Overseas Supplier? Prevention Better Than Cure!

I was reminded last week when I met some clients I haven’t seen in ages, how easy it is for many businesses to find that their products are easily ripped off by overseas manufacturers, especially where their products are made overseas in China or third world countries. Sadly all too often people have done the right thing by registering their trade marks and patents in the countries which make products, but are somewhat powerless to stop knock off copies being sold out of the back door. Even worse arises where the manufacturer simply assumes all the rights of the rights holder (as in the case of my friends!).

Intellectual property theft can have devastating effects not just on profit, but on loss of reputation, health and safety concerns and liability risks. So I thought it would be useful to look at what the big companies do to protect themselves and see if we can all benefit from their best practices.

IT Systems and Encryption

The Chinese in particular are notoriously good at accessing IT systems. However, it is possible to build in some general security measures into data transfer such as limited access to core trade secrets; making data and confidential material available on a need to know basis. Electronic documents can be made available for limited amounts of time, accessed by a particular code and coded so that they can’t be printed, forwarded or saved.

Contracts To Manufacture

As a matter of course large companies use professionally drafted manufacturing contracts containing audit clauses. There are lots of clever ways of auditing a manufacturer. By way of example some companies control or at least monitor and check key components going into goods. They also use their own accountants to check the figures, books and manufacturing processes to monitor and detect illicit trade. It is also good practice to award compliant suppliers a continuing contract to make and supply and to educate the staff as to the risks of IP theft.

 

Key Contacts

Many companies have staff or agents who monitor production and do quality assessments. This often works well where the agent is also an unconnected third party seller. However, sometimes those contacts or staff can be bribed or involved in illicit trade so you have to find someone you can trust. Several of my clients have come unstuck using this process.

Supplier Score Cards

Some companies such as Microsoft and others have suffered significant losses in the past when manufacturers have inserted counterfeit product into boxes of genuine product so that the two sit side by side and are indistinguishable. Big companies now use sophisticated score cards to judge how likely and possible it is for a manufacturer to copy product. Score cards vary according to the nature of the goods made.

 

IP Strategy

Big companies such as Siemens use an IP Strategy and a department that coordinates IP right accross the supply chain.  This means their own executives are specifically responsible for monitoring IP infringement and investigating suspicious activity.

 

 

In summary, there are a variety of measures that can be deployed, and if all else fails it is possible to take action overseas. However, I do firmly believe that many manufacturers rush off to countries like China without considering the merits of getting things made in the UK or Europe.

My own view is that there should be much more support of manufacturing in the UK. We’re good at many things and at least it is easier to control infringement if and when it arises.

Elizabeth Ward

Unashamedly patriotic!

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