Global law firm White & Case LLP has warned global companies of the increasing risk of the use of unauthorized intellectual property (IP) by suppliers in their 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 unauthorized IP, the company may nonetheless find itself facing serious legal and business risks," said Arthur M. Mitchell, formerly General Counsel of the Asian Development Bank and currently senior counselor at White & Case.
In a white paper published today, the Firm highlights the key risks of unauthorized IP, that includes patents, copyrights, utility models, software and trade secrets that have not been authorized by the lawful owner and for which royalties have not been paid. The Firm also provides a variety of possible solutions to companies most likely to be affected, whether they are a defendant or a plaintiff or are already working on improving compliance in this area.
"This is an excellent, well researched and thoroughly documented paper which covers the entire landscape of concerns that companies should have on this topic," said Peter N. Fowler, Regional Intellectual Property Attache for Southeast Asia at the United States Patent and Trademark Office in Bangkok, Thailand. "It is the first time I have seen such a comprehensive treatment of this emerging issue, and I am confident that it will be well received and extensively cited."
White & Case has identified that the risk is particularly high for firms with an Asian-based supply chain. According to the Organization for Economic Cooperation and Development (OECD), the region is fast emerging as the world’s largest producer of unauthorized products.
"Even if the company is unaware of the use of unauthorized IP by its supplier, it could still find itself legally liable and suffer reputational damage," said Mitchell. "The danger is that regulators, customers and competitors could perceive that the company has benefited from the unauthorized use. If that is the case, the company may be held responsible."
White & Case has established a number of solutions that companies can use to reduce the possible risk. Mitchell said: "Taking simple protective steps is essential for firms with large and complicated global supply chains. Adapting existing compliance policies could mean the difference between a firm facing significant legal challenges, including exclusion of offending products from the US market, significant fines and disruption of its supply chain."
White & Case solutions:
(1) Know your supply chain: most firms already monitor their supply chain for risks in other areas. Adapting current supply chain management techniques to include unauthorized IP risks is a key first step in solving this potential problem.
(2) Protect yourself contractually: contracts with suppliers should include representations, warranties and covenants that unauthorized IP is not used. First tier suppliers should be required to insert similar clauses in contracts with their own suppliers and so on down the line. Contracts should include details of damages or penalties and could include indemnification if the company is sued.
(3) Compliance training: the risk of unauthorized IP should be included in existing training and monitoring processes. This will help to educate employees, customers and suppliers and can help defend firms from accusations that they knew about any unauthorized IP use.
(4) Act publically: publicizing your policy and working with industry groups will help to ensure your efforts are better understood by external stakeholders and will apply pressure to suppliers and the rest of your industry to bring practices into compliance.
(5) Help create new standards, rules and best practices: with no current internationally recognised industry standards or best practices, there is an opportunity to act now that will significantly impact the competitive landscape.
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