Doing Business Abroad? Make Sure to Safeguard Your IP First
For any company conducting business abroad or thinking of doing so, this post is for you.
Imagine this scenario: You want to sell your products in foreign markets. Eager to explore opportunities in Asia, you put your team to work in soliciting business partners and distributors in Asian countries. Six months later the pieces are in place and your foreign distributors begin selling your products. Before you know it, there is an issue with defective inventory and a distributor has placed the wrong logo on the product packaging. You spend the next twelve months working through these issues but ultimately conclude that it is time for your company to split ties with the foreign distributor. You ask the distributor to stop using the trademark and return unsold inventory. Surprisingly, the distributor tells you that the trademark is theirs and they have trademark-filing records to back up their claim. Now they want a sizeable payout before they relinquish control of the trademark.
The above scenario may sound extreme, but it is commonplace. Without proper planning, doing business abroad can threaten the intellectual property that you have worked hard to create and protect. Here are some safeguards to avoid or minimize problems.
Strategic Trademark Protection
Trademarks represent the goodwill of your company and can be your company’s most valuable assets. Trademark rights are territorial, so even if you have protected your trademarks in the U.S., that protection will not extend to foreign countries. The majority of countries follow the “first to register” principle whereby trademark rights depend on having a registration in place, and the first party to register a trademark is rewarded with exclusive rights in that country. In contrast, the U.S. and select foreign countries like Canada and India follow the opposite principle whereby trademark rights are determined based on who is first to use the trademark in commerce.
Your company should seek to protect its trademarks in countries where it has business or plans to conduct business in the future. In first to register countries like China, protection should be sought before entering into relationships with foreign distributors, because if a foreign distributor files a trademark application for your trademark in its name rather than yours, they technically control the trademark rights. This problem has been prevalent in China, where squatters register trademarks of famous U.S. companies and then try to sell them back for a high cost. Recent amendments to China’s trademark laws have put mechanisms in place to combat this problem, but the true trademark owners still must spend time and resources to retrieve their trademarks.
If you are a business that has already been selling products abroad without trademark protection, then you should look into seeking protection immediately. The U.S. does offer one safeguard, due to its participation in an international treaty, in which trademark owners may file trademark applications up to six months after the first filing in the U.S. and still claim the U.S. filing date as the effective filing date in the foreign country. This means that you may be able to retroactively claim rights in foreign countries after the fact.
Protecting Copyrightable Works
If your business involves the sale or dissemination of works of authorship such as magazines, books, artwork, videos, software or musical works (among other types), then you need to be mindful of copyright protection. In this digital age, it has become easier for bad actors to pirate others’ proprietary works of authorship and globally disseminate infringing copies for profit. Copyright law affords the owner exclusive rights to protect works of authorship, and similar to trademark law, copyright protection is territorial. However, under international copyright treaties, if a party registers its work at the Copyright Office of the party’s home country, then most developed countries will recognize it as a protected work. This means that if your company registers its journal publication with the U.S. Copyright Office, a country like China will recognize it as a protected work. The level of protection afforded your company’s work will depend on the laws of that country, as many countries recommend further copyright filings within their own country to further solidify protection of the work. In light of all of the above, it is prudent to register your company’s works in the U.S. before sharing and selling your copyrightable works abroad.
Make Sure to have a Comprehensive Signed Agreement
Securing an executed agreement with all foreign distributors and other business affiliates is a good way to safeguard your company’s IP abroad. Here are important provisions that you should include:
- Language that states that ownership of all intellectual property should be owned by your company;
- Express restrictions against filing any trademark or copyright applications in anyone’s name other than your company and not filing anything without your written permission;
- Clear trademark license terms as to how and when trademarks can be used, and whether rights can be sublicensed to others;
- Quality control measures to ensure that trademarks are used properly and inventory is in compliance with your quality standards, with a right to review samples of product, product packaging, and point-of-sale displays;
- Clear copyright license terms that specify the scope of rights that you want to grant, noting such details as the medium of use, the geographic areas of use, whether such rights are one-time or ongoing, whether the works will be translated into local languages, and whether any rights may be sublicensed to others; and
- Termination and the effect of termination provisions that provide you with options to formally discontinue the relationship and a clear reversion of rights to your company once termination occurs.
The key is to plan in advance and secure your company’s IP with a comprehensive written agreement; then your company can conduct business abroad knowing that its IP is protected.
By Adam W. Sikich, Esq.