You are the CEO of a small company that has a retail product with patent rights. A very large department store chain sends one of your company’s products to China and begins buying a knock off from a Chinese manufacturer. When confronted by the company, the buyer tells you: “Your problem is with the Chinese manufacturer, not me, sue them”. How do you protect your rights, against customers or manufacturers who have very deep pockets, without losing all of their business and spending a huge sum of money? You have a dilemma that is similar to many companies across the world. You have paid a lot of money creating unique technology and filing a patent.
As you know, a patent is only as good as your willingness to defend it. But, you are a small company without a lot of money. Litigation can be very costly and, in the end, this is high risk money. If you don’t defend it, you leave the company vulnerable to others stealing your Intellectual Property (IP) as well. This dilemma is unfortunate, but all too common.
This article is about the strategies a small company can use to protect its IP rights. It is a compilation of suggestions, ideas and actual tactics used by members of “The Global Leaders” network. There are many options for protecting a company’s IP that don’t cost significant amounts of money as pointed out by 47 respondents to this problem from many different industries and 14 countries including China, which has long been known to have little regard for IP.
There are two parts to this dilemma. The first is to define what the appropriate reactive steps are to deal with this issue. The second is to define what the proactive steps should have been to assure yourself that you don’t get into this position. We will deal with the reactive steps first.
After you have found out about the infringement, your first impulse is to take an aggressive position with your customer and to call an attorney: a normal response. There are innumerable attorneys who will take this one for an hourly fee. Depending on the strength of your case and research, filing a lawsuit and a trial could cost millions of dollars.
Before you make that call, consider some intermediate tactics that will provide you better ammunition and a better understanding of what you are faced with, potentially save your company a lot of money. The objective is to resolve the issue, maintain a good relationship with a primary customer and see if there is a way both of you can come out of this a winner.
The first step is to make sure you have been wronged. Have your design team take apart the offending product and validate that the product infringes on your patent. It is worth having an outside engineering firm confirm your suspicions and document the results. A third party review carries more weight in the eyes of your customer, the offending party and the legal system. This will save you from making a decision based on emotion.
Once you have the results, it is important to speak with the legal firm that originally drafted your patent to get their final validation. After everyone is in agreement that there has been a violation, there are a number of important steps to consider.
Find out if any other customers are buying this product from the manufacturer. This is an important consideration in the steps you take to deal with this issue. If no one else is buying the infringing product, then it is likely that there is collaboration between your customer and the manufacturer. Or, the manufacturer has just introduced this product and hasn’t begun marketing it yet. Either way, if no one else is buying the product, it will just make it look all the more shady for the buyer. Ball in your court…..
As soon as attorneys get involved [no disrespect to the legal community here intended], then it is very difficult for business people to sit across the table from one another and settle the issues quickly without litigation and significant cost. In many tough situations I have encountered during my career running small companies who had limited funds, I have used the silent advice of my legal counsel and done much of the heavy lifting myself.
Constant, documented communications is the most key element of any strategy you develop. Here are some of the key steps you should consider:
- Notify the buyer(s) of these products that company XYZ is selling product in the US that violates your patent via certified communications. Always include the patent numbers in any communication.
- Notify the manufacturer they are violating your patent protection in the US and ask them to cease selling it. Consider offering to license the technology to them at a rate equal to your gross margin on the product as a starting point.
- Document all verbal communications that you have with any buyer or the manufacturer. When you have these verbal communications, there should be another person present, such as your CFO or sales person. You should also email a summary of any communication to the person(s) you were having the conversation with and the witness. This gives you trace-ability.
- Do steps 1,2,3 on a routine basis, such as monthly or quarterly. This is very important, because it will play a key role later on in the process.
- Each time you communicate with the buyer or manufacturer, and they either ignore you or tell you to take a hike, escalate it to the next level the next time you communicate with them. People don’t want to be embarrassed, but they also need to know that you are committed to bring this to resolution. In the case of the buyer, never make any accusations about who did what. Only report the facts and your commitment to protecting your IP. In each communication, reaffirm the findings of an outside expert and the conclusions of your patent lawyers.
- Make each communication in laymen’s terms. Be sure to cover the salient points your counsel wants you to make, in your own words. This allows you to be the focus of the discussions.
All major corporations have a corporate ethics committee and the worst thing that can happen is for the board and others to find out that they have deliberately crushed a supplier through unethical and potentially illegal activities. With today’s viral markets and networks, something like this could spread like wildfire, and no one wants that, especially a buyer.
While you are communicating to your customers and the offending manufacturer, you have some other areas to investigate. It is important that you don’t threaten to “go to federal agencies if they don’t stop”, because that could be perceived as a threat or extortion.
The clearer your case is, the more likely many other people will want to help. Here are potential supporters in your cause:
- Contact your local representative of congress on the state and federal level. Elected officials care about these types of issues and it is likely that you may get their help with additional resources.
- Have a discussion with customs officials. A quarantine of the product at the port will put many people in a bind, allowing you to come to their rescue on your tems.
- Consider a discussion with the Justice Department who has a task force in Silicon Valley that is focused on IP protection for companies.
- See if you can communicate with the import/export regulators of the country in which the offending manufacturer resides.
Use social networks, list servs., business bloggers, press releases, LinkedIn, Twitter, Facebook, etc. to communicate to the world that you are standing up to your rights by fighting this infringement. You should also use the services of expert resources that are willing to provide you with additional information and ideas. Many internet sites have question and answer sections that will allow you to ask for help and ideas. It also virally spreads the word.
Don’t name names, only communicate that you are taking action. Get the local newspaper, Chamber of Commerce, business journal, etc. to report on your dilemma. In every case, make sure the offender(s) get a copy of anything that is printed.
You should focus on the newspapers and bloggers in the geographical locations of the offender(s) and their corporate and regional headquarters. Make sure that that you comment on unique identifying marks that everyone can see in these articles. As a senior executive, if I saw such an article about infringement, it would only take a few moments for me to send a note to my supply chain executive to ask if we were buying any of these products, or if the product we were manufacturing infringed on someone else’s IP.
The power of the media and social networks for this type of cause is relatively new, but there is ample evidence where social media has been used in such cases as Vacation Rental By Owners (VRBO) and AT&T in the IPhone debacle. With a properly tailored campaign, you can enlist fans, followers and sympathizers to help defend your position. This also highlights your business, potentially identifying new customers and incremental sales.
So everything has failed and you have decided to sue both the manufacturer and possibly enjoin the customer(s). Here are some thoughts to consider.
- Recognize that any of the actions above, need the guidance of an IP or business attorney. If you have decided to file a suit, make sure you have engaged a legal firm who has significant experience in settling international IP disputes. Your choice of the legal firm to use will have a huge impact on a defendant’s view of the cost of litigation and the likelihood of losing.
- Understand the potential risk reward equation for the customer(s). If they are saving $0.50/unit by buying it in China and they buy 2-3 million per year, they are going to be willing to spend a lot of money defending these economics. This will help you and your legal counsel prepare a budget.
- If you are found to be wronged, the steps you took in documenting your communications and the decision by your customer(s) to continue using product that violates your patents could make them liable for treble damages. If that is the case, you will be able to get the notice of contingency IP firms. The potential for treble damages will certainly be part of the risk reward analysis the customer will undergo.
- See if there are any private investment groups (PEG’s) who specialize in acquiring the rights to potential IP lawsuits.
- File the suit in the US against the foreign manufacturer, which confirms your official intent to fight this in court. Of course, you want let your customer(s) know that you have done this. You may find that the foreign manufacturer will not be willing to defend themselves in the US, possibly allowing you to get an injunction, ultimately leaving the customer in a lurch: One for which you would gladly help them out on.
So far, we have focused on the reactive side of IP protection. As stated earlier, your IP is only as good as your willingness to defend it. If you choose not to, you are declaring open hunting season on all of your intellectual property. The logical question is: How do I best protect my IP in the first place?
Most companies will find that they have not set up proper procedures for protecting their IP. They aren’t proactive and don’t routinely remind everyone about the seriousness of protecting confidential information. Patents and Trademarks are only two of the things companies must do to be proactive. Companies need to be sure that customers, vendors, employees and others are continuously reminded about the importance of protecting confidential information and Intellectual property. Questions companies should ask themselves include:
- How well do we protect ourselves in our documentation, communications, presentations and other printed matter?
- Do we routinely remind our employees that their knowledge is the intellectual property of the company?
- When a new product is launched, are customers and vendors asked to sign non disclosure agreements?
- What is the policy for sharing information about the company on social networks?
- Do products properly display patent numbers?
- What do you do when an employee leaves?
- Is there specific training that could be provided to employees which is focused on protecting your IP?
There are many instances of violation of IP worldwide. Some countries are much more sympathetic to the legal protection of someone else’s intellectual property than others. When confronted with a violation of your rights, which you worked hard for and paid a lot of money to develop, you have to take significant actions, otherwise you are setting a bad precedent in the marketplace and putting a bulls eye on your company’s IP and sales. Be prescriptive in your approach and seek out the advice of competent experts.
The expertise and experience of senior level executives from around the world concludes that you can defend your rights through a well choreographed campaign that includes significant communication, and a controlled escalation of the issue, prior to going to court. Most of the items outlined have little cost, but require a significant amount of your time. Although your time is has significant value, using it is a better option than a lawsuit which will also consume a considerable amount of time for you and your staff and require considerable cost. This approach may ultimately result in a better relationship with the customer and a better understanding in the industry of your company and its technologies: A win-win all around.
It is important to be proactive in the protection of your company’s intellectual property. The cost of defending it could be very high, while the cost of protecting it is very low. Being proactive requires discipline throughout the business, but has the potential for being the highest return on investment. When everyone throughout your supply chain, including customers, vendors and employees are continuously reminded of the importance of IP to your company, they will think harder about stealing it, and also be more careful about what they divulge to others.
As part of Group50 Consulting’s Company Physical™, we have developed a business level audit for Intellectual Property. Depending on the size of the business, it generally takes a couple of days per site. The audit covers every functional area in the business and provides the executive team with a complete review of their employed tactics in protecting IP.
About the Author:
Jim Gitney, Co-founder of The Global Leaders, a leading business only network, wrote this article in collaboration with 50 contributing members of The Global Leaders Network. Mr. Gitney is also the CEO of Group50 Consulting [www.group50.com] which provides interim executives and project resources to its manufacturing and distribution customers. Mr. Gitney combined his 30+ years of running large corporate organizations and small companies with the inputs from TGL to write this article. For further information about Group50 Consulting and The Global Leaders, please feel free to contact Jim at email@example.com or call (909) 949-9083.
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