the counterfeiting product
- In depth knowledge of IP-legislation in the specific South-East Asian nation, and which legislation to be considered in a given case and
- An analysis of what effect the counterfeit product has on your business, both in the short term as well as the long term.
Gathering the facts
When dealing with counterfeiters, the first step is to identify the infringer and gather intelligence. Helpdesk team leader Simon Cheetham of ERINYES INTERNATIONAL, an expert in securing evidence and taking administrative actions in South-East Asia explains:
"There are several issues to consider when securing evidence in South-East Asia. We have found that counterfeit manufacturers close down and open up again if they find out that we are investigating them. It therefore becomes an issue of securing evidence the first time you have the chance, and making sure they are not aware of you being there, until you have the case ready."
In some cases, complaint(s) of counterfeiting comes from the local partner distributor. They may be motivated by self interest to make the problem more serious than it actually is. They might want to do this to justify lowering sales targets or reduced pricing. You should consider conducting a market survey through independent investigators to understand the extent of the problem and the result of this survey can then form the baseline to measure the effectiveness of future enforcement actions. It also can be used to counter the local partner's over-exaggeration of the piracy problem assuming the results of the survey give a different picture to that painted by the local partner.
In any enforcement action, expectation should be realistic. The focus should be to create maximum deterrent effect as soon as possible to regain your market share or prevent it from eroding further. It might not be cost effective to embark on a long drawn and expensive investigation to get to that elusive mastermind importer or manufacturer which might take a long time to uncover. If your distributor insists on finding this "big fish" target, this might be motivated by desire for vengeance or mistaken belief that this will bring an end to all counterfeiting of your brand/product. A big seizure does lend greater sensation in any news reporting but expectations should be realistic; and deterrence may be just as effective by tackling demand for counterfeits at the retail level coupled with publicity of such actions.
Resources are needed
Anti-counterfeiting is a task which takes up resources. A well prepared plan heightens your chances of a positive outcome for any given case. Often when no action is taken, the counterfeiting problem and the counterfeiting company grow.
Question whether you have the internal expertise
If you do not have an internal resource which is used to being engaged in anti-counterfeit preparations in South-East Asian nations, it is an option to contact external IP consultants that can take care of the SMEs needs in any given case in South-East Asia.
IP experts in the field getting acquainted with IP
For an SME it is important to consider the type of IP expert needed in order to take the next step. Here, can find a description of the IP services available in the market, and how to get in contact with the different experts.
If your company has experienced counterfeit products, and has no previous knowledge on anti-counterfeit actions in South-East Asia, you should start by learning more about IP is about. Furthermore, the options you have when dealing with counterfeiting is very much dictated by the preventive measures that have already been implemented in your business model in South-East Asian nations. To read more about pro-active measures to be considered please see the main sections which relate to different business set-ups in South-East Asia: 'Sourcing', 'Manufacturing', 'Licensing', 'Business Promotion', 'Research & Development', 'Sales & Distribution' and 'Business Partners'.
Finding the right lawyer can often be difficult, and retaining a lawyer who really understands your case and has the relevant experience is crucial. Other than Malaysia, the Philippines and Singapore, English proficiency can be limited in the other South-East Asian countries. In these countries, the local attorney's command of English in explaining complex legal or cultural issues may not go beyond the superficial level or may be restricted to "template" explanations of routine matters, not enough for you to truly appreciate the challenges/issues so as to make a fully informed decision in non-routine matters.
Licensing is often regarded by SMEs as a cost effective way of entering the South-East Asian markets. Licensing is also often seen as a way to work with local people who have the know-how to enter the market and an opportunity to tap into a local network. In some South-East Asian countries, that may be the only means of entering the local market because of foreign investment restriction. These restrictions are usually meant to protect local businesses. While licensing can offer a great opportunity, there are also risks with licensing that should be considered. You should ensure that the potential licensee really is who they say they are and has the experience, resources and market reach to match your expectations.
Just as important as identifying the right licensee, is developing a well thought out and robust licensing agreement. This is a complex area and should be undertaken by a competent lawyer.
Assuming that your licensing model bears characteristics of a franchise, it would be important to check if local (country specific) laws require additional compliance such as complying with disclosure requirements and filing with the authorities.
Some of the IP issues you need to consider in relation to licensing in South-East Asia include:
Identify your IP rights - what is to be licensed
A thorough study of your company´s IP situation is needed to ensure that the IP rights and the related know-how to be licensed are identified. From this assessment you should be able to answer the following questions:
- What is already registered?
- What needs to be registered?
- Who is currently responsible?
Make sure that everything that needs to be registered, is registered. In this way your company can ensure that the right IP protection is in place before entering into a licensing agreement in South-East Asia. To get an idea of how to perform an IP audit see the 'IP Audit' section above.
In the case of trademark registration, you should also be aware of the legal requirement to maintain use for a minimum duration (usually for a continuous three year period) in order to avoid non-use revocation/challenge. Use through a licensee might solve this problem but you need to consider if notification to the authorities is required.
Ensure you can end the agreement without losing your market
Sometimes, an exit plan from an agreement is forgotten. It is very important to have a plan for terminating an agreement when signing the contract with a partner in South-East Asia. The actual content of the exit plan is very dependent on what you are licensing, it is important to keep in mind that the licensing partner can become a future potential competitor and/or infringer if not considered appropriately. In certain South-East Asian countries, pro-local business laws make it difficult to terminate the contract even if the contract expressly provides for the right to terminate. In such cases, you may be restricted from looking for a new local partner until full closure is reached with the existing partner. If so, you may want to consider "trying out" the local party with a relatively shorter contract duration such as for one year unless the laws mandate a longer term. If things do not work out, you will be free to look for a new partner when the contract expires.
Keep the most important know-how to yourself
Often the licensing partner does not need to know all the details of your product. It is imperative that you keep the most important information to yourself (if possible) unless local product regulations require disclosure.
How should the licensee handle your know-how and IP rights?
When working with a licensee it is important to ensure that the licensee is guided on how to utilise your company´s IP rights. A guideline to handle IP rights should be developed to ensure that the licensee can handle your assets with care.
In the licensing agreement it is a good idea to clearly state the Intellectual Property Rights owned in respect of the items to be supplied and to clearly state that any know-how, discovery, invention (whether patentable or not), design, drawing, computer program, photograph, plan or record relating to the development of prototypes and the subsequent final version of products, the licensing agreement should also clearly state any future developments of products which are made, created, developed or acquired by the supplier (together with all Intellectual Property Rights and any future rights in respect of any such matter) will belong to the SME absolutely. See the 'Research and Development' section to read more.
Monitoring the licensee
Always monitor what goes on. In South-East Asia precedence means a great deal. One way to do this is by having external persons to inspect whether the licensee lives up to the agreement.
Manufacturing in the South-East Asian region offers the possibility of a low cost and resource rich environment. But there are practical issues to consider from an IP perspective and a real need to take steps to minimise the pitfalls. Below are some of the most important issues concerning IP risks when manufacturing in South-East Asia.
Having the right IP protection in place
Prior to any production in South-East Asian countries, your company needs to consider what IP is involved in the items to be manufactured, the know-how involved in the production process and how this is to be protected in South-East Asian countries. Steps should be taken to make sure IP is registered and to plan which safeguards can be put in place to protect any key production processes or components and maintain your competitive advantage. Initially this should involve:
- identifying what IP and know-how is involved in the items to be manufactured
- ensure that correct IP protection is in place
Physically relocating or establishing manufacturing in a South-East Asian country is a significant business decision. Consider the status or type of factory you plan to establish or work with and make sure, if you are planning to work with an existing factory, it is a properly registered, legitimate business (see 'Business Partners' section). The factory will need to comply with local workplace laws and obligations. If you are at the stage of discussing a manufacturing agreement with a prospective partner, make use of confidentiality agreements and non-disclosure agreements to preserve your proprietary information.
The supply of components needs to be included from an IP perspective. If components are also to be produced or sourced in South-East Asian countries then please see the 'Sourcing' section.
Restricting access to a manufacturing site & monitoring
It is important to make sure your manufacturer does not allow third party access to the production area. To ensure that IP and know-how will not leak, always monitor your own manufacturing site. It is good practice to arrange for unannounced visits to check on compliance.
Factories which know they must adhere to controls, procedures and standards will do so if they are subject to checks; those factories which are not subject to checks will rapidly deviate from procedures and standards.
It is important to educate employees on how to handle valuable information (if such information is available at the site). Furthermore, it is advisable to include clauses on confidentiality and proprietary information in employment contracts.
Research & Development
Doing research and development in South-East Asia is still rare for most SMEs, however, this trend is changing; with an increasing numbers of engineers, the region is becoming a more attractive location for R&D Moving this function to South-East Asia does entail exposure to extensive IP risks which need to be considered and minimised if success is to be attained.
There are a variety of different IP risks to be considered and these include:
Having the right IP protection in place
A thorough assessment of the company's IP situation is needed. If your SME does not have an internal resource to carry out an IP assessment, consider bringing in experts with specific knowledge on securing IP in South-East Asia. Performing such an assessment without having experience in both IP and regional-issues is not recommended.
IP risks and business set-up Physically relocating or establishing R&D in South-East Asia is a significant business decision. Consider the status or type of entity you plan to establish or work with. There are different issues to consider depending on the type of business entity and how it is owned; for example, a Wholly Foreign Owned Enterprise (WOFE) operated by your own trained employees will be very different to the issues involved in performing R&D in a Joint Venture or by contracting to a domestic enterprise.
Make sure, if you are planning to work with an existing company, it is a properly registered, legitimate business. If you are at the stage of discussing an R&D agreement with a prospective partner make use of confidentiality agreements and non-disclosure agreements to preserve your proprietary information and trade secrets (see the Partners [gm3] section).
Minimising IP risks is largely dependent on who and how you choose to handle the R&D in ASEAN. No matter how you choose to resolve the business set-up, it is important that technology transfer back to the SME is ensured. Steps to ensure this should be made prior to engaging in R&D in ASEAN nations.
Contractual issues in the ASEAN region
When looking to identify a potential R&D partner in South-East Asia, you should consider how you want the relationship to work and what controls are needed to secure your rights. These issues need to be spelt out in a written agreement which can form the basis of a contract. It is NOT advisable to start R&D in South-East Asia without a signed contract. However, it is important to keep in mind that a contract could be viewed as a "guideline for cooperation" in South-East Asia, whereas in Europe a signed contract is viewed as legally binding. Contracts should not be rushed through, but should instead be a process where the contract can work more as a relationship manual.
In the contract, it is advisable to clearly state what Intellectual Property Rights are owned in respect of the items to be supplied and to clearly state that any know-how, discovery, invention (whether patentable or not), design, drawing, computer program, photograph, plan or record relating to the development of prototypes and the subsequent final version of products or any future developments to products which are made, created, developed or acquired by the supplier (together with all Intellectual Property Rights and any future rights in respect of any such matter) will belong to the SME absolutely. It is advisable to have an South-East Asian nation-specific specialist forming the contract as there are certain specific issues that should be considered.
Discovering and protecting IP rights - building a systematic approach
When R&D is conducted in South-East Asia, there is a need for implementing structures which ensure that IP rights are discovered, evaluated and that an internal strategy for exploitation is made.
Restricting access - preserving trade secrets
Trade secrets can be defined as "Technological information and business information that is not known to the public, derives economic value for the holder, is of practical applicability, and has been subject to steps by the holder to maintain its secrecy". In practice the R&D department needs to be physically isolated and demonstrably secure, and visitors should be monitored closely (if having access at all). Furthermore, consideration should be given to the secure storage of important information.
Monitoring - IP Security Audits
Always take a practical approach to securing valuable know-how and IP rights. Monitoring is therefore an option to check whether the current system in place is actually minimising the risk of leakages.
Helpdesk expert explains the process of auditing sourcing partners for clients
"Through an IP Security Audit, we determine to what extent the IP area and the IP processes within the involved client's organisation are secure. By doing so we can secure data for further optimisation of the client's IP security platform and eventually develop a list of potential IP risks for the company in question."
R&D departments which know they must adhere to controls, procedures and standards will do so if they are subject to checks; those departments which are not subject to checks will rapidly deviate from procedures and standards.
It is important to conduct such audits of potential contract manufacturers and not to take their representations/assurance at face value. Often, the theft and leak may occur at the middle or lower level staff even if the business owners demonstrate that they have the best of intentions.
It is imperative that SMEs consider how inventions made belong to the SME. IP-transfer obligations should be included in all employee contracts while respecting local law. At the same time it is imperative to educate the R&D staff on how to handle valuable information to ensure that they are aware of confidentiality details.
Sales and Distribution
Below are some initial issues you need to consider in relation to IP when selling and distributing products in South-East Asia. Make sure IP rights are in place A thorough study of the company´s IP situation is needed to ensure that IP rights and related know-how to be licensed are identified. From this assessment you should be able to answer the following questions:
- What is already registered?
- What needs to be registered?
- Who is currently responsible?
Make sure that everything that needs to be registered is registered. In this way your company can ensure that the right IP protection is in place before entering into a licensing agreement in South-East Asia.
South-East Asian country-specific trade mark A country-specific name for your product to be introduced in the ASEAN markets can be a necessity – especially considering products sold to consumers. However, unlike other countries, not having a country-specific name entails an IP risk. Please see the 'Business Promotion[gm4] ' section for more information.
Prevent loss of IP through misuse When working with sales and distribution, it is very important to ensure that the sales employees (or external partners if that is the case) understand how to use the company´s trade marks. The way in which a trade mark is registered is very specific and it will only be protectable if it is used in the form that it is registered. Wrong usage can eventually mean that you lose your trade mark. A systematic approach and guidelines should be developed to ensure that the sales and distribution team are able to comply.
Sales personnel & conflicts of interest One of the issues that SMEs have experienced in South-East Asia is that their own sales personnel also work for a competitor or infringer. It has been experienced that the sales personnel carry two sets of sales material, one from the original producer and one from an infringer. It is therefore important that the SME make proper agreements with the sales representatives and distributors in South-East Asia, as well as prepare educational material to minimise this risk.
Sales staff are the first to identify a problem Sales personnel are often the first to become aware of counterfeiting and are a useful resource for the early detection of a counterfeiting problem. They should therefore be informed of how to act when they discover counterfeit products and ⁄ or counterfeit manufacturers in the market place, in order for your company to be able to react quickly and effectively.
Many companies take advantage of cheaper costs by sourcing products or components from South-East Asia. While South-East Asian countries can present SMEs with many benefits when sourcing there are also many challenges! Presented below are some of the most important issues concerning IP risks when sourcing from South-East Asian countries. For an SME it is not an option to spend vast resources on protecting the company's assets – solutions need to be affordable and practical. But it is NOT recommendable to start sourcing from South-East Asian countries without having made initial efforts to minimise IP risks and secure your business. IP has often turned out to be a show-stopper if not considered for SMEs in South-East Asian countries.
The IP issues that should be considered by SMEs depend on which phase you are in:
Before Sourcing in South-East Asia
Prior to any engagement in the South-East Asia countries your company needs to consider what know-how is valuable for your business and how it is to be best protected in South-East Asian nations. First steps are to 1) identify what IP and know-how is embedded in the component or product to be sourced, and 2) ensure that correct IP protection is in place in the South-East Asian countries.
The Helpdesk expert emphasises:
"Often we see that SMEs haven´t considered how to protect their know-how and IP rights in the components or products to be sourced in South-East Asian countries. This usually turns out to be the most crucial weakness when the SME wants to control their sourcing partner in ASEAN countries. To give an example, a company started sourcing a product in South-East Asia from a sub-contractor without having registered their trade mark in Malaysia. The sub-contractor registered the SME´s trade mark behind their back. After a while the SME decided to move the production to another Malaysia-based company as the sub-contractor could not deliver the expected quality. However, as the sub-contractor was the legal owner of the SMEs trade mark they had to pay a substantial amount of money to get the ownership of the trade mark back (before they could move the production). Knowing that the trade mark could have been obtained for less than €300 (excluding agent fees) if registered by the SME in the first place it seems like an unnecessary risk for an SME to take."
Identifying the company´s IP rights can be a difficult task for an SME to perform, if the SME has no knowledge of IP.. Also, remember that it is always possible to get an external IP advisor to check whether the IP rights identified really are of core value to your business. Having an overview prior to sourcing in ASEAN countries ensures that IP risks can be evaluated.
IP risks when looking for a supplier
When looking to identify your supplier, you should consider how you want the relationship to work and what controls you need to put in place to secure your rights. These issues need to be spelt out in a written agreement which can form the basis of a contract between the parties. It is not advisable to start sourcing in South-East Asian countries without a signed contract. However, it is important to keep in mind, that a contract could be viewed as a "guideline for cooperation" in ASEAN countries, whereas in Europe a signed contract is viewed as legally binding. Contracts should not be rushed through, but should instead be a process where the contract can work more as a relationship manual.
As an SME you should ensure that the potential supplier really is who they say they are. This can be done in a number of ways, but initially check whether the company is legally registered, and whether it is trading under the registered name.
Helpdesk team leader, Simon Cheetham from ERINYES INTERNATIONAL, a firm with expertise in performing background checks, emphasises:
“Often we find that we can save SMEs a great deal of trouble and expenditure by doing a simple background check prior to negotiations with a potential supplier. In this way we can ensure that the legal entity that the SME is to enter into a sourcing contract with is also the company that can be held responsible for any wrong doing. It pays to know who you are dealing with.”
It is best that you or your local adviser conduct due diligence directly with the prospective partner such as requesting certified copies of its incorporation document so that you can decide if there is any red flag that requires further verification or investigation.
In the contract it is advised to clearly state which Intellectual Property Rights are owned in respect of the items to be supplied and to clearly state that any know-how, discovery, invention (whether patentable or not), design, drawing, computer program, photograph, plan or record relating to the development of prototypes and the subsequent final version of products or any future developments of products which are made, created, developed or acquired by the supplier (together with all Intellectual Property Rights and any future rights in respect of any such matter) will belong to the SME absolutely. Please see the 'Research and Development[gm5] ' section to read more.
A particular problem can also arise over ownership of tools developed by a supplier to manufacture products on behalf of an SME. Where the supplier has paid for the tools and the sourcing agreement is terminated, you may not be able to recover the tools or transfer it to an alternative supplier (although this does not necessarily mean the supplier can continue to use the tooling). Where the SME owns the tools then you will have the right to recover it. In order to avoid the risk of losing any IP any SME should be aware that they are the only entity that can authorise any production on its behalf. A supplier should not sub-contract production of components to other companies, if this happens you lose control over your product, and the related know-how.
It would be helpful to ask the supplier to promptly notify you of any actual or suspected infringement of any of your Intellectual Property Rights, which comes to their notice, and that the supplier will do all such things as may be reasonably required to assist you in taking or resisting any proceedings in relation to any such infringement or claim. Please see 'Dealing with Counterfeiting' to read more.
During Sourcing in the South-East Asian region
It is a mistake to think that once a sourcing contract has been signed, everything is settled. This is not the case. As in most business relationships a hands-on approach will be best. Issues to be considered include:
- To ensure that IP and know-how will not leak – always monitor your supplier. It is good practice to include unannounced visits.
- Factories which know they must adhere to controls, procedures and standards will do so if they are subject to checks; those factories which are not subject to checks may rapidly deviate from procedures and standards.
- Establish how the supplier deals with your products, factsheets, know-how etc. Consider physical access to the production-site and how this access is secured. In general, if you have access to a competitors' production at your supplier´s factory, they will also have access to your production.
- A common issue in South-East Asia is production overruns, this means that a supplier manufactures more than the agreed quantity, and sells overruns on the black market. A clear policy should be set out on handling overruns, as well as seconds and rejects. Failure to exercise control over these issues is one of the most common causes of infringements. This should also be monitored in the IP security Audits as well as in the contract.
After Sourcing in South-East Asia If the right precautions have been taken from the start, it is not a problem to cease production with a supplier. However common issues include:
- Difficulties recovering tooling, either because ownership of the tooling has not been clearly established or because physically locating or recognising the tooling is difficult without some clear means of identification.
- Another common issue is that the supplier has acquired the know-how to manufacture even after production is moved elsewhere and keeps manufacturing the products. It is advisable to recover all tools, and any remaining components or completed items to ensure that the sourcing partner cannot continue manufacturing the products.
Support to European SMEs
In the EU, an estimated 23 million small and medium-sized enterprises (SMEs) account for approximately 70% of EU jobs and GDP, and their flexibility is seen as a major motor of future innovation and job creation. The innovation and growth potential of European SMEs is pivotal for the prosperity of the EU as a whole. However, in the global marketplace, it is becoming increasingly difficult for SMEs to develop and maintain a competitive advantage. Great business ideas need access to an array of business tools and support to remain one step ahead of the competition.
The Small Business Act, the Competitiveness and Innovation Framework Programme and the Europe 2020 strategy have reaffirmed the European Commission's commitment to providing support for SMEs' growth so as to ensure their continued contribution to Europe's economic competitiveness.
In order to provide the necessary support mechanisms, the European Commission has developed an extensive network of in-depth programs and resources to help European SMEs thrive in today's economy. No matter the stage of development of your SME, assistance for the following key topics can be found below.
Support Reference Guide for SMEs
The Enterprise Europe Network (EEN)
is the largest network of contact points providing information and advice to EU companies on EU matters, in particular small and medium enterprises (SMEs). Launched in 2008 by the European Commission, it is an integrated network offering a "one-stop shop" to meet all the information needs of SMEs and companies in Europe.
Working through local business organisations, EEN helps SMEs to develop business in new markets, source or license new technologies, and access EU finance and EU funding. EEN has more than 580 member organisations across the EU and beyond, including chambers of commerce and industry, technology centres, universities and development agencies.
European Portal for SMEs provides a single entry point to information on all European Union policies, programmes, projects, tools and services aimed at SMEs. The aim is to provide easy access to information on all European Union policies and initiatives of relevance to SMEs.
EU finance for SMEs
Assists SMEs identify and apply for loans supported by the European Union. Provides guidance on identifying EU supported loans for SMEs through the Competitiveness and Innovation Framework Programme 2007-2013 (CIP). CIP funds are used to guarantee loans to SMEs provided by a range of financial institutions involved in SME lending.
The Pan-European Gateway to Business & Innovation Financing. The portal aims to support innovative entrepreneurs in Europe as well as to assist Innovation Professionals to improve their capacity to assist entrepreneurs by fostering networking and the exchange of experience and good practice at European level.
Enterprise and Industry Online Magazine
The Magazine of Enterprise policy aims to disseminate information on all EU policies, actions and initiatives promoting growth and development, with a view to strengthening the competitiveness of EU enterprises.
The consortium consists of a network of the national patent offices of the European Union, the European Patent Office and the Office for Harmonisation in the Internal Market. The main objective with this network is to provide general information on domestic, foreign and international intellectual property rights to SMEs and academia in Europe.
The IPR Helpdesk provides comprehensive information on intellectual property (IP) rights, focusing on IP questions in the context of projects co-financed under the EU Framework Programmes on research, technological development and demonstration activities (RTD).
provides direct free access to European Union law through access to the Official Journal of the European Union as well as the treaties, legislation, case-law and legislative proposals.
Taxation and Customs Union
This site gives enterprises a clear view of all the measures to be taken into account when importing or exporting goods. It includes an online customs tariff database which covers all measures relating to tariff, commercial and agricultural legislation of relevance when importing or exporting goods.