Intellectual Property Risks: The Pitfalls Every Exporter Should Avoid Part 1

Pitfall No.1: Territorial Rights

Most IP rights are territorial, your rights only exist in the country/countries where your IP is registered. This may mean that your IP is not protected in the country where you are selling your goods and services into. Solution: Register your IPs and register them early (preferably before you enter into a new market) in the countries where you are selling or planning to sell your goods or services into to avoid disappointments.

Pitfall No.2: Conflict of Laws

Different countries may have different IP laws or regulations. This is invariably a problem to traders which operate in more than one country. For example, the Trademark regime in China includes registration of a trademark in specific sub-classes, where other countries merely follow the Nice Classification system. This means that many businesses (including big shots like Apple Inc. and even G2000) register their trademarks in China only to find later that their trademarks have been registered by another company (usually a rogue seeking to free ride on the brands’ success) in another sub-classes which they did not register. Often this means expensive cancellation suits to oust the rogue registration or have the tables turn on you when you are handsomely fined for infringing the rogue’s trademark. Solution: Research on the IP laws and regulations of the country that you plan to enter into. Alternatively, hire a professional with extensive local knowledge to handle your IPs in that country.

Pitfall No.3: Language and Cultural Barrier

Lost in translation is a very real risk in the IP business. Patent claims may lose vital details after translation and in the worst case the translation may not reflect the invention at all. These minor errors in translation may severely undermine your IP protection. In Trademark, a badly selected mark may spell doom for a business. While the trademark “FCUK” may have been chosen for its shock value, other words may have less desirable connotation in certain cultures. For example, the word “FATT” means “prosperity” to Chinese reader, but to non Chinese reader it may be taken to mean “obesity”. A trademark should be culture sensitive as well, for example, a mark with an image of a pig (however cute) may not be suitable in countries where the population is predominantly Muslim/Jewish. Solution: Again, seek help from professionals with a good grasp of both English and the local languages. They should also have a deep understanding of the local culture.

Pitfall No.4: IP Ownership; Who gets Custody?

When you are thinking of cooperating with a foreign person (be it in a joint venture, co-authorship, or co-inventorship capacity), you should always be clear about who should own the IP rights. Far too often, companies enter into a contract with a foreign company without having specific provisions for the ownership of the IP rights. This has become a highly litigious area, because when the cooperation ceases, both parties are likely to claim exclusive ownership over the IP rights. Solution: Make sure the ownership of IP rights is specifically provided in your contracts, stating clearly who should be the rights’ owner. In the case of a joint venture, it is preferable to retain your own IP rights and simply license the rights to the JV. This way, you will retain your rights after the dissolution of the JV, instead of participating in a legal tug-of-war over the rights with your former partner.

Pitfall No.5: Parallel Imports; Exhaustion of IP Rights

A parallel import is a non-counterfeit product imported from another country without the permission of the intellectual property owner. So if you sell your products in China, you cannot prevent others from bringing the products into Malaysia on the ground of IP infringement. This is known as the doctrine of “First-sale” or “Exhaustion of Rights”, whereby your IP rights is said to be exhausted when you expose your product for sale in another country. Because businesses often sell their products for different prices in different countries, this means that someone can buy your products in a country where the price is cheaper and import the products into a country where the product can be sold for a higher price. Solution: Different countries may have different stance on parallel import. The European Union for instance do not allow parallel import from countries outside of the union. Be sure to read up on the local laws regarding parallel imports and wherever possible, and without running afoul of local licensing or antitrust laws, prohibitions on resale should be included in licensing and distribution agreements, in order to provide an action for breach of contract against the suppliers of the parallel imports.