– by Helika Jurgenson –
Many European SMEs may be under the impression that they do not conduct R&D in South-East Asia, because they do not have a research facility there. The likelihood is however that in reality, a high proportion of them engage in activities which fall under at least one of the terms: research or development. An example of R&D activity might include an SME entering into a contract with a local company to use their engineers to develop a prototype into a commercial product. The future of R&D looks promising in South-East Asia, as the rapidly growing market becomes more accessible to franchisors around the world and as the legal environment is showing promising signs of improvement. As an example, the number of foreign franchises in Indonesia has been growing around 13% on a yearly bases since 2012. Nevertheless, it is still vital to have an IP protection strategy when conducting R&D activities in South-East Asia.
Protecting IP with registrations
SMEs can protect their valuable R&D through patents, design patents, industrial designs, trade secrets and trade mark registration. SMEs should keep in mind that patents acquired in Europe do not give automatic protection in South-East Asian countries and therefore, if a European SME is planning to create any new intellectual property in South-East Asia, it is highly recommended to apply for invention patents or design patents in the South-East Asian country, that you seek to do business in. Early protection is the key. The average time for getting a certification varies between 3-8 years for invention patent and between 12 months to 3 years for design patents depending on the country of reference.
Patent registration and design registration generally function under the ‘first-to-file’ principle, meaning that the first person to file for registration in a particular South-East Asian country will own that right once the registration is granted, irrespective of ‘first use’. Therefore, an SME should register its patents and relevant IP even before entering their destination markets. Registration in advance is extremely important, because a registration certificate is the only method to establish rights over patents, designs and trade marks. A registration certificate also enables a company to license and assign certain IP rights, and to enforce IP rights in a more straightforward procedure.
IP strategies: how to valorize R&D related IP in South-East Asia
R&D could be valorized through the use of IP rights by the company, by assigning IP rights to others or through licensing or franchising. Managing IP rights gives SMEs the advantage of obtaining profits or funds gained from the IP assets created and owned in South-East Asia. At the same time it may require an extensive management system and can be costly both in terms of annual maintenance fees and validity rights for innovation patents and design patents. Additionally, SMEs would also have to monitor their IP assets in order to detect infringements early.
Assigning IP rights to a local company will allow European SMEs to increase their profits and reduce the need for constant monitoring of their IP rights and potential infringements. On the other hand, SMEs will no longer continuously benefit from their IP rights but will receive a lump sum payment for the sale.
Opting for licensing or franchising will allow European SMEs to quickly expand their business, enjoy the steady flow of periodical income from IP rights as royalties and take advantage of the local resources and knowledge. Similarly to managing IP, franchising requires regular monitoring of the use of the IP assets, which might be time and resource consuming.
Legal environment for enforcing IP rights
The legal environment for IP protection has improved in recent decade in South-East Asia. Most South-East Asian nations have relatively recently acceded to major international IP treaties like the WTO Trade Related Aspects of International Property Rights (TRIPS) Agreement, Paris Convention or Madrid Agreement. In recent years, Thailand, Vietnam and Indonesia have undertaken a vast program of reforms regarding major IP laws. In particular, these nations have modernized laws regarding trade secrets, patents, trade marks, technology transfer and unfair competition, which are particularly relevant when SMEs try to protect their R&D related IP.
Nevertheless, problems still remain, for example Vietnam still lacks specialized laws dealing with different R&D related issues. Vietnamese franchise regulations are still rather symbolic, impractical and inefficient. What it means for SMEs operating in Vietnam is that they should make sure they have strong non-disclosure agreements and confidentiality agreements in place to protect their R&D related IP assets during their development.
Future trends and takeaways for the R&D sector in South-East Asia
Market experts predict that crowdsourcing (making tasks available for anyone in the ‘crowd’ to complete) relating to R&D is becoming a popular trend in Vietnam and throughout the major South-East Asian countries. This will of course include several IP-related risks for businesses, including the question of IP ownership and infringement claims from the members of the crowd who were not successful in selling their solution to the crowdsourcing SME. Companies considering crowdsourcing should put sound IP strategies in place that include creating barriers between their IP and the crowdsourced responses and documenting all actions to protect themselves from possible infringement claims. This is especially important considering that current Vietnamese IP laws are not fully prepared to deal with disputes relating to IP issues in crowdsourcing.
However, deeper international integration is expected to improve the legal environment as better legal instruments, capable of dealing with the changes in ways businesses approach their R&D, will become available. Full implementation of the Trans-Pacific Partnership Agreement (TTP) will, for example, reform franchising regulations, making the enforcement of licensing agreements more predictable.
Meanwhile, SMEs engaged in R&D activities in South-East Asia should keep in mind that acquiring legal protection for their IP assets as soon as possible, understanding the business partner and the market and seeking local expertise in relation to IP issues is the key to successful business endeavors in South-East Asia.