Jun 8, 2018 | Masha Borak
The Internet of Things (IoT) is ushering in the world of connected devices. Set to become an industry worth $8.9 trillion by 2020, it is, however, one of the rockiest industries for startups entering the field, according to industry insiders. In the “factory of the world,” getting your product manufactured can sometimes also get it stolen.
“Usually, once the [intellectual property] infringement has occurred, there is little that can be done because usually, the Chinese company has managed to get the IP without violating any law,” Dan Harris, Managing Partner at international law firm Harris Bricken, told TechNode.
IP infringement is a problem plaguing China for decades. The issue has recently become one of the main points of the US-China trade tensions. Because they involve many different components—external and internal product design, firmware, software, and sensors—protecting IoT products legally can be complex.
“The problem with IoT is that a product developer is more dependent on a factory to produce the hardware, and costs are a big consideration which requires cooperation because you don’t want to build your own factory,” said Beijing-based software developer Horatio Martin.
Western-style agreements just don’t work
The problem is not only that Chinese manufacturers illegally copying IoT products. Many foreign companies, especially startups, practically give away their IP. According to Harris, foreign IoT companies are “relinquishing their intellectual property to Chinese companies more often, more wantonly, and more destructively than companies in any other industry.”
“The most common mistake we see is foreign companies that turn over their IP to a Chinese company without sufficient protections in place,” said Harris. “This usually occurs when the foreign company wants the Chinese company to help develop a product or manufacture a product.”
Protecting IP rights in the IoT industry is complex but Harris says that the legal framework is better than most realize.
“The legal framework is fine. The two biggest problems are foreign companies not operating within the framework and Chinese courts that are reluctant to get tough on infringement,” said Harris.
He advises companies to sign a China-centric contract with their manufacturer before revealing any IP or trade secrets. As Harris points out on his China Law Blog, companies will sometimes sign agreements with manufacturers both in Chinese and in English but the Chinese one will differ greatly from the English version. Worst of all, Chinese courts will usually only accept the Chinese version.
Legal protection is just one part of the story—some companies don’t even manage to protect their products on the technical level. Zhai Jing, a self-employed developer of IoT products, says that some IP owners are not even aware of the need to encrypt their software which can be cloned cheap and easy. One example is MCUs or microcontrollers, small computers often embedded in IoT devices…