Intellectual property theft hurts small businesses

  • Article by: DEE DEPASS , Star Tribune
  • Updated: November 3, 2012 - 8:48 PM

Preventive action and diligent lawsuits keep threats at bay.

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Ross Anderson, director of global operations at Midwest Rubber Service & Supply, held up a sample of the stamp they use on a Linatex rubber squeegee, which are used in large floor cleaning machines, Wednesday, October 31, 2012 in Plymouth, MN. The company was the victim of trademark infringers who knocked off its very durable squeegee rubber products with cheap fakes. As a result, roughly 50 percent of the family owned business was impacted. Small company is now fighting back with attorneys around the world and design improvements that thwart counterfeiters. (ELIZABETH FLORES/STAR TRIBUNE) ELIZABETH FLORES � eflores@startribune.com

Photo: Elizabeth Flores, Star Tribune

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Plymouth-based Midwest Rubber Service and Supply makes squeegees for floor scrubbing machines with Linatex, a red rubber that is so unique and durable, its Malaysian manufacturer had it trademarked.

But since the companies didn't do anything more to protect the rubber's good name, counterfeiters made knockoffs of Midwest's squeegees. They used cheap rubber that they dyed and dared to call Linatex.

Midwest's business plummeted as its customers in China and Europe demanded it cut prices to match counterfeits. "We are probably doing about half the business we could do if we had protected this brand globally."

Small companies like Midwest are increasingly becoming the targets of intellectual property (IP) theft. While big names such as General Mills, 3M, Apple and Microsoft have the financial muscle to chase down nefarious characters trying to pinch their technology, smaller businesses often lack the money and resources to sue fraudsters.

The International Trade Administration has labeled IP theft one of the top problems faced by U.S. exporters today. Thieves increasingly sidestep patents, trademarks and copyrights with counterfeit products that falsely carry brand names or crib technologies they have no right to use. The Federal Bureau of Investigation says counterfeiting costs U.S. companies billions of dollars in lost revenues each year. And the smaller the business, the bigger the threat.

"This is a high priority for us in Minneapolis," local FBI spokesman Kyle Loven said. "Unfortunately, it's a problem, especially for companies that are not accustomed to global trade. When they venture out to the other parts of the world, they find that the rules are oftentimes not what they are in the United States. And often they become educated through bad experiences."

Larger U.S. companies feverishly file patents in every country they do business, something smaller firms often can't do. Big companies also pounce with lawsuits when they learn of thefts. And they increasingly heed attorney counsel and keep tight-lipped about product ingredients, manufacturing processes, distribution and suppliers, all in an effort to prevent counterfeiting.

3M, for instance, sued a California man two years ago for importing counterfeit 3M stethoscopes and selling them over the Internet. 3M pursued the case to trial and won.

Even so, "It's like a game of whack-a-mole. You can knock them down, but they will pop up again," said Kevin Rhodes, 3M's chief intellectual property counsel. In addition to stethoscopes, 3M's face masks are a favorite target among intellectual property thieves.

"Whenever there's a bird flu or some other pandemic, the counterfeiters come out of the woodwork," Rhodes said.

Fakes of products made by Minnesota-based companies have popped up in China, Taiwan, Singapore, Russia, Belarus, Ukraine, Czech Republic, the United States and a host of other nations, company executives complain.

Red Wing firm fell victim

Joel Wittenbraker, president of Red Wing-based Mactech, said his company makes highly specialized niche machine tools and large machine repairs. Doing customized work didn't stop his small firm from being victimized.

"I do have a competitor in Europe who swiped our design and copied it. They were a customer of ours and they decided to go reverse-engineer our product...and take it into the Eastern Bloc countries [to sell]. I found out well after the fact," Wittenbraker said. "It does happen. It's an irritant."

The stolen tool was worth maybe $15,000, Wittenbraker said. Suing didn't make financial sense. "I can't imagine that you could logically pursue that for less than tens and tens of thousands of dollars just with legal fees," he said.

Matt Samuel, a principal and patent attorney at Fish & Richardson in Minneapolis, said Wittenbraker's instincts were right. It's costly to fight some thieves.

"To file a patent can cost $8,000 to $10,000. To file a trademark costs more like $200. But to defend a patent with a lawsuit can easily cost a few million dollars. It's very, very expensive," Samuel said.

That's why the University of Minnesota, Enterprise Minnesota, law firms, the U.S. Department of Commerce, the U.S. Patent and Trademark Office, and the U.S. Department of Homeland Security have stepped up touring seminars and websites aimed at educating small and large businesses on how to fend off theft and protect their research.

It's crucial for companies to file for patent and trademark protection in each applicable country, said Ryan Kanne, director of the U.S. Commercial Service Office in Minneapolis. Governments often work together through their court systems to thwart the bad guys. One question Kanne asks clients who are newly exporting products is: "Are they being proactive in thinking about this? Or reactive and saying later, 'I think I am getting screwed.'"

Midwest Rubber learned the hard way when copycat squeegees arrived in customers' shops. "At first, we were very naive about IP and were not active in getting counsel," said Anderson at Midwest Rubber. Those days are over. Today Midwest works with attorneys in China and Minneapolis and with the attorneys of suppliers around the world.

The small, family-owned business is going one step further. It's hiring more workers and redesigning its squeegees into three-dimensional patterns that are harder to copy. And for the first time, it's printing the Linatex name into the rubber, said Anderson while showing off the latest printer his company bought for a few thousand dollars.

"We don't want to have to sue a company. We just want the infringement to stop," Anderson said.

Dee DePass • 612-673-7725

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