A n A l ib A b A.

com W hi t e PA Per

mAy 2012

intellectualpropertyprotection
How to add layers of trust & safety to your international trading standards

contents
Introduction Executive Summary The First Layer: Intellectual Property The Second Layer: IP Infringements The Third Layer: Implications The Fourth Layer: Reducing Risk Alibaba.com IP Protection Policies Sources 2 3 4 7 9 11 13 14

introduction
over the last 15 years, there has been a dramatic shift in the way international trade is conducted. most obviously, the internet has become the major conduit for global transactions. Without the limitations of distance, buyers and sellers are now able to make transactions in near real-time, and goods and services are ying all over the globe at a record pace. however, as the pace of trade continues to grow, so does the pace and scope of fraud. in the area of intellectual property (iP,) this is especially dicult to manage, since its nearly impossible to police every market in the world for possible infringements. the best defense against iP infringement is a strong and solid process of protective measures. this begins with vetting suppliers and intermediaries. it also helps to have a solid understanding of the types of infringement practices being carried out by many supplier companies in Asia and other parts of the world. Whether you are importing existing product designs or are an entrepreneurial startup with a new idea that could become a successful business, a solid understanding of iP rights and fraud warning signs will make you a more successful importer. Whether you source at Alibaba.com or through any other means, this White Paper can help you improve your overall trust and safety standards.

Secure Sourcing | May 2012 | 2

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executive summary
intellectual property infringement is a major hindrance to international trade. inventors and entrepreneurs alike risk losing competitive advantage and adequate compensation when their intellectual property is pirated. even seasoned procurement professionals have a dicult time protecting their globally recognized brands. With this in mind, Alibaba.com has prepared this White Paper to help anyone interested in international trade learn the ins and outs of intellectual property and understand how to add layers of trust and safety into their importing processes. Four layers are covered in this White Paper: 1. Understand intellectual property (IP) and what your global rights are. A deep knowledge of your iP and the rights it carries are critical, especially when outsourcing manufacturing or production. Patents trade Secrets copyrights trademarks 2. Be aware of how your IP can be stolen or infringed. An understanding of global marketplaces and infringement practices can lead to enhanced security protocols and improved overall trust and safety in your sourcing practices. Piracy counterfeiting 3. Understand what the implications of infringement are, especially the nancial ramications. iP infringement can lead to a great deal of dilution of your brand and/or products, but the economic consequences are the most severe. economic impact and trade losses industry examples

4. Be aware of the various methods to reduce your IP risk and exposure. there are several global standards available that protect iP and those who may be the victims of infringement. An awareness of the strategies as well as the global institutions and your rights with them can also add enhanced safety to your procedures. risk reduction strategies Global institutions to consult

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the rst layer intellectual property

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intellectualproperty
Whether youre a startup company with a cool idea or an established global brand with billions in sales, whats usually at the heart of your success (or your desire for it) is something you created. it could be an idea. An algorithm. A secret formula. A recipe. A workow. A new logo. Whatever it is, its yours, and its central to your survival. People build structures around ideas and ultimately those structures turn into companies that are turning a prot. those ideas are your intellectual property (iP.) And they must be protected. obviously, protecting your ideas means reaping the benets of the dissemination of your ideas, especially the nancial rewards. Government institutions (theyre dierent in every country, so nd out what yours are,) grant legal rights to the creators of iP by allowing them to control the use or distribution by others. Do note that iP rights may be traded or licensed to others, usually in return for buyout fees or ongoing royalty payments. intellectual property rights (iPr) are granted on a national basis and covered by your countrys laws on such topics. in addition, global organizations such as the World trade organization (Wto) can also provide some additional protections. the Wtos Agreement on traderelated Aspects of intellectual Property rights (triPS) provides standards for global iPr protections, but iP rights are typically only enforceable in the country where the iP was rst registered. iP inventions may take several forms. the four most popular are: Patents. Patents are granted for inventions of new products, processes, or organisms (known as utility patents.) Patents may also be granted for designs and plants. For an invention to be patentable, it must be new, non-obvious (involving an inventive step,) and have a potential industrial or commercial application. the patent provides the holder with the exclusive right to sell the invention for a period of 20 years, or to prevent the incorporation of the invention into other products without the permission of the rights-holder. in the United States, patents are granted by the Patent and trademark oce (Pto) of the Department of commerce. Trade Secrets. A trade secret is any type of valuable information, including a formula, pattern, compilation, program, device, method, technique, or process, that derives independent economic value from not being generally known or readily ascertainable and is subject to reasonable eorts by the owner to maintain its secrecy. examples of trade secrets include blueprints, customer lists, and pricing information. Copyright. copyrights protect original expressions of authorship. Such protections include literary or artistic works such as books, music, photographs, sound recordings, movies, paintings, architectural works, and computer software and databases (though not individual bits of data). the expression of the idea, not the underlying idea, is what is copyrighted, and therefore protected. the objective of protecting copyrights is still the same; investments of time, money, and eort to create work of cultural, social and economic signicance should be protected to encourage further creativity.

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intellectualproperty
Trademarks. Also known as service marks, trademarks permit the seller to use a distinctive name, mark, or symbol to identify and market a product, service, or company. the trademark allows quick identication of the sellers product, and for good or ill, can become an indicator of a products quality. the trademark is designed to prevent other companies with similar merchandise from free-riding on the association of quality with the trademarked item. [this is why infringement is such an important topic: a brand reputation carries with it a likelihood of being protable.] trust and safety issues arise when any of these forms of iP are outsourced for production or manufacturing outside the country of origin. For instance, when a US company outsources to taiwan for manufacturing 10 million DVDs of a hollywood movie, it becomes quite critical to ensure that the iP is protected from unauthorized distribution. While that may be very obviousand easily enforceablein the United States, it becomes a much greater challenge across the globe.

Growth in Madrid System patent application lings worldwide (top 10)

contracting Party of origin european Union Germany USA France Switzerland italy china benelux russian Federation Japan

2007 3371 6090 3741 3930 2657 2664 1444 2510 889 984

2008 3600 6214 3684 4218 2885 2763 1584 2667 1190 1278

2009 3710 4793 3201 3523 2671 1872 1358 1968 1068 1312

2010 4707 5006 4147 3565 2893 2596 1928 1922 1218 1577

2011 5859 5000 4791 3804 2933 2306 2149 1920 1652 1538

Growth 24.5% -0.1% 15.5% 6.7% 1.4% -11.2% 11.5% -0.1% 35.6% -2.5%

Source: WiPo Press release: record international trademark Filings in 2011 Geneva, march 12, 2012

the second layer IP infringements

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IPinfringements
in the course of executing global trade transactions, it may eventually become necessary to expose your intellectual property to third parties involved in the manufacturing, production or assembly of your products. its at these moments when having a sound understanding of iP infringement possibilities is crucial. information is indeed power, and knowing the basics of iP infringements will help you source with more condence. iP infringements may occur in many ways, and by various parties. the most typical are: Piracy.the termpiracyhas applications to both copyrights and trademarks. Piracy is forged either through physical duplication of the iP work, illegal dissemination of copyrighted material (such as computer software, music, or movies) and/or participation in commercial transactions of copyrighted materials without the consent of the copyright owner. (Such as selling DVDs of motion pictures without paying royalties to the producers.) in some cases, trademarks can be pirated when a famous logo is not registered (or has not met the terms of being in use) in a certain country, and a third party capitalizes on the mark. instead of prots going to the true owner of the trademark, the third party redirects all the earnings into their own accounts on the value and reputation of a brand they had nothing to do with building. Counterfeiting. An imitation of a product is referred to as acounterfeitor afake.counterfeit products are manufactured, marketed, and distributed with the appearance of being the genuine article, and the assumption is that it originates from the genuine manufacturer. counterfeiting and copying of original goods is a major challenge for trademarked products. the counterfeited product can be sold for a premium because of its association with the genuine item, while reducing the sales of the original (real) items. Furthermore, a consumer experience with a counterfeited good of inferior quality can irrevocably damage the reputation of the trademark product. in the age of social media, even in less populous regions of the world, negative chatter about a brand (even though it was based on a counterfeit experience,) can harm the brand in other areas of the world. examples of counterfeit products are prevalent in fashion items such as purses, luggage and watches. in more serious cases, fake pharmaceutical products, such as popular brand-name prescription medicines can wreak havoc with both compromising the health of unsuspecting consumers and of course, the backlash of legal ramications. Label-jacking. A related issue is the imitation of labels and packaging of trademarked goods. in these cases, the imitators use trademarks that are deliberately similar to well-known trademarks in order to benet from the reputation of the products that consumers are familiar with. in these cases, consumers are either tricked into thinking the item is genuine, or they recognize it to be a dierent brand, but still believe that theres value in it due to the similarity of presentation. Formula-jacking. one way to infringe on trade secrets is simply to replicate them in another product with generic packaging. if the formula is a success, the imitator may enjoy a long career of prots and production on your original formula.
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the third layer implications

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implications
the downside to iP infringement practices is not just the lost revenue of sales of products that should be genuineits the long-tail eect of negative consumer experiences that could drive perception of your products/brand over time. An infringement today could be impacting your bottom line for years to come if not detected and rectied. According to US GDP gures, total copyright industries contributed 11.10% of total GDP, or $1.627 trillion in 2010. So the nancial implications of infringements can certainly have signicant deleterious eects on a national economy. industries include business software, records and music, motion pictures, entertainment software and books. Industry Examples Motion Pictures: a study conducted by leK consulting for the mPAA asserted that major US movie companies lost approximately $6.1 billion in 2005, (the last year the study was conducted.) According to this report, 80% of these losses were attributed to overseas, with china being the most oending of overseas nations, followed closely by russia and thailand. in addition to the primary industry, downstream industries (such as theaters and home video markets,) were also aected by iP infringements. Pharmaceuticals: in some nations, its estimated that anywhere between 10% and 30% of medicines that are sold can be counterfeit. beyond the nancial implications, the health risks are severe, as counterfeit medicines are not formulated, handled and packaged with the same stringent guidelines that genuine medicines are. of course, the legal implications are severe as well - a victim of a counterfeit medicine adverse reaction may seek damages from the genuine producer. if the labeling and reproduction of the medicines are very close, it can be dicult to prove innocence for the genuine producer. this has led to very strict guidelines and product labeling procedures. Information Technology: With the advent of cloud computing, new laws are springing up to both enhance and enable the ow of data across borders, and to protect against piracy. While there is a sharp divide in both technology and security readiness between advanced economies and developing nations, there are legal and regulatory lines being drawn. the bSA (business Software Alliance) has recently proposed a seven-point policy blueprint that is being considered that includes providing robust protection and vigorous enforcement against misappropriation and infringement of cloud technologies.

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the fourth layer reducingrisk

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reducingrisk
With all the infringements that are possible across all the intellectual property types, how can a company or an individual protect the intellectual assets? Particularly as it relates to global trade, how can a buyer know that their logo, or label, or formula wont be shuttled o in the night to be duplicated and distributed across other countries in the region without proper compensation? there are a few important steps that any buyer can take to reduce the risks and continue sourcing products from overseas with condence. Risk Reduction Strategies there are many ways to improve and enhance your global trade practices. First, read the Alibaba.com White Paper entitled Secure Sourcing, for tips and insights on vetting suppliers, understanding the nancing options and how to conduct audits & inspections. beyond that, try these risk-reduction tactics in your negotiations and in your daily business practices. NDA in Country Law: Get your supplier to agree to a non-Disclosure Agreement, and make sure its written in accordance with the laws of the country where your supplier is located. have two copies - one in english and one in the native country language and have it veried by an objective third party working on your behalf. Patent Protection: As we have learned, some patents dont apply in other countries. if youre sourcing from a country where your patent is not valid, change that immediately. it provides a layer of protection for your invention(s.) Separate Production: if its possible, try separating the production of your goods. have one supplier make one component, another make the casing, and a third do the assembly. this adds a layer of protection by making it increasingly dicult to replicate your iP. Include IP clauses in your buying contract: if youre worried about iP infringements, add a clause to your contract with your supplier that includes protections for you and penalties for any infractions. this can also be a strong supplier vetting tool. Seek professional advice: experience with the laws, the customs and the institutions of a country are invaluable. if you cannot have employees onsite at your supplier, try to employ the services of an intermediary, such as a broker, or an attorney or even a business professional that can trade services with you. in addition to these strategies, consult the organizations that help combat iP infringement on a global basis. Start with securing resources from the following: Wto (World trade organization) WiPo (World intellectual Property organization) iiPA (international intellectual Property Alliance) US copyright oce ePo (european Patent organisation) iPo (intellectual Property oce - UK)

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iP Protection

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IPprotection
Alibaba.com is one of the worlds largest and most trusted global trade marketplaces, with more than 25 million registered users on our sites. Alibaba.com is committed to ensure fair practices including intellectual property rights protection on our platform. through our proprietary ltering system and full-time dedicated legal team, Alibaba.com removes thousands of suspicious product listings before they are published. We continuously work with brand owners to enhance the ltering process to detect and remove listings that violate our iP policy and terms of use. Violations of our iP policy may result in a range of actions from removal of listings all the way to account suspension and terminations. Alibaba.com also has policies and procedures in place to ensure secure sourcing and iP protection: Aliprotect: Alibaba.com runs an enhanced reporting system to make it easy for brand owners to report alleged iP infringements. Blacklisting: Alibaba.com maintains a blacklist where the names of suppliers who have been banned from Alibaba.com for dishonest trade practices are openly published. in addition to the policies above, Alibaba.com also follows key principles of the Safe harbor rules under the Digital millennium copyright Act and acts quickly and completely to takedown requests from legitimate intellectual property owners around the world. other Secure Sourcing resources: Escrow Payment on Alibaba.com: We have recently introduced eScroW payment on Alibaba.com to protect both buyers and sellers. it provides safe transaction of purchases up to US$10,000 for Air express delivery and with no limit for Sea Freight delivery. Inspection Services: Alibaba.com has created a platform of preselected group of vendors that can provide a variety of inspection services. Authentication & Verication (A&V): All Gold Suppliers go through an authentication and verication process to conrm their validity as a business establishment. A&V was upgraded in September 2011 to include onsite check, which is a physical validation of the place of business and their operations. Supplier Assessment (Factory Audit): Alibaba.com also oers further verication services through Supplier Assessment reports, third-party audits conducted by on-site inspectors, for Gold Suppliers who want to oer further verication to buyers. this verication is focused on a companys trade and production capacity, rather than its business validity.

For additional information to help you trade safely, visit the Alibaba.com Safety & Security Center

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sourcescited
A number of dierent sources were used for data and reporting in this White Paper. Alibaba.com BSA (Business Software Alliance) BSA Global Cloud Computing Scorecard Published with Galexia Consulting BusinessWorld Research - Philippines online Article industry losses Due to Piracy - 2010 China Business Review online Article Sourcing Goods from china: the mass migration Copyright Industries in the US Economy - The 2011 Report Stephen e. Siwek / economists incorporated Prepared for the iiPA CRS Report for Congress intellectual Property rights and international trade December 20, 2007 Harvard University Center for International Development Global trade negotiations home Page intellectual Property Summary IIPA Special 301 Review - 2011 IIPA Special 301 Recommendations - 2010 IIPA Straord Publications online Article Protecting and licensing trademarks in china WIPO White Paper 2011 World intellectual Property indicators WTO Online Article on TRIPS intellectual Property: Protection and enforcement

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