Intellectual property (IP) represents countless brainstorms and tireless hours of creativity poured into a design or product. Protecting your groundbreaking idea or innovative product is key to keeping (and gaining) a competitive edge in an aggressive market. Competitors copying a concept has resulted in revenue loss and, for some, the shuttering of a business. So how do you take advantage of the lower cost and greater expertise of a contract manufacturer (CM) while protecting your intellectual property?
Patents, NDAs, & Offshore Theft
When choosing to share your idea with a potential manufacturing partner, have them sign a non-disclosure agreement. Even if you have patents to protect your IP, it's a good idea to have a signed NDA with any vendor or contractor who may assist in various aspects of the product lifecycle. The idea is to create as much documentation as possible to deter a dishonest vendor from claiming or using your IP as their own. That being said, this is typically only enforceable within a nation’s borders.
Regarding patents (and remember, we are certainly not legal professionals nor are we providing legal advice), we have seen entrepreneurs apply for a utility patent to protect their IP. A utility patent protects the way your product works; in contrast, a design patent (although sounding more applicable) covers how a product looks or is laid out. Unfortunately, it may be difficult to protect a patent internationally, as enforcement is often ineffectual and can become extremely cost-prohibitive.
According to a study published in 2019 by the Office of the United States Trade Representative, major manufacturing countries like China, Indonesia, and India have established reputations for intellectual property theft and are on a priority watch list. Countries like Mexico and Thailand, whose manufacturing efforts have increased in recent years, have also been placed on a watch list as IP enforcement is lacking and little is done to reduce counterfeit and pirated goods. In many of these countries, IP theft is not only accepted but encouraged as a way of promoting the country's economy. Ultimately, there is no single, simple method of protecting your IP globally – you can only mitigate your risk.
One, Two, Three: Tips For IP
So how exactly do you mitigate your IP risk?
- Ask Questions & Get Answers (And NDAs)
Before hiring a CM, get answers to the questions below to determine your comfort level with a new manufacturing partner:
Having multiple vendors bid on a project may be a best practice to receive the best price, but don't share your IP freely. Ensure you have an executed NDA with a vendor prior to sending a file – and don’t share any files that are unnecessary for the bid. For example, if you’re purchasing just the raw PCB (not asking for an assembly quote), don’t send the BOM (Bill of Materials).
Software and firmware are your best bets to lock down your IP. Even if someone can replicate your hardware, copying the software is extremely difficult. If you can, build a failsafe into your firmware. Performing the firmware and software upload in your facility is a simple step and helps keep your IP protected.
As stated above, international IP protection is severely lacking – as a result, no matter how robust the patent or NDA, it can be difficult to impose criminal penalties on an international copycat. If you keep your assembly in the U.S., your supplier must follow nationally accepted legal guidelines, or face steep criminal penalties. This also makes NDAs and patents far more enforceable. Unless your annual purchase volumes are incredibly high, risking your IP to save a few bucks may end up costing far more in the long run.
And when choosing a U.S.-based CM, tour the manufacturing facility, meet the team, and understand the processes, so you have a good indication of the supplier's ability and desire to protect your IP. Many "on-shore" manufacturers are shopfronts for offshore suppliers. Tour the facility to ensure your product is being produced where advertised. Virtual tours, Google360 tours, and video walkthroughs are great alternatives to costly or restrictive travel.
With the continuing rise of counterfeit goods and IP theft, it's more important than ever to be vigilant when defending your intellectual property. Take the appropriate steps to protect your IP by exercising due diligence with your manufacturing partners and using discretion when sharing your product design information and firmware files.