PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

International Counterfeiting Hits Small Businesses Hard

By at 7 May, 2014, 9:34 am

by Raymond J. Keating-

When the topic of counterfeit goods in international markets comes up, most people, it might be safe to say, think about large U.S. businesses and their employees getting hit.

But guess what? Small businesses are anything but immune. Indeed, the case can be made that small businesses are the most vulnerable to such theft of intellectual property.

This costly reality was made clear in an April 28 Wall Street Journal article titled “Entrepreneurs Bemoan Counterfeit Goods.” It was reported, for example, that an inventor and small manufacturer of an extendable camera stick found five Chinese manufacturers online selling his product. Other small U.S. manufacturers experiencing such IP theft were noted in the article.

Small businesses are hardly immune to IP theft and counterfeiting. Indeed, the hit they take can be financially devastating.

Small businesses are hardly immune to IP theft and counterfeiting. Indeed, the hit they take can be financially devastating.

The report correctly pointed out: “While a lot of attention has focused on the problem that big brands such as Columbia Sportswear have with counterfeits on Chinese shopping sites like Alibaba.com and its sister site, Taobao.com, it may actually be small businesses and entrepreneurs like Mr. Fromm who are hardest hit, says Joel Shulman, a professor of entrepreneurship at Babson College in Wellesley, Mass. They lack the financial and technological resources that large companies have to deter or fight offenders, especially those based overseas where U.S. patent laws don’t apply.”

My SBE Council book Unleashing Small Business Through IP: Protecting Intellectual Property, Driving Entrepreneurship deals with the realities of IP opportunities and challenges for small businesses, including Chapter Four titled “Why IP Matter Most to Small Business.”

In that chapter, the following is highlighted:

“Continuing with the focus on small business and innovation, a July 2005 Congressional Research Service analysis (‘Patent Reform: Innovation Issues’) not only summed up the role played by small business, but also explained that IP protections tend to be more important to smaller businesses. It was noted: ‘Entrepreneurs and small, innovative firms play a role in the technological advancement and economic growth of the United States. Several studies commissioned by U.S. federal agencies have concluded that individuals and small entities constitute a significant source of innovative products and services. Studies have also indicated that entrepreneurs and small, innovative firms rely more heavily upon the patent system than larger enterprises. Larger companies are said to possess alternative means for achieving a proprietary or property-like interest in a particular technology. For example, trade secrecy, ready access to markets, trademark rights, speed of development, and consumer goodwill may to some degree act as substitutes to the patent system. However, individual inventors and small firms often do not have these mechanisms at their disposal. As a result, the patent system may enjoy heightened importance with respect to these enterprises.’”

What’s clear when it comes to international markets is the importance that international trade agreements play, that is, agreements that expand opportunities for trade by both reducing tariff and regulatory obstacles, and strengthening property rights, including intellectual property. And the case certainly can be made that if small firms rely more on the IP system at home more so than large firms, then small businesses need strong IP protections internationally to an even greater degree.

_______

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s new book, published by SBE Council, is titled Unleashing Small Business Through IP: Protecting Intellectual Property, Driving Entrepreneurship. It’s available from Amazon.com here.

News and Media Releases