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How to win the global IP rights war

The enforce­ment of intel­lec­tu­al prop­er­ty (IP) rights has become a pri­or­i­ty for multi­na­tion­al cor­po­ra­tions as they expand their cus­tomer bases and sup­ply chains around the world.

The good news for them is that a grow­ing num­ber of coun­tries have signed up to inter­na­tion­al IP rights treaties in a quest to attract more invest­ments.

But key emerg­ing mar­kets for multi­na­tion­als remain a long way from putting in the nec­es­sary effort to turn the let­ter of the law into effec­tive tools against pirates and coun­ter­feit­ers.

As a result, com­pa­nies have been allo­cat­ing ever­more resources in a bid to safe­guard their trade secrets. How­ev­er, they often have few mate­r­i­al results to show for their efforts.

The rapid expan­sion of the inter­net and oth­er com­mu­ni­ca­tion tech­nolo­gies in emerg­ing mar­kets, where much of IP rights infringe­ments are com­mit­ted, has made it hard­er for com­pa­nies to fight for their patents and trade­marks.

And new tech­nolo­gies that keep pop­ping up do not make the task any eas­i­er. Accord­ing to experts, the lat­est threat to emerge has been 3D print­ing, which poten­tial­ly makes it much sim­pler for pirates to pro­duce faith­ful copies of arti­cles that are val­ued most­ly for their shape, rather than the mate­r­i­al they are made of.

The high cost of 3D print­ers has helped to keep this men­ace at bay for a while. But as prices come down, 3D print­ing is set to become a new fron­tier in the fight against coun­ter­feit­ing.

Efforts to fight the prob­lem are under­way, but a func­tion­ing glob­al IP rights regime remains lit­tle more than a pipedream

Accord­ing to the Inter­na­tion­al Cham­ber of Com­merce, the glob­al annu­al impact of coun­ter­feit­ing and pira­cy will next year reach $1.7 tril­lion, more than dou­ble the 2008 fig­ure.

More than half the loss is caused by the inter­na­tion­al trade in fakes and the domes­tic pro­duc­tion of coun­ter­feit­ed prod­ucts answers for up to a fur­ther $540 bil­lion. The dig­i­tal pira­cy of music, video and soft­ware is set to account for some $240 bil­lion in 2015.

In the Unit­ed States alone, the phe­nom­e­non drains around $300 bil­lion from the econ­o­my every year, the equiv­a­lent of US exports to Asia, say anti-pira­cy cam­paign­ers. Such num­bers, as high as they may look, could in fact under­es­ti­mate the real cost of the prob­lem as, by their nature, IP infringe­ments are dif­fi­cult to quan­ti­fy.

Efforts to fight the prob­lem are under­way, but a func­tion­ing glob­al IP rights regime remains lit­tle more than a pipedream.

“Laws are being changed because coun­tries want to attract invest­ments from com­pa­nies and that is a step in the right direc­tion,” says Michael Hart, head of the IP depart­ment at law firm Bak­er & McKen­zie in Lon­don. “But it will take time and changes in the polit­i­cal cli­mate for such laws to be prop­er­ly enforced.”

Many coun­tries have sub­scribed to reg­u­la­tion through adher­ing to the prin­ci­ples of the World Trade Organization’s Trade-Relat­ed Aspects of Intel­lec­tu­al Prop­er­ty Rights (TRIPS) regime. But actu­al­ly enforc­ing the rules is a com­plete­ly dif­fer­ent mat­ter.

Some­times non-enforce­ment is the result of a dearth of means as slow judi­cia­ries and inef­fi­cient patent reg­is­tra­tion process­es con­tin­ue to be hall­marks of sev­er­al coun­tries.

This is the case in India, for exam­ple, accord­ing to Roland Malli­son, a part­ner at Lon­don-based law firm Tay­lor Wess­ing. “The laws in India are rea­son­ably good, but the infra­struc­ture behind them is def­i­nite­ly lack­ing,” he says. “There are huge delays in Indi­an reg­istries. They have now a spe­cialised court for IP mat­ters, which is a good idea. But it is a court that moves around sev­er­al cities, which is very dis­rup­tive.”

India has been placed last among 36 major juris­dic­tions in the fourth Glob­al Intel­lec­tu­al Prop­er­ty Index draft­ed by Tay­lor Wess­ing. But sim­i­lar prob­lems can be found in oth­er parts of the world, says Mr Malli­son.

“In some Mid­dle-East­ern coun­tries, the process of apply­ing for a patent or a trade­mark often requires numer­ous phys­i­cal vis­its to the min­istry of econ­o­my,” he says. “The whole process may take up to three years and the patent or trade­mark may not actu­al­ly fea­ture on the reg­istry for five years. Some­times com­pa­nies want to launch a prod­uct in one of these coun­tries, but they can­not be sure that it does not con­flict with a reg­is­tered patent because the reg­istry is out of date.”

Oth­er times, how­ev­er, IP cam­paign­ers iden­ti­fy a con­sid­er­able degree of bad faith in the fail­ure of the author­i­ties to enforce their own IP rules.

For exam­ple, the US Con­gress has recent­ly come up with some scathing lan­guage about Chi­na and its approach to oth­er people’s intel­lec­tu­al prop­er­ty. “Nation­al indus­tri­al pol­i­cy goals in Chi­na encour­age IP theft, and an extra­or­di­nary num­ber of Chi­nese in busi­ness and gov­ern­ment enti­ties are engaged in this prac­tice,” accord­ing to a US Con­gress report. “There are also weak­ness­es and bias­es in the legal and patent sys­tems that lessen the pro­tec­tion of for­eign IP.”

The bot­tom of the rank­ings elab­o­rat­ed by Tay­lor Wess­ing also includes oth­er large emerg­ing economies, such as Brazil, Indone­sia, Mex­i­co, Turkey, Rus­sia and South Africa. But, for its sheer size and the piv­otal role it plays in glob­al sup­ply chains, Chi­na is a focal point for multi­na­tion­al firms when it comes to IP rights.

It is also one of the juris­dic­tions where, some­what dif­fer­ent­ly from Amer­i­can politi­cians, experts have not­ed that progress has been made in recent years to enforce patents and trade­marks.

This has been to a large extent attrib­uted to the devel­op­ment of China’s own research and tech­nol­o­gy, which has dri­ven com­pa­nies to seek pro­tec­tion for new prod­ucts they have devel­oped in the local mar­ket. In fact, Chi­na was the coun­try where the high­est num­ber of patents were filed in 2012, accord­ing to the World Intel­lec­tu­al Prop­er­ty Orga­ni­za­tion.

In May, Chi­na is due to start imple­ment­ing a new trade­mark law that intro­duces impor­tant pro­vi­sions, such as high­er penal­ties for infringers and a stream­lined court process to deal with dis­putes.

But com­pa­nies fear the progress could be hin­dered by oth­er pro­vi­sions of the law which, for exam­ple, elim­i­nate the right for par­ties in a court case to appeal against a deci­sion tak­en by the trade­mark agency.

“In terms of trade secrets, pre­ven­tion is always bet­ter than cure,” says Lara Quelch, a senior IP con­sul­tant at KPMG in Lon­don.

Some­times that requires a legal­ly enforce­able con­tract to pro­tect IP and allow the company’s right to per­form unan­nounced audits of a third party’s premis­es.

Ms Quelch notes that some com­pa­nies have decid­ed to dis­trib­ute parts of their pro­duc­tion chains among sev­er­al dif­fer­ent coun­tries to reduce the risk of the process being copied and trans­ferred to rivals.

Experts also stress the need for com­pa­nies not to tol­er­ate any infringe­ment to their IP rights. That means not only tak­ing aggres­sive action when coun­ter­feits are iden­ti­fied, but also acquir­ing a thor­ough under­stand­ing of how the local gov­ern­ment and judi­cia­ry work.

“Com­pa­nies have to adopt IP pro­tec­tion strate­gies that are appro­pri­ate to local sys­tems,” says John Wilks, a part­ner at law firm DLA Piper in Lon­don. “It is impor­tant to under­stand what a par­tic­u­lar local sys­tem is good for and what are its lim­i­ta­tions.”

The fight is hard, though, and takes place in a glob­al envi­ron­ment, which forces com­pa­nies to pick its bat­tles accord­ing to their imme­di­ate needs and long-term goals.

Bak­er & McKenzie’s Mr Hart con­cludes: “The most suc­cess­ful IP pro­grammes have a degree of flex­i­bil­i­ty that enables com­pa­nies to shift resources from one place to anoth­er as sit­u­a­tions change. Com­pa­nies need to employ a whole com­bi­na­tion of mea­sures to con­sol­i­date their rep­u­ta­tion as some­one that coun­ter­feit­ers do not want to mess around with.”