Tuesday, February 18, 2014
Dealing with Intellectual Property Infringement in Supply Chains
With the rise in the use of computer technology in the supply chain, the piracy of intellectual property has also increased significantly. Because many companies supply chains span many countries, checking to make sure that companies are impinging on these intellectual property claims can be a real challenge. In recent PwC State of Compliance 2013 Survey, manufacturing companies ranked intellectual property as one of their top three risks facing them in today’s marketplace. Moreover, 52% considered trade secret theft the greatest IP risk.
The scariest thought about the whole mess is that the countries that are breaking IP laws are those that provide a great deal of our supplies. According to a White Case research paper, seven of the top twenty countries for pirated software sales are in Asia, and China is the number two country globally on this list, with an estimated 77% of its software pirated. The most difficult part is that these organizations are so incredibly far away that doing monitoring of IP infringement can be very difficult. This threat has real implications on supply chains and the companies that hold them. In October of last year, Citi agreed to pay fines of $30 million after its analysts leaked information on Apple's iPhone supply chain to a number of big clients.
Broad Look at Applications to Supply Chains
Although piracy and counterfeiting of intellectual property is a hug concern, for the sake of this blog, I’m going to focus specifically on technology in the supply chain. I will advocate that companies all get on the same supply chain software to cut down on intellectual property infringement. I think that this will kill two birds with one stone: increasing data to help in lean supply chain practices and ensuring compliance with IP laws.
If everyone is using the same software, it should theoretically be easier to make sure it’s all legal goods. You should be able to check with software retailers to make sure that what your subcontractors are using is registered and legal. Tangentially, if retailers are using a specific type of software, there is a good chance that they will need to have other products associated with these goods (such as barcode scanners, tablet computers, or other pieces of information).
You should be able to set up automatic systems to inform you when subcontractors have ended contracts, when contract periods have expired, or when you are missing information about their systems.
Businesses neeed to accept the fact that expenses will rise when companies are all in compliance. Some of these software packages will have hefty costs, and that will trickle down to more expenses for you as a company. Yet, it should outweigh the inevitable future risk of lawsuits.
You also may loose suppliers when you are working out your system. The cost and the complication of implementing a system may be too much for your supplier. Try to negotiate with the supplier, but from the beginning prepare alternate suppliers for all of your products so your not left in the lurch if someone backs out.
There are many great resources out there on actions you might take, and I’ve compiled what I think to be the most useful suggestions.
How to Find IP violations
Audit Your System: It may be difficult to track down the violators in your supply chain, but having a clear plan to track compliance and build protections into new contracts is essential. The most important thing to do is initially audit your supply chain. Where are the weaknesses in your system, and who do you have contracts with to protect yourself?
Establish Groups to Monitor: You should require that all sub-contractors allow you access to their facilities and their offices and keep records of their compliance. Develop a branch of your organization that monitors compliance. Invest in technology to help you be complaint in the process as well.
What Happens if you Do Find Infringement
From everything I’ve seen, the best advice would be to report it to the proper authorities and get their advice. Make sure that you are on the right side of the law, and show your good faith by reporting it as soon as you find out. Figure out with the authorities what the proper course of action is to move forward. The Whitecase Report I cite has many instances on leniency granted to organizations who’ve come clean to the authorities. The problems seem to come when organizations try to deal with it internally and keep it under wraps for extended periods of time.
How to Make Sure it Doesn’t Happen Again
Find Good Lawyers In-Country: Have good counsel from someone who is in that country so that you can evaluate how best to implement a contract. The best route may vary from country to country, so you may need to try different approaches with different sub-contractors.
Make New Contracts: Start from scratch if you have to, but get new contracts into the system. Cover yourself and make sure that you have the contracts in place.
Other things you want to consider doing:
- Ongoing Education for Company and Suppliers
- Join Trade Groups to Keep Abreast of Trends and Suspicious Practices
- Publicize your Policy with Industry Groups
- Take the Lead in Establishing International Guidelines
After researching the topic, I want to pose a few questions:
what do you think the future of international IP guidelines will be?
Can we ever make it to the point where we can create an enforceable international system?
What kind of insurance do organizations need to have in response to hackers and online data breaches, and will they have to carry this insurance for their suppliers and subcontractors as well?