April 11, 2007 - Stop IP Laundering: A little paranoia goes a long way

You've got a great idea for a product. As far as you know, no one else has developed
anything similar. There's a ready market. You convince investors to buy in. You recruit
excellent talent and spend months developing a design. It's ready to produce, but who
owns the design? Well ... it all depends on where you are.

Western society carries a strong tradition of protecting intellectual property (IP). We have
tough patent laws and copyright conventions. Yes, fissures of dissent exist. Young people
raise massive resistance to copyright for music and video. GNU and open-source
software programmers advocate free software - all software, available all the time.

But most western companies licence their software tools, with a wide range of prices and
restrictions. For example, $35 gets you an income tax program to prepare five tax returns.
But $75,000 buys you a CD (in itself, worth 20 cents) containing a development tool for
electronic design. You've bought a 12-month development licence. Only one person may
use it at a time, and you must conduct the development within two kilometers of your
main office.

At a seminar in Shanghai, I met Wayne, an electronic engineer, clearly perplexed at such
barriers. "In China we just get that CD at the market for 50 cents," he said. Talented and
ambitious, Wayne maintains that in Shanghai, for very little outlay, any designer can
outfit himself with pirated copies of development tools and set up shop in his home.
Wayne's buddies don't see anything wrong with this. Mike, vice-president for a San
Francisco chip company, and a fellow seminar presenter, explains it this way: "It's a
different culture here. They don't view knowledge or IP as something you can hoard. It's
like air." This attitude prevails in many developing countries. And it has huge
ramifications for Canadian businesses.

IP laundering
When an off-shore company manufactures a product that violates Western patents, the
government can block it from selling the product here. But if the product is made using
pirated tools, and doesn't violate anyone's patents, there's no way to prove the
wrongdoing.

Asian firms like Wayne's enjoy two significant advantages: low-cost labor and pirated
development tools. Suppose a computer shop sells two network routers: one made by a
North American company, using expensive design tools, the other by its Asian archrival,
using illegal tools. It's the IP equivalent of money laundering. And it leaves the higherpriced,
North American product no chance to compete.

Some analysts consider this a short-term problem. As middle classes emerge in
developing countries, they say, labor costs will rise. As these countries begin to innovate
- generating their own intellectual property - they will need to protect IP.

But this argument contains a fatal flaw. I'm convinced these countries are innovating
already. And with their massive labor supply and low-cost infrastructure, they won't
need to protect their own IP. They will win on price alone - selling trillions of gizmos at
prices we can't touch.

Layered security: five strategies to protect your IP
So, should we simply close up shop and go home? For those of us who love inventing
and designing new products, how can we thrive in this new reality? I put this question to
Mike, the American chip company VP.

"Only the paranoid survive," he replied cryptically. At my puzzled expression, he added,
"It's a phrase from Andy Groves, former CEO of Intel. In the semiconductor business,
Intel's security strategies are legendary." Mike explained that Intel applies multiple layers
of security to protect its IP. Intel believes in trade secrets.

My experiences in Asia last month convinced me that Intel is right. IP isn't air. IP is
developed by individual people in individual companies. It's worth protecting.
Creative Canadian companies can thrive in this new reality, by inventing unique solutions
that others can't copy. Here's my five-point checklist for managing your IP. Perhaps you
have others to add.

  1. Protect trade secrets: guard your IP vigilantly.
  2. Choose your partners carefully. Work with people you know and trust.
  3. Design your product in such a way that it's very hard to copy.
  4. Protect your design specs. Use techniques like:
    • Encryption, to render your design useless to a thief, and
    • Electronic watermarks, to prove your ownership.
  5. Be careful with whom you share your design specs. Integrity in your partner is worth
    more than a signature on a confidentiality agreement.

Don't mail cash, don't give away your PIN. Guard your IP.

Michael Wakim is president of Fidus Systems, an electronic design services firm based
in Ottawa and Toronto. The company designs electronic products for a range of
industries. Fidus has designed and consulted on more than 480 projects for 120
customers across North America and Europe. "Fidus" is Latin for "trustworthy."