Wednesday, 5th March, 2014

Keep what is yours, yours: protecting your IP from opportunists

Trade secret theft makes regular headlines around the world. Whether it is an SME whose disgruntled employee has walked off with engineering drawings or customer lists, or targeted theft by organised criminals — such theft can be very damaging to a business. A recent report by an independent US commission, ASIS International, ¬ estimates that total revenue lost by US companies as a result of intellectual property theft is over US$300 billion. Theft of innovation may not only lead to reduced revenues and other financial losses, it can also have a severe impact on a company’s competitive advantage that is its lifeblood and future.

Trade secrets have traditionally been an important form of intellectual property protection, whether used alone or in conjunction with registrable forms of intellectual property protection such as trade marks or patents. While patents have a typical life of 20 years and require you to disclose your idea to the public in exchange for a legal monopoly, trade secrets can be kept secret and remain useful indefinitely – as long as the secrets stay in-house.

Many companies are good at keeping their most valuable ideas under wraps. This includes commercially sensitive information like: customer lists; machinery set-up and process data; blueprints for new products; and more. For example, Coca-Cola’s secret formulation is a trade secret, which if lost, would have a severe impact on its business. However, recent research suggests that many companies do not realise that they leak like a sieve. Mandiant, a security industry body, estimated last year that over 90% of firms penetrated by hackers had their trade secrets stolen digitally and were unaware of that fact. Industrial espionage nowadays doesn't take a 'safe breaker' to get hold of the next big thing that a competitor may be launching. Plenty of factories open their doors on a hot day to let ambient air through. And eyes in.

Parallel to trade secret theft is another major phenomenon – the hijacking of trade marks in civil-law countries such as China. This is not a new thing and has also been experienced by brand owners whose domain names have been hijacked by cyber squatters.

Hijacking of trade marks is a prevalent practice in China. China, like much of Europe and South America, is a country where the first person to file a trade mark is recognised as the rightful owner of that mark. This has spawned an entire industry of opportunists who make it their job to be the first to file trade marks that may be used in the Chinese market in the hope of selling the mark back to you at inflated prices! For example, Apple had to pay over US$60m to claim the 'iPad' trade mark in China. Others that have encountered similar issues with their trade marks in China include Kardashian, Audi (TT), Tesla Motors, Air Jordan, and Burberry.

New Zealand companies are not immune to their brands being hijacked either. As New Zealand is becoming an important trading partner to China, New Zealand brands are now on the radar of opportunists. Unfortunately a number of New Zealand companies looking to do business in China have been surprised to be facing trade mark infringement litigation over their own brand, finding that their company name or product brands have already been trade marked in China. Unfortunately, winning back trade marks can be a costly exercise and the prospects of success in China are very low. For a fraction of the cost, companies would be far better off registering their trade mark there early and before anyone else contemplates doing so.

As part of a recent investigation conducted in-house, AJ Park found that the significant majority of trade marks containing the symbolic word 'KIWI' on the Chinese trade mark register were owned by Chinese companies and Chinese individuals. Whilst on the face of it there is nothing wrong with this (given that NZ companies can in principle register the brand 'Yankee' for example), it does suggest that the opportunists are hard at work and not leaving too many stones unturned.

This is of grave concern to the increasing number of New Zealand exporters looking to take advantage of the Free Trade Agreement (FTA) between New Zealand and China. The best form of protection is pre-emptive. In simple terms, that means if there is any prospect in the near or distant future of wanting to use your brands in China, register them there now. It's a lot cheaper to do that than to face the costly litigation exercise of trying to win them back down the track.

Because situations differ, the above must not be used as a substitute to seeking professional legal advice.

*This was originally posted on The Icehouse website.