IP Protection when Manufacturing in China or Taiwan
Protection of Intellectual Property Rights (IPR) in China is a big concern for many of Western companies, and rightly so. At Titoma, we go to great lengths to protect the confidentiality of our clients' IP and this is one of the primary reasons why companies come to us for their development and manufacturing needs.
Patent Protection in China
Even after China joined the WTO in 2001, patents are still of very little use because there continues to be lack of effective enforcement. Should a company, after years of litigation, win a lawsuit in China, it by no means guarantees that the offending factory will be closed down. And if the factory does get closed down, they very likely will take their machines down the road and start up again at a new location. Of course it does not help that damage awards in China are usually so meager that they do not justify the costs of litigation. And to make matters worse, local courts are often biased as many Western companies have come to realize.
When to patent in your target market (and when not)
It is important to note is that copying is often initiated by companies originating from the target market. Factory owners in Ningbo or Wuxi don't keep abreast of what is selling well this month in New York or Paris, so in many cases it is actually a Western importer who asks the China factory to reverse engineer and copy a product that’s selling well in his country. So patenting your idea in your own country and other target markets will likely make more sense than only doing so in China.
In general we only recommend patenting if you can make a very strong functional claim—what the product does—on the uniqueness of your idea, as patents on a design are often all too easy to circumvent. Patents can scare off potential copycats; on the other hand, registering a patent effectively publicizes detailed information on exactly what your product does and how it does it.
Another important issue is cost. Paying for exhaustive patent searches, registration and maintenance fees is one concern; a second concern is whether you have the resources to back up your claims in court against another company.
Flooding the market: protection in numbers
The traditional way to market an innovation is to start selling it at a high price, and slowly lower the price to reach more people. The big disadvantage of this strategy is that the high unit price actually provides a big incentive for people to copy it.
Instead, many advocate selling the new product at a low price right from the start, flooding the market as much as possible, and thus preempting the competition before they even have time to reverse engineer your product.
Many good ideas are not easy or affordable to protect, so as soon as your product is out on the market it can be copied, which means that you have to exploit your head start by selling as many products as you can before the competition catches up, sometimes only a few months later. The good thing, of course, is that Titoma allows you to do so with our unique capability to design your product for cost effective manufacturing in China while doing whatever it takes to protect your idea.
How does Titoma protect IPR of its clients?
Non Disclosure Agreement
A basic step in IP protection is to sign a Non Disclosure Agreement (NDA). You can download our form at: NDA We sign NDA's with nearly all our clients, strictly enforce them with our personnel, and make sure that if we need to use third party contractors on a project they sign one with us as well.
Even though most of our mass production is done in China, we do in-house development in Taiwan. Our usual strategy is to do pilot production in Taiwan, and only after the product is stable and available in the market do we move mass production to China. This is generally a very easy transfer because work methods are very similar.
We always pay our vendors a realistic fee for tooling and PCB assembly, this way there is no doubt as to who owns the deliverables. Many IP problems we have seen arise when development or tooling was offered free or far below cost, and the client's sales numbers did not meet rosy forecasts. Since the client was not able to sell, the manufacturer feels morally justified in making back his investment by doing the selling himself.
For most of our projects, we allocate PCB assembly, molding, and final assembly to different factories. This way none of the parties get to see the complete picture and so are unlikely to know what their parts are used for.
So while at first sight it may look frightening to take a highly confidential new product idea to Greater China for development, when enough precautions are taken, the advantage of selling the product at low prices and thus high volume right from the start outweighs the potential added risks of copying in most cases.
However, the alternative of doing development and manufacturing in the West will cost a lot more, result in a product that will sell slowly because it is costly to make, and will attract competition from Asia and elsewhere very quickly, likely before you have even started to make your high investment back.
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