In this episode…
“Who’s looking at my product idea in order to copy it and sell it in competition with my original?”
This is a question that keeps hardware startups and entrepreneurs awake at night, as they know their innovative product idea is going to be jealously viewed by copycats from all kinds of places.
Actually, these copycats usually come from both within and outside of your supply chain, and they can copy you either early on in the new product launch process or after your product has been on the market for a while.
That’s why in this episode, Renaud explains the 4 key situation where copying can occur, who’s usually responsible, and some steps you can take to protect your product IP at these points.
This episode is based on just one chapter of our free new guide over on Sofeast (no form fills required): IP Protection in China when Developing Your New Product [Importer’s Guide].
Here’s a graphic showing the 4 situations:
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00:00 – Greetings & introduction
00:58 – A chat about rising covid infections in China and what it might mean
05:37 – Today’s topic – sources of risks to your product IP when developing and manufacturing it in China. This is based on this new guide from Sofeast: IP Protection in China when Developing Your New Product [Importer’s Guide]
06:36 – What kinds of products are most at risk of having their IP compromised and misused? Those that are very visible, such as being on the internet or on store shelves and have clear signs of market success, and, preferably, aren’t too challenging to reproduce will be most at risk. If there is room from the pricepoint to resell and make some profit and if it’s small enough to drop ship to multiple customers, this also raises the risk profile.
09:33 – What are the main risks to someone who’s developing and manufacturing a new product? There are 4 situations to be aware of:
- Being copied early from within your supply chain
- Being copied early from outside of your supply chain
- Being copied later from within your supply chain
- Being copied later from outside of your supply chain
12:30 – (1). Who’s at risk of copying us early from within our supply chain and what can be done to avoid it? Your own supplier might be tempted to go behind your back and sell your product to other customers, especially if they’re willing to place a larger order than you and/or pay a higher price. This risk is much higher with ODM manufacturers, as their business model is to own the IP of products they work (which could include yours if you give them the idea). Basically, ODMs and OEMs who help develop your product for free often believe that they should own the IP as they made that initial investment.
A single rogue employee of your supplier who had access to product drawings etc may also decide to try to copy and sell the product by setting up their own company to do so. This is hard to prevent. Toolmakers, prototyping workshops, and sub-suppliers who, by default, have access to some or all of your product IP, can also be a risk.
19:28 – Compartmentalizing the supply chain. This could help the different players in your supply chain to only have access to IP that is specific to what they’re working on so they don’t have the full picture. Some manufacturers would prefer their assembly supplier, who needs full access to all of the IP and manages the different parts of the supply chain, to be in the same country, but if they are far from the rest of the supply chain this raises other risks a lot. For instance, the high cost in time and money to send back defective parts to Asia received by the nearby assembly supplier.
21:07 – Legal tools to prevent or mitigate being copied. An enforceable NDA / NNN agreement should be signed by the supplier before you disclose anything. Any suppliers should be enforcing the same NDA with sub-suppliers. Reducing the amount of potential suppliers you get quotations from limits the amount of parties who have any of your product IP. Once you start working with someone a product development agreement clarifies who will pay for what and who will own the product IP. A manufacturing agreement then covers the ongoing work.
23:18 – (2). Who’s at risk of copying us early from outside of our supply chain and what can be done to avoid it? Crowdfunding platforms like Kickstarter and Indiegogo are good for obtaining funding and attention for a new product, but they make it easier for copycats to become aware of your product idea and design. The issue is launching on these platforms too early. Copycats in Shenzhen can often develop and launch the copycat product faster than the original one gets to market, and even if it’s inferior, due to it being first and perhaps cheaper, it gobbles up market share and damages the original product’s chances of being successful, especially as a lot of these copycats are experts at launching products onto Amazon and marketing online to create buzz for their product.
This is not limited to products manufactured in China. If you create and manufacture a popular or innovative product outside of China, if it can be found online it’s still at risk of being copied.
28:45 – Why copycat products can be made by companies anywhere, not just in China. Companies from all around the world go online, check reviews, and use software to find popular products. They tweak the design to improve on it or make it different somehow and then produce their own with Chinese suppliers, but the supplier is just carrying out their wishes, not driving the copycat project. Producing low prices and high volumes can deter copycats as there’s less chance for them to compete on price.
31:05 – The difference between copying a product idea and counterfeiting one. A counterfeit product is a complete copy including the same design, logos, etc. However, most copycat products will use different materials, colors, have slightly different functionality. Copycat manufacturers will make them using the processes and materials they’re most familiar with for the sake of speed to market. So these products naturally differ from the original (despite being similar).
34:01 – (3). Who’s at risk of copying us later on from within our supply chain and what can be done to avoid it? As your orders to suppliers in China ramp up, your manufacturer (or component suppliers) may start to take notice. They know that they’re producing a successful product for you. Aside from them trying to go behind your back, if you push too hard on price, or maybe stop working with them, this could cause that supplier or manufacturer to go rogue and produce a copycat product, especially if they still have your molds (risks are higher with an ODM). Not having agreements in place about ownership of product IP and molds raises this risk.
38:16 – (4). Who’s at risk of copying us later on from outside of our supply chain and what can be done to avoid it? If your product is clearly selling well on Amazon, you’re running advertisements on social media, etc, it will attract a lot of attention from copycats who will quickly produce very similar products. If you haven’t built up a good following or aren’t marketing well, your product may be buried by the torrent of copycat products that will likely follow. Patents may protect against this to a degree.
41:27 – Patents as protection. Patents don’t guarantee protection. Well-written patents are a must if you have them, but you also need a legal budget for lawyers to defend them, too.
41:55 – Wrapping up
- IP Protection in China when Developing Your New Product [Importer’s Guide]
- Can Getting To Market First Stop Copycats? [Podcast]
- IP Infringement In China. What To Do If You’re A Victim?
- Why The New Product Design & Introduction Process Is More Complex Than You May Think [Podcast]
- How To Reduce Risks As Your Order Sizes Grow When Working With Chinese Manufacturers?
- Chinese Copycats: A Real Problem For Entrepreneurs?
- Will A China NNN Agreement Protect Us If We Start Assembling Products There?
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