IP Considerations For The Manufacturing Industry In South-East Asia.

8 June, 2018

 

In today’s blog post we are looking into how to protect IP in the manufacturing industry in South-East Asia, which is currently offering many opportunities for the European SMEs. You’ll learn more about patent protection and industrial design protection, but also about brand protection, as your brand is equally important to your patent. 

 

Manufacturing is one of the key drivers of growth in South-East Asia, with more and more South-East Asian countries winning manufacturers over from China due to lower labour costs, rising domestic consumption and improving infrastructure. Well-known brands such as Coca-Cola and Coach have so far established plants in Myanmar and Vietnam, leveraging on the cheap labour market and growing domestic demand in these countries. In Cambodia, the textiles and footwear manufacturing industry alone generates approximately EUR 5 billion annually for the economy.

 

In the coming years, it is expected that the manufacturing industry in South-East Asia will continue to stay strong and even expand further. The expansion of the working-age population in South-East Asia will help to boost the manufacturing sector of these countries and keep the labour costs low. The transfer of technology into South-East Asia over time will also serve to increase the efficiency of countries in this region. As such, South-East Asia offers vast opportunities for EU SMEs that are looking to expand their presence in the region. In so doing, however, EU SMEs should be aware of the intellectual property risks that they will face when operating in this region, with respect to the advanced technology that may be transferred to this region as part of the collaboration and joint venture with SME’s local partners.

 

The importance of patents in manufacturing industry 

 

Patent owners acquire exclusive rights, for a limited period (usually 20 years), to prevent others from making, using, commercialising or importing the patented inventions during the term of the patent.

 

Generally, for an invention to be patentable, the invention must meet the following three requirements:  novelty, inventive step, and industrial applicability.

 

In the manufacturing sector, the importance of patents cannot be further emphasised. If an invention is not protected by the relevant patent law in relevant jurisdiction (in the jurisdiction of interest in South-East Asia), it may be copied and used by other competitors to the detriment of the original inventor.

 

Furthermore, as South-East Asian countries look for new technological solutions to develop their capability and credibility in the industry, increasing technological transfer from EU SMEs to their local partners is to be expected. In this context, patent protection would be crucial to EU SMEs wishing to protect their transferred technology from bad-faith reproduction.

 

Apart from standard innovation patents, some South-East Asian countries also allow for a “lesser” form of patent protection for which none or a lesser degree of innovation is required to qualify for protection.

 

For example, Petty Patent in Laos (for a period of 10 years, which may be extended once for an additional 2 years) and Utility Innovation in Malaysia (for a period of 10 years, which may be extended for another 2 consecutive 5-year terms) require a lesser degree of innovation. On the other hand, Utility Model in Cambodia and the Philippines (both for a period of 7 years), Simple Patent in Indonesia (for a period of 10 years), and Utility Solution Patent in Vietnam (for a period of 10 years) require no inventive step at all.

 

EU SMEs in manufacturing sector may consider applying for both simple patent and standard patent simultaneously for the same invention where possible. At this stage of the economy where companies must constantly innovate to stay ahead of the competition, more and more innovative manufacturing technologies will emerge at a faster speed and maintaining consistently high performances is very challenging for businesses. In such a case, simple patents may prove useful to the EU SMEs given the less demanding requirements and the relatively shorter timeframe from filing to grant especially in relation to the requirement of inventive step. Once the standard patent has been granted, EU SMEs may then abandon the simple patent. This strategy allows EU SMEs to take advantage of the faster approval of the simple patent, which provides them with a first level of protection until the standard patent is granted.

 

Pay attention to design protection 

 

Generally, an industrial design refers to the ornamental or aesthetic features of an article. It may consist of three dimensional features, such as the shape of the article, or two-dimensional features, such as patterns, lines or color. Designs are important to the manufacturing sector as many products that are in close competition are distinguishable by their design elements, which often give one product an advantage over others.

 

Industrial designs regimes in South-East Asian countries generally follow the “first-to-file” system, which grants protection in a particular country to the first person to file the industrial design application in that country, once the design is registered. EU SMEs should apply for protection of industrial designs early, before others do so first and benefit from the original creator’s efforts. For EU SMEs that are interested in registering their industrial designs in South-East Asia, it should also be noted that prior disclosure of their industrial design may affect the registrability of their design. It is important for EU SMEs to be aware of local regulations in relation to disclosure, whether a grace period is granted or what circumstance or initiatives are legally considered as public disclosure. This is very relevant in the manufacturing process, especially when EU SMEs outsource part of the manufacturing to local partners or suppliers. In these cases, it is strongly recommended to sign Non-Disclosure Agreements (NDAs) to maintain secrecy.

 

Before applying for the industrial designs, EU SMEs should conduct prior searches on designs in the countries of interest to ensure that the designs they wish to protect have not been registered already in the relevant countries. In South-East Asia, such prior searches are made easier with ASEAN DesignView, an integrated searchable online database of industrial design registrations and published industrial design applications filed in participating ASEAN countries, including Brunei Darussalam, Cambodia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

 

Some things are best kept secret 

 

While patent registration offers EU SMEs legal protection in South-East Asian countries, it also increases the risk of copying by their competitors. As such, EU SMEs may consider protecting their innovations by avoiding disclosure to third parties, thus maintaining their trade secrets. A famous example of trade secrets is the Coca Cola formula, which has been kept secret since its creation.

 

When dealing with local partners or contractors who are hired to manufacture goods or be part of the manufacturing process, EU SMEs should take care to ensure that their important knowhow and confidential information are kept secret. EU SMEs should try to minimise and, when possible, not allow local partners, contractors or any other third parties to access sensitive portions of their manufacturing facilities without adequate supervision or nondisclosure agreements being put in place. If resources permit, screening of visitors may also be implemented on-site. Computer systems at the manufacturing plants should also be equipped with robust security systems such as password protection, restricted access features, and data theft monitoring. These measures may prove useful in preventing the loss of sensitive trade secrets. If theft of trade secrets occurs despite such measures, they may serve as evidence in subsequent trials for misappropriation of trade secrets.

 

Furthermore, EU SMEs should also protect their trade secrets via contractual means. Specifically, they should have employees, consultants, vendors, suppliers and other individuals related to the company sign Non-Disclosure Agreements or add confidentiality clauses to their contracts with these parties.

 

Well-drafted confidentiality clauses which comprehensively define “confidential information” and clearly provide for the confidentiality obligations as well as the consequences of breaches of such confidentiality obligations may help EU SMEs create an additional layer of legal protection to their trade secrets.

 

Although the protection of trade secrets is of a less formal nature as compared to that of trade marks or patents, it is still an important and valuable IP protection measure that EU SMEs should carefully consider before entering the South-East Asian markets. Relevant clauses in Employment Contracts as well as Non-Disclosure Agreements signed with partners would be the most effective ways to maintain secrecy of such information.

 

Don’t forget to protect your brand 

 

Trade marks serve as a way for a company to differentiate its goods and services from those of another company. They serve as a badge of origin which informs consumers that a certain product offered, or service rendered originates from a particular trade source as opposed to a competitor’s source. Considering the paramount function of the trade mark, the first and foremost consideration for EU SMEs wishing to enter South-East Asia should be to ensure that their trade marks are registered in the respective local markets.

 

Trade mark regimes in the South-East Asia region generally adopt the “first-to-file” system, which grants exclusive trade mark rights in a particular country to the party that first applies to register the mark in that country once the trade mark is registered. As such, before EU SMEs move their manufacturing into South-East Asian countries, it is advisable that they apply to register their trade marks in the respective countries before commencing business activities in those countries. This helps to ensure that their products, once the same have been manufactured locally, may carry their trade marks as they are circulated in the local markets, thus increasing brand recognition and reducing counterfeiting. This also helps to avoid the problem of “trade mark squatting” where third parties register the trade marks first in bad faith, to profit from such registrations.