You’ve heard the horror stories. A U.S. company, Company A, hires a Chinese manufacturer, Company B, to manufacture an important product and ship it back to the United States for sale.
Company A is thrilled to find that its costs of manufacturing will be much lower, even with transportation costs.
Everything seems great. Quality product is delivered. By reducing manufacturing costs, profit margins improve. Then Company A finds lower-cost replicas of its product popping up in the United States. Those products are clearly knock-offs of Company A’s product.
How can such a situation be prevented? Following are some suggestions for protecting your company’s intellectual property when your production is shifting overseas:
1. Protect your intellectual property under U.S. law. Sourcing overseas can create opportunities for infringement. Company B may need access to Company A’s confidential information, including drawings and methods of manufacture and assembly.
If Company B ships directly to Company A’s distributors in the United States, Company B may also have access to confidential customer lists and purchasing data.
If your IP is protected under U.S. law, you will be able to stop the flow of unauthorized product into the United States. Filing in the United States can also provide the basis for foreign filing, thereby resulting in earlier priority dates in foreign jurisdictions.
2. Review your IP assets and the laws of the sourcing country. IP is protected on a country-by-country basis. A patent issued in the United States will not protect you overseas, except in those countries where you also file. Likewise, IP laws differ in terms of requirements. If you intend to seek legal protection overseas, you need to advise your IP counsel so that he can protect your company’s IP in the foreign jurisdiction and conduct searches to ascertain where protection is possible.
For example, under U.S. law, an inventor has one year from the first sale or public use of the invention to file a patent application. However, the patent laws in most foreign countries require that a patent application be on file before the first sale or public use of the invention.
Trademark laws can also vary. The United States, as a British-based, "common-law" system, recognizes trademark rights based on use, without registration. Most other countries recognize trademark rights based on registration. In those countries, use without registration won’t be sufficient to stop use of the mark by a prior registrant.
The failure to recognize and respond to the legal differences in foreign jurisdictions has created problems when U.S. companies source product overseas, only to find that patent protection is unavailable or the desired mark has been registered by another company.
Before sourcing product overseas, review the IP aspects of the product being sourced, including: patents (both utility and design); trademarks (word marks, stylized marks, logos, trade dress and product configurations); copyrights, (drawings, marketing materials, brochures and software); and trade secrets.
3. Consider whether the product will be sold in the sourcing country. Different considerations are necessary when selling product in the sourcing country. For example, if product is marked and sold in a foreign language, how does the mark translate? Does it have any undesirable meanings when translated? Should the mark be registered in the foreign language as well as in English?
Company A should also consider whether the manufacturer will be marking product. If Company B is only manufacturing and ships product directly to Company A for packaging and labeling, the legal protections needed are different than if Company B is also labeling product.
4. Document the relationship with written agreements enforceable in the sourcing nation. All aspects of the sourcing relationship should be addressed in written agreements.
Since Company A may only have jurisdiction over Company B in the sourcing nation, attorneys knowledgeable about the relevant laws of the sourcing nation should be consulted to ensure that the agreements are enforceable under the foreign country’s laws.
Although unauthorized product imported into the United States may be enjoined if the product is protected under U.S. law, the continued manufacture of infringing product by a terminated manufacturer overseas can be a troubling problem elsewhere.
Sourcing product overseas requires new legal strategies to protect your company’s intellectual property, both overseas and in the United States. Word to the wise: IP is a valuable asset. Take steps to protect it before sourcing overseas.
Elisabeth Bridge, an attorney at Whyte Hirschboeck Dudek S.C., will speak at the Conference on Global Sourcing on Thursday, March 11, at the Italian Community Center. The conference is presented by Small Business Times, the Wisconsin World Trade Center and Whyte Hirschboeck Dudek. For further information, call 414-274-3840.
March 5, 2004 Small Business Times, Milwaukee
