How can IP help businesses expand opportunities via international trade?
Not obtaining the right level of protection for your unique business can lead companies into a bundle of mess; trademarks and copyrights are implemented to ensure this is avoided, but what happens when your company wants to expand internationally? Will your registered IP be recognised in overseas markets? Lorna Brazell, Partner in the Intellectual Property Department at Osborne Clarke, answers these questions for us, as well as expanding on what IP can do for businesses wanting to expand internationally.
What are the overall benefits of implementing an IP strategy for the purposes of expanding business by region?
A business planning geographical expansion needs to think ahead and develop an IP strategy for its target markets before it actually begins to trade. If the IP in the product’s design, technology or branding is not protected, someone will copy the product or business model, leaving the originator facing an uphill battle to gain or maintain market share.
Repeatedly, European businesses have launched in a foreign market only to discover a nimble local competitor already trading using the same or very similar name, or copying key products. Businesses frequently feel taken advantage of – but actually this is just competition in action. There is no right to have all markets reserved to you just in case you eventually decide to launch there. If there is consumer demand in country X, and the originator has not launched there and has no IP protection, why shouldn’t a local business fill that gap?
What are the particular IP considerations for businesses to make when planning expansion into international trade?
Many businesses fail to recognise that the IP they register in their home country – a UK trade mark, for instance – gives no protection in overseas markets. With the exception of EU trade marks and designs, covering all 28 Member States, registered IP rights are national, requiring registration in each country needing protection.
Fortunately, IP law is fairly harmonised globally. IP has been critical in encouraging international trade in technology and consumer products. After all, what enables a manufacturer based in one country to persuade customers in another to buy its products, but the ability to demonstrate that the product is more desirable than a local version? Unless purely price-driven, that competitive advantage must come either from aspects of the product itself – superior functionality, or design – or reputation. These are precisely the advantages that IP can protect; without IP, markets would be awash with copycat products of variable quality, making brand reputation virtually impossible to maintain.
To ensure fairness across different jurisdictions, the World Trade Organisation’s rules include an entire Agreement on Trade-Related Aspects of Intellectual Property, (the TRIPS Agreement). As a result, all WTO members have implemented a common set of principles. These may get interpreted differently, so IP protection is not identical everywhere, but ensures businesses can expect some protection for their creative and inventive work. So, you can obtain and enforce IP almost anywhere, although the processes and remedies available will vary.
But deciding what rights register in which country needs to be approached strategically. Filing trade marks worldwide is expensive and obtaining global patent rights even more so. Businesses also need to be aware that registering the right is only the first step – these rights last only as long as they are renewed, giving rise to renewal fees that can mount up. So, businesses need to be selective. Smaller businesses, in particular, need to identify precisely the rights they will need to protect the core aspects of their business in a new territory and which they are prepared to enforce, since these are private rights and only in limited cases will public assistance be available.
Establishing an appropriate brand is key to succeeding in a new region. This may be a simple case of registering the existing brand as a trade mark in the relevant local registries but before doing so, the business also needs to assess how effective the original brand will be by considering the new region’s language and culture. Things can go horribly wrong. A famous example was a car branded Nova – a word associated by English speakers with novelty, or the dynamism of an exploding star, but to Spanish speakers simply meaning “does not go”. Where the local language does not use the Roman alphabet more re-engineering of the brand may be needed. The word which sounds closest to an English name may have an undesirable slang meaning, or be the name of a pre-existing local business. Alternatively, a product may have acquired its own name locally, which may be difficult to uproot. Pfizer ignored the local name Chinese consumers had given its Viagra product, “Wei Ge”, meaning “Mighty Brother”, instead preferring a different Chinese transliteration, only to find nobody used it. These are not insurmountable issues, but time and costs can be saved by anticipating them at the planning stage.
What sectors are more facilitated to expand via the use of IP and why?
Consumer-focussed businesses stand or fall with their brand recognition rather than the specifics of the product itself. To expand, they invariably need trade marks, although protecting the products themselves through designs and patents can also help maintain distinctiveness in the market. Other sectors, such as pharmaceuticals or electronic devices, depend on maintaining exclusivity over their technology. This is where patent rights protecting their technology become fundamental to a successful expansion. Creative industries and the software industry rely upon copyrights to prevent free-riding on their work.
Commodity products, conversely, are less likely to benefit substantially from IP rights and may sell purely on price and service standards.
What are the benefits of franchising and when is this option the best solution to expanding internationally?
Franchising is an excellent way to harness local knowledge – how business cultures work and what appeals to local consumers – to transfer a product or business model successfully from one jurisdiction to another. This is particularly true where cultural differences are obvious, but also applies where the barriers are essentially linguistic.
Although it is no longer surprising to find familiar brands in almost any country, it is not yet the case that ‘one size fits all’ such that the local market’s response to a brand arriving from overseas mirrors exactly that of consumers in the home country. In some cases, there may be unanticipated advantages, as when KFC successfully out-competed McDonald’s in China. KFC hired local management who understood that KFC had an immediate advantage because Chinese consumers prefer pork and chicken over beef. Menus were also customised to appeal to local tastes and KFC’s predominately-red colour range presented a cultural advantage, symbolizing good fortune and joy. In contrast, IKEA struggled in China: its value marketing was out of synch with the Asian markets’ view of Western products as aspirational; its traditional large suburb-based stores struggled because Chinese consumers mainly use public transport. Furthermore, its catalogue was used by competitors to copy products.
As well as understanding practical issues, local franchisees will be able to advise how much recognition the brand already has in the market – helping to avoid mistakes such as applying to cancel or revoke a bad faith registration of the same or similar trade mark without providing enough evidence of the mark being “well-known” in the particular territory.
However, getting a local franchisee to commit to building up the brand long-term may require patience; the franchisor should expect to offer its licensees marketing and funding support to do so.
How can businesses be better educated on the implementation of IP strategies in order to effectively expand their operations, abroad or domestically?
As the examples above show, businesses need to understand which rights they actually need. Although commonly bundled together as ‘IP’, there are a range of rights with different uses which protect different assets.
Patents concern the technology: a business developing new technology should be thinking of patenting their results and where they will need it over the next 20 years, since patents globally must be filed when the technology is still new.
Design is about the look of the resulting product, rather than how it actually works, and is increasingly important in consumer products as consumers become more sophisticated.
Trade marks are about the reputation of a business and how its customers see and recognise it. Almost every business should have a trade mark but, unlike patents, there is no need for global registration at the outset – it can be done when the business intends to launch in a given territory.
There is a lot of information available online; in addition to commercial sources such as law firms, the UK Intellectual Property Office website (https://www.gov.uk/government/organisations/intellectual-property-office) is helpful, for instance. But it is important to understand that the rights are national; reading the information relevant specifically to the target market is key. The first step to better understanding is asking the right questions!
