Intellectual Property Protection in Bike Manufacturing
Surprisingly, there is relatively scarce information on how the bicycle and electric bike manufacturing industry protects intellectual property (IP). Most of the cases publicized on news and bike media are often referring to patent violation issues between established brands and individuals in the American and European markets. What is lesser known is how IP violations are occurring on a massive scale within the manufacturing scene in Asia – something which all other industries producing product in Asia have already been battling for decades. Bicycle and e-bike brands are increasingly susceptible to blatant IP violations when sourcing their bicycles, e-bikes, frames, components, and cycling accessories from Asia.
Patent Trolls
Beware of trolls. As the saying goes, trolls are operating in any jurisdiction and is a threat to all businesses. Yet, it just so happens that a large percentage of patent trolls specifically threatening bike brands are from China primarily because the country is still producing a huge percentage of product used in the bicycle supply chain. The specific cause of patent trolling in China, however, can be narrowed down to one specific reason. State and local governments in China encourage manufacturers to register for patents locally, either design patents or utility patents, and then reward them with monetary subsidies without any means to verify whether the patent is valid despite being a member of the Paris Convention for the Protection of Industrial Property.
Any OEM bicycle or e-bike project, bike frame or component drawing that is handed over to a manufacturer in China for mass production is susceptible. The same manufacturer responsible for producing the orders may take the materials and register it locally as their own IP. The outcome of this is well known across other industries – brands are essentially held hostage by their own manufacturers and will need to spend a huge amount of resources to disentangle from. Enormous ransoms are placed on the patents in exchange for patent transfer. Additionally, threats of lawsuit and seizure of shipments are commonplace in such circumstances.
Design Leaks
When transferring drawings to manufacturers, the possibility of leaks from the supplier side is always very high. Employees of the manufacturer – everybody from the back office, engineering, technical personnel, and factory workers will at some point or another have access to classified materials. Employee retention issues are well documented in all manufacturing bases across Taiwan, China, and Southeast Asia. Some of these employees help themselves to the pool of drawings, specifications, pricing, and classified know-how when jumping from one job to another. Given that the bicycle and e-bike manufacturing industry is very close-knit and OEM projects flow from one factory to another, it is not surprising how easy it is to obtain the IP materials of many major bikes and component brands.
IP Theft
An immediate effect caused by patent trolling and design leaks is IP theft. When the original design is stolen by the manufacturer and registered as their own patent, IP theft has already occurred. Moreover, the manufacturer may very well offer the original design as one of their own catalog products for other brands to purchase. Immediately, there are now multiple IP thefts with some culprits unknowingly procuring products that have stolen IP. Design leaks are essentially the same, with various manufacturers producing product utilizing leaked IP created by unscrupulous personnel or management.
Protections
There exists a large variety of protections to safeguard intellectual property without exhausting significant resources. Here are some recommendations:
Proper due diligence is always necessary before conducting any formal request for quotation or placement of orders. Downloading a random NDA or Contract from the Internet is not going to help at all. You will need professional assistance in creating the necessary due diligence designed for the jurisdiction which you intend to conduct business with.
Research about the supplier and the jurisdiction beforehand. Obtain the necessary information regarding the manufacturer, factory operations, outstanding debts, shareholders, existing clientele, and operating capital.
Obtain the necessary patent applications and protections from your home country and market jurisdictions before starting to request for production abroad.
Ensure that Tooling Agreements and Manufacturing Contracts are created by legal professionals from the same jurisdiction you intend to conduct business with your supplier so that the paperwork are legally binding and have both languages applicable. The key here will be to have strict penalties in place in the event that breaches occur so that your supplier will take all necessary precautions to safeguard its interests from their own employees and potential IP theft from other manufacturers and brands.
Conduct regular compliance audits to ensure that your IP, including drawings, tooling, know-how, and manufacturing processes are upkept by your suppliers in accordance to the operating agreements.
