Protecting your intellectual property during technology transfers in South-East Asia: Why is it important?

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WRITTEN BY XUAN NGUYEN

The South-East Asian region consists of 10 countries with a combined GDP of USD 3 trillion (the 5th largest in the world) and a population of 649.1 million people[1]. Over the past few years, the region has emerged as a location for manufacturing diversification, particularly as a result of the USA–China trade war and, most recently, the Covid-19 pandemic.

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Technology transfers are the key enablers in the supply chain relocation process, and intellectual property (IP) is considered to be the crucial element – the factor that contributes the value. In this article, we will provide you with some tips on how to build and manage your IP portfolio in relation to technology transfers in South-East Asia.

Why is IP important in technology transfers?

A broad definition of technology will be used here, one including not only production technology, but also management expertise, marketing skills and general intangible corporate assets. Commercially exploiting technology across geopolitical borders can be managed through licensing agreements, joint ventures or by setting up your own business in order to share advanced skills, knowledge, or facilities among interested parties.

Companies most commonly transfer their technology by licensing their IP rights (such as patents, trade marks, designs, software, trade secrets, know-how, etc.). Protecting your IP before disclosing it is crucial to ensuring your monopoly on the information in question, allowing you to expand your market presence, providing you with a return on investment in research and development (R&D) and encouraging further innovation. According to the Ocean Tomo survey, today intangible assets have increased their contribution to account for up to 90% of a company’s value[2].

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Secure your IP through registration, non-disclosure agreements (NDAs) and a strategic plan

The first step in managing your IP is to identify it. Therefore, in your transfer strategy, you should think about what kind of intangible assets you are considering disclosing to your potential partners. Based on your resources and target destination, evaluate the elements you want to be part of your technology transfer strategy, and consider whether it is beneficial to monetise the specific IP in question (such as the patent, trade mark, design, software, trade secrets, know-how, or a combination of the above).

For example, in a franchising deal, you not only transfer your brand and business model, but also operating manuals, quality control procedures, training policies, marketing strategies, business advisory support systems and many other confidential aspects of your business. Be aware of all the information you will disclose to your partner during the process – from commencing negotiation until entering into a deal – so that you can anticipate the possible risks and initiate a suitable protection plan.

You must be aware that IP protection is territorial. Therefore you need to formally register patents, trade marks and designs in each country you want to be protected in. An IP protection strategy must be front and centre when considering investing in South-East Asian countries. Obtaining registration before the start of a technology transfer negotiation is ideal. However, even having an application in place before opening talks is worthwhile; it strengthens your position and reduces the risk of a failed discussion ending up with the theft of your IP by your potential local partners.

In the era of digitalisation, the software is a crucial part of the IP involved in many technology transfer deals. You should pay special attention when licensing your software; there are two main ways to protect it, patent and copyright. Patents ensure extraordinarily strong protection but are not easy to obtain, firstly because it’s a long and costly procedure, secondly because not all software is deemed to be patentable.  Therefore, you probably have to rely on protection under copyright law. In almost all South-East Asian countries works are automatically protected by copyright upon their creation, however a system for voluntary registration also exists. Copyright registration is very useful when there are disputes over a copyrighted work. It’s much to better to have it before entering a tech transfer agreement.

There is no registration system for trade secrets, know-how or other intangible assets, therefore companies should always have a strategic policy in place to retain such assets, and their competitive edge. A good starting point is to sign an NDA with your potential partner before entering into any initial negotiations, and ensure that it’s translated into the local language. This is also a way to detect the intentions of your potential partners, and to test their reliability.

It’s an unfortunate truth that people won’t pay for what they can steal. Many licensees attempt to reverse-engineer your products to save costs and gain an advantage in the marketplace (i.e. they are able to sell their products at much lower prices). Under current IP legislation, there is little you can actually do about this process other than to build a strategy that prevents such activities from taking place. For example, in your technology transfer plan, you may consider having certain components of your products manufactured/assembled by different parties, or using separate locations to help reduce the risk of your IP being misappropriated.

Searching for a partner and due diligence

The crucial factor in the success of technology transfers is choosing the right partner. During the negotiation process, you are going to disclose your IP in order to attract potential partners. It is worth spending some time reviewing all the assets in question, including any registered IP belonging to your potential partners, any litigation in which they have been involved, or any issues that could arise in the future when signing a deal with them.

Entering into a contract

The risk to IP associated with technology transfers varies depending on the type of IP you want to transfer and the form of collaboration planned (such as licensing, a joint venture or setting up your own business). You should analyse the potential risks and include the necessary clauses in contracts to prevent IP violation.

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First of all, make sure a confidentiality clause or NDA is a part of your contract. Taking the fact that the information may be used by your partner’s employees – or that the information might be disclosed to third parties – into account, appropriate measures to protect confidential information should be clearly written into the contract.

It is also worth having a formal procedure in place to deal with the identification of both the existing IP and IP that would arise in the future. In many cases, your partner may be able to improve on your IP and use it to develop another generation of products. Therefore, it is wise to include a clause that deals with the ownership of any potential improvements.

Importantly, companies must ensure that the contract allows local enforcement methods to stop the sources of IP violation, rather than reverting to EU legislation or systems of arbitration. In cases of infringement, you have the right to seek direct remedies from the local authorities. This resource can enable you to quickly obtain emergency injunctions, search-and-seize orders or asset-freezing orders, which are especially helpful in cases of trade secret theft by an employee or a third party. It is common practice to include an accompanying arbitration clause as a secondary means of resolving disputes. In the South-East Asian region, Arbitration in Singapore is usually recommended as the country has the advantage of excellent legal and technological expertise, a highly skilled judiciary and widespread English fluency.

South-East Asia has become a promising destination for supply chain relocation. Technology transfers are the key enablers of this process. However, the risks of IP infringement there always threaten your revenue and reputation. Companies should understand the degree of their exposure to risk and make sure to put the appropriate measures in place to protect their intangible assets when investing in the region.

For more information on technology transfers in South-East Asia, check out our latest guide here.

The South-East Asia IP SME Helpdesk is an EU initiative that provides free, practical IP advice to European SMEs in South-East Asia. EU companies can send questions to question@southeastasia-iprhelpdesk.eu and will receive a reply within 3 working days.

[1] https://www.aseanstats.org/wp-content/uploads/2019/11/ASEAN_Key_Figures_2019.pdf

[2] https://www.oceantomo.com/intangible-asset-market-value-study/

 

IP exploitation strategy in South-East Asia

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Written by Marta Bettinazzi

In these changing times, we all need to find the time to prepare for the future and draft our strategy for success. This should also mean reevaluating our resources to see if we can make better use of them.

A good shift of perspective is to stop considering your intellectual property (IP) only as a cost (registration, maintenance). IP is an asset and you should learn how to make the best out of it. We will briefly look at the options that exist for exploiting intellectual property rights (IPR), then examine both the risks and the best practices to put into place in South-East Asia (SEA).

The best way to exploit your IPR depends on the kind of IP you own, but it can be summarised in two big categories: licensing and selling.man-sitting-near-fruits-723991

Selling means that you permanently transfer your IP (or better, the economic rights connected to it) to someone else. For example, you sell your patent to a bigger company that can mass-produce the invention you have patented or, more commonly, your IP is purchased as part of a merger-and-acquisition operation. In this case one company would acquire all the IPR that were part of your assets (trade marks, copyrights, patents, etc.). A famous example is the acquisition of WhatsApp by Facebook for the unimaginable price of USD 21 billion (more info here).

Licensing means that you, as an IPR owner (licensor), authorise someone to use your rights (licensee) in exchange for an agreed payment (fee or royalty).

This can allow you to expand your global presence and also ensure a source of revenue. On the other hand, the licensee can manufacture, sell, import, export, distribute and market various goods or services that they may otherwise not have had the rights to.

We can group the license agreements in three categories: Technology License Agreement; Trademark Licensing (and Franchising) Agreement; Copyright License Agreement.

Often these kinds of agreements are combined with and/or included in broader contractual settings, for example distribution contracts.

Therefore, the first step in an effective IP strategy is to review the agreements you already have in place with your partners and distributors to be sure that they include clear rules regarding the use of your IP.

In SEA it’s not uncommon for local distributors to register the IP (usually the trade marks) of their international partners under their own name. This way the local company acquires de facto an exclusive license on the product(s) of the SMEs. In fact, if the local company is the owner of the trade mark, it can prevent others from using it, including other companies authorised by the SME (the original owner of the trade mark). It might be said that you are in a marriage with your partner, and you might need an expensive and lengthy divorce (judiciary decision) to be able to leave it.

Before entering any kind of distribution agreement, give special attention to the difference between the registration of the trade mark (and IP in general) and the registration of the product itself. The latter is an administrative step needed to import a ‘new’ product into a country, but it does not ensure any protection for your IPR.

In other words, if your distributor is offering to do the product registration to allow you to import goods into the country, this does not imply that he/she is also going to help you with the registration of the trade mark or patent (or any other IP).

Keep in mind that a formal licensing agreement is possible only if the IPR you wish to license is also protected in the country or countries of interest to you. Without registering your IP in the country, you are not only unable to properly license it, but you also have no legal right to put any restriction on its use by anyone else.

Despite provisions in international treaties, courts and administrative bodies in SEA seldom extend protection to well know trade marks (see, as a reference, the famous IKEA case in Indonesia). Only Malaysia and Singapore ensure some level of protection for de facto trade marks and take into account the use of a non-registered trade mark.

On a side note, do not forget to consider registering your trade mark in local scripts as well, for example in Thailand, Malaysia, and Myanmar. This ensures complete protection for your trade mark, limiting the possibility of cheaper copycats riding on your reputation by using a transliteration of your trade mark. pink-and-white-weighing-scale-3964619

Also, note that many countries in SEA require license agreements to be registered if they are to be enforced. Some countries, like Thailand, also require the registration of trade mark licenses, others, like Vietnam, only require the registration of technology transfers.

To recap, be sure to register your IP before entering into any agreements with local partners. If this is not possible in the immediate future at least include a clause in your agreements to prevent the local company from registering your IP ‘for you’.

Technology transfer agreements can be very remunerative, but can also put your business at risk — you could be creating your own, stronger competitor. Therefore, it is advisable to either license a technology you have patented in the country where your counterpart will operate or you license something (an idea, a technology, some know-how, a recipe, etc.) that is secret. In this case, you have to be sure that your partner is bound by the same level of secrecy.

Reality is not that simple. Even if something is patented (and therefore publicly disclosed, for example in Europe) local companies might not be advanced enough to copy it, and may be interested in entering an agreement with you to acquire the know-how surrounding the patent.

This might present itself as an unpredicted and very welcome source of revenue for you, but you are running the risk of your new partner becoming your competitor in the future.

A good way to balance this issue is to bind your partner to secrecy regarding the unpatented part of the technologies.

As mentioned, technology transfers are not always encouraged by legislation in SEA and can often be subject to registration requirements. This means that if the agreement is not registered at the public office it cannot be enforced (in cases of breach or liability). Some countries have also limitations regarding the kind of technologies that can be transferred to and from their territory.

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In short: the best strategy is always to patent all your cutting-edge technologies in as many countries as possible (including new markets like SEA); combine a good patent strategy with a high level of secrecy and be aware of local legislation.

A final thought: do not forget to prepare all your contractual documents in both English and the local language and be sure to agree and sign the local language version. Most of the courts in SEA can only accept (and understand) documents in the local language. A later translation could be not only expensive but also problematic; your counterpart could propose their own translation of the text, which could lead to endless interpretation problems.

For more information you can have a look at our guides on trade marks, patents and technology transfers, or at our country factsheets.

Do not hesitate to reach out to the Helpdesk if you have any questions on IP in SEA.

Marta Bettinazzi

IP Business Advisor

South-East Asia IPR SME Helpdesk

E: marta.bettinazzi@southeastasia-iprhelpdesk.eu

W: www.southeastasia-iprhelpdesk.eu

 

Foreign Filing Licenses for Patents in China

written by Toby MAK

 

China introduced requirements for foreign-filing licences for inventions in 2010 (when the third revision of the Patent Law came into force). It has become increasingly common for an invention to involve research teams in China and at least one foreign country. Multinational companies need to be aware that compliance with the foreign-filing licence requirements may become an issue – potentially aff ecting the validity of a corresponding Chinese patent.

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Like the US, China has its foreign-filing licence requirement for inventions. This was introduced in 2010 when the third revision of the Chinese Patent Law came into force. In my view, this was reasonable, as China has more and more inventions, and some of these could be related to national security. Various other countries have similar measures (according to www.wipo.int/pct/en/texts/nat_sec.html, in addition to the US, there are 28 countries with domestic law requirements similar to the US foreign filing licence, including China, India, France, Germany, Spain, Malaysia, Vietnam). So China having the same should be expected.

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This article was written by our IP Expert Toby Mak and originally published in the CIPA Journal.

Support for patentees from the Chinese Supreme Court?

The CNIPA’s decisions I am talking about are re-examination decisions (against a rejection decision of a patent application), and invalidation decisions (against a request for invalidation of a granted patent. The appeals against these CNIPA’s decision can only be filed in Beijing, as the CNIPA is always the defendant in such appeals. At present, only the Beijing IP Court will accept such appeals. A further appeal against the Beijing IP Court’s decision used to be filed at the Beijing High Court. However, from 1 January 2019, all appeals against the Beijing IP Court’s decisions on patent and utility model cases will be handled by the IP Tribunal of the China Supreme People’s Court (the CSPC) directly.

Such appeals had low, if not very low, reversal rate statistically. According to data kindly provided by Darts-IP:

  • The reversal rate of the invalidation decisions increased every year from 2014 to 2017, from about 10% to 15%; and
  • The reversal rate of the re-examination decisions increased every year from 2014 to 2017, from about 7% to 10%.

Together with the change of handling all appeals on patent and utility model cases by the IP Tribunal of the CSPC directly, the CSPC also now has a set of stipulations to handle such appeals, bring the Chinese patent re-examination/invalidation system closer to the international norm. Some major points are as below:

  • More open interpretation of sufficiency (than the CNIPA).
  • More open view on generalization (than the CNIPA).
  • Relevant technical field should refer to the lowest level in the international patent classification.
  • What a patentee says during infringement proceedings would be considered at invalidation.

This article was written by our IP Expert Toby Mak and originally published in the CIPA Journal. To access the full article, please click here.

Patent Strategies for Startups

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Today’s Post will focus on Patent Strategies for Startups in South-East Asia and has been kindly drafted for us by Ms. Chan Wai Yeng who is a patent specialist at Taylor Vinters Via LLC. Ms. Chan Wai Yeng will explore three patent strategies and several alternatives to ensure your product is best protected.

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Startups generally worry that acquiring a patent is prohibitively expensive

As discussed in the first patent article, the cost of patenting is high and generally several order of magnitudes higher than the cost of acquiring other IP rights such as trade mark and industrial design rights.

A cohesive patent strategy can yield significant competitive advantage

The high level of financial investment involved in patent filing may deter startups from developing a comprehensive IP strategy that includes patent filings at its initial development stage. However, startups with a cohesive patent strategy that aligns with their business can benefit from gaining a strong competitive advantage in the market. Having a patent filing strategy can also mitigate litigation risks from competitors.

Continue reading “Patent Strategies for Startups” »