How To Protect Product IP When Working With Contractors & Factories In Different Locations? [6 tips]

Entrepreneurs, hardware startups, and various SMEs commonly outsource parts of their new product manufacturing project to various individuals and companies around the world, such as product designers and factories. But one worry they have is how to protect product IP when it’s in the hands of these different contractors who often aren’t in their own country.

Working with contractors makes a lot of sense to fill gaps in your experience and capabilities

Consider a hardware startup where the founders have little experience in product design and development. It makes absolute sense to work with a product design expert with experience in your product’s segment in order to, for instance, assure that your design is mature enough to go to a manufacturer and be produced with a minimum of hiccups. The same can be said for working with a manufacturer in Asia who has prior experience in manufacturing products with a similar niche and makeup as yours in their factory.

Let’s say you’re in the USA and you work with a product designer in Poland and a manufacturer in China. All of these different outsourcers need access to IP, your product’s concept, industrial design files, BOM, etc, so, with so many parties in play, how to protect your IP from being abused?

The risk of your IP being spread without your knowledge or consent

Sharing IP with different contractors has inherent risks.

Hardware startups and entrepreneurs often don’t even realise what an enforceable manufacturing agreement, including NDA, NNN, etc, looks like for their manufacturer’s country.

The same goes for their designer. Can you be sure that your designer doesn’t, in turn, outsource some of the work to other outsourcers, thereby spreading your IP further all without permission?

The problem is that entrepreneurs or hardware startups often don’t feel like they can afford to instruct lawyers to enforce NDA/NNNs or manufacturing agreements if IP were to be abused, so they ‘hope for the best.’

6 tips to follow for better IP protection

In fact, smaller businesses, hardware startups, and entrepreneurs can protect their IP effectively and it doesn’t always have to cost a lot of money.

Here are 6 tips that will help you understand how to protect product IP and reign in the risks associated with your IP being disseminated to different parties all around the world.

1. Get legal advice

Work with a law firm that understands how to protect product IP around the world (especially where your contractors are based) to help you find out what kinds of agreements you need to create and to enforce them later.
You may also choose to actively register trademarks and/or patents in the countries you work with. For instance, in China registering trademarks locally, even if you’ve registered them at home, is important as they do not always recognise foreign trademarks. Harris Bricken, the law firm responsible for ‘China Law Blog,’ are an example of such a firm.

For a startup with little money that may be out of reach. A law firm can produce a strong and enforceable manufacturing agreement, but you may decide not to retain their services. Contact us if you’d like our advice (as non-lawyers, but with a long experience dealing with Chinese and Asian suppliers).

Related 👉 Learn more about how to create an appropriate NNN agreement for use with Chinese manufacturers here: How Far Does An NNN Agreement Need To Go To Protect Your IP In China?

2. Retain a digital master copy of your product design and other IP

The key to IP protection is reducing the amount of IP out there in the field. It makes sense to keep it held digitally and back it up on a hard drive and in the cloud. Disseminating it piecemeal as required to outsourcers and manufacturers can be done digitally, and there are also in-built ways to protect digital files like CAD files etc making them read-only and difficult to manipulate other than to view.

Related 👉 Andy Bartlett, an experienced product designer, discussed how to protect product IP and manage product designs when working with Chinese manufacturers in this episode of our podcast: Good Project Management With Chinese Suppliers From A Product Designer’s Perspective

3. Keep your complete designs confidential and drip-feed information to suppliers on a ‘need to know’ basis

It makes sense to insulate different providers from having access to all of the information about your product. If you have a good relationship with, say, your manufacturer, it feels natural to provide them with all of the information, but you may need to behave in a more cautious manner in order to preserve IP confidentiality.

During the new product introduction process, plan to provide only the information needed for each outsourcer to do the job required, such as particular specifications, materials or components, and physical requirements. This will necessarily mean that you remove or redact certain parts that they don’t need to prevent them from having 100% of the information needed to reproduce the product.

You need to be very methodical and monitor the information provided carefully, though, to make sure that you don’t remove essential information during the course of ‘hiding’ information that they don’t need. 

Without context about the way and the condition the product will be used, what areas of performance are most important, and so on, they can’t be expected to do a good job.

Related 👉 Explore the topic of reducing the IP being shared further in this post: Keeping Sensitive Information Confidential – Disputes With Chinese Suppliers: Q&A (Volume 4)

4. When choosing your manufacturer, avoid ODMs or OEMs where possible

You will have to share a lot of the design information with the manufacturer that will do assembly & testing. Maybe they can do the design review, help with some DFM, etc. And it’s probably less risky if they are a contract manufacturer, rather than an OEM or (riskiest of all) ODM.

Related 👉 OEM, ODM, Contract Manufacturers: Which Chinese Supplier To Choose?

This video also explains when each type of supplier is suitable for companies who are developing a new product as ODMs and OEMs are sometimes good options depending on your circumstances and product type:

5. Starting with a ‘niche’ product makes IP protection easier

If your product is for a niche market and you already have the marketing assets needed to reach that niche, the ability to copy your product will be much less valuable to another company, which would find it difficult to reach your market and would find that small niche unappealing. Of course, you can start with a niche and then grow out of it — see what Geoffrey Moore called a ‘beachhead’ in his book ‘Crossing The Chasm‘. 

6. Head off outsourcers using your IP by launching your new product rapidly

In the past, launching your new product as fast as possible and being first-to-market was often enough to see off any challenge from your competitors, even with the risk of your IP being copied by them.

There may still be an element of this that is effective, as the first new type of product to market may get the lion’s share of sales if it’s well-received by consumers. But these days it’s a fast process to take your intellectual property and make a straight copy or something that’s close and, in some cases, suppliers may be selling ‘your product’ before yours even launches. The same goes for your new website! There’s no limit to what can be cloned and used against you, so being first-to-market is not the advantage it used to be.

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Have your say…

I’d like to know how you keep your intellectual property confidential and if you have any tips to add here for our community? Have you been burnt before? What happened? Please share your experiences or further questions about how to protect product IP by commenting.

Disclaimer

Here at Sofeast, we are not lawyers. What we wrote above is based only on our understanding of the legal requirements. We do not present this information as a basis for you to make decisions, and we do not accept any liability if you do so. Consider consulting a lawyer before making legal decisions.

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