How can startups protect their technology from being copied by the companies assembling it?
How can a startup protect their technology from being copied by a manufacturer? Is it just a matter of contracts and trust?
For example, Apple doesn't assemble iPads. How do they prevent their manufacturers from copying it all? What prevents Chinese manufacturers from copying the iPad assembly process and just changing the color?
2 Answers
There's a reason why there are so many copycat products coming out of China. The Chinese have a tendency of reverse engineering anything they can get their hands on. I'm no expert on the Chinese culture, but my sense is that this is socially and culturally acceptable. Just like it's socially acceptable for the Chinese government to spy on their citizens.
What can you do to fight this?
- Don't manufacture anything in China. The downside is that it will be more expensive somewhere else.
- If going with Chinese manufacturers, don't have one manufacturer build and assemble all the components. However, at the end of the day you will still need at least one manufacturer to put it all together (maybe have that last part done outside of China).
- Have patents in place that are enforceable in China.
- Put legal agreements in place between you and the manufacturer preventing them from reverse engineering and copying your designs. Note that enforcing a legal contract between countries is hard and costly.
- Use your brand recognition to fight any copycats that may make it into the wild.
Apple's legal firepower and brand recognition are obviously much stronger than a startups, and even they can't truly prevent this from happening. It's like asking someone to sign an NDA. The person is legally bound by that NDA, but the NDA can't actually prevent that person from disclosing your information. All you can do is sue them after the fact if they do.
There are fake iPads in China, but most people will know they are fakes. Since they are much cheaper than the real thing, only those that can't afford a real iPad will purchase them, and these people are not in Apple's target market anyways. This is because of Apple's powerful brand - people want the real thing, not some stupid knockoff. I recently heard a story that a Chinese citizen sold his kidney to pay for an iPad and an iPhone. Again, you don't have Apple's brand recognition, so this doesn't help you, but it answers your question about how Apple does it.
Lastly, keep in mind that these knockoff devices will likely stay within China. Is China part of your target audience? If not, you won't be losing much anyways.
This is just part of the cost of doing business. You have to decide if the risk is worth it to you. If so, you simply have to be aware of it, do what you can within reason to limit your loses, and build in costs associated with this into your business plan. This is analogous to the issue of theft at Walmart, and other retail stores.
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There are **plenty** of fake iPhones and iPads available in China. (My daughter lives there.) There have been a number of news stories about fake Apple stores being closed in China- the employees in the stores thought they were working for Apple. But Apple's brand and legal arm are so strong that you won't find the fake items outside of China. – Gary E 12 years ago
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The answer contains many anecdotal conjectures. Would be nice if there's substantiation from objective source. Having been there, I'm not saying there isn't piracy (software or hardware) in China. But I'm curious as to assertions made (about how Apple protects its IP) that are unsubstantiated. – Global Nomad 12 years ago
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@Globalnomad What do you mean by "assertions made about how Apple protects its IP"? The whole point of my answer is that they can't. Their defense is their powerful brand (and their legal department). Two things startups don't have. – Zuly Gonzalez 12 years ago
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@GaryE Yup, I've seen the news stories about fake Apple stores being shutdown in China as well. Good point. – Zuly Gonzalez 12 years ago
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This is pretty eye-opening. Thanks for posting all of the links. Plus, the story about the kid selling his kidney, traditionally that's something that we joke about in the US, but that happens a LOT in other parts of the world. – James Mortensen 12 years ago
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To give you another view - not one so "public" - there was a plant once that was putting Cisco routers together. They also worked in the night. Same routers. Not for Cisco. SAME routers - including the logo (I.e. pirating). It just happens. No way to stop it. – Net Tecture 12 years ago
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NetTecture, unfortunately that is more of a norm than not. Cisco did initiate a lawsuit, but dropped it in 2004. Publicly available source:http://www.theregister.co.uk/2004/07/29/cisco_huawei_case_ends/ – Global Nomad 12 years ago
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Zuly, I commented because as you're the moderator, your answer carries more weight and deserving of additional links (which you've since added, thank you). An e.g. of the assertion I was referring to in your original (before you edited) answer is "Have patents in place that are enforceable in China". The gray market problem in China will not be solved by bilateral patent recognition, and Apple mitigates the risk through having some equity in key plants that assemble components manufactured by other suppliers. – Global Nomad 12 years ago
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@Globalnomad I would like to think that my answers don't carry any more weight than anybody else's. Being a moderator doesn't imply that my answers are better. All it means is that I've been trusted to maintain order on the site. – Zuly Gonzalez 12 years ago
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@Globalnomad The statement about patents is still in my answer, exactly as it was in the original version. (The edit was to add the links.) And, I believe it's a fair point. I'm not suggesting that a patent is going to completely solve the problem. In fact, I'm actually saying the total opposite. If Apple can't prevent it, what hope does a tiny startup have. I was merely listing some things companies can do to lessen the impact. But, it seems as though my answer is not very clear. When I have some time I'll edit it to make my points more obvious. Thanks for the comments. – Zuly Gonzalez 12 years ago
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Zuly, thanks for understanding the spirit of my comment (to strengthen any assertions with links, and I wasn't intending to disparage). In addition to your points, there's also equity (in supplier), and inventory monitoring (a supply-chain consideration) to minimize gray market. – Global Nomad 12 years ago
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Apple is very strong, I just used as example, maybe unfortunately. But the point is @ZulyGonzalez 's answer helped me a lot. Thanks all comments too. – Ed Pichler 12 years ago
It's not always possible, but you could use multiple suppliers for different parts and then assemble the product yourselves.
Generally though, use a reputable supplier. Their business is in making these products for companies like yours, they wouldn't get any customers if they went around doing this. Just get references and find someone trustworthy.
I would expect like most problems that people worry about, this isn't your biggest concern. If you product is so good that they people start making knock-offs, well thats a better problem to have than most businesses.
