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/

 

Protecting your IP while Transferring Technology to China

Manufacture4Since China’s market for clean technologies offers significant business opportunities for the European SMEs, then in this week, the EU Gateway Business Avenues took selected European companies to Beijing, China for a business mission in Clean Technologies. Many of these companies are considering bringing their technology to China, which however,  involves many IP risks. Therefore, in today’s blog post, we have chosen to discuss IP issues relating to technology transfer. The blog post offers some tips on how to safely bring your technology to China. 

Many European Companies are keen to come to China. While in the past, European companies came to China to take advantage of low-cost manufacturing for export, more recently, they have come to enter the Chinese domestic market, establish R&D, engage in cooperative development, take advantage of a skilled work force, establish suppliers, and develop long-term partnerships in China. In order to achieve this, they are often willing to ‘transfer’ their key technology and designs to Chinese subsidiaries of European firms, joint-venture (JV) partners, or Chinese manufacturing and service companies. One of the challenges facing European companies coming to China is devising creative solutions to minimize the risk to their intellectual property (IP) associated with such technology transfers.

A technology transfer happens in a number of different ways. European companies most commonly transfer their technology by licensing their patents, designs, software, trade secrets, and know-how. Ownership of the technology may be transferred, but this type of transfer is less common. A common misconception is that a technology transfer is limited to transfers of high technology. However, many European companies using contract manufacturing to manufacture low technology, consumer, or industrial products, for example based on product designs, must deal with many of the same risks to their IP as their high technology counterparts. Continue reading “Protecting your IP while Transferring Technology to China” »

Using Contracts to Protect your IP in South-East Asia: Licensing and Technology Transfer Agreements

Page 1. ContractsMany companies wishing to do business in  South-East Asia choose to license their IP to third parties in order to be able to expand their business ever more rapidly and conveniently. Well-drafted licensing and technology transfer agreements are the key to a successful business endeavor in South-East Asia and thus, we have chosen to discuss the art of drafting these contracts in today’s blog post. This blog post will provide you with some useful tips and watch-outs to keep in mind when drafting contracts with your partners in South-East Asia. 

IP can create value and revenue to the European SMEs through IP commercialization via licensing the IP to third parties. A company that owns rights in a patent,  but cannot or does not want to be involved in the manufacturing of products, can benefit from licensing their IP assets to third parties who have better manufacturing capacity, wider distribution outlets or greater local knowledge. Furthermore, licensing trade marks can allow companies to expand their operations into new markets faster and more effectively as the companies can benefit from the wider distribution networks and contacts that the licensees have.

The people and companies that SMEs do business with, and therefore contract with, will often use the European SMEs IP to varying degrees. Therefore, it is also very important for the European SMEs to protect their IP well-written licensing and technology transfer contracts. In this article we will take a look at licensing and technology transfer agreements. Continue reading “Using Contracts to Protect your IP in South-East Asia: Licensing and Technology Transfer Agreements” »

Protecting your IP whilst Transferring Technology to South-East Asia

xiandaishangwu2_221In today’s blog post, the Helpdesk team will provide you some valuable tips on how to safely transfer your technology to South-East Asian countries.

In recent years, European SMEs have started to look to the Association of South-East Asian Nations (ASEAN) to be a key player in the investment and development of several different types of technologies across a multitude of industries. Relatively low labor costs, high skill levels and diversity in the level of development across the region, enabling South-East Asia to attract a range of technologies, are making the region so attractive for the European SMEs.

Whilst accessing the lucrative South-East Asian markets, the European SMEs are often willing to ‘transfer’ some of their technologies and designs to local subsidiaries of European firms, joint-venture partners, or local manufacturing and service companies. One of the challenges facing European companies coming to South-East Asia is devising creative solutions to minimize the risk to their intellectual property associated with technology transfers. A technology transfer can happen in a number of different ways. European companies most commonly transfer their technology by licensing their patents, designs, software, trade secrets, and know-how.  A common misconception is that a technology transfer is limited to transfers of high technology. However, many European companies using contract manufacturing to manufacture low technology, consumer, or industrial products, such as those based on product designs, must deal with the same risks to their IP as their high technology counterparts. Continue reading “Protecting your IP whilst Transferring Technology to South-East Asia” »

Industry Spotlight: IPR Strategies in China for Cleantech Industry

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MC900437625China is the fastest growing market for wind and nuclear power generation, and is investing heavily in exploring alternative, renewable means of addressing its immense energy needs. With a large potential cleantech market, and strong government support for the development and adoption of new clean technologies, China presents great opportunities for European cleantech SMEs.

China’s large market potential means that cleantech businesses cannot risk losing a strategic foothold in China by waiting to act. However, cleantech businesses that enter China need to understand that while good execution, effective management, and access to financing is critical to maintaining a competitive advantage, protecting good technology is also equally critical. Although technology transfer can be structured in a way that minimises IP risk, additional preparation and measures directed at the IP environment in China need to be considered as well.

How IP fits into an overall business strategy will depend on whether the firm is a start-up or a growth business, and also whether the technology itself is new and untested in the market, or mature and ‘off-patent’ (technology that is no longer protected by patent). Different businesses will use IP to achieve different objectives, such as to maximise revenue-generation by monetising their IP portfolio through licensing, increase opportunities for partnerships and cross-licensing, or bar new market entrants. Continue reading “Industry Spotlight: IPR Strategies in China for Cleantech Industry” »