Protecting your ass(ets)
Don’t let the horror stories about dealing with Asian markets put you off – but don’t go into it blindfolded, either
We all know some of the horror stories about Asia being the rip-off capital of the world, and some of them are true. But if you don’t want to let that frighten you away from some of the most lucrative markets in the world, you need to look a bit deeper to understand how you can avoid the worst – because most of the problems relate to misunderstandings of one form or another.
White cites a classic example of when a client software company believed they were on the verge of securing a large Chinese software deal. The Chinese firm had repeatedly asked him to return with further details on how his software could work for them. But when White and a Chinese KPMG colleague joined the next meeting the company thanked White’s client sincerely for his help, took everybody out to dinner and enthusiastically explained how they had now handed all the information on to their own team of
‘We have been seeing quite a lot of trade marks getting hijacked by opportunists
in China who see trade marks overseas and then file them in their name’
Anton Blijlevens, AJ Park
software developers to create something similar.
Other problems arise from a key difference in law, so it is worth getting the right legal heads on board your export train, as AJ Park’s patents partner Anton Blijlevens explains.
“In the US, UK and New Zealand we have Common Law rights for trade marks, which gives the person who first uses the trade mark some rights. If somebody else tries to register it they will have difficulty. But in China and other parts of Asia there is no common law system and no prior use rights. The person who is first to file has the rights.
“So we have been seeing quite a lot of trade marks getting hijacked by opportunists in China who see trade marks overseas and then file them in their name. When the original trade mark owner comes into the Chinese market they are infringing that Chinese person’s trade mark, despite the fact that they may have been using it overseas for a number of years.”
He also notes that a search of the Chinese trade marks database reveals a surprising number of trade marks registered to Chinese firms with no obvious New Zealand connections with the name ‘Kiwi’ or ‘New Zealand’ in them, presumably to take advantage of the legal loophole in a form of trade mark squatting.
Beyond that, even the companies you end up with business relationships with could also be ripping you off.
“It is not uncommon for contract manufacturers in China to be running night shifts and selling your product out the back door,” says Blijlevens. “Also, what they are doing if you do not have the right contracts in place is just scraping your IP – saying yes, we will manufacture this product for a few years. But in the meantime they are learning a lot about your technology and are improving it and filing patents for the improvements in their own name.
“That can be a problem for the original IP owner. They original owner is precluded from making an improved version because their manufacturer owns the patent to the improvements. It’s a clever way for manufacturers to keep you as a client for longer than a few years.”
You could argue that some of this simply illustrates that China is now geared up to beat most of the rest of the world to the punch when it comes to new product manufacturing. Both Blijlevens and Baker have encountered technology divisions capable of replicating electronics technology for mobile devices and having it ready for market within 48 hours. If you aren’t careful about how you negotiate, this
could mean that your new idea is pulled apart and stolen, or made by somebody else before you get on the plane for home.
Enderwick brings his own horror story into the mix, illustrating that the issues are not limited to IP ownership problems.
“They work on very thin margins, so there are all sorts of incentives to cut costs and occasionally cut corners. They don’t necessarily see that as immoral, or breaking contractual agreements, they just see that as a way of doing business.”
He cites the toy industry in China’s Guangdong province, where, for example, last March an investigation by China Central Television found that large quantities of low-quality toys were being manufactured in Chenghai with recycled plastics that included improperly treated medical waste such as syringes. At the processing workshops, plastic materials and used medical devices were simply being smashed, rinsed and dried, and then sold to toy producers.
The good news is that things are changing. With Hong Kong and Singapore leading the way by adopting world standard IP laws and enforcement. China also spruced up its own IP law and enforcement after 2001, when the
‘It is not uncommon for contract manufacturers in China to be running night shifts and selling your product out the back door’
country joined the World Trade Organisation. But Blijlevens has a warning. “To make it work you have to have some intellectual property protection. Even in countries that have poor IP laws, if you have IP then at least you have a stick to wave around. If you don’t, you’ve got nothing. If you don’t choose to wave it around, that’s up to you, but at least you have the option.”
AJ Park does the initial protection for its clients from here, but Blijlevens also visits the Chinese IP firms he works with regularly to keep up with the frequent law changes in-country and recommends that business owners do the same.
“It’s not just for product quality control but for IP
control,” he says. “But also to keep the contract manufacturers up there honest.”
If things do go wrong in China, catching the culprits can be the biggest problem, but once you have enforcement it’s relatively straightforward and cheap. In other areas of Asia, even enforcement can be difficult, with corruption often thwarting the march to justice in places such as Indonesia.
Of course, by the time enforcement has happened a lot of ideas can be out of the bag, so the best way to stay ahead is, as always, to stay ahead. Stick to you proposition, build great partnerships, keep innovating, keep it authentic and about you, because that can’t be counterfeited.
‘To make it work, you have to have some intellectual property protection. Then at least you have a stick to wave around. If you don’t, you’ve got nothing’