It goes without saying that altering your supply chain will mean that you need to share your valuable intellectual property (IP) with your new suppliers. So, it is critical to consider the impact of supply chain disruptions on your IP rights, which may differ depending on the type of IP being shared.
First, before altering your supply chain, it will be important to consider what impact the proposed alterations to your supply chain will have on your ability to protect your valuable IP and to be able to enforce your rights against any third party infringers. This is particularly important if your valuable IP is protected by registered rights such as patents and designs. Registered rights are territorial in nature, so, if your change in supplier/s means a change in jurisdiction, you will need to ensure that these rights exist in the jurisdictions in which your new supplier/s are based. If they do not, you will then need to consider whether it is possible to obtain such registered rights. In many if not most cases, this will not be possible. Where formalities are required before your registered rights can be asserted, it will also be necessary to confirm that these formalities are in place to ensure you are positioned to enforce your IP rights against infringers.
Secondly, you will need to ensure that the necessary frameworks are in place for the “safe” sharing and use of your valuable IP. A typical form of IP that will need to be shared and used are product and process specifications. Product and process specifications may be the subject of registered patent and design rights, in which case it will be necessary to ensure that the requisite licences are entered into, and to ensure that these licences are not inconsistent with, or derogate from, already existing licences. This requires careful consideration of the scope of these licenses and assessment of issues like duration of the rights and the scope of third-party licensing rights.
Alternatively, you may have no registered patent or design rights protecting your product and process specifications. Instead, you may have chosen to protect your product and process specifications through trade secrets. Key to the protection of trade secrets is maintaining the confidentiality of the information or data that constitutes the trade secret — which will be assessed by confirming that you have taken reasonable measures in the circumstances to keep the information a secret. This will, as a minimum, require that contractual frameworks and processes are put in place, which clearly and specifically identify the information or data that constitutes the trade secret and mandate that this information or data must be kept confidential and to whom the information or data can be disclosed on a confidential basis. So, consider marking all relevant documents confidential, limiting access on a “need-to-know” basis, requiring confidentiality agreements, and routinely auditing such access to confirm compliance.
Thirdly, the new frameworks for the sharing and use of your valuable IP will need to address the critical issue of ownership of the IP in improvements. It is often the case that improvements are made in products and processes over the course of a commercial relationship. It is important to address, at the outset, who owns the IP in these improvements. If you do not, the legal position may be determined by the laws of the country in which your new supplier is based, and the legal position may not be in your favour. As a result, you may lose your right to ownership of the IP in valuable improvements to your products and processes.
Lastly, it will be important to ensure that your new supply chain is IP-secure. By that we mean that you have both audit and enforcement procedures in place to minimize the leakage of your IP to third parties or misuse of your IP by your new supplier. For example, a new supplier may manufacture products “on the side” using your product specifications to sell products in the “grey market”. Effective audit procedures will mean you quickly identify such activities. So, establish IP and data protection team/s to ensure holistic compliance within the organization and coordination across business units to prevent IP and data loss. It will then be necessary to have an effective enforcement program and capability to put a stop to such activities. As part of establishing an effective enforcement program and capability, you will need to assess whether the country in which your supplier is based has an adequate legal framework which will enable you to enforce your IP rights or whether it is necessary to address enforcement of IP rights through a contractual regime which provides for international arbitration of such disputes.