50 Shades Of Fake: How To Protect Your Product From Copycats In China

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Buyers and vendors are seen at Shenzhen’s Seg electronics market, a popular place for hardware startup entrepreneurs to buy components for their inventions and prototypes in Shenzhen, China. (AP Photo/Kelvin Chan)

Did you know that your product might be copied in China even before you ship it? While copying happens elsewhere, including Facebook blatantly copying Snapchat features or Google Home being a strong echo of Amazon’s echo, Chinese copycats can be particularly aggressive.

Realistically, the gigantic Chinese supply chain, built over decades with some of the dollars from our past and future iPhones, cannot possibly move overnight (or over a U.S. presidential term). As a result, most high-tech manufacturing will remain in China—at least for a while. Today, its scale and know-how is unparalleled, and can bring enormous advantages to companies who know how to make use of it.

So how can you protect your business from such a ruthless environment? This is the number one question we get asked at our Shenzhen-based hardware startup accelerator, HAX. Here is our most up-to-date answer on how smart entrepreneurs protect themselves, whether or not they produce or sell in China.

Know your fakes

Not all fakes are created equal, and hence they should be dealt with differently. First, there are products made by competitors under their own brand. They could have learned about your product by reverse engineering it, seeing it advertised online or on Kickstarter (like the Fidget Cube), or from a leak at your partner factory.

The creators of this gadget face copycats before shipping (Photo: Benjamin Joffe)

The creators of this gadget face copycats before shipping (Photo: Benjamin Joffe)

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Depending on the case, they might infringe on your patents, design or trademark. They might also have circumvented those, or operate in a legal vacuum if you haven’t protected yourself where their products are made or sold.

The second kind of fakes are products made by your own factory, that can become your toughest competitor. It could be selling the surplus they have, or derivatives made using what they learned from you. If your only protection was an NDA, they are breaking your trust, but not the law.

So what can you do to protect your startup from those troubles? There are old and new ways to do so, with pros and cons for each.

NDAs are not enough

They don’t protect you as much as you think. Your factory might sell your products to new customers, or even try to sell to your own customers, both in China and abroad. Dan Harris, an international lawyer at Harris Bricken specializing in Chinese business law and fellow Forbes contributor, advocates “NNN Agreements,” which include non-disclosure (the classic NDA), non-circumvention and non-competition. Those can be complemented by manufacturing agreements and product development agreements to avoid issues with your factory subcontracting the job, changing suppliers without notice, or even claiming rights for their contribution to the development of your product.

Patents and trademarks

Patents are often a necessary evil: of little direct use until you’re established, but highly valuable for protection, licensing or acquisition later on. Yet, patents are not always suitable. Often, you’re better off keeping some processes or software confidential. To avoid wasting your resources, research prior art, define your IP strategy, file early (a provisional patent is affordable and gives you time to plan), and optimize payments. In China, a trademark or a design patent can be very effective so do not forget to file locally.