07.02.08
Posted in China, Intellectual Property, Negotiating, Standards, Taxes & Tariffs, Trade Policy at 11:40 pm by Administrator
International Trade is again an issue in the Presidential campaign. John McCain was in Colombia this week and spoke out in favoring the Free Trade Agreement (FTA) with the country, calling Obama and the Democrats “protectionists”. The most famous FTA, the North American Free Trade Agreement (NAFTA) was a major issue in the 1992 campaign. H. Ross Perot pilloried NAFTA claiming there would be a “great sucking sound” as Mexico would siphon off jobs from the US to Mexico. That never occurred, and although there were never the major job gains that the George H.W. Bush promised, the US clearly has benefited from tremendous increase in bilateral trade.
How do FTAs work? The countries involved (this could be bilateral as in the case of Chile-US or multilateral as with Central America and the Dominican Republic –CAFTA-DR– with the US) negotiate on both tariff levels and codes of conduct. Most tariffs are reduced to zero, but inevitably some politically sensitive products are excluded (so most are “Almost Free Trade Areas”). On codes of conduct, the countries negotiate on issues like intellectual property, standards, financial services, etc. using the original NAFTA agreement and the WTO codes as a starting point. The resulting agreements have to be ratified by the respective legislative bodies. (In the US, under the negotiating authority, the House and Senate approve it on an up/down vote (no amendments allowed), as opposed to other international treaties which require a 2/3 vote of the Senate. Once the agreements are ratified the governments must pass implementing legislation to bring national law into conformity with the FTA. The FTAs also provide for consultations and dispute resolution mechanisms to ensure that both sides are living up the bargain.
For the US, the FTA is usually a great deal since the US has relatively low tariffs and already has strong laws that the codes cover. The pending agreement with Colombia is a case in point. Virtually all of Colombia’s exports enter the US duty free and Colombian companies already enjoy all of the protections in terms of intellectual property, investment guarantees etc. On the other hand, US exporters face considerable tariff and non-tariff barriers going into Colombia. Clearly the US has lots to gain from an agreement with our South American partner.
Why then is there such opposition from groups like unions and environmental groups? The unions may affected by job losses for union members who are protected from international competition. Frankly, with greater and greater trade, the marginal effect of an FTA with Colombia or South Korea on union jobs will be so small that it would be hard to detect by most statistical analyses. Nevertheless, manufacturing jobs are being outsourced (largely to countries with no FTAs, like China and India) and the unions are looking for scapegoats. On the environmental front, there is the concern that increased production will result in increased environmental damage. The FTA’s all contain environmental clauses, not as strong as some enviros would want, but considerably more that there are in the absence of FTAs (again China and India are prime examples.)
We are in an increasingly interconnected world and FTAs increase the interconnectedness. While there are some inevitable unintended results from FTAs, overall the global economy benefits.
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01.03.08
Posted in Intellectual Property at 12:31 am by Administrator
Despite all the progress of the WTO in the past ten years in getting countries to protect patents, trademarks and copyrights, there are still many places where there are laws in place but no possibility of enforcement. Many manufacturers complain about piracy from China, yet many more companies successfully manufacture there. There are other examples from around the globe. So what are some tactics used by these savvy companies?
- Change designs so quickly that the pirated good reaches the market only after a new design has come out. Many luxury good designers follow this tactic. A high-end decorative ceramic maker told me he gave up on trying to copyright his designs. Since he started manufacturing in China, he sees his designs show up in Target and the like within a few months. Instead of spending money on lawyers, he simply changes the pattern several times per year.
- Break up the manufacture so that no one sub-contractor will understand the overall product. For electronics manufacturers, this extends to keeping the most sensitive parts of the design in house or within the United States. If you keep it within the US, a good non-disclosure agreement (NDA) can help protect the “secret sauce.” Another variant is what Coca-Cola does – the base syrup is manufactured in wholly-owned facilities. The syrup is diluted and sugared for the local market.
- Make the outsourced manufacturer your partner. One common tactic (particularly in China) is to have a JV with the company and give them rights to local production/distribution. This gives the local company the incentive to police the market. The idea is to make the outsourced manufacturer so tied into the success of the venture, that they won’t change. You must however have SEVERE penalties for shipments to third markets and you must be prepared to enforce the agreement. Don’t be a nice guy.
- Complain to your government about piracy. The US Trade Representative is always looking for examples of IP violations and US Embassies will support you in an attempt to bring pressure on the local government. However, their moral suasion is limited.
- Find the local pirate and offer to buy them out. Yes, I know this rewards bad behavior, but sometimes it is the only solution.
Tell us how you handled this issue!
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12.26.07
Posted in Intellectual Property at 11:25 pm by Administrator
So now you have your product patented, trademarked and copyrighted in the countries your are doing business in,how can you enforce your rights? Here are some strategies that I’ve seen companies use:
- Hire a local person monitor the market and report on any potential violations. This could be your agent, a local attorney or a consultant. They should look at advertisements, ask for promotional and technical literature from competitors, and as appropriate drive past storefronts.
- Do your own periodic web searches on product offerings from your competitors. It’s always amazing how you can find hidden deep in a web-search. Be creative in your terminology usage and search on parts of the words (especially for your trademarks or marketing slogans) since copycats like to make it sound like the original product. Remember you can also use the translation programs to look at non-English websites (usually too literal but the translations can give you an idea if you need to look at the site further.
- If you find a potential violator, consider your options. In some cultures, a polite letter from your company can be sufficient; in others, a strongly worded letter from a law firm might be the option. If you can trust the local court system, you can ask for an injunction. (One cautionary note: Consider how your approach might look in the US. One major US film studio came down hard on a small Salvadoran producer and it was played up as David vs. Goliath in the local press.)
- If your competitor is exporting the product back to your company’s country or to a third country, you can seek to stop the product at the importing country border.
- If you’re not getting results or the cooperation from the government, bring in your Embassy. When I was in El Salvador, I intervened numerous times on behalf of US patent, trademark and copyright holders. The owner of a local franchise lost rights to the trademark but told me how he was still going to use it. After consultations with the trademark owner in the US, I asked the Salvadoran government to shut down the operation. When the operation was shut down, there was considerable press play and the Salvadoran brought suit against the Embassy and me for depriving him of his livelihood. The suit never went anywhere and in the end, the US intervention stopped the trademark infringement.
Part 3 will deal with strategies for enforcement in countries where intellectual property protection is weak or non-existent.
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12.11.07
Posted in Intellectual Property at 11:54 pm by Administrator
When I first came out of university and started working for the Office of the Special Trade Representative (USTR), intellectual property was a fairly mundane issue. There was one person working on it at USTR and mostly we relied on the US Patent Office attorneys for advice. It was a given that patent protection in the developing world was a lost cause and there were only technical disputes with Europe and Japan. The Tokyo round made some small improvements but it was only with the GATT becoming the World Trade Organization that a framework was established (the so-called TRIPS agreement).
Where are we now? Patent protection is required among the WTO signatories and local laws should conform to TRIPS. The signatory countries also have to provide for enforcement mechanisms (for information on TRIPS see: http://www.wto.org/english/tratop_e/trips_e/trips_e.htm
As is frequently the case, theory and application often diverge widely. Most any company will need an intellectual property strategy as part of its international marketing program. It’s not only patents, but also copyrights, trademarks and trade secrets that need to be protected. This will be the first of a several part analysis of strategies.
Let’s focus today on patents. The first step is getting the patent registered in the country of origin. In the US context, that means the US Patent and Trademark Office (www.uspto.gov). While some experienced inventors register themselves, most companies use an attorney specialized in the field. For those of you living in California, you have one publicly funded free resource, the Sawyer Center in Santa Rosa (www.santarosa.edu/sbdc). The coordinator of the center, Steve Schneider (sschneider(at)santarosa.edu) is an invaluable resource to inventors through the San Francisco Bay Area.
Once you have made the initial registration, you can apply for patents in other countries. Having a US patent does noe automatically mean it will be covered elsewhere. There is an advantage of waiting until the patent is issued because after that most countries will allow you to extend the US patent internationally in the first year. (There are always exceptions – for example the US permits genetic blueprint patents for organisms while many countries do not).
Do I need to register my product all over the world. A common strategy is to secure patent protection only in the countries in which you are selling or manufacturing. There is the loophole that someone could begin manufacturing in the unprotected country. That’s a risk you have to judge – how important is the market in the future, could the pirated material be shipped to third countries? It is precisely because of these uncertainties, you need an IP strategy in as part of the company’s overall domestic and international strategy.
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