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  • What Does It Cost Manufacturers to Secure & Protect Intellectual Property Overseas?

    When asked about assets, many business owners tend to gravitate toward mentioning tangible assets first, or those that are most liquid. This includes property, equipment and cash on hand, but does not include key intangible assets like intellectual property (IP). For some companies, IP may in fact be their most valuable asset. 

    Securing and protecting IP is often a necessity when striving for success in the business landscape. The United States recognizes this, providing a clear and economical process for securing and enforcing IP rights. But many overseas nations do not afford these same protections—especially for small and medium-sized businesses. 

    This blog is the ninth in a series detailing the costs associated with moving production overseas. Read more:  This article will explore the unexpected costs around preserving IP overseas, including the cost of securing patents and trademarks, enforcing IP rights and recouping losses from IP theft.  
     

    The Costly Differences Between IP Systems

    After contending with the upfront costs of moving business overseas, like inventory, real estate, energy and labor, businesses must still face the difficulties and costs associated with moving IP overseas. 

    Because IP is an intangible asset, its costs are difficult to define, but value often seems immeasurable, especially when a product design hinges on specific IP protections to prevent excess competition. 

    Unfortunately, IP systems are not universal. Some nations place high importance on protecting business IP while others take a more lax approach. IP protections are also not transferable across borders. Additionally, due to the intangible nature of IP and differing opinions in its value, economists can only estimate the levels of protection offered in different jurisdictions. The fact that IP protections can only be estimated also adds a considerable level of risk to the process. 

    This risk is in addition to initial and ongoing costs associated with establishing and protecting IP, like securing patents, securing trademarks and working to prevent infringement. Costs can also change over time and between countries, meaning businesses must do their research before attempting to move IP abroad. 
     

    Patents

    Patents are exceptionally important for small-to-medium-sized enterprises (SMEs) as they help capture initial competitive edge while preventing competition from intruding on market share. Securing patents early on also attracts initial investment and capital for growth.

    The cost of patent acquisition is almost always higher outside the United States, which has one of the lowest fees among industrialized nations (about 25% that of Europe). The U.S. also offers discounts up to 50% on patents for SMEs and 75% for micro-entities. These discounts are nearly unheard of outside American borders.

    Even if a business can pay the high costs, sometimes patent acquisition is impossible anyway due to differences in grace periods, or the time an investor has to file a patent after telling the public. This means if a company sets up business under a patent in the U.S. and starts doing business, but does not file the same patent in another jurisdiction within that jurisdiction’s grace period, the right to patent may be void. The only way to prevent this from happening is to obtain foregin patents early on in product development despite having an incomplete business model or few funds to spend on IP in countries that may never be ventured into.

    Finally, some countries are inconsistent in their laws surrounding “prior user” rights, which allows competing firms to use a patent without paying any royalties as long as they meet certain conditions related to the time before a patent was filed. Allowing prior user rights can present serious obstacles, especially for SMEs. The United States has implemented strict laws limiting prior user rights. 
     

    Trademarks

    Strong trademark protections offer businesses the opportunity to fight back against counterfeit goods and fraudulent competitors. Trademarks protect business reputation against illegitimate companies who are often offering lower quality work under the guise of relation to the legitimate business. 

    Trademark protection is exceptionally low in countries that do not implement relative grounds examination in relation to trademark applications. Relative grounds examination is an initial vetting of a trademark to ensure it does not conflict with or imitate any existing trademarks. Taking this action up front means companies are not required to do their own legwork after the trademark is approved, seeking out similar trademarks and fighting them in a court of law. The U.S. has relative grounds examination baked into its trademark process. 

    Finally, we would be remiss to avoid mentioning the cultural and linguistic nuances that play into trademark law. The United States (and most other industrialized nations) does not grant trademark rights to certain words or images that are deemed culturally offensive, generic or inappropriate. Without cultural context, businesses may waste time attempting to file trademarks that fall under that umbrella of ineligibility. Companies can circumvent this issue by working with legal and translation services, both of which cost extra money.
     

    IP Rights & Security

    Once the legwork of securing patents and trademarks at home and overseas is done, companies face a seemingly never-ending battle for IP protection against competitors. Protecting IP is almost never cheap, and often requires a time and labor commitment. 

    IP litigation is costly in the U.S., often even more so in developing nations with little experience in IP protection and/or weak laws surrounding the process. For example, in Brazil, infringement cases cost anywhere from $60,000 to $100,000. In some countries, judges also remain generally unfriendly to IP protection seekers, especially those from abroad. 

    Finally, these infringement and validity cases can drag on overseas, moving from court system to court system, gaining extensive backlogs. When a case takes that much time to make it to the judge, infringers can continue to run amok, exploiting patents without fear of backlash.
     

    IP Theft Losses

    Even when IP protection cases are won and intellectual property rights are upheld, companies are still left to contend with the costs of time, labor and money spent on the case. The damage to the company’s reputation and bottom line adds up, with total U.S. IP losses related to China alone totaling in the billions each year.

    IP loss is difficult to quantify monetarily, but those billions of dollars stem mostly from tech industries, (especially in relation to software), pharmaceuticals and entertainment piracy. Every year, U.S. companies lose millions due to unprotected intellectual property with no real way of reclaiming losses outside costly litigation. 

    Intellectual property requires two things: Filing the initial patent or trademark, and continuing to protect approved IP for as long as the trademark or patent is active, often decades. While the United States provides discounted patent costs and simplified processes, especially for small businesses, these same benefits are not always (or often) extended abroad. 

    Companies interested in moving operations overseas, or even sourcing abroad, must take all costs into consideration. When it comes to IP, it’s often a better investment to remain in the United States, which offers considerable patent and trademark protections and a simplified, familiar filing system advantageous to a firm’s bottom line.

    If you’re looking for a domestic supplier, Custom Rubber Corp. offers services and capabilities that work with your business needs and budget. Contact Custom Rubber Corp. to learn more.
     
    Posted Wednesday, June 2, 2021 by: Global Administrator
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