Outsourcing: how to protect your development from copying

Readers of our articles on the development and production of electronics often asked questions related to the theft of ideas, developments, know-how and information protection in general when transferring individual tasks or the entire project to outsourcing. We decided to devote a separate post to this topic.

The main question of the management of companies when working with external contractors is this: how can you protect your project from being copied? Consider the best response options.

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Method number 1: Documents and contracts

The main method of protection is to work with the correct execution and signing of contracts and agreements. The basic document that needs to be worked out, discussed in detail and signed with any counterparty is a non-disclosure agreement (NDA). On the one hand, one should not overestimate its capabilities, since Information leakage in the modern world can happen even in Western companies leading the market. We see from media reports that this happens even in countries with developed legislation. However, the NDA must be taken very carefully. At least according to the attitude your contractor shows to him, you can already understand how carefully he works with information and cares about the interests of the client. In NDA, you define the rules of the game and provide some of your protection.

Despite the presence of an NDA in a specific contract with your contractor, it is necessary to prescribe who owns the property rights to one or another developed module, whether your counterparty can publish development information in the media, how documentation will be transmitted, what rules should be followed when transferring and protecting information and what sanctions will be applied in case of violation of these agreements.

The most correct contract for the manufacturer of the final product in terms of the protection of his interests should involve the transfer of exclusive property rights to the result of the development. And although it is the most reliable contract in terms of protection, it is not always the most profitable. Here it is necessary to approach individually. Perhaps part of the rights can be left to the subcontractor. For example, the rights to any software library, which implies its development without further customer requirements. This may be a software module that the developer develops and maintains with his own funds, or some element of development that is not a key property for the client.

It is also worth noting that in different regions of the world different approaches to development contracts are used, they need to be known and taken into account. European design centers will try not to transfer the rights and documentation to the client in order to compensate for lost profits during the further production of the product. In this case, you will depend on your production contractors.

If you use a subcontractor from the countries of Southeast Asia, where ODM business models and platform design are common, you need to understand the specifics of this market. In most cases, it will be very difficult for you to trace the reuse of the development and prove the fact of violation of your intellectual property.

The immaturity of our market of subcontractors in the CIS has its advantage: so far exclusive rights can be bought for reasonable money. As the market matures, it will be either more difficult or more expensive.

Method # 2: Know-how and Patents

Of course, one of the most effective ways to protect is to keep the know-how inside the company. Unlike the patent, which should be published, know-how is not made public. Example: a specific work algorithm that is based on many years of experience in a particular industry, which you have not published or patented.

The potential risk associated with valuable commercial information is its disclosure. Know-how has a limited circle of people, most often key specialists in the company. Russia is a legislatively imperfect field that is far from always capable of protecting your intellectual property. A key employee can go to a competitor with his team and take your work with you. Therefore, sometimes it is better to distribute this information within the company, and some of the know-how can even be transferred to an external team, thereby insuring oneself from risks.

Well, when the company has patents. This increases its value, the ability to protect its rights, especially under international law. But you should always weigh between know-how and a patent and, possibly, apply an additional method of protection. In some cases, you must first release the product, and then start the patenting procedure. It is often possible to observe that startups do the opposite: they patent their development, and then for several years they try to make a product and sell it along with a patent to an investor, not knowing how to materialize their idea. At this time, their patent will finally lose value, because will be implemented by others on the basis of a similar idea and new technologies.

Method # 3: Be ahead of the competition, develop services

The most correct way to protect is to still be ahead of the competition, the first to enter the market with a product with unique functions, and before others to understand what the next model of this product will be, what functionality will be implemented in the next software version, etc.

Today, earnings are gaining more and more popularity not just on the product, but on the accompanying service that comes with the product. This is a global trend. Today, large amounts of information that we use are not stored on local devices, but on the World Wide Web, in cloud services, and in business logic running on server-side processor power. Accordingly, the value for the client moves from the device itself to additional services. It is in this component is to invest. Thus, theft of documentation on an electronic device will be practically useless, since it will not allow competitors to get ahead of you.

An example from the field of industrial automation: services to support the system during its operation can constitute a significant part or cover the entire budget of the project. Therefore, the main value lies not in the development itself, but in the ability to introduce it to the market, update and maintain it.

Method number 4: Distribution of competencies, production and sales

This method can be implemented in different ways, depending on the specifics of the work and internal resources of the company. There are trivial ways to protect commercial information: to have different subcontractors who are responsible for different tasks - production, sales, promotion. By distributing tasks and information between them, you can control and reduce risks.

It is not necessary to concentrate everything in the framework of one company, since this does not protect or make you more competitive, and as IT progresses, it will be easier and easier to carry away commercial secrets. It is better to take out some competences outside the company: produce different parts of the product in different places, and collect in the most trusted place or under personal control. For example, the choice of materials and production of cases is better organized in Southeast Asia, the company and the region for the installation of printed circuit boards can be selected depending on the purchased technology components, screwdriver assembly can be done in free economic zones or in the customs zone of the market. All this gives an economic effect and provides protection.

Method number 5: Systems approach

The most comprehensive method of protecting investments and know-how is a systems-based approach to designing and creating new products. This is a business process concept that speaks volumes about the maturity of a company. In this case, the technical problem is considered as a system that splits into separate components. Then there is a selection of contractors with relevant competencies, and the assembly of the system is implemented on the customer side.

In contrast to method No. 4, where functional separation of the product development process is applied, the systems-engineering approach is applied for component-wise separation, which significantly increases protection.

The advantages of this approach:

• High degree of protection, ensured by concealment from the subcontractor of the principles of the entire system.
• The customer has great flexibility in choosing subcontractors of certain technical competencies. This allows you to mitigate risks in the performance of work (in case of duplication of work in responsible projects), to choose in the market of services for the development of a subcontractor with the highest quality in the relevant technical competence.

The minus of the approach: on the client side, high-level specialists should work - systems architects (systems engineering).

Thus, the client company can outsource individual tasks or the entire project, using the competencies of third-party contractors, reducing costs and time for product development, while reducing their risks through various methods of protecting investments and know-how.