When our international manufacturing lawyers recommend to our clients that they take steps to protect their product from being copied in China, they sometimes push back with a “first to market” argument and they simply do not have enough time to register their IP or to protect themselves with contracts. Those are frills that only established companies with old fashioned brands need worry about. Upstart companies need to focus on designing an innovative product and bringing it to market as quickly as possible. If we do that, we can stay ahead of the clones and the rip offs and this is the key to success in today’s market.
Though this argument sounds plausible, it is almost always false.
This first to market argument is based on an approach popular in the 70s and 80s for many sorts of products and in the 80s and early 90s in the shoe and sportswear market, when the view was that any style or model had at most a six-month shelf life.
The approach in those days was to change models regularly, figuring that it took the counterfeiters and copiers at least three to four months to get the fakes to market. So as long as they changed their styles every six months, they could stay ahead of the competition. However, this approach is no longer used because the counterfeiters/copiers can now get their clones to market in a matter of days, not months. The big shoe and sportswear manufacturers long ago abandoned this first to market approach in favor of the sort of aggressive IP registration and contract protection our China lawyers advocate for everyone.
The first to market approach similarly fails in today’s electronics manufacturing market as well. The simple truth is that if you have not protected your product design, your chances of being first to market have just gone down. You run the very real risk of never making it to market at all or being met in the market by your direct competitors or your Chinese manufacturer who will beat you on price, destroying the market for your product. In today’s world of instant product cloning there is usually little to no first to market advantage.
How does this work on the ground? There are two types of Chinese factories that will copy your product. The first and most obvious is the Chinese factory you will be using to make your product. See Your China Factory as your Toughest Competitor. Your manufacturer controls your molds and tooling and it has developed the production prototypes. Your manufacturer may even know your future or intended customers. Without IP protections, all your manufacturer need do to sink you is quote you an unreasonable price or otherwise refuse to make the product for you and then go off and make it for itself. Or better yet, it can just charge you a reasonable price for your product but delay its production. You then are not only not “first to market,” you are “never to market” or blocked entirely from the market. For more on how this sort of thing goes down, check out China and The Internet of Things and How to Destroy Your Own Company.
The other type of Chinese company that will copy your product is one of the many electronics manufacturers in China specializing in reverse engineering the designs of other companies. This type of company has a very sophisticated system. They understand that manufacturing a cloned product is not enough. Even more important is the requirement that they sell the cloned products.
These clone shops therefore have developed a worldwide network of retailers that specialize in selling clones of the most recent innovative products and they make active use of the internet. Since these manufacturers need not worry much about quality control or brand reputation, they can normally get their clone to market at almost exactly the same time as your original product, if not before, and at half the price you charge or are hoping to charge.
These clone manufacturers then ride on the coattails of the legitimate manufacturers, making use of the legitimate manufacturer’s advertising, promotion and buzz for their own purposes. They set up their Amazon and Alibaba and Ebay pages so that searches for the original product will bring up their cloned product as well. Since the cloned product is substantially cheaper than the legitimate original, they can make strong sales. With Amazon’s recent push to bring on more Chinese sellers, this problem has only gotten worse. See Hundreds of frustrated sellers grilled an Amazon exec over Chinese counterfeit products. I was on Amazon the other day looking for motion detectors and there were just a ton of Chinese companies selling clones. This sort of thing has become the rule not the exception.
If you do not defend your product from clone manufacturers, it will likely be drowned out in a sea of imitators.
So enough with the first to market argument. It just does not usually apply to the modern world of China manufacturing. In China, you must protect yourself from copying by your manufacturer and from copying by the clone factories. This requires IP registrations and written agreements (such as NNN Agreements, Manufacturing Agreements and Product Development Agreements) before you take your product to market.
If you do not prepare properly you will not be first to market; you may never make it to market at all.