9 August, 2016
The Republic of Indonesia is the largest economy in Southeast Asia and the 16th largest worldwide. It is also the most populous country in the region with an estimated total population of over 255 million representing a huge market opportunity for European trade.
Despite its size and status as an ASEAN economic heavyweight, Indonesia is currently only the EU’s fifth largest trading partner in the region. That said, growth in trade between Indonesia and the EU is steady, with EU imports to Indonesia rising 5.2% and Indonesian exports to Europe hitting 6.4% between 2014 and 2015[1], with total trade in 2015 reaching EUR 25.3 billion. Indonesia represents a fertile market for EU products and services, with rapid economic development, advances in technological capabilities and increasing disposable incomes leading to increased demand for quality machinery and products.
Whilst manufacturing represents a declining share of the economy in most developed countries, in Indonesia, manufacturing is one of the fastest growing industries. For example, private consumption and investment in the manufacturing sector have gone up by 10.5% in Indonesia, compared to 2015[2], prompting the industry to grow at a significant rate.
Manufacturing is one of the key industries for European SMEs doing business in Indonesia. EU SMEs seeking to expand their presence in Indonesia, can find a number of attractive opportunities in machinery and appliances production, with current EU exports to Indonesia at 38.4 %. [3]Indonesia is looking for new technological solutions from European SMEs, which would allow the country to develop its credibility in the industry. The Textile industry is one example of an industry that attracts European technology. As the minimum wage rises in Indonesia, the country wishes to move towards greater automation of production and thus needs efficient and more advanced technology, which European SMEs have the potential to provide. Similarly, important opportunities remain in energy and agribusiness equipment and the Indonesian government has announced its intention to increase electricity generation by 35,000 MW by 2019.
Manufacturing in Indonesia is particularly attractive at the moment for European SMEs, as the country lowers its manufacturing costs in comparison to many of its Asian competitors. The rapidly growing middle class (Indonesia is amongst the five emerging markets with the fastest growing middle class) is also driving the demand for high-technology manufactured goods[4].
IP and Indonesia’s Manufacturing Industry
Counterfeiting, piracy and other IPR infringements remain a problem in Indonesia. Copyright and trade mark infringements are the most common types of IPR infringements in Indonesia, with the Indonesian authorities receiving more than 100 cases of copyright infringements and more than 50 cases of trade mark infringements every year[5]. Counterfeiting is a significant problem for clothing and textiles, automotive parts, electronic goods and pharmaceuticals. Indonesia’s geography contributes to the rampant number of infringements and counterfeiting in the country. As it is an island nation, it has many ports; controlled and uncontrolled, which makes it easy for counterfeits to be smuggled in and out of the country. The majority of people, as well as local authorities outside of big cities are not aware of IPR related issues, therefore counterfeiting and other IPR infringements are given the opportunity to thrive. Indonesia also has a traditionally sharing culture, which means that IP is often approached with some skepticism.
Preparation is the key to protecting IP in Indonesia
It is recommended that SMEs in the manufacturing sector identify their IP before they start business in or with Indonesia. The manufacturing sector can be very competitive and SMEs need to rely on constant innovations in order to be the most efficient and relevant in the market. Identifying what type of IP the business has and what strategy may best protect its IP assets is one of the key factors to secure success in Indonesia. SMEs can do an IP audit to identify their IP assets.
SMEs are surprised to learn how much IP they own or use. Intellectual property includes more than just technology-related inventions – such as new products or processes, technical know- how, and expertise, but it also includes trade marks, designs, works of authorship, such as manuals, catalogues or computer programs, and trade secrets, which could include databases and customer lists. As IP is evolving, IP audits should be conducted regularly in every planning cycle.
Register your trade marks and copyrights
When SMEs are planning to move their manufacturing into Indonesia or export to Indonesia, it is vital that they register their trade marks before launching their business activities, as Indonesia operates under the ‘first-to-file’ registration system. It is especially important to register trade marks in Indonesia because trademark piracy due to ‘bad-faith’ registration is a serious problem. Bad-faith registrations exist where a third party (not the legitimate owner of the mark) registers the mark first in Indonesia, thereby preventing the legitimate owner from registering it. This is very common in the case of ‘well-known’ trade marks. It is possible that the European SME may be able to apply to the Indonesian courts to cancel the unauthorized registration, but nevertheless, in many cases it will not be possible due to high levels of corruption in the country.
However, European SMEs should keep in mind that according to Indonesian trade mark law, trade marks can be cancelled due to no-use after 3 years of not being used. This means that the SMEs should start actively using their trade mark in Indonesia before that time period comes to an end, to avoid a competitor filing non-use cancellation. This law also gives European SMEs the opportunity to effectively benefit from non-use cancellation in the instance of bad faith registrations, as the company registering in bad faith also needs to start their business activities within that time frame. It should also be noted that currently, Indonesia does not allow for three-dimensional shapes to be registered as trademarks.
SMEs in the manufacturing industry might also consider protecting their IP for user manuals, brochures or computer programs through copyright protection. Copyright does not have to be registered in order to be protected in Indonesia. Indonesia is party to the Berne Convention on the Protection of Literary and Artistic Works, so the works that an SME already own are automatically protected in Indonesia if the SME is registered in one of the other 167 Berne Convention member countries, or if the work was first published in a member country of the Berne Convention. Although there is no requirement to register copyright to ensure the work is protected, in the case of litigation, the enforcement authorities still need to be satisfied that the IP right holder making the complaint is in fact the rightful owner, and they usually require copyright registration to prove this. Foreign copyright registration may suffice, however it can be problematic when the IP rights holder has not registered copyright in Indonesia. Therefore, it is advisable for European SMEs to register their copyrights in Indonesia. While there is no system to formally register copyright in Indonesia, copyright owners can obtain a ‘Certificate of Information’, which legally documents the existence of the copyright and its owner in Indonesia. However, if the SME chooses not to register the copyright, it should maintain proper records of its intellectual property (i.e. dated evidence of the creation of the work).
Obtain patents or use trade secrets?
To be successful in a competitive market, many SMEs in the manufacturing sector come up with innovative solutions and inventions, which could be protected by patents. According to Indonesia’s patent law, the country adopts a ‘first-to-file’ patent system, meaning that the first person to file an IP right in the Indonesian jurisdiction will own that right, once the application is granted. Two types of patents are recognised in Indonesia –‘Standard Patents’ (for products and processes) and ‘Simple Patents’ (for products only). The process for getting a simple patent is shorter, however, there is a reduced term of protection – as standard patents are protected for 20 years after filing whilst simple patents are only protected for 10 years after filing. SMEs should remember that patent specifications need to be translated into the local language and translation errors are common, with translations often being too literal. This is compounded by the lack of procedures in place to correct such errors once a patent is granted. It is recommended that applicants pay special attention to the translation of the independent claims as these tend to be the most important part of the document.
Some forms of IP like specific formulas (Coca Cola recipe, for example) can be best protected by keeping it a trade secret rather than by publicly disclosing it by filing for a patent. In Indonesia trade secrets provide protection if the information fulfils these three criteria:
- It is confidential
- It has economic value
- Necessary measures are taken to guard its secrecy, meaning that the company has procedures in place such as password protection for electronic data, restricted access to certain offices/buildings if necessary, a visitors registration system, etc. Such internal regulations should stipulate how the trade secret is kept and who is responsible for its secrecy.
In order to protect trade secrets and deter employees or licensees or even clients from appropriating and abusing these secrets, SMEs should use non-disclosure agreements and confidentiality agreements, because once the trade secret is out, there is little that the SME can do to protect and enforce their rights.
Once the SME has come up with new innovative solutions, it should also carefully weigh up whether or not patent protection would be preferable to trade secret protection – this typically means assessing how likely it is that a third party
could recreate or reverse engineer the material that is the subject of the trade secret. If it is likely, then registering the innovation/technology as a patent is preferable.
Enforcing IP in Indonesia Remains Difficult but not Impossible
The IP laws in Indonesia are compliant with the Agreement on Trade-related Aspects of Intellectual Property (TRIPs) and the country has acceded to most major international IP conventions and agreements like the Paris Convention and the Berne Convention, which means that Indonesia’s IP laws are generally in line with international standards. However, these IP laws are not yet matched by an effective criminal enforcement or customs border protection system. Indonesia lacks experienced IP advisers and judges and therefore corruption remains one of the most persisting issues in Indonesia. Enforcing IP rights in Indonesia is still a challenging task for the SMEs, but not entirely impossible, as adapting to local traditions and having a good IP protection strategy in place, can help.
In Indonesia there are two main IP enforcement routes: civil and criminal enforcement, however in many cases private mediation via legal professionals could be more effective and should be considered as a viable option, particularly for
SMEs with budget constraints.
In theory there is a criminal enforcement system and the police are often undertaking criminal raid actions with a degree of success. However, sometimes in practice, criminal enforcement can be difficult due to various factors such as lack of transparency in police procedures and corruption. Raids are generally more expensive in Indonesia compared to raids carried out in other countries such as Thailand or China. This is because the process requires various interviews with witnesses, briefing the police and lengthy settlement negotiations. Raids can cost between EUR 8,000 to EUR 19,000. However, raids are normally organized fairly quickly in Indonesia. The police generally complete raids within two weeks of filing a complaint. The settlement process and destruction of infringing goods usually takes 1-2 months to complete.
Criminal action is still preferable to civil procedures, such as civil litigation, and this is likely to be more expensive than carrying out criminal raids. Civil litigation is seldom the preferred option when dealing with trade mark or copyright infringement. In these cases, IP rights owners usually rely on criminal raids to stop infringement, and then negotiate for civil statements in return for not proceeding further with the case. This is likely to be the more cost-effective option when compared to the more expensive civil litigation option. However, in the case of more complex patent infringements, civil action may still be preferred.
Have an enforcement strategy in place
SMEs doing business in the manufacturing industry in Indonesia should be prepared to enforce their IP rights, because if SMEs manage to build a reputation for ‘being litigious’ then malevolent companies will be less likely to infringe their rights in the future.
When drawing up an enforcement strategy, SMEs should be realistic about their goals. In Indonesia’s case it is generally not possible to entirely eliminate the counterfeit product from the market. In some cases, enforcement is not possible at notorious pirate markets because of concerns over personal safety to enforcement officials. Generally, reducing the prevalence of counterfeit products, or moving counterfeiters on to another brand, are more realistic goals for SMEs. Trying to eliminate counterfeits entirely, usually just drains SMEs’ resources and could result in the end of the business endeavor.
Given the weaknesses in the enforcement system, issuing ‘warning letters’ should be considered as a viable enforcement strategy, principally when the infringer is a legitimate business. Such infringers are usually opportunistic traders selling counterfeits as part of their product mix rather than running an outright counterfeiting business. Warning letters are still considered to be a more cost effective way to create a deterrent.
Whatever strategy SMEs doing business in the manufacturing industry in Indonesia decide to take, they should be prepared to help the local authorities with preparing evidence of an infringement and carrying out initial investigations to the infringing business entities. They should also remember that enforcing their rights without Indonesian trade mark, patent or design registration is virtually impossible.
Helika Jurgenson, China IPR SME-Helpdesk
