Protect a company’s IP: A compilation of expert inputs from Members of The Global Leaders.
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 the you: “Your problem is with the Chinese manufacturer, not me, sue them”. How do you protect your rights, against a very deep pockets customer, without losing all of their business and spending a huge some 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 though, you leave the company vulnerable to others stealing your 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 intellectual property rights. It is a compilation of suggestions, ideas and actual tactics used by members of The Global Leaders Network. There was no one suggestion by a responder that had all of these tactics in them. So, as a result, I will identify myself as a co-author and aggregator of ideas into one point of view. Of course, another author might aggregate these items into slightly different strategies, so I hope I do justice to summarizing the inputs of the 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 responders to this problem from many different industries and 14 countries including China.
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, research, filing a lawsuit and a trial will cost mid 6 figures to multiples of that.
Before you go off and make that call, consider some intermediate tactics that will provide you better ammunition and a better understanding of what you are faced with and 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 as 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 probably worth having an outside engineering firm confirm your suspicions and document the results. This will save you from making an emotional decision: rightly or wrongly.
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 this strategy. Here are some of the key steps you should consider:
1. Notify the buyer(s) of these products that company xyz is selling product in the US that violates your patent number xxxxxx via certified communications.
2. 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.
3. 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.
4. 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.
5. 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. Also, in each communication, reaffirm the findings of an outside expert and the conclusions of your patent lawyers.
6. 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 looked at as extortion.
The clearer your case is, the more likely lots of other people will want to help. Here are potential supporters in your cause:
1. Your local representative to congress, both state and federal. They care about these types of issues and it is likely that you may get their help with additional resources.
2. A discussion with customs officials, hopeful after a carefully placed call from someone in 1. A quarantine of product at the port will put many people in a bind, allowing you to come to their rescue with product.
3. Consider a discussion with the Justice Department who has a task force in Silicon Valley that is focused on IP protection for companies.
4. 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, Twitter, Facebook, etc. to communicate to the world that you are standing up to your rights by fighting this infringement. 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 buyer(s) get a copy of anything that is printed.
You should focus on the newspapers and bloggers in the geographical locations of the buyer and the corporate and regional headquarters of the customer. Executives may read the articles, or have them forwarded to them. Make sure during anything you write or articles that are done, that you comment on unique identifying marks that everyone can see. This is important for the validation of your actions. 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. The power of 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, sympathizers and potentially more business, while defending your position.
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 those economics. This will help you and your legal counsel prepare a budget.
- If you are found to be wronged, the steps you took in 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 (PEG’s) private investment groups 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.
Conclusion:
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 some 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.
This article had many contributors from The Global Leaders’ “Ask The Global Expert™ “ [www.tgleaders.com] system. 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 expensive, when confronted with limited funds, your time is a better option. Besides, it ultimately may 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.
About the Author(s): 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 jgitney@group50.com or call (909) 949-9083.