Counterfeit goods in South-East Asia: Saving money may risk your health

Facts and trends

Over recent decades, counterfeiting has been causing serious harm, not only to the global economy but also to consumer health and safety. The huge, quickly generated profits made from illicit trading (comprising counterfeiting activities) has encouraged counterfeiters to find new ways to evade the detection and restriction of their illegal activities and to speedily adapt to changing circumstances. Booming e-commerce, the intensive use of social media platforms and most recently, the Covid-19 pandemic, have all driven the counterfeiting issue to become a critical concern.

Photo source: www.pexels.com

Photo source: www.pexels.com

In a report published in 2019 by the Organisation for Economic Co-operation and Development (OECD) and the European Union Intellectual Property Office (EUIPO)[1],  half of countries in South-East Asia (SEA), such as Singapore, Thailand, Malaysia, the Philippines and Vietnam, are listed among the top 25 economies for the provenance of counterfeit and pirated goods between 2014 and 2016. In this article, we will take a look at how counterfeit trading activities are evolving in SEA as well as the explicit and implicit consequences on human health of using counterfeit products.

In many areas in the world, including the South-East Asian region, the Covid-19 outbreak has caused the authorities to apply strict restriction measures, such as lockdowns, social distancing, working from home, etc. During the crisis, online shopping has become an efficient way to fulfil people’s need. E-commerce platforms, including Shopee, Lazada and Tokopedia, or social media platforms, such as Facebook, TikTok and Instagram, are popular places where people make millions of orders every day. A joint e-Conomy report in 2020 by Google, Temasek and Bain emphasised significant changes in the digital life of the region: 36% of digital consumers were new to the online services due to Covid-19 and 94% of them intend to continue using digital services going forward[2].

Moreover, the Covid-19 crisis caused a sharp slowdown in the 2020 GDP growth of major countries such as Indonesia (-2.1%), Malaysia (-5.6%), Myanmar (-10%), the Philippines (-9.6%), Singapore (-5.4%) and Thailand (-6.1%)[3]. Given the current environment of uncertainty and fear, and the real threat of significant declines in income, many consumers are now unable to purchase branded goods and services. Consequently, buying cheap counterfeit products is a tempting option for consumers with low budgets.

Amid the chaos, counterfeiters have promptly taken advantage of the new situation and, unfortunately, they are often one step ahead of authorities and policy. Recently, an overwhelming number of counterfeits being sold on e-commerce sites, social media platforms and dark-net markets have been detected, warned about, and reported by authorities, brand owners and consumers.

IEO-charts-IPV-Reports-as-of-Sept-2020_stFor instance, according to the IP Violation Reports from the Intellectual Property Office of the Philippines (IPOPHL), from January to September 2020, IP complaints lodged at the IPOPHL increased to 135, surpassing the total of 129 complaints received in the previous 5 years (from 2015 to 2019)[4]. Among those, the majority of violators were operating online.

In 2020, the General Department of Market Surveillance in Vietnam checked more than 5 000 suspected cases, uncovering about 4 500 violations. This resulted in monetary fines that came to a total of VND 30 billion (approximately USD 1.3 million). The value of counterfeit goods, and goods without a certificate of origin infringing IP rights, recorded in the first 7 months of 2020 by this department was VND 40 billion (approximately USD 1.74 million)[5].

Furthermore, according to the enforcement statistics of the Department of Special Investigation and Customs, Royal Thai Police, the number of seized items from January to May 2021 increased by 83.33% compared to the same period last year[6].

More importantly, the Covid-19 pandemic has made people seriously anxious about getting sick. Many people stockpiled medicines, testing kits, and protective equipment (such as face masks, medical devices, disinfectants, sanitisers, etc.), causing a dramatic surge in demand for those products. During the peak crisis, global transportation was seriously affected, resulting in higher prices for raw materials. There were not enough products originating from genuine sources to meet the huge spike in demand. Consequently, broken supply chains, a strong demand for essential products, and the high level anxiety among consumers, have accelerated the surge in illicit trade and counterfeiting. ‘When the supply does not meet the demand, it creates an environment where poorer quality or fake medicines will try to meet that demand,’ said Pernette Bourdillion Esteve from the World Health Organization (WHO)[7].

A report by Check Point Research[8] revealed that there has been an alarming increase of fake Covid-19 vaccines available on the dark web since November 2020 – when the positive news about vaccine trials and the imminent availability of vaccines was released. Phrases such as ‘available corona virus vaccine $250’, ‘Say bye bye to COVID19=CHLOROQUINE PHOSPHATE’ and ‘Buy fast. CORONA-VIRUS VACCINE IS OUT NOW’ were used to tempt people into buying fake medicines. Check Point’s expert also noticed that a dark-net search for Covid-19 returned multiple results, including hundreds of advertisements – an increase of over 400% since early December 2020.

Photo source: INTERPOL

Photo source: INTERPOL

Recently, INTERPOL (with the support of local police, customs and health regulatory authorities) carried out Operation Pangea XIV in 92 countries, targeting the sale of counterfeit and illicit medicines and medical products. The operation resulted in 113 020 web links, including websites and online market places, being closed down or removed. This Operation oversaw the seizure of 9 million medical devices and illicit pharmaceuticals (fake and unauthorised Covid-19 testing kits accounted for more than half of those) and 277 arrests worldwide during one week of action (18–25 May 2021). The potentially dangerous pharmaceuticals seized during the operation had an estimated value of more than USD 23 million[9].

The health and safety consequences of counterfeits

Using counterfeit products, especially fake medicines, can cause serious harm to health and safety for consumers, as they are more likely to contain dangerous ingredients than authentic goods. Furthermore, counterfeit products usually do not go through the required consumer compliance and safety tests before being put on the market.

Recently, some alarming figures related to counterfeiting were released in the EUIPO’s Qualitative Study on Risks Posed by Counterfeits to Consumers[10]. This study clearly displays the extent of the dangers to health posed by counterfeit goods, as evidenced by the alerts submitted by EU market surveillance authorities (MSAs) using the European Commission’s ‘Rapid Alert System for dangerous non-food products’ (RAPEX system). The report concentrates on the seven most common risks reported: chemical, injuries, strangulation, choking, electric shock, damage to hearing and fires.

An analysis of RAPEX alerts carried out from 2010 to 2017 pointed out that:

  • A total of 97% of the dangerous counterfeit goods recorded were assessed as posing a serious risk.
  • Toys are the most popular type of product, followed by clothing, textiles and fashion items. In fact, the end-users of 80% of the goods reported as being dangerous and counterfeit (toys, childcare items and children’s clothing) were children. The most common danger reported (32%) was related to exposure to hazardous chemicals and toxins that could cause acute or long-term health issues (from both immediate or long-term exposure).
  • A total of 24% of the dangerous products recorded as counterfeit posed more than one danger to users.
  • The causes of the risks identified ranged from poorly constructed products or the use of inferior supplies and components, to a lack of understanding of regulations or safety mechanisms.

With counterfeit medicines, the impact can even be life-threatening. According to a WHO study on public health and the socioeconomic impact of substandard and falsified medical products[11], many counterfeit drugs contain undeclared active ingredients that might have serious unwanted health consequences. These can pose very serious threats to consumer health and public systems, such as:

  • adverse effects (for example toxicity or lack of efficacy) from incorrect active ingredients;
  • failure to cure or prevent future disease, thereby increasing mortality, morbidity and the prevalence of disease;
  • contributing to the progression of antimicrobial resistance and drug-resistant infections;
  • a loss of confidence in health-care professionals, health programmes and health systems;
  • an increase in individual and health system spending on health care;
  • lost income due to prolonged illness or death;
  • lost productivity costs to patients and households when seeking additional medical care, the effects of which are felt by businesses and the wider economy, etc.
Photo source: www.pexels.com

Photo source: www.pexels.com

According to the report from the United Nations Office on Drugs and Crime (UNODC), many South-East Asian people are at risk as the amount spent by consumers in this region on falsified medicines is estimated to range between USD 520 million and USD 2.6 billion per year[12]. The report also pointed out that ‘some of the falsified medicines manufactured in South-East Asia involve mainstream companies that cut corners by deliberately diluting products with substitute or cheaper chemicals or by altering the expiration dates on packaging. Others are produced as the result of insufficient mixing, contamination and degradation, and other simple sloppiness, as evidenced by some samples containing more than the specified dose’. For example, during Interpol’s Operation Pangea VIII in 2015, Indonesian authorities detected that criminals were altering the expiry date or the amount of the active ingredient on packages of counterfeit, expired and unregistered medicines at the warehouse and returning them to pharmacies for sale. Other follow-up investigations in Indonesia uncovered counterfeits in 37 medical facilities across 9 provinces, including counterfeit imported child vaccines for hepatitis B, tetanus, measles and polio. More than 20 individuals, including 3 health professionals, were arrested due to their involvement in these illegal operations[13].

Illegal trading and counterfeiting have negative consequences, not only for the economy (decrease of revenue and profits, erosion of brand confidence and reputation) but also for consumer health and safety. The boom of e-commerce and the extensive use of social media platforms, along with the recent Covid-19 outbreak, have been creating fertile ground for the production, distribution, and consumption of counterfeit products. To tackle this threat, continuous actions, efforts, and financial resources are required from the authorities, agencies, and IP owners to track, monitor and stop the illegal activities of counterfeiters.

But above all else, it is the responsibility of the consumer to adopt a wise attitude and to avoid buying and using counterfeit products. Purchasing counterfeit goods may instantly save some money, but paying with our health means a higher cost for all of us.

The South-East Asia IP SME Helpdesk developed and published a Guide on How to Remove Counterfeit Goods from e-commerce Sites in South-East Asia (link here), an E-commerce Infographic (link here) and IP Country Factsheets (link here).

For more information about IP in South-East Asia, check out our website at https://intellectual-property-helpdesk.ec.europa.eu/regional-helpdesks/south-east-asia-ip-sme-helpdesk_en.

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

Author: Xuan Nguyen, SEA IP SME Helpdesk

LOGO LA IP SME HD_EC ENE-21 lr

[1] https://www.oecd-ilibrary.org/docserver/g2g9f533-en.pdf?expires=1617871694&id=id&accname=guest&checksum=5A2965E4B201677AA07AB112CEE181F9

[2] https://www.bain.com/globalassets/noindex/2020/e_conomy_sea_2020_report.pdf

[3] https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG

[4] https://www.ipophil.gov.ph/news/jan-sept-2020-reports-complaints-on-ip-infringement-surpasses-2015-2019-total/

[5] https://vir.com.vn/preventing-counterfeit-during-explosive-e-commerce-growth-during-pandemic-84285.html

[6] http://www.ipthailand.go.th/en/ipr-enforcement-operation/item/total2021.html

[7] https://www.bbc.com/news/health-52201077

[8] https://blog.checkpoint.com/2020/12/11/covid-19-vaccines-touted-for-just-250-on-darknet/

[9] https://www.interpol.int/en/News-and-Events/News/2021/Thousands-of-fake-online-pharmacies-shut-down-in-INTERPOL-operation

[10] https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/documents/reports/2019_Risks_Posed_by_Counterfeits_to_Consumers_Study/2019_Risks_Posed_by_Counterfeits_to_Consumers_Study.pdf

[11] https://www.who.int/medicines/regulation/ssffc/publications/SE-Study_EN_web.pdf?ua=1

[12] https://www.unodc.org/documents/southeastasiaandpacific/Publications/2019/SEA_TOCTA_2019_web.pdf

[13] Ibid.

 

The EU–Vietnam Free Trade Agreement (EVFTA) and intellectual property (IP) protection: What EU SMEs should know

WRITTEN BY XUAN NGUYEN

Vietnam is a thriving economy with a GDP of USD 340.821 billion – the fourth biggest in South-East Asia (after Indonesia, Thailand, and the Philippines), a population of 97.406 million people and a GDP per capita of USD 3 499 (in 2020)[1]. Despite the challenges of Covid-19, Vietnam has remained resilient, it expanded its GDP by 2.9% in 2020 – one of the highest growth rates in the world[2].

(Photo source: https://pixabay.com)

The European Union (EU) and Vietnam have enjoyed robust commercial relations in recent years. Vietnam is the EU’s 15th most important trade partner worldwide, and the EU’s largest trading partner in South-East Asia in 2020[3]. The EU is also one of the largest foreign investors in Vietnam, with a total foreign direct investment of EUR 6.1 billion in 2019[4].

The EVFTA, which entered in force on 1 August 2020, is one of the important strategic enablers for boosting the economic growth of, and the cooperation between the two parties through the elimination of customs duties and non-tariff barriers, driving a boom in exports and imports as well as encouraging investment flows. The EVFTA also includes a dedicated chapter on IP protection (Chapter 12) that requires Vietnam to implement substantive changes to improve their current IP system.

According to the South-East Asia IP SME Helpdesk, the major commitments related to IP protection under the EVFTA that EU companies should know about are as follows:

Photo source: www.pexels.com

Photo source: www.pexels.com

  • Geographical indications (GIs). A total of 169 European GIs (full list here) have been automatically recognised and directly protected in Vietnam since the EVFTA came into effect. Champagne, Feta, Parmigiano Reggiano, Rioja and Roquefort are some examples of EU GIs now being protected in Vietnam. EU farmers, businesses or associations producing and distributing products labelled with these GIs can now take action to stop illegal activities that sully their reputations through counterfeiting, misuse or other acts of unfair competition.

 

  • Patents. Pharmaceutical products are subject to a marketing authorisation procedure before being allowed onto the Vietnamese market. When there are unreasonable delays (i.e. if the Vietnamese authority fails to respond to an applicant without justifiable reasons after more than 24 months from the date of filing for marketing authorisation), the pharmaceutical patent owner is entitled to claim compensation by deducting the fee for using the patent. To be entitled to deduct the fee, the patent owner must submit a document confirming the delay (issued by the marketing authorisation authority) to Vietnam’s IP office within 12 months of the marketing authorisation being granted. Please note that Resolution No. 102/2020/QH14 (dated 8 June 2020) currently provides the legal background for this specific issue, and will remain applicable until an amendment to the existing IP law comes into effect.
  • Trade marks. Vietnam will apply the WIPO recommendations on the protection of well-known trade marks, which take additional parameters (not restricted exclusively to a trade mark’s degree of prominence amongst relevant consumers in a country) into consideration. In addition, a registered trade mark can be revoked if it misleads the public, particularly as to the nature, quality or geographical origin of a product. Thus, if EU companies notice that their trade mark has been registered in Vietnam by others and its use is misleading the public, this can be grounds for cancelling the infringing registered mark. Please note that this additional basis for revocation was included in Resolution No. 102/2020/QH14 (dated 8 June 2020) and will remain applicable until an amendment to the existing IP law comes into effect.
  • Copyright. Vietnam will accede to the WIPO Internet Treaties (the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty) to address the challenges associated with unauthorised access to and use of creative works on the internet and other digital networks. Phonogram performers and producers gain additional rights through the EVFTA, including the right to a single equitable remuneration for broadcasts and communications to the public.
  • Industrial designs. Following a commitment made in the EVFTA, on 30 September 2019 Vietnam deposited its instrument of accession to the Geneva Act (1999) of the Hague System for the International Registration of Industrial Designs. EU design applicants can now seek protection for their designs in Vietnam by using the Hague system (a practical business solution for registering up to 100 designs in 74 contracting parties, covering 91 countries, through the filing of a single international application).
  • Undisclosed information. If undisclosed test results or other data regarding pharmaceutical or agrochemical products are required by government agencies for marketing approval, the protection of such data against unfair commercial use or disclosure will be set for 5 years from the approval date.
  • Enforcement. Customs officers will be able to act ex officio – in other words, they can actively target and block shipments containing IP infringing goods without having to wait for a complaint. If needed, the IP rights holder can ask the authorities to apply provisional measures, such as the precautionary seizure or blocking of the movable and immovable property of the alleged infringer, including the blocking of his/her bank accounts and other assets. The authorities may consider ordering pecuniary compensation to be paid to IP owners in certain cases of unintentional infringement, instead of applying injunctions or corrective measures.

Vietnam’s government and relevant agencies are currently working on numerous changes to leverage the existing IP protection system, such as an amendment to the IP law (the draft amendment to the IP law has been published on the official site for public examination since November 2020 and will be submitted to the National Assembly for comments in October 2021), updating the Decree on E-commerce (to include stricter provisions related to IP infringement online), improving the online registration system and strengthening the effectiveness of IP enforcement measures (customs checks, investigations, the imposition of sanctions, etc.). These are positive steps from the Vietnamese government to align their entire IP protection system with international standards. This, in return, will enhance Vietnam’s competitiveness by creating a favorable environment for EU companies to safely access and operate in Vietnam’s markets.

The South-East Asia IP SME Helpdesk will continue monitoring the IP landscape in Vietnam to provide EU SMEs with further updates and practical IP advice. Check out our infographic on the EVFTA and IP protection here for further information.

South-East Asia IP SME Helpdesk (website here).

The South-East Asia IP SME Helpdesk is an initiative of the European Commission to support EU SMEs to protect and enforce their IP rights in the 10 South-East Asian countries. All services offered by the Helpdesk are free of charge.

In a nutshell, the Helpdesk’s services cover: (i) enquiry helpline (tailor-made confidential advice to EU SMEs on IP related to South-East Asia within 3 working days), (ii) IP guides and country factsheets and (iii) onsite and online trainings.

[1] https://www.imf.org/en/Publications/WEO/weo-database/2021/April/select-country-group

[2] https://www.worldbank.org/en/country/vietnam/overview

[3] https://ec.europa.eu/trade/policy/countries-and-regions/countries/vietnam/

[4] https://webgate.ec.europa.eu/isdb_results/factsheets/country/overview_vietnam_en.pdf

Online services of intellectual property offices in South-East Asia

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WRITTEN BY XUAN NGUYEN

Digitalisation has changed the way intellectual property (IP) offices operate, and made them more effective. During the Covid-19 pandemic, when many IP offices were physically closed, online systems played an essential role. Thanks to this, filing and processing services avoided disruption.

Photo source: https://pixabay.com

Photo source: https://pixabay.com

Let’s explore how the South-East Asian IP offices improved, and are still improving, their online systems and what type of online services are currently available!

  1. Brunei

To increase efficiency of the services, the Brunei Intellectual Property Office (BruIPO) has recently launched an e-filing portal for patents, trade marks, industrial designs and post-filing. For more information on how the e-filing works, check out here.

There is also an online database (here) that allows companies to search for IP rights such as patents, trade marks and industrial designs which have been registered or applied in Brunei.

  1. Cambodia

Cambodia launched an online filing system for trade mark registration in 2017. Following recent updates to reduce the need for in-person filings during the Covid-19 pandemic, the Department of Intellectual Property (DIP) has urged applicants to make use of the e-filing system as much as possible. The DIP expanded the e-filing system to include post-registration services such as renewals, the submission of affidavits of use/non-use, responses to refusals, and the appointment of a new agent.

To use the system you must create an account with the DIP and also possess a local bank account. It is only open to domestic applicants and registered IP agents. The portal can be accessed here.

In addition, a trade mark search can be conducted online via the Cambodia Trademark Database, here.

  1. Indonesia

The Indonesian Directorate General of Intellectual Property (DGIP) officially launched a new, mandatory e-filing system in 2019. Online filing has been continuously improved and covers almost all aspects of the registration process, from searching or filing to post-filing for patents, trade marks, designs and copyrights. For further information, please click here.

  1. Laos

An online system providing information and services has been developed, it was launched in February 2019 and is now operational. Although the e-filing services are not yet functioning, the trade marks database can be accessed. The Department of Intellectual Property (DIP) has begun to publish the Official Gazette for trade marks and geographical indications (GIs) on a regular basis. Detailed information can be found here.

  1. Malaysia

The Intellectual Property Corporation of Malaysia’s (MyIPO’s) offers online searches and filing services for patents, trade marks, industrial designs and GIs. This system also allows applicants to check the status of their pending IP applications. For more detailed information, please click here.

  1. Myanmar

Myanmar recently launched an e-filing system for trade marks. However, the system can only be used by IP agents. For more details, please click here.

  1. The Philippines

The e-service portal of the Intellectual Property Office of the Philippines (IPOPHL) is very comprehensive. It covers almost all aspects of the process, from searches or filing to post-registration steps for patents, trade marks, designs and copyrights. Further information can be found here.

  1. Singapore

The Intellectual Property Office of Singapore (IPOS) provides comprehensive IP databases. You can use the e-services portal here. It provides effective and comprehensive functions for searching, filing, amending and renewing patents, trade marks and designs. In addition, you can also download the IPOS Go app for on-the-go access to key functions for new trade mark applications, IP renewals (trade marks, patents and designs) and IP searches.

  1. Thailand

The Thai Department of Intellectual Property (DIP) introduced an e-filing system for copyright, patents and trade marks in 2016. The system, however, needs substantial improvements as it is quite unstable, and the e-filing portal is displayed in Thai only (no English version is currently available). For more information, please click here.

  1. Vietnam

The National Office of Intellectual Property of Vietnam (NOIP) launched an Online Public Service portal that covers both filing and post-filing tasks for patents, designs and trade marks. The services are open for both local agents and applicants domiciled in Vietnam. However, the NOIP now only grants account access to applicants who have already been assigned an electronic signature. Check it out here.

Conclusion

The online systems of IP offices in South-East Asia have been hugely improved over the past few years, especially during the Covid-19 pandemic. More improvements are expected in the upcoming years.

Photo source: https://pixabay.com

Photo source: https://pixabay.com

It is worth noting that the online filing systems in South-East Asian countries can only be used by local IP agents or companies with office addresses in the country in question (except for Myanmar where only agents can use the e-filing portal). If a foreign applicant does not reside or carry out their principal business in the country, a local IP agent must be appointed to work with the IP office on their behalf.

For more information about IP in South-East Asia, check out our website at https://www.southeastasia-iprhelpdesk.eu/.

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.

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.

black-android-smartphone-on-top-of-white-book-39584

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.

man-wearing-black-blazer-3051576

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

 

Supply Chain Relocation and Intellectual Property Protection after COVID-19: Why Vietnam and What to Watch Out For?

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WRITTEN BY XUAN NGUYEN

The global economy has recently witnessed unprecedented blows due to the US–China trade war and COVID-19. Many countries (especially in Europe and the USA) have struggled against the pandemic, but Vietnam has managed the crisis effectively — an official count of 327 cases and zero deaths to date. Local authorities have eased social distancing measures, and most business activities, including shops and restaurants, are back to normal. However visa controls are still in place and international flights are still banned.

How businesses think about supply chains is changing. This article reveals our latest insights on the evolving situation; how it is turning Vietnam into a new manufacturing hub for the global economy. We also provide some useful tips and things to watch out for to help protect your intellectual property (IP) in South-East Asian market like Vietnam. Let’s explore.

The US–China trade war and the COVID-19 crisis: Urging businesses to diversify their supply chains

Photo source: https://www.pexels.com

Photo source: https://www.pexels.com

The trade war between the US and China (often seen as the factory of the world) has made production in China more expensive due to increased tariffs. This has driven companies to look for safer and more competitive options. HSBC economist Yun Liu pointed out that, ‘Likely due to the trade tensions that have accelerated multinational corporations’ relocation decisions, many tech giants, including Apple, Google, Nintendo, and Kyocera, have now followed in Samsung’s footsteps and plan to move parts of their production to Vietnam’[1].

At the height of the trade war tensions, COVID-19 broke out on a global scale, affecting millions of people. Governments have intervened, applying numerous safety measures that forced many businesses to close. Amid this chaos, companies with supply chains mainly dependent on China have started to realise how vulnerable they are.

In a recent article on CNBC[2], Mark Mobius, founder of Mobius Capital Partners, said the pandemic was already prompting a rethink as businesses sought to mitigate supply shocks from any future events of a similar scale: ‘A lot of buyers and a lot of the people depending on the supply chain in China are now having second thoughts, and are beginning to diversify their supply chain as much as possible to be closer to home’. ‘But at the end of the day, I think there’s going to be a diversification where these supply chains get moved into places like Vietnam, Bangladesh, Turkey, even Brazil, so that these companies can have a more diversified supply chain,’ he added.

Meanwhile, IMA Asia’s Richard Martin said that, although manufacturers across several industries had begun moving operations out of China before COVID-19, the pandemic was adding ‘a nationalist spin’ to considerations around supply chain restructuring.

EU Commissioner Phil Hogan declared that ‘we need to look at how to build resilient supply chains, based on diversification, acknowledging the simple fact that we will not be able to manufacture everything locally’[3].

When the pandemic ends, people will get back to work, businesses will be reopened and factories will operate again, but the world will not be the same as before. It will be a ‘new normal’ era. No one knows exactly what will happen. But one thing is certain: businesses must learn the importance of altering their supply chains to avoid similar shocks in the future.

Why Vietnam?

  • Dynamic economy with stable growth
Photo source: https://www.pexels.com

Photo source: https://www.pexels.com

With a population of about 97 million people (15th in the world) and based on decades of stable growth, Vietnam has one of most dynamic economies in the region. Supported by a robust manufacturing sector, GDP expanded by about 7% in 2019[4]. According to PwC’s ‘The World in 2050’ report[5], Vietnam is expected to be among the top 20 economies in the world by 2050.

  • Young population and competitive labour cost

Vietnam has a young population (70 % under 35)[6] and a large workforce (52 % are of working age)[7]. The middle class has been quickly expanding; it currently accounts for 13 % of the population and is expected to reach 26% by 2026[8].

According to Statista[9], labour costs in Vietnam are more competitive than in China. Manufacturing labour costs per hour are estimated at USD 6.5 in China, more than double that of Vietnam at about USD 3. In the ‘new normal’ after the COVID-19 crisis, when the global economy has slumped and consumer incomes have declined, manufacturing costs are expected to be one of the critical factors influencing investors.

  • Free trade agreements (FTAs): Shaping stable and open economies

Vietnam has shown a strong willingness to integrate into the global economy through numerous FTAs (13 signed and ratified, 3 more under negotiation).

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CTPPP) and the EU–Vietnam FTA (EVFTA) are two major advancements. The CPTPP took effect in January 2019, covering 11 member countries and accounting for about 14 % of global GDP[10]. CPTPP members are bound to comply with a number of commitments, from tax removal to improvements in legal frameworks that encourage sustainable investment and protect labour, environment and IP.

The EVFTA[11], signed in June 2019, is expected to be approved by the Vietnamese government in early summer 2020. It will eliminate 99 % of all tariffs on goods traded between the two sides. It also includes important provisions related to environmental protection, labour rights, IP protection and climate change. Vietnam will protect 169 Geographical Indication (GIs), such as Champagne, Parmigiano Reggiano cheese, or Feta cheese, at a comparable level to EU legislation.

These FTAs are expected to mitigate protectionism and encourage openness, cooperation and coordination, creating a favourable and stable environment to do business in Vietnam.

  • Pool of opportunities

When the supply chains shift, the supporting sectors and services will go with them. In the PWC report, ‘Doing Business in Viet Nam’[12], the sectors that will provide the most opportunities for companies entering this market are: manufacturing, retailing, e-commerce, tourism, modern agribusiness, food, solar and wind energy. As an emerging manufacturing export hub, total export revenue was estimated at USD 244.7 billion in 2018, up 13.8 % from 2017. FDI companies contributed 71% of it (equivalent to USD 175.5 billion), up 13% from 2017. Retailing is expected to reach USD 173 billion by 2023, an increase of 61 % (USD 108 billion) from 2018.

IP protection in Vietnam: Things to watch out for

An IP protection strategy is essential for any plan to relocate your business to prevent others from copying or using your IP assets and eventually enable you to take enforcement actions against the infringers. Even if you don’t plan to establish your physical business in Vietnam, technology transfers and licensing are good ways to increase revenues. However, they also expose your intangible assets to certain risks.

Photo source: https://pixabay.com

Photo source: https://pixabay.com

To comply with the binding commitments in the CPTPP and EVFTA, Vietnam has been working on amending its IP law and the relevant guiding documents, and enhancing the effectiveness of enforcement agencies. Stronger and stricter measures against IP infringers will soon be put into practice.

The first step in the transition is to understand what your IP rights are, and see how to get the best out of them in the new market.

  • Why and when should I register my IP in Vietnam?

Counterfeiting, piracy and cybersquatting are quite popular in Vietnam, especially in the thriving e-commerce era. Like other Asian countries, there are already many local counterfeit manufacturers available in the market and significant trade exchange with nearby China. Vietnam is very high risk in terms of counterfeits and its anti-counterfeiting agencies still need improvement.

IP protection is national. Even if you have already registered your IP, it doesn’t mean that it is protected in Vietnam. To proceed with an enforcement action in Vietnam, local registration is a must.

Similarly to China and other South-East Asian countries, IP registration in Vietnam operates under a ‘first-to-file’ system; the first person to file an IP application in the jurisdiction owns the rights once the application is granted. This encourages bad faith registration: a local company, or even your distributor, may file an application to register your IP (especially trade marks) before you, and then become its legitimate owner. They may start doing business with your IP or offer to sell it back to you. Taking legal action against these infringers is expensive and, without owning the IP registration, not always easy. This time-consuming process threatens your reputation and decreases your economic benefits. You can even find yourself excluded from the market.

Registration is the prerequisite step for the protection and enforcement of your IP rights. You may prioritise exploring the market and prefer to postpone registration until your business is well positioned, but spending a few hundred euros to file a patent, trade mark or a design application before entering the market is strongly advised. The table below summarises the basic registration costs (excluding services and legal fees) and timelines.

Type Government fees Average time
Patent VND 2 130 000 (approx. EUR 84) 36–48 months
Trade mark VND 1 360  000 (approx. EUR 54) 15–18 months
Industrial design VND 1 810  000 (approx. EUR 71) 12–15 months
Copyright VND 100 000 to VND 600 000 (approx. EUR 5 to EUR 25) 15 days

It is also advisable to run a pre-filing search to establish the availability of your IP. You can search a national databank at the IP Vietnam portal (http://iplib.noip.gov.vn/WebUI/WLogin.php) and access the WIPO IP Portal for international registrations designated Vietnam.

  • Should a non-disclosure agreement (NDA) and IP clauses be included in the contract?

While exploring business opportunities in Vietnam, you are likely to present innovations and ideas to potential local partners for purpose of technology transfer, licensing or research and development (R&D). Disclosing your technology and know-how (e.g. manufacturing processes, technical drawings, and specifications) to local partners exposes you to risk.

A rule of thumb rule is to always sign an NDA and include IP clauses in contracts with local companies to secure your IP. For more information, you can check out our relevant guides, such as Technology Transfer Guide, Research & Development (R&D) Activities and Using Contracts to Protect your Intellectual Property.

  • Is it compulsory to use a local agent to register my IP in Vietnam?

IP protection is national and the laws and practices are not the same as in the EU. Seeking advice from a local lawyer with expertise on the topic is strongly recommended. Please note that, if an applicant doesn’t reside in Vietnam, appointing a local agent to file your application and work with the IP office of Vietnam is compulsory. You can refer to our list of local experts here — they can guide you through the legal procedures and provide strategic advice.

  • Can I register my IP from my home country?

Apart from registering your IP directly with the IP office of Vietnam, there are some international treaties that can help companies to obtain simultaneous protection in multiple countries:

–  Patent Cooperation Treaty (PCT):   The PCT system helps applicants seeking patent protection internationally for their inventions. By filing one international application, applicants can simultaneously seek protection in a very large number of countries, including all ASEAN countries except Myanmar. The biggest advantage of the PCT procedure is that you have up to 30 months from the earliest filing date of your initial application to decide which countries you wish to enter for protection.

– The International Trademark System – Madrid: A convenient and cost-effective solution for registering and managing trade marks worldwide. Under the Madrid system, you can file just one application in one language through your home office, and pay one clear set of fees to seek trade mark protection in up to 122 countries. All South-East Asian countries (except Myanmar) are members.

– The Hague System for the International Registration of Industrial Designs provides a practical business solution for registering up to 100 designs in 73 contracting parties covering 90 countries, through the filing of one single international application. Four South-East Asian countries (Brunei, Cambodia, Singapore and Vietnam) are party to the Hague System.

Now supply chains are being relocated, Vietnam is a promising destination for business expansion. Investing some time in exploring IP protection and having a well-prepared strategy are critical factors in your success and sustainable growth in Vietnam. Neglecting IP protection might cost you more than you imagine.

For more information about IP protection in Vietnam, you can check out our IP Country Factsheet or contact us for free IP advice.

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

[1] https://www.voanews.com/east-asia-pacific/us-china-trade-war-seen-boosting-vietnam-growth

[2] https://www.cnbc.com/2020/04/21/supply-chains-will-move-away-from-china-after-coronavirus-mark-mobius.html

[3] https://ec.europa.eu/commission/commissioners/2019-2024/hogan/announcements/introductory-statement-commissioner-phil-hogan-informal-meeting-eu-trade-ministers_en

[4] https://www.worldbank.org/en/country/vietnam/overview

[5] https://www.pwc.com/gx/en/world-2050/assets/pwc-the-world-in-2050-full-report-feb-2017.pdf

[6] https://www.worldbank.org/en/country/vietnam/overview

[7] https://www.pwc.com/vn/en/publications/2019/pwc-vietnam-dbg-2019.pdf

[8] https://www.worldbank.org/en/country/vietnam/overview

[9] https://www.statista.com/statistics/744071/manufacturing-labor-costs-per-hour-china-vietnam-mexico/#statisticContainer

[10] https://www.pwc.com/vn/en/publications/2019/pwc-vietnam-dbg-2019.pdf

[11]  https://ec.europa.eu/trade/policy/in-focus/eu-vietnam-agreement/

[12] https://www.pwc.com/vn/en/publications/2019/pwc-vietnam-dbg-2019.pdf