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Friday, March 23, 2012

China's IP Challenge for U.S. Small Business

The protection of intellectual property is important to all entrepreneurs, investors, innovators and businesses. And of course, the encouragement that such protection provides for these creators benefits consumers in terms of new and improved products and services.

It follows that if a government wants to maximize opportunity and economic development, then the protection of intellectual property is critical. And while IP protections have been important dating back to the dawn of the Industrial Revolution, it is more so now than ever before given the vast technological changes and opportunities in the twenty-first century.

For good measure, the role that government plays in terms of establishing the rule of law whereby contracts are enforced, and strong rights, protections and enforcement are established in terms of patents, copyrights and trademarks, is more important to small businesses, given the limited resources that smaller enterprises possess. And this goes for domestic and international protections of intellectual property.

That international aspect was highlighted in an interesting article about China in the March 19 USA Today. The piece, titled "Chinese copycats challenge U.S. small businesses," focuses on a U.S. firm, SylvanSport, that has a patent for a recreational camper trailer that "folds to a trailer that can be used to carry boats and bikes on top then converts to a camper with a self-inflating mattress and a tent that sets up in minutes."

A company in China copied the trailer, and now threatens the firm's growth and, ultimately, its survival. According to SylvanSport founder Thomas Dempsey, as noted in the article, "‘Our politicians, when they describe the companies that are necessary for the economic recovery, (they are talking about) companies like ours' ... But because of SylvanSport's lost sales, ‘There's a very real chance that the Chinese company could be the survivor here and we could go out of business.'"

A few important takeaways can be found the piece:

• "Yet in Asia, ‘The Western idea of intellectual property seems not yet fully established,' says Peter Zec, the founder of the Red Dot Institute for Advanced Design Studies in Essen, Germany, and a former president of the International Council of Societies of Industrial Design. The severe copycat problem in China and other Asian nations exposes foreign companies, big and small, to copyright, patent and trademark infringement issues, legal experts say."

• "In the past, it was ‘fairly common' for Chinese factories that produced legitimate products to be used at night to make counterfeit goods using the same raw materials, says Leon Perera, chief executive of Spire Research and Consulting, a Singapore firm that specializes in emerging markets. Today, what's more common is for Chinese companies to reverse engineer a product, or take it apart to figure out how it's made, then order parts to produce a similar product, according to Perera."

• "Only 15% of small companies that do business overseas realize that U.S. patents and trademarks protect them only within the U.S., according to the U.S. Patent and Trademark Office. Companies should file patents and trademarks in countries where their products will be made and sold, as well as where they're based..."

The story and points raised in this article point to the responsibility that the U.S. government has in terms of pushing for strong IP protections in the global marketplace, as well as the potential pitfalls and opportunities that entrepreneurs have to be aware of in that same international market.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

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