Global companies at risk of IP abuse in supply chains

8 August 2013

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9 August 2013 | Ceri Allan


Global companies are being urged to acknowledge the increasing risk of the use of unauthorised intellectual property (IP) by their suppliers.

Law firm White & Case warns patents, copyrights, utility models, software and trade secrets which have not been authorised by the lawful owner or paid for by the company are finding their way into supply chains.


"A company may own or have the legal rights to use all of the IP that it uses in producing its products or delivering its services but if a supplier in its supply chain uses unauthorised IP, the company may nonetheless find itself facing serious legal and business risks," said Arthur Mitchell, formerly general counsel of the Asian Development Bank and currently senior counsellor at White & Case. The firm encourages businesses to monitor and improve best practices in an attempt to influence surrounding competitors.


One of the most common breaches of IP is the use of non-licensed software.


White & Case say the risk is particularly high for firms with an Asian-based supply chain. The region is quickly emerging as the world’s largest producer of unauthorised products, according to the Organisation for Economic Cooperation and Development, with a hefty 86 per cent of Indonesia’s software pirated.


The firm says the IP law in Europe is less developed than that of Japan and the US. Legislation of property rights is only partially harmonised as it continues to differ from one member state to another; for instance, the rights and enforcement mechanisms are not the same in France, Germany or the United Kingdom. It remains unclear whether the person who directly uses unauthorised software will be held liable or whether downstream users of the goods can also be held to account.


White & Case’s five step solutions to IP infringement:


1.  Know your supply chain: adapting current supply chain management techniques to include unauthorised IP risks is a key first step in solving this potential problem.


2. Protect your company contractually: contacts with suppliers should include representations, warranties and covenants that unauthorised IP is not used. Provide for the assessment of damages or penalties in the event that these provisions are breached.


3. Compliance training: include the risk of unauthorised IP in existing training. This will educate employees, customers and suppliers. It remains difficult to say whether this would provide a complete or partial defence, but it will undoubtedly help the case.


4. Act publicly: announce your business policy in regulatory filings, publications and on the website. This will help to ensure that external bodies better understand your efforts.


5. Encourage businesses to act now to propose standards, rules and best practices that will significantly influence the competitive landscape.

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