An Introduction to ManufacturingPart 3

Your Guide in 10 Slides

The four main IP threats in China.

Even if you signed a NDA there is still the possibility that a manufacturer does not oblige to it, either exposing your IP or directly benefiting from it. This IP can be in the form of patents and trademarks.

Although it is very uncommon for this to happen, especially to a startup with no prior reputation, it is important that you understand the ways in which this can be done so that you take some steps to protect against it.

In nearly all cases, just being cautious with handing out your sensitive information can be enough to prevent such issues.

IP Risk #1: Your Manufacturer Sells to Others.This is one of the easiest ways to steal your IP; your manufacturer simply produces more than your order quantity and sells the remainder to 3rd parties.

The first obvious solution would be to initially choose a well-managed and known partner. You should also use a manufacturing agreement in order to clearly define what is yours (the design and schematics for example).

If you can, always try and pay for your tooling and Non-Recurring Engineering (NRE) separately. If you explicitly pay for these then there can be no ’misunderstanding’ of the ownership rights.

IP Risk #2: Your Product Gets Copied.Your IP may be passed on to other manufacturers who could copy it. It is vital to note the importance of not sending your RFQ package without having initially signed an NDA. Furthermore, if there are any additional file requests by the manufacturer make sure that the files are really needed and clarify their use prior to sending them. You should aim to include as little sensitive information as possible at the bidding stage.

Finally, avoid same channel conflicts… If you have developed a GPS device do not approach a company whose main revenue stream comes from selling their GPS devices.

IP Risk #3: Your Idea Gets Copied.The have been several cases in the past where a crowdfunded campaign has been copied immediately, with the copycats selling the product before the original campaign has even entered production. These copycats are mainly from China and they rely on their manufacturing capabilities.

The main way to protect your IP is to make your idea hard to copy. Easier said than done, but the most effective way to do this is by combining hardware and software into a single user experience so that copying the hardware alone is not enough.

You’ll need to execute on your ideas very fast or someone else will do it for you.

IP Risk #4: Somebody Else Claims Your IP.China’s copyright law is based on a first-file principle. A US or European patent or trademark does not protect your IP in China, meaning that a Chinese company can file a patent using your IP before you do.

Once this has happened there is very little you can do and your own production in China will be subjected to copyright infringement. As large corporations such as Apple have found out, there are companies specialising in filing such patents systematically. The best way to protect your IP in such cases is to file a patent and trademarks in China as soon as possible. If it’s not possible to file all of your patents then focus on the most sensitive ones.

Communication.Fundamental differences between western and eastern cultures can severely affect communication. The Asian way of dealing with a conflict is to avoid it, rather than face it, and this can have serious implications. If a Chinese engineer tells you that something is ‘difficult’ then they mean that it is impossible. They are just avoiding saying ‘no’.

Do not take everything literally.

The best way to work around this issue is to closely monitor and track progress using the product management tools that the manufacturer already works with, moving communication to a more neutral level.

Quality.Once you have entered production your last step will be to carry out an Outgoing Quality Check (OQC) and accept or decline the batch. There are three aspects of quality to note when it comes to consumer electronics:

● Functional: does the product work as intended?● Appearance: does the product look as intended?● Reliability and Durability

Quality defects are separated into major and minor defects. A major defect is something that would make a consumer return an item, whilst a minor defect is something that the consumer would not notice. The quality of the three areas above is often a direct result of the RFQ and unit cost.

Acceptance Quality Limit (AQL).The AQL is defined as the worst tolerable quality level that can be accepted by the client (you). Quality is never 100% and it is unreasonable to expect a manufacturer to deliver defect-free productions. Defining the AQL deals with these defects so that a batch can be reasonably accepted or rejected.

It is not possible to inspect 100% of the goods so there are standard AQL procedures where you pick a random sample size according to the total batch quantity and acceptance limits. This sample size is then tested.

While the process is well defined the outcome can be a lot more tricky, especially for inexperienced creators.

Who Will Test the Products?A lot of people would prefer to do the quality inspection themselves, not fully trusting the manufacturer to be objective. However, OQC is best done by professionals who understand the product and hence its potential issues.

A good rule of thumb to predict if the manufacturer will do this work is to note that the lower a manufacturer’s tier is, the more likely it is that the internal QC team is not independent.

There are also professional inspection companies who will charge a few hundred US dollars per day. The best thing to do is to visit the factory during production and shipment, taking an experienced OQC company along with you. At the same time work closely with the internal QC team to assess their credibility.