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Q. I'd like to buy machinery from China. Can I hold the manufacturer responsible if the machines violate patents?

Juan Luis Sánchez, Divimex, Monterrey, Mexico

When it comes to intellectual property theft, self-proclaimed innocent bystanders rarely catch a break. Businesses caught importing products that violate patents, even unknowingly, can face legal fees, fines, or a shutdown, warns Patrick Scanlon, a partner at Preti Flaherty, an international law practice based in Portland, Maine, and a former U.S. Patent and Trademark Office examiner.

Since ignorance is no excuse, don't be ignorant. Given China's notorious loosey-gooseyness over IP protection, due diligence is your best friend. Sandy Levin, CEO of Houston-based Import Traders, has been importing a variety of Chinese goods for more than 30 years with no patent problems. Before ordering from a Chinese manufacturer, Levin requests copies of licensing agreements proving that it can produce the goods legally. No paperwork, no order.

Complicating matters, patents apply only in the country or countries where they're filed. If your supplier can produce the machines legally in China but not where you do business, that may be a ticket to infringement city. Ask the manufacturer for drawings and technical specifications of the machinery and--since your business is based in Mexico--compare them with patents on the Mexican Institute of Industrial Property's website (impi.gob.mx). The U.S. equivalent is the Patent and Trademark Office (uspto.gov). Searches take time, so consider hiring an intellectual property lawyer to do the work (about $2,000 in the U.S.).

Finally, ask your supplier to sign a contract stating that it has the right to make and sell the machines, Scanlon advises. Stipulate that it is responsible for fines and legal costs related to patent lawsuits. You may not be innocent in the eyes of the law, but at least you can avoid paying for someone else's crimes.

Q. One of my clients recently requested on-demand support. When I asked for a retainer to cover up-front costs, the client balked. What should I do?

Michael Williams, Jetaire Aerospace & Technology, Atlanta

On-demand services--render now, get paid later--often seem like a raw deal for suppliers, which prefer the price and volume security of up-front arrangements. You can still make lemonade from on-demand, though, particularly by crafting clever hybrids. For example, Sarah Gerdes, founder and CEO of Seattle-based consulting firm Business Marketing Group, covers her overhead by requiring up-front fixed-price contracts from about half her clients. With the rest she negotiates deals--including on-demand arrangements--that are riskier for BMG but also potentially more lucrative.

Retainer is a dirty word for Gary Wittlinger, vice president of Dayton, Ohio-based IT consulting firm Gracar. Instead, he forecasts how much service each client will likely need and sets a floor up-front. For example, when a client wanted to switch to on-demand service, he asked that it commit to 120 hours every three months--less than the client's usual 160--and go on-demand from there. That meant Gracar could cover such up-front costs as hiring more workers while protecting the client from overpaying. Wittlinger says that in 90% of these arrangements the client ends up needing more than the minimum.

In some cases--such as clients that require only a few hours of work--on-demand may not be worth the trouble. And you'll need at least a minimal agreement to keep clients from chasing deals. So by all means, find a way to put your customer in the driver's seat. But keep one of your hands firmly on the wheel.

Looking for answers? Stumped by a thorny business problem? Let Inc. help. Send your questions to askinc@inc.com.

Resources

The U.S. government's new STOP! program features an intellectual property advice hotline (866-999-HALT) and an in-depth website (stopfakes.gov) with tool kits on country-specific patent laws. For more tips on navigating the changing trends in contract negotiations, check out TechRepublic (techrepublic.com), an online community for IT professionals.

Last updated: Sep 1, 2005




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