How to win the global IP rights war

Companies operating internationally can face an uphill struggle to enforce their intellectual property rights and may decide to concentrate on markets where the odds – and profits – are in their favour, as Rodrigo Amaral reports

The enforcement of intellectual property (IP) rights has become a priority for multinational corporations as they expand their customer bases and supply chains around the world.

The good news for them is that a growing number of countries have signed up to international IP rights treaties in a quest to attract more investments.

But key emerging markets for multinationals remain a long way from putting in the necessary effort to turn the letter of the law into effective tools against pirates and counterfeiters.

As a result, companies have been allocating evermore resources in a bid to safeguard their trade secrets. However, they often have few material results to show for their efforts.

The rapid expansion of the internet and other communication technologies in emerging markets, where much of IP rights infringements are committed, has made it harder for companies to fight for their patents and trademarks.

And new technologies that keep popping up do not make the task any easier. According to experts, the latest threat to emerge has been 3D printing, which potentially makes it much simpler for pirates to produce faithful copies of articles that are valued mostly for their shape, rather than the material they are made of.

The high cost of 3D printers has helped to keep this menace at bay for a while. But as prices come down, 3D printing is set to become a new frontier in the fight against counterfeiting.

Efforts to fight the problem are underway, but a functioning global IP rights regime remains little more than a pipedream

According to the International Chamber of Commerce, the global annual impact of counterfeiting and piracy will next year reach $1.7 trillion, more than double the 2008 figure.

More than half the loss is caused by the international trade in fakes and the domestic production of counterfeited products answers for up to a further $540 billion. The digital piracy of music, video and software is set to account for some $240 billion in 2015.

In the United States alone, the phenomenon drains around $300 billion from the economy every year, the equivalent of US exports to Asia, say anti-piracy campaigners. Such numbers, as high as they may look, could in fact underestimate the real cost of the problem as, by their nature, IP infringements are difficult to quantify.

Efforts to fight the problem are underway, but a functioning global IP rights regime remains little more than a pipedream.

“Laws are being changed because countries want to attract investments from companies and that is a step in the right direction,” says Michael Hart, head of the IP department at law firm Baker & McKenzie in London. “But it will take time and changes in the political climate for such laws to be properly enforced.”

Many countries have subscribed to regulation through adhering to the principles of the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) regime. But actually enforcing the rules is a completely different matter.

Sometimes non-enforcement is the result of a dearth of means as slow judiciaries and inefficient patent registration processes continue to be hallmarks of several countries.

This is the case in India, for example, according to Roland Mallison, a partner at London-based law firm Taylor Wessing. “The laws in India are reasonably good, but the infrastructure behind them is definitely lacking,” he says. “There are huge delays in Indian registries. They have now a specialised court for IP matters, which is a good idea. But it is a court that moves around several cities, which is very disruptive.”

India has been placed last among 36 major jurisdictions in the fourth Global Intellectual Property Index drafted by Taylor Wessing. But similar problems can be found in other parts of the world, says Mr Mallison.

“In some Middle-Eastern countries, the process of applying for a patent or a trademark often requires numerous physical visits to the ministry of economy,” he says. “The whole process may take up to three years and the patent or trademark may not actually feature on the registry for five years. Sometimes companies want to launch a product in one of these countries, but they cannot be sure that it does not conflict with a registered patent because the registry is out of date.”

Other times, however, IP campaigners identify a considerable degree of bad faith in the failure of the authorities to enforce their own IP rules.

For example, the US Congress has recently come up with some scathing language about China and its approach to other people’s intellectual property. “National industrial policy goals in China encourage IP theft, and an extraordinary number of Chinese in business and government entities are engaged in this practice,” according to a US Congress report. “There are also weaknesses and biases in the legal and patent systems that lessen the protection of foreign IP.”

The bottom of the rankings elaborated by Taylor Wessing also includes other large emerging economies, such as Brazil, Indonesia, Mexico, Turkey, Russia and South Africa. But, for its sheer size and the pivotal role it plays in global supply chains, China is a focal point for multinational firms when it comes to IP rights.

It is also one of the jurisdictions where, somewhat differently from American politicians, experts have noted that progress has been made in recent years to enforce patents and trademarks.

This has been to a large extent attributed to the development of China’s own research and technology, which has driven companies to seek protection for new products they have developed in the local market. In fact, China was the country where the highest number of patents were filed in 2012, according to the World Intellectual Property Organization.

In May, China is due to start implementing a new trademark law that introduces important provisions, such as higher penalties for infringers and a streamlined court process to deal with disputes.

But companies fear the progress could be hindered by other provisions of the law which, for example, eliminate the right for parties in a court case to appeal against a decision taken by the trademark agency.

“In terms of trade secrets, prevention is always better than cure,” says Lara Quelch, a senior IP consultant at KPMG in London.

Sometimes that requires a legally enforceable contract to protect IP and allow the company’s right to perform unannounced audits of a third party’s premises.

Ms Quelch notes that some companies have decided to distribute parts of their production chains among several different countries to reduce the risk of the process being copied and transferred to rivals.

Experts also stress the need for companies not to tolerate any infringement to their IP rights. That means not only taking aggressive action when counterfeits are identified, but also acquiring a thorough understanding of how the local government and judiciary work.

“Companies have to adopt IP protection strategies that are appropriate to local systems,” says John Wilks, a partner at law firm DLA Piper in London. “It is important to understand what a particular local system is good for and what are its limitations.”

The fight is hard, though, and takes place in a global environment, which forces companies to pick its battles according to their immediate needs and long-term goals.

Baker & McKenzie’s Mr Hart concludes: “The most successful IP programmes have a degree of flexibility that enables companies to shift resources from one place to another as situations change. Companies need to employ a whole combination of measures to consolidate their reputation as someone that counterfeiters do not want to mess around with.”