IP Strategy · Manufacturing in China

If overseas manufacturers make my invention, how much more likely will it be stolen?

David Austin

December 29th, 2015

I own some intellectual property for a new and novel product that involves a unique manufacturing process, which product targets a very expansive and global customer base. It will be cheapest by far to manufacture it in China, but will that be worth it? Will using them significantly increase the chances of the IP being exploited by Chinese manufacturers?

I've heard horror stories ... how true are they?

David Still Founder of Start-ups, Entrepreneur, Financier and Advisor

December 30th, 2015

Your IP has probably already been stolen if you filed a patent at the patent office outside Washington. Have you ever been to the office? It's like going to a UN convention. Further, I believe there are different confidentiality rules for US versus foreign patents, but you would have to check with your lawyer. Practically, for most small companies, patents are just about worthless. Many new entrepreneurs misunderstand the value patents create, and how difficult they are to enforce. A patent is for offensive purposes, not defensive. It gives you the right to sue a party who makes commercial use aka infringes on your patent. It does not give you the right to practice your technology free of interference. There are actually organizations that exist solely to sue you or threaten litigation for infringement like "greenmail" i.e. the practice of spending enough money to threaten you and/or litigate to force the small IP owners to sell or even give them the IP, which is economically better than litigating. The bad news is the better your invention and more valuable the prospects the greater the chance that others will copy or come after you. You generally can trust every other party to do what is in their best interests - not yours. This is not a pessimistic view. Pessimists are, in my view, simply profound optimists who know too much. All you can do is charge ahead - fast. This is a risk that is generally uncontrollable. Good luck.

JD Ryan Downunder Toys Pty Ltd

December 29th, 2015

In my experience, it will depend on the market you are in. you can make contact with an agent in your own country, who knows the Chinese manufacturing scene, and who can take your job to a reliable manufacturer. If you do not have a contact whom you know and trust, you are more vulnerable of course.
In my market, the problem is so endemic with Chinese manufacturers that we have decided to manufacture, at higher cost, in our own country. this is the ONLY way we can control our IP in the short term.

Jeff Fitzmyers Project Manager at Energy Remodeling Inc.

December 29th, 2015

I have heard multiple times that a workable way to do things is hire a proven trusted person in China to help set things up correctly.

Sung Han Respected bilingual technology executive with highly honed business acumen

December 30th, 2015

I agree with David Stil's comments.  In fact, innovating faster in markets like China is really only way to win and inoculate from coping...litigation is also

Shane McKenna Bringing more creativity to your engineering... Delivering more engineering to your creations.

December 29th, 2015

If your product is good, it is going to be stolen. One viable approach is to get a large Chinese partner who will bring both the in country connections and funding to defend the product. If you need help with that,

Thomas Sutrina Inventor at Retired Pursue Personal interrests and family

December 30th, 2015

Is the IP on the product or the process?  If it is on the process then assume it is already copied.  If you are lucky they will have done a poor job and there lack of detail and attempt to make it cheap will have already saved you. 
I hope that you can identify and prove that someone is using your process?  If you can not then all the money in the world will not protect it. 

If the process creates a large margin then that is the only weapon you have.  That weapon only has value when it is in the hand of someone that is making a profit with that margin or can be put in the hands of someone with that capacity.  Can you use the fact that it is being copied as a means to find a producer for your product that will give you a royalty?   Do they have a reason to defend the patent, make money after defending it?  
Sometimes you will find a copy at a store and try to prevent the store from selling your invention.  But remember that the store can use other products of that producer as leverage to stop such action. Pick a producer if you can that will not have this problem.  

Good luck 

Jim Twerdahl Marketing and Strategy Consultant and Investment Banker to Small and Middle Market Companies

January 3rd, 2016

Hi David,

 

We have a company that sources electronics and other complex products for U.S. manufacturers in China.  In our 30 years’ experience we have had a few problems, but for the most part find things are OK.  Having said that, though, I would still take the proper precautions including:

  • Patent protection if possible.

  • Trademark registration.

  • Copyright of designs and trade dress.

  • Formal Non-Disclosure agreements.

  • Careful screening and vetting of vendors.

  • Candid discussions with company management.

  • QC inspectors working for you who are in the factory after every production run with their eyes wide open to possible violations.

 

If, up front, vendors know you are serious about protecting your intellectual property they are far less likely to play games.

Joseph Wang Chief Science Officer at Bitquant Research Laboratories

April 21st, 2016

If you do manufacturing in China, it's extremely likely that your process will be copied.  The important thing is to make sure that this does not matter.

One strategy that some companies do that's quite successful is to just forgo the Mainland Chinese market, and make sure that the IP is protected in the US/Europe.  Chinese customs and the Chinese government are pretty aggressive at making sure that products that violate foreign patents do not get exported, and you can then get protection at the import side.  If the company wants to do something in the Mainland Chinese market, they use something other than patents to protect the process.  This can include branding, quality, speed to market, controlling distribution, or something else.  There are some pretty clever business models that have come up.

Alternatively, one other strategy is to find the companies that are likely to copy the process and do a licensing deal.  You license the process for the Chinese company, and in exchange you reach some agreement that allows them to do something in the US/Europe.  Finally, there have been some companies that just succeed by being fast.  You come up with something new, and by the time everyone else copies it, you've made your money.

The other thing is that you need to be aware that just because you aren't manufacturing it overseas, doesn't mean that it won't be copied.  Chinese companies are on the internet, so if there people know about your process, then there's a good chance that someone is going to try to copy it.  One amusing thing is that Chinese manufacturers find Kickstarter to be a useful source of ideas.

One final thing is that if your strategy involves IP, you need to make sure that it's done correctly.  One thing that's quite common is for a Western company to complain that they have been "ripped off" by a Chinese company, when in fact it turns out that the Western company did not properly protect their IP in the first place, and everything the Chinese company turns out to be legal. 

David Austin

December 30th, 2015

Thanks for the input. The IP is on both product [utility and design) and every conceivably reasonable manufacturing process.

David Austin

December 30th, 2015

Thanks for all inputs so far.

I can see how some of you think I just fell off the turnip truck.  I should have been more clear:  I fully expect it to be violated at some point and level, but am interested in strategies to reduce that.  Right now with regard to *where* to manufacture it.  Thank you Ryan for you input about that.

I previously had already considered and have built into my business plan most of the suggestions made so far (great minds think alike, well not really but that's another thread).  One or two were new to me though so please keep it coming.