Reducing the Risk: IP Theft and Partners

January 10, 2013
Categories: Global Supply Chains, Intellectual Property, Intellectual Property Protection, IP Protection, Supply Chain

The most recent edition of the Harvard Business Review features a fictional case study of a negotiation between an innovative hybrid auto supplier, Prime ElektroTek, and a large Chinese auto manufacturer, Blue Sky. The scenario exemplifies the challenges around intellectual property (IP) protection with business partners, be it a customer, supplier or agent.

In the case study, the smaller innovative company faced the prospect of its large and important customer potentially reverse engineering its prototypes and cutting it out of the manufacturing process; or alternatively, purchasing the company’s IP and using it freely thereafter. Either situation points to the vulnerabilities of companies seeking to expand into new markets through partnerships.

These issues were echoed in a recent report by The Conference Board. As part of the research, The Conference Board surveyed Intellectual Property (IP) and compliance attorneys at leading firms worldwide, with respondents representing 55 Fortune 500 and Fortune Global 500 companies. In the findings, roughly half of the executives surveyed perceived extensive risk of IP infringement in emerging markets when engaging with suppliers (43 percent) and when engaging agents/business partners (48 percent). Additionally, two thirds stated that theft of trade secrets presents the greatest IP risk in emerging markets; and only 36 percent rated their companies’ compliance program as very effective in managing these risks.

The theft of IP – whether it is in the form of trade secrets, patents, copyrights or trademarks – poses significant potential risks for companies, including:

·         Loss of business, given that a company’s “unique selling point” for its products or services can disappear.

·         Loss of competitive advantage and business value, through competitors’ freeriding on the company’s once-proprietary information.

·         Legal claims, damages, injunctions, which can be expensive, time-consuming, scattered over numerous jurisdictions, and very disruptive.

What practices should a company ensure its suppliers and business partners have in place so that its intellectual property will be appropriately managed? CREATe has identified eight categories of processes that suppliers and business partners should have in place to appropriately protect IP. By addressing these aspects of IP protection, regardless of where you are in the supply chain, you can improve your practices and those of your suppliers and business partners.

CREATe has also outlined case studies and recommendations in two whitepapers – the first addresses the IP challenge of Trade Secret Theft; and the second provides an overview of the Health and Safety Risks of Counterfeits in the Supply Chain.

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