The demand for advanced U.S. technology is stronger than ever. Half of the international firms that contact me are looking for sophisticated technology, either for distribution or acquisition. Access to these lucrative markets is important, but one crucial issue is whether intellectual property can be protected.
In most cases, firms first look to patents, both domestic as well as those available where products are sold or made. While providing documentation of IP ownership, patents have two serious drawbacks.
Patent infringement claims are a civil matter. The effectiveness of protecting your IP is directly proportional to your bank account. Young firms or those under competitive pressure may find the cost of international patent litigation daunting.
Foreign courts often favor their citizens, showing bias against international litigants. Plus, the process can be so drawn out that even if you win, the evolution of technology may render it a hollow victory — not to mention the additional cost and time to enforce the verdict.
But you can protect yourself:
Fragmentation — If a device is assembled and fabricated globally, use several widely distributed fabrication shops for components and do final assembly and integration at another facility. While hardly just-in-time supply chain control, it prevents any single firm from full access, and makes it harder to reverse engineer or sell assembled units on the gray market.
Isolation — Maintain control through one or two specific and vital components (including installed software) that are manufactured in your domestic facilities. In this model, less critical, easily copied parts, such as injection molded plastic pieces, are left to international vendors, but a mission-critical component — sealed against access or tampering — is dropped in at final assembly, preserving the secret of its operation.
Contracting party — When selecting an international manufacturing or distribution partner, look for global operations and North American subsidiaries. Even if the distributor is in Europe or Asia, sign the contract with the domestic subsidiary, so litigation or arbitration takes place here. You’ll have a more stable judicial forum that avoids the burden of trying a case in a foreign country and foreign language.
Domestic assets — Any company with significant U.S. assets is superior to one where all assets are out of the country. Part of the challenge of protecting IP is that even if you win, enforcing that judgment without local assets to attach can make it a Pyrrhic victory.
Third-party verification — Damage assessment often requires a detailed analysis of the sales records. Write into the contract that all audits involving IP and its related records be validated and analyzed by a reputable international consulting or accounting firm. The cost can be shared equally at first, but ultimately the violating party should pay. This is important because even if you win a judgment, international violators often bury the records documenting how widespread the abuse was and how much money they made from it.
If you plan thoughtfully, tread carefully and use due diligence when selecting a distribution partner, not only can you unlock lucrative international markets, but you can also retain control of your essential IP.
David Iwinski Jr. is the managing director of Blue Water Growth. A global business consulting firm with extensive experience and expertise in Asia, Blue Water Growth services include merger and acquisition guidance, private capital solutions, product distribution, production outsourcing and a wide variety of business advisory services for its Western and Asian clients.