How to Protect Your Manufacturing Business from Intellectual Property Theft

May 2015

According to the U.S. Federal Bureau of Investigation, intellectual property theft costs American companies billions of dollars every year and causes a loss of jobs for American citizens. Manufacturers are especially prone to damage from the theft of intellectual property because of counterfeit products and stolen designs.

What is Intellectual Property Theft?

The FBI defines intellectual property theft as “creations of the mind.” Intellectual property includes books, movies, art, and music; but the most important intellectual property for manufacturers includes product designs and trade secrets. Much of the intellectual property theft that occurs involves countries that have less stringent respect for intellectual property rights. In China, intellectual property theft is a particular problem for manufacturers who outsource some or all of their production.

Intellectual property theft cases increase every year. In 2010, the National Crime Prevention Council reported that nearly 15 percent of the drugs that enter the U.S. are fakes, and fake automotive parts rob the U.S. auto industry of nearly $12 billion in sales each year. Theft of intellectual property is big business. Here’s how to protect yourself.

1. Know Your Supply Chain

When you buy raw materials and components for your products, you need a policy for approving suppliers so you know you’re doing business with reliable companies. After you’ve developed an approved suppliers list, make sure everyone on your team knows who is on it—and who is not.

Even with an approved suppliers list, it makes sense to run a spot check at random intervals to be sure nothing has changed. You also have the right to check out your supplier’s suppliers. There’s no rule that says counterfeiting and intellectual property rip-offs can’t happen further down the chain.

2. Manufacture In-house

The best way to ensure that you keep your intellectual property is to do all of your manufacturing in-house. Many manufacturing companies have backed off on outsourcing because of the threat of intellectual property theft. Instead, they use lean manufacturing and other advanced techniques to keep costs and inventories low so that manufacturing in-house is cost competitive.

If you must outsource some parts of your process, try to work with local or nearby companies whenever possible. As you get further afield, you get further away from the protections of U.S. intellectual property laws.

3. Don’t Outsource Your Entire Manufacturing Process

If you do decide to outsource manufacturing overseas, try to split the manufacturing process among several different suppliers to avoid giving an entire set of drawings and process documents to any single company.

If there is a key element in your product that differentiates you from your competition, try as best as you can to manufacture that piece yourself. Losing protection for your key differentiator is the first step to losing market share. Be especially careful outsourcing to China—intellectual property theft is rampant there, as shown in this report from The Commission on the Theft of American Intellectual Property.

4. Use All the Protections at Your Disposal

Intellectual property has many protections under American law. Protections include trademarks, copyrights, and patents. Make sure that all your intellectual property has the protection of one or more of these.

Trademarks are words or logos that are a recognizable part of your brand. Although you can claim a trademark without any legal process, it is much safer to use a registered trademark. You register a trademark with the U.S. Patent and Trademark Office. You must also register your trademark specifically in every country where you intend to do business to ensure proper protection, since most countries do not recognize the trademark otherwise.

Copyrights automatically accrue with any idea the instant you fix them in physical form. That means if you so much as sketch a product on a napkin, you automatically own the copyright. However, it is much easier to protect your copyright if you have registered your idea with the U.S. Copyright Office. The copyright office prefers electronic submissions, which makes it easy to submit product ideas in the form of CAD drawings or bills of material. Be aware that some things can’t be copyrighted. You can copyright your particular code in a software program, but you can’t copyright the idea behind it.

For the greatest protections, it is advisable to patent your ideas and products. U.S. patents protect you for up to 20 years. The three types of patents include:

  • Utility patents which cover new and useful processes, machines, articles of manufacture, or materials, as well as new methods to create or improve these.
  • Design patents which are granted for new original designs.
  • Plant patents which are granted for asexual creation of new varieties of plants.

Whenever you design or develop a new product, you should investigate and apply for one or more of these protections. If you don’t bother to protect your own intellectual property, it’s nearly impossible to prove ownership. Applying for patents, copyrights, and trademarks is a relatively simple process, and you can do much of it online. Even so, especially for product patents, you should consult with an experienced patent attorney to ensure you have covered all the bases.

These four steps are not always easy, but if you are serious about protecting your intellectual property, you should at least consider adopting as many of them as you can. Protecting your intellectual property protects your product integrity and your business, but just as importantly, it protects your customers from the risks of counterfeit products. You may want to consider copyrights and patents as soon as you come up with a product idea, and implement the supply chain and outsourcing strategies as soon as you begin the prototyping process.

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.

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