Changing perspective: why you should never underestimate trade secrets’ power

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If you heard about a threat that had already caused a loss of EUR60 billion in economic growth and almost 289000 jobs in Europe alone, that could lead to the loss of one million jobs by 2025, you’d try to do something about it, wouldn’t you?

Those are the estimated losses caused by the theft of trade secrets due to cyber-espionage only. From states to single companies, no one is doing enough to stop this problem.

It is important to change our perspective, to understand what trade secrets are and why they are so relevant, so you and your company can put adequate protection in place, especially when doing business outside Europe.

Starting with the basics: a trade secret is a piece of confidential business information that can be of considerable commercial value and can provide an enterprise with a competitive edge.

In other words, a trade secret can be anything from manufacturing processes or sales or distribution methods to consumer profiles, from advertising strategies to lists of suppliers and clients — as long as it is relevant for your business and you are keeping it secret.

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Most of the legislation used to protect information as a trade secret (and to prosecute infringers) requires companies to put some form of defence in place to protect the confidentiality of the information.

Trade secrets do not need to be registered to be protected and, as long as they are kept as secrets, the legal safeguards last forever.

A recent study commissioned by the European Commission (complete text here, executive summary here) shows that companies, especially SMEs, underestimate both the value of their trade secrets and the chances that they might get stolen due to cybercrime.

Consequentially, companies, especially SMEs, tend to underestimate the impact of a breach in their security. A stolen trade secret can lead to at least four kinds of economic damage.

  • Opportunity costs: the loss of business opportunities and market shares.
  • Negative impacts on innovation: companies lose their investments in R&D when their knowledge is stolen and given to the public.
  • Increase in the cost of cybersecurity: if the company has been attacked the costs of cleaning up the system can be very high, as can increases in cybersecurity insurance.
  • Reputational damage: if the fact that a company has been hacked becomes public knowledge, this will reduce the trust of investors, business partners and even consumers.

The report highlighted the importance of awareness among companies in terms of preventing the loss of trade secrets. A solid legal framework is not enough, you have to do your part, and put necessary protections in place.

SMEs are the main target of cyber thieves and make up the majority of cyber-espionage victims because their cybersecurity protocols are weaker than those of big companies.

Cyber-espionage mostly involves external perpetrators. This is a large part of the problem, but it’s not the only issue. Especially when you are doing business in South-East Asia.

Other kinds of barriers must be taken into consideration. The most basic protection is probably afforded by physical barriersstore the secret information in an undisclosed physical location that only some employees have access to.

Physical barriers can seem outdated now, and they probably are when it comes to documents (who doesn’t store them on a computer nowadays?). However, they are still relevant when you admit potential partners, or indeed visitors in general, to your premises. Make sure that they cannot take pictures of your innovative products and have them sign non-disclosure agreements (NDAs).

Technical barriers are the most relevant against cybercrime in general and cyber theft in particular. They consist of various information technology (IT) systems that safely store your secrets. They can be expensive, but, as the experts stress, the lack of adequate protection is exactly what makes SMEs the perfect prey for cyber-attacks. There are some basic steps you can implement yourself, from a good password system to basic encryption. However, it’s even more important to develop an IT strategy (for example, you should make it impossible for documents to be shared via the internet or saved on physical devices like USB sticks), possibly with the help of a specialist, and prepare a written technology policy agreement. Make sure that all your employees have read and signed NDAs.

gold-padlock-locking-door-164425Written agreements are among your best weapons when it comes to protecting your trade secrets. Having people sign an NDA will make them conscious of their actions and ensure they think twice before betraying your trust. Having an NDA in place will also make them legally liable for sharing a secret.

When you’re doing business in South-East Asia, it’s of great importance to have your agreements in the local language. This prevents the other party from claiming that they did not understand their confidentiality obligation.

Having a solid NDA in place is not only important for your relationship with your employees and partners (or potential partners), but also for your relationship with your suppliers and subcontractors.

NDAs are essential in a well-drafted trade secret strategy, but they are not the only element of it. Alongside the technology policy agreements already mentioned, a role can be played by non-competition and non-solicitation clauses in employment contracts. These kind of clauses prevent your former employees from using your list of clients in their new position. Singapore and Malaysia are the most favourable countries for these kind of agreements.

You can also upgrade your NDAs, following the Chinese practice you can draft a non-disclosure, non-use, non-circumvention (NNN) agreement. The idea is to bind your counterpart to strict confidentiality. They are not allowed to disseminate the information (as in an NDA), and nor can they use it for their advantage or circumvent the agreement with anticompetitive practices. The idea is to combine secrecy and non-competition elements.

Even in Europe, trade secret thieves can be hard to prosecute due to the difficulty involved with supplying adequate proof. It’s better to put prevention safeguards in place. After all, prevention is better than medicine.

An even higher level of caution needs to be in place when doing business in South-East Asia. Keep in mind that most ASEAN courts tend to favour a local labour force using knowledge acquired in their previous jobs to make a living, without paying too much attention to the fact that the information might be a valuable trade secret belonging to a former employer.

Many countries (such as Brunei and Cambodia) do not have proper protections for trade secrets in place, and in others (like Myanmar), trade secrets are only protected under contract law, so there is no protection without a contractual relationship.

In Indonesia, trade secrets are protected only when an unlawful appropriation can be proven. To prove an unlawful appropriation you have show that there was an NDA in place and that it was breached, or that your IT or physical protections were abused.

At the moment, the law in Thailand imposing registration on trade secrets is suspended. However, if you are doing business in the country, it’s better to keep a very close eye on this.

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Even in countries like Malaysia, Singapore, the Philippines and Vietnam, where relatively sound protections for trade secrets are in place, it can be difficult to protect yourself in the absence of a contract.

To sum up: trade secrets are valuable intangible assets that do not need any registration and potentially last forever. However, you have to learn how to protect your valuable information from cyber thieves, unfaithful partners or greedy former employees.

The first step is to recognise what your secrets are, and then draft your strategy accordingly.

If you have any doubts or questions do not hesitate to reach out to us. The South-East Asia IPR SME HD offers free support to all EU SMEs.

 

Marta Bettinazzi

IP Business Advisor

South-East Asia IPR SME Helpdesk

E: marta.bettinazzi@southeastasia-iprhelpdesk.eu

W: www.southeastasia-iprhelpdesk.eu

 

Online IP Infringement in South-East Asia: How to protect your business

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WRITTEN BY XUAN NGUYEN

 

The South-East Asian internet economy has witnessed a striking increase

According to the latest report by Google, Temasek and Bain & Company, the number of internet users in South-East Asia (SEA) has increased rapidly, reaching 360 million in 2019 — 100 million more than in 2015. Powered by rapid adoption and changing consumer preferences, the South-East Asian internet economy has leapt nearly 40 % from last year to exceed USD 100 billion, and is on track to hit USD 300 billion in 2025. The region has seen booming development, especially in the e-commerce sector. In 2015, 49 million people bought or sold items online. Today, that number has tripled to 150 million.[1]

Photo source: https://pixabay.com

Photo source: https://pixabay.com

The internet is fueling a dramatic rise in counterfeit and pirated products

It is obvious that the internet has brought enormous opportunities for companies, especially Small and Medium-sized Enterprises (SMEs) to develop and expand their business internationally. However, on the other hand, digitalisation also creates fertile ground for online intellectual property (IP) infringement, such as counterfeiting products, pirated goods, cybersquatting, stolen trade secrets, etc. As a result, it has caused various negative impacts on the sales, profits and reputations of affected companies as well as having broader adverse effects on the economy and public health, safety and security.

‘The Economic Impacts of Counterfeiting and Piracy’ report from Frontier Economics pointed out that the estimated value of total counterfeit and pirated goods in the world was USD 923 billion – 1.13 trillion in 2013 and is forecasted to reach an astounding USD 1.90 – 2.81 trillion in 2022.[2]

As it is now easier for everyone to buy and sell goods online, fake and pirated products are booming in SEA, across various e-commerce platforms, social media channels (Facebook, Instagram, TikTok) and a number of local websites. Consumers are offered a wide variety of counterfeit and pirated products. These items can be labelled with a counterfeited trade mark or just replicate the appearance of the original goods, and they are sold at any price-scale. Products majorly exposed to online counterfeiting are fashion retail, electronics, perfume and cosmetics, pharmaceuticals, FMCG, baby products, alcohol and automotive.[3] The origin of the fake products being sold in SEA varies, they can be produced locally or imported from  other countries notorious for manufacturing counterfeits, such as China, India and Turkey.

Online counterfeit and pirated goods have caused serious damage to the sales and profits of IP owners, jeopardised brand reputations and rendered the consumer less interested in authentic products. Vendors often use pictures of the original goods to attract consumers and then provide a counterfeit product. Ultimately, customers start to lose interest in affected brands.

An even more serious concern is connected with the use of fake products in the pharmaceutical, chemical, foods and beverages sectors. These products are not subject to controls like the original ones, and can seriously affect the consumers’ health.

How to combat online infringement

Online IP infringement is growing exponentially in SEA, for many reasons. IP rights are territorial, however online IP infringement is borderless. ‘While there is a degree of harmonization of the laws and regulations governing IP rights and their enforcement, these are not unified. Varying laws and practices in different jurisdictions make it difficult to navigate the legal landscape, fuelling legal uncertainty about outcomes.’[4] In any jurisdiction, the internet itself makes it harder to track down infringers effectively and stop them, but it is particularly difficult in SEA. The effectiveness of IP enforcement in the region is still a major concern. As a result, online trading is quickly becoming more and more attractive for IP infringers as they are less likely to be caught in SEA. In addition, although laws and regulations in South-East Asian countries generally prohibit the sale of counterfeit and pirated products, they do not specifically deter the sale of these products online. There is a lack of effective laws against online IP infringement, and the authorities have little experience in dealing with it.

The majority of the online trade in counterfeit products and pirated goods is at the retail scale, it means there is a huge number of infringers that companies must monitor in order to combat them. The internet makes it easy for anyone to set up a new online business. This means that even if  the culprits agree to stop their infringing actions after receiving a warning from the IP owner, e-commerce operators or enforcement authorities, it is still possible that they will quickly set up a new shop to continue with the illegal selling.

However, taking no action is inadvisable for companies seeking to safeguard their business in SEA. If your products have been infringed and sold in various places, a ‘no actions’ strategy will have a negative impact on your global business and jeoparadise your reputation.

To protect IP effectively, a company should build up a proactive and multi-faceted strategy to act swiftly and effectively against online infringers. The following options can be considered.

  • Actively monitor the online marketplace, and shopping and social media platforms, to identify infringement: Companies can do this by themselves or hire service companies with expertise in the field. In addition, today there are many advanced technological tools for searching and detecting sources of IP violation.
  • Conduct an investigation and gather facts: Don’t make a groundless claim, it will cost you both time and money. Once you have found a suspected infringement on the internet, the first step is to collect evidence on the infringer, e.g. basic information (name, address, other contact details, the scale of their business and the origin of their products).
  • Take-down Notices and Warning Letters: The majority of online infringers in SEA are small businesses, therefore sending a Warning Letter to online infringers has often proved to be a time- and cost-effective option. Also, submitting a Take-down Notice and Infringement Complaint to the e-commerce platform and social media operators can be another effective approach. Read and understand the IP policy against online infringment of each platform so that you can provide the appropriate information and documents as required to ensure the take-down is fast and effective.
  • Work with local enforcement agencies: Companies should be well prepared, with at least a basic understanding of the enforcement agencies available in each country in SEA and of how companies are eligible to use the enforcement options in the jurisdiction. It is worth noting that to enforce your rights in SEA, you are usually required to register your IP with the IP office of the country where you seek enforcement. Raid actions to seize infringing products, filing a claim to a court, or using customs to block counterfeit and pirated goods are also enforcement options that companies may consider in specific cases.
  • Seek advice from local experts: There are still many differences between IP laws and practices between the EU and SEA, and even within SEA inconsistencies abound. As many of the counterfeit and pirated products for sale are advertised in local languages or posted on local websites, monitoring by detection software or searching tools (usually in Roman characters) doesn’t work effectively. Therefore, companies should always seek advice from local experts who are familiar with local cases of infringement and who have close relations with enforcement bodies such as the courts, police and customs authorities.

SEA is a promising destination to expand your business in. However, there are still major concerns there relating to IP protection, especially in the digital era. European companies should be aware of the risks and prepare their IP strategy before going abroad. A proactive and well-prepared IP protection programme will secure sustainable business growth in SEA.

By Xuan Nguyen – Project Officer, South-East Asia IPR SME Helpdek

[1] e-Conomy SEA 2019: https://www.bain.com/insights/e-conomy-sea-2019/

[2] ‘The Economic Impacts of Counterfeiting and Piracy’ by Frontier Economics: https://www.inta.org/Communications/Documents/2017_Frontier_Report.pdf

[3] Industries exposed to online counterfeiting: https://www.group-ib.com/brandprotection/anticounterfeiting.html

[4] ‘IP Infringement Online: the dark side of digital’: https://www.wipo.int/wipo_magazine/en/2011/02/article_0007.html

 

IP Protection in the Philippines for the Environmental Technologies Industry

MC900437625In today’s blog post we take a closer look at how European SMEs can protect the IP rights of their environmental technologies in the Philippines. This sector has recently started to boom and offers many promising business opportunities to European SMEs. You will hear more about patent protection and trade mark protection. We will also offer some tips on how to enforce your rights. 

European SMEs that are working on high-tech sustainable solutions for environmental problems find the Philippines quite a promising market. The country that is highly vulnerable to climate change faces many environmental challenges including deforestation, costal degradation, air and water pollution as well as issues arising from waste disposal, just to mention the few most pressing issues. At the same time, the government of the Philippines is committed to looking for solutions, including sustainable high-tech solutions to the most pressing environmental issues, as it is annually allocating over 16 million EUR for climate change adaptation and mitigation funding[1].

European SMEs offering technological solutions to energy efficiency issues, environmentally sustainable transportation, sustainable infrastructure or waste management sectors, are expected to find many promising business opportunities in the Philippines, as these are the sectors that the government of the Philippines is highlighting as the priority sectors in its National Framework Strategy on Climate Change 2010-2022.[2]

European environmental technology providers wishing to enter the Philippines’ market need to keep in mind that despite the recent improvements in the Philippines’ IP laws and regulations, counterfeiting and other IP infringements are still commonplace in the country and thus a robust IP strategy is needed to grow their business in the Philippines. Continue reading “IP Protection in the Philippines for the Environmental Technologies Industry” »

Writing a Good Manufacturing Non-disclosure Agreement in China

MP900438585In today’s blog post we are discussing how to protect IP when seeking Chinese manufacturers and will address what it takes to design an NNN (non-use, non-disclosure, and non-circumvention agreements) which can pose enough of a credible threat to dissuade contract violations.

Defining protected information: keeping everyone on the same page

NNN agreements should clearly define which rights are being disclosed or licensed, their nature, and their scope. Clear mechanisms for identifying and marking, accounting for, and maintaining secrecy for this information (or indications of who will bear these responsibilities, what general types of information should be considered confidential, or processes for retroactively marking material as confidential) should be present. If desired, additional clauses can also outline what types of information will not be considered confidential. Naturally, before these types of information can be identified, an SME should first understand just what its trade secrets are. Conducting an IP assessment and audit can identify key IP which was otherwise taken for granted or not fully appreciated by the SME and can assign a value to the IP which will make calculating contract damages much easier.

While the contract is in force, these rules should be strictly followed. Over the course of the contract, additional IP may be generated as a result of the work of employees or independent innovations on the part of the manufacturer. NNN agreements can also include clauses which dictate that all such IP belongs to the SME and can thereby avoid future disputes. Note, however, that China places restrictions on the export of some technology—meaning that agreements automatically granting new IP to the SME could be struck down in court. Continue reading “Writing a Good Manufacturing Non-disclosure Agreement in China” »

IP Considerations in the Medical Device & Healthcare Industry in South-East Asia

the-device-1822457_1920In today’s blog post we are discussing how to best protect your IP in the medical device and healthcare sector in South-East Asia. You will learn more about patent protection, design protection and trade mark protection in this industry. Since medical device and healthcare industry is very R&D intensive, we are also discussing how to protect your IP while conducting R&D activities in South-East Asia.  

Rapid demographic changes and health reforms within South-East Asia are expected to create enormous demands in the health care market in the near future. Growth in average annual healthcare expenditure between 2014-18 is expected to be around 11% of GDP in ASEAN – but with highly varied rates among the countries: Vietnam with the highest at 6.6% and Myanmar with the lowest at 1.8%.[1] At the same time, amongst many South-East Asia countries, local pharmaceuticals are not well trusted, making way for foreign players with strong brands to establish significant market share in South-East Asia. This offers many promising business opportunities for the European SMEs engaged in medical device and healthcare industries, as European brands with high and positive brand recognition are expected to be favored by local governments and clinicians over their lesser-known competitors.

The healthcare industry in South-East Asia also serves a rapidly growing medical tourism industry which is expanding globally at a rate of about 25% and it is claimed that nearly a third of all medical tourists in the world receive medical attention in South-East Asia[2]. Furthermore, many South-East Asian countries like Thailand and Singapore aspire to become the medical and healthcare hubs in the region, offering various opportunities for the European SMEs.

Even though, IP laws and regulations have improved a lot in South-East Asia over the past five years, counterfeiting and other IP violations are still commonplace in the region. EU SMEs would therefore benefit from understanding the different intellectual property rights that are relevant to the medical device & healthcare industry and determine the effective way to protect their IP rights in South-East Asia. Continue reading “IP Considerations in the Medical Device & Healthcare Industry in South-East Asia” »