Deciding when to take a product or service to a foreign market is a difficult decision. The perceived opportunities presented by the latest hot market can be tempting for a company wanting to grow. However, exporting is not without risks and challenges. Many companies expand too early without an adequate export plan that identifies the appropriate markets, partners, manufacturers, and distribution channels, or adapts the product (including design, brand, and packaging) to foreign markets.
The importance of protecting Intellectual Property (IP) rights is also often overlooked when developing an export plan. This post briefly explains why IP protection should be an important consideration for exporters prior to exporting and highlights certain common mistakes to be avoided.
Why should IP be important to exporters?
- Control: IP rights provide exclusivity (i.e. the exclusive right to use a trademark or the exclusive right to exclude others from making, selling, etc. an invention) over certain features of a product or service, which prevents others from using them in the marketplace.
- Prevent others from Infringing on your IP: They say imitation is the sincerest form of flattery. Well, if your product or service is successful, there is a high probability that a similar or identical product will be developed to compete with your product. IP protection would help stop imitators.
- Avoid Infringing upon the IP of others: Just because your invention, design, or trademark is not protectable in the US, it doesn’t mean that it’s not protectable in a foreign market and that someone else has not already sought IP protection of the invention, design, or trademark in that market. Failure to look into this prior to entering a foreign market may result in legal exposure and damages.
- Ease of Access to Markets: Simply, if your invention, design, or trademark is protected, others would be more inclined to do business with you. IP protection makes it easier to access foreign markets through franchises, joint ventures, licensing, or other contractual arrangements, including arrangements for the manufacturing and distribution of products or services.
- Adaptation: Taking a product, its design, its trademark, or packaging to a foreign market would, most likely, require some adaptation. This creative or inventive work may, under certain circumstances, be protected thus providing a degree of exclusivity.
- Pricing: The pricing on the product will be impacted if the brand or trademark is not recognized or valued by consumers or protected in the foreign market and if competition is expected from similar or identical products. Exclusivity drives profitability.
- Investment: Ensuring that trademarks and designs are protected is useful for persuading investors, venture capitalist, and banks of the commercial opportunities available for your product or services in foreign markets.
Common IP Mistakes Exporters Make
Realizing the importance of IP protection after a company has entered a foreign market and either infringed on existing rights or had its rights infringed on could prove fatal for a company’s expansion strategy. Common IP mistakes exporters make that undermine marketing and export efforts include:
- Believing in Worldwide IP protection: Many exporters have the impression that by receiving IP protection in the US, they are automatically protected worldwide. This is not true. IP rights are territorial. That is, the office that grants IP protection can only do so for its jurisdiction.
- Failing to Use Regional or International Protection Systems: Applying for IP protection in every foreign market where a company wants to expand would be expensive. Translation and legal or agent costs and application fees can be significant. Where regional or international IP protection systems are available, they should be used. Regional systems include the European Patent Office; the Office for Harmonization in the Internal Market; the African Regional Industrial Property Office; African Intellectual Property Organization; the Eurasian Patent Office; the Benelux Trademark Office & Benelux Design Office; and the Patent Office of the Cooperation Council for the Arab States of the Gulf. International systems include the Patent Cooperation Treaty (PCT) for Patents; the Madrid System for the international registration of marks; and the Hague System for the international deposit of industrial designs.
- Missing Important Deadlines: Patent applications in foreign countries need to be filed within 12 months from the date of application in the US or risk a loss of novelty claim. Failure to timely file an application may result in the impossibility to obtain patent protection in a foreign country. A six month period applies to industrial designs.
- Disclosing Information without Adequate Protection in Place: Disclosing proprietary information about an invention or design with trade partners or distributors prior to obtaining protection or without a written agreement requiring confidentiality could result in the loss of the right to protect the invention or design. The invention or design may no longer be considered new and, therefore, patentable, or you might be precluded from protecting the invention or design by someone else.
- Failing to Research a Trademark: If your trademark is identical or similar to a mark that is registered and used with commercially related goods and services by a different company in the foreign market, the use of your mark could be an infringement on the existing mark.
- Ensuring the Trademark is Appropriate for the Foreign Market: A company may begin marketing its products or services in a foreign market without realizing that the trademark is inappropriate for the given market. For example, the trademark may have a negative or undesired connotation for the local culture or language. Take, for example, Chevy Nova’s flop in Latin America because “no va” means “won’t go” or Mercedes-Benz’s shortening the name of its Grand Sports Tourer to GST, which in Canada GST is the acronym for the widely loathed goods and services tax, also known as the “gouge and screw tax.” Another consideration is whether it is unlikely that the trademark would be registered with the national IP office.
- Failing to Obtain Permission to Export: If your product has licensed-in technology from another company, you want to make sure that you have the right to export the technology to the foreign markets you are exporting.
- Define the Ownership of IP when Outsourcing the Manufacturing of the Product: Often companies outsource the manufacturing of products to others in foreign countries but they fail to protect their IP rights in these countries or to address issues of ownership of design, etc., in the manufacturing agreement. As a result, disputes of ownership over IP rights my arise between the company outsourcing the work and the manufacturing firm.
In sum, taking into consideration IP protection when developing an export plan will ensure that you are not infringing upon the rights of others and are limiting the opportunities for others to infringe on your products, services, or trademarks.