Prisoners of the Trade War - Cargo Detained Due to IP Battles

Earlier this year, it seemed that a major sticking point in the US trade deal was overcome as the US and China reached a consensus on Intellectual Property Rights (IPR) protection.

Whilst greater IPR protection is a good thing for the manufacturing industry, the price of inadvertently breaching the new, tighter rules is proving to go far beyond the legal defence costs.

One such cost we’ve been exploring recently is that of cargo being detained by customs authorities.

Cargo can be detained indefinitely while investigations and lawsuits are being carried out, resulting in significant costs, whether the claim is valid or not.

Bolstering industry and innovation

Whilst the US trade deal has certainly drawn attention to China’s IPR protection, US pressure isn’t the main driver of the changes to IP practices. In fact, most Civil IP disputes in China are between Chinese parties. In 2009, only 4.4% involved a foreign party, and that ratio had fallen to 1.2% by 2016 (the last year for which records are available).

China has been investing heavily in improving its IPR protection as part of its drive to boost industry and innovation.

There are now 16 specialist IP courts across China and significant increases in penalties for trademark infringement.

This has led to a large increase in the number of IP battles in the past decade. Civil disputes involving IP increased at an average rate of 25% per year between 2009 and 2018.

Cargo detention costs mounting up

Whilst the progress on IPR protection is, overall, good news for manufacturers in China, we are seeing cases wherein even those who are following the rules are being pulled into expensive legal battles.

In such cases, goods can be held by customs for months, or, in some cases, even years. The cost of cargo storage, as well as the defence costs, loss of earnings, and the opportunity costs of time and Executives’ attention redirected to fighting the case, can really mount up.

As manufacturers struggle to adapt to a changing environment of declining exports and government-enforced closures during Covid-19, the additional costs are proving, for some, to be the final straw.

Protecting your business:

With a well-planned Corporate IP strategy and strong risk management practices in place, the tighter attention on IP rights can work to your advantage by protecting what is likely to be one of your business’ most important assets.

Three steps to IP protection: 

1. Develop and implement a Corporate IP strategy that identifies:
   • your own IP assets and IP risks and ways to protect them.
   • your exposure to inadvertently breaching, or being accused of breaching IPR rules.
      
2. Understand the IP legal landscape for all countries you are operating in, considering:
   • IP laws and regulation - such as trademark, patent and copyright infringement.
   • associated laws - such as corporate income tax, anti-monopoly and labour contract laws.
      
3. Consider insurance products, such as:
   • IP insurance - to protect against your IPR being compromised and your company being accused of compromising the IPR of another organisation.
   • specialist cover for costs and expenses incurred where cargo is detained by the customs authorities.

Be part of the solution:

Our Marine & Cargo insurance specialists are constantly developing innovative ways to protect against emerging and under-insured risks.

At a time when it feels like so much is working against the manufacturing industry, we are working in partnership with manufacturers, trade associations and other industry stakeholder groups to understand tomorrow’s risks and develop insurance products and other risk management responses that enable you not only to survive but thrive in a changing world.