Protection racket

Question: What do the following incidents have in common? Branded pharmaceuticals hijacked in Brazil. Unauthorised, trademarked goods produced in China from genuine specifications. ‘Famous name’ medical products destined for the Middle East but sold in the US. Packages for counterfeit images manufactured in Africa.

Answer: All of these occurrences demonstrate a potentially serious threat to both the affected brand names and the markets in which they are sold. Moreover – and more importantly for the practising security professional – they draw attention to the need for developing a strong intellectual property protection programme.

These true stories clearly indicate that intellectual property in the Information Age includes trade secrets and anything that differentiates and provides a competitive advantage for your company, product or service in the marketplace. It goes well beyond the traditional definition of patents, trademarks and copyrights.

In fact, intellectual property defines your company’s image and integrity, and allows it to benefit from its own creativity and innovation in the same way that it can by way of ‘contact’ with its personnel or infrastructure.

In many ways, a company’s intellectual property is its most valuable asset. Goodwill toward a company stems from beliefs about its value. Your employees, licensees, distributors, customers, vendors and/or investors find it valuable. Massive brands like Coca-Cola attach a dollar value to it that stretches into the hundreds of millions.

If intellectual property is highly valuable, it’s surely vulnerable to the criminal. Globalisation of the economy has, in turn, realised the globalisation of organised crime. So too the organised theft of intellectual property.

While companies and Governments have been stealing each other’s secrets for eons, copying technological and branded goods is a relatively recent phenomenon made cheaper and easier by technology. This trend has been fuelled by increased production in the emerging economies, with varying degrees of intellectual property legal protection, corruption and Government involvement, as well as by the potential for windfall profits with little comparative risk.

Developing ‘ironclad’ protection

For security professionals looking to protect an asset so valuable, yet so ethereal and prone to threats, it’s best to start with the basics.

The most essential mechanism for ensuring that your company’s intellectual property rights are protected is registration in those countries in which it trades. This includes trademarks to protect brand identity (such as graphics, designs, logos and packaging), copyrights for the protection of written material, sound and media and patents for the protection of processes and/or uniquely ‘engineered’ products or systems.

There are three major areas of concentration that are necessary for an effective intellectual property programme: harnessing internal and external resources, the internal audit and establishing a budget. The first step is to talk to people who are ‘in the know’, and set up a communication pattern that allows you to both assess the problem and then instigate an ongoing information flow.

• Partnerships should be developed by the security professional (who should drive the programme) with the following internal resources, and for the reasons stated:
• legal – in order to oversee, review and revise contracts and for counselling on the programme as a whole;
• risk management – to have available information on insurance, claims and risks to mitigate exposure, save on premiums and leverage risk management expertise;
• licensing – to understand legitimately licensed and authorised entities and how they operate, and to make recommendations on licensing issues that might affect counterfeiting or diversion (and to establish and generate leads);
• buyers – to develop good buying practices inorder to prevent the purchase of counterfeit products in retail operations and know brokers, vendors, ‘jobbers’ and ‘sell-off’;
• design – to help protect designs andestablish controls in the design process;
• sales – to identify issues in the field and establish controls in the design process;
• production – to know brokers, vendors and ‘jobbers’ and understand legitimate production methods, obtain support for specific investigations and to generate leads;
• compliance – for background information on
• vendors, in addition to lead generation;
• distribution – to understand supply chain practices, integrity and vulnerabilities;
• sell-offs – to understand the established practices for these, and participate in preventing counterfeiting and diversion;
• IT – to leverage IT professionals’ considerable capacity to develop, manage and secure information and processes through information systems;
• public relations – to co-ordinate all media coverage in any aspect of the intellectual property enforcement programme to the company’s best possible advantage.

• While internal relationships are essential to the success and reach of the programme, so too are those forged with partners in the outside world. Key partnerships to form here include:
• investigators and consultants – to develop field resources by industry and geography;
• law enforcement – to establish contacts that will help in leveraging prosecutions;
• informants – to gain inside information and insights into your industry;
• customers – so that customers have a means of reporting the theft of intellectual property;
• vendors – to help control rogue vendors while establishing vendor co-operation;
• manufacturers – to help identify large-scale infringers and establish co-operation and compliance for manufacturing activities.

• Once you have successfully corralled the internal and external resources, the next step is to conduct an internal audit of existing business systems by collaborating with these entities to address vulnerabilities:
• legal – review and revision of master services and vendor agreements to add controls, audit provisions and penalties and look for programme funding opportunities;
• licensing – review and revision of licensing agreements to add controls, audit provisions and penalties and look for funding;
• security – a top down evaluation of all security procedures relating to intellectual property matters must be conducted to ensure Best Practice;
• sales – establish a programme for reporting leads and due diligence on potential and existing customers so as to assure timely intelligence from the field and quality sales;
• production – develop a team approach with legal, buying and compliance to communicate company standards, audit provisions, sub-contractor limitations and disposal procedures in all sourcing or vendor agreements;
• compliance – co-ordinate with compliance on Human Rights to include intellectual property issues;
• distribution – evaluate exposures in the supply chain from theft incidents and subversion or failure of systems, and make recommendations on process solutions or technological fixes;
• buying – work with the buyers to establish procedures for buying ‘clean’ merchandise (if you are a retailer) and to help in investigating vendors, design theft and sell-off issues;
• design – liaison with the design team to develop procedures for safeguarding designs, particularly in the pre-production stages, as well as to establish controls and accountability in this process and in their physical spaces (which tend to be ‘creative’ and less secure);
• sell-offs – partner with those responsible for sell-offs to develop secure excess goods disposal processes and investigate infringements by ‘jobbers’, Internet wholesalers’ and manufacturers’ reps;
• public relations – intellectual property
• enforcement can be an opportunity to promote positive corporate social responsibility, products and brand image... public relations related to successful interdiction efforts should be managed by the PR Department, thereby ensuring that any key messages are delivered;
• information systems – involve the IT staff in helping to analyse and protect exposures to IP theft or infringement, and examine violations.

Thus far – and presuming that your company is using an existing in-house resource or a consultant in this process – the intellectual property programme hasn’t cost more than the price of a temporary head or hired hand. However, in order to be truly effective, a dedicated budget (and headcount, and/or outside resources) needs to be funded. This should be based on careful analysis of the scope of the problem, impact on the market and the bottom line and, of course, available resources. Managers should consider ways of balancing administration costs between in-house and outside resources. It is absolutely critical to include the funding of investigations.

One way to develop a programme that is partially self-sustaining is to implement a civil recovery programme that will actively deter infringements and recover costs. Costs can also be shared and the budget leveraged through the development of industry coalitions and/or licensee and/or distributor subsidies.

Often, outsourcing can be the most cost-effective intellectual property protection paradigm. A reputable and established vendor with a large intellectual property clientele and focus can bring Best Practice to bear, professionally supervise and negotiate investigations and their cost and serve as a buffer (and liability barrier) between the company and what might be risky business.

There are also product-based security solutions that can help in combating counterfeiting and diversion (including marking and tracking products that identify genuine product for consumers and authorities and deter the counterfeiters). Take advantage of RFID and related technologies, encoded inks, threads and specialist security seals.

The benefits of protection

The collateral benefits of a successful intellectual property protection programme are both tangible and intangible. The most appreciable bottom line benefit is, of course, increased sales and, thus, profit.

It can also support the launch of new designs, help with quality control and compliance and expose the folly of buying counterfeits as being a victimless crime (it leads to the loss of jobs, increased corporate taxation and supports organised crime, etc). This helps position your company as a good corporate citizen in the global marketplace.

An aggressive anti-counterfeiting and diversion programme tells your company’s suppliers and business partners that you are serious about brand and IP management, and the protection of your mutual market.

Vincent Volpi MIACC is chief executive of the PICA Corporation (www.pica.net). Graham Pollock MSc CPP FSyI is the company’s senior director for Europe