SCDigest
Editorial Staff
| SCDigest Says: |
 Most companies don’t know that in China, patents are awarded to the first to file, not necessarily to the originator of the product or technology.
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As companies from Apple to General Motors have learned, protecting intellectual property amidst the explosion of offshore manufacturing and efforts to penetrate the domestic market in China should be a top concern of any supply chain strategy there.
By most accounts, the Chinese government and Chinese rule of law have both made progress in terms of intellectual property protection from conditions just a few years back, but that hardly means those companies operating in the country can expect anything like Western standards yet.
“The truth is that counterfeiting and piracy remain common,” say Dr. David Reid and Simon MacKinnon in a recent article for the Sloan Management Review. Dr. Reid is the Thomas F. Gleed chair of business administration at Seattle University's Albers School of Business and Economics, while MacKinnon is president, Greater China, for Corning (China) Ltd. in Shanghai.
It’s a topic SCDigest has covered several times before (see Supply Chain Graphic of the Week – Protecting Intellectual Property in China), but Reid and MacKinnon offer some fresh insights into best practices for mitigating IP risk in China.
If you are currently manufacturing in China or are considering doing so, Reid and MacKinnon offer these ideas as a checklist for IP protection:
- Educate Employees: Employees are the source of most IP losses, often unintentionally. Don’t rely on basic, theoretical training when an employee is hired; focus instead on situational, practical training that relates to everyday work. Consider using the term “Information Protection,” which may resonate more than the academic sounding “Intellectual Property.”
- Enforce “Need to Know” Information Sharing and Access: While non-disclosure agreements should be used, the reality is that trying to enforce them after an employee leaves the company in China is most often a losing battle. Better to not share everything with employees, and limit access to documents, databases, and other information on a “need to know” basis. But there are other more basic steps as well: For example, “it shouldn't be possible for someone to walk through the production process and read gauges to cull data such as line speeds and critical temperatures and pressures. That data can easily be disguised by installing gauges with erroneous readings decipherable only to those who need the information,” Reid and MacKinnon say.
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Be Quick with Patent and Trademark Registration: Most companies don’t know that, in China, patents are awarded to the first to file, not necessarily to the originator of the product or technology. Similar problems exist with trademarks, as locals file trademarks that are the most likely translations of Western names and brands. There’s no magic bullet here, and companies may have to buy their way out of many situations, but filing patents and trademarks as early as possible can mitigate the risk. 
