by Merlin Hernandez

Intellectual Asset Management is a key driver to adding economic value to a business – managing patents, trademarks, invention disclosures, licensing agreements, and conflicts can achieve unmatched efficiency with patent annuity and trademark renewal payments. IP Risk Management has become central to strategic decision-making as business environments have become more global with increased competition, and the uncertainty of doing business in unfamiliar territory. In today’s age of rapid information transfer, any industry would find that protecting its tangible and intellectual property rights for designs, processes, and products is a challenge that requires a specific risk management protocol.

In the automotive industry, global expansion has meant cheap labor, a less-regulated environment for manufacturing, and new markets. But with globalization has come the culture of Intellectual Property (IP) theft, referred to by the FBI as the crime of the 21st century. Illegitimate goods (knock-offs), where designs are stolen, copied, and sold as cheaper abound. Sub-standard products compete successfully with original manufacturers. Original Equipment Manufacturers (OEM’s) in the Automotive industry spend millions in Research and Development for new products and components only to discover a competitor’s cheap knock-off under a competing brand name, with the original product barely dispersed in the marketplace.

China, as an emerging economy has been seen as a major culprit. It is the fastest growing automotive market and one that US auto manufacturers cannot ignore for the manufacture and marketing of vehicles and replacement parts. In 2004 GM filed suit against China’s Chery Automobile Co. for alleged piracy. The less expensive Chery QQ was almost identical to the GM/Daewoo Spark which was behind in sales because of a later launch – GM believed that Chery acquired its research by nefarious means and did not have to make the large R&D investment.

For the automakers and other businesses pursuing globalization initiatives, IP infringements and threats to profit margins revolve around piracy of designs and plans, counterfeiting of newly developed products, and the stealing of finished goods. A baseline strategy for businesses seeking global expansion is to conduct international business only with countries that are signatories to the agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). This is administered by the World Trade Organization (WTO), and part of the General Agreement on Tariffs and Trade (GATT). The courts in these countries have an obligation to protect treaty provisions.

But this is a bare bones strategy and the loss of market advantage as a result of IP theft as well as the financial loss in terms of R&D investment and projected revenues indicates the need for a comprehensive approach to the risks arising from IP violations. These risks can extend to brand damage when inferior products are confused original manufacturer brands and issues of perceived liability that can hurt the corporate image. All of these can threaten expansion and developmental initiatives which could result in lost opportunities.

IP protection has to be given strategic priority with loss prevention measures, heightened security and non-compete agreements, and close market vigilance for infringements, among a host of risk management measures necessary to protect the business from inevitable exposure in many overseas environments.

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