Thailand as a Regional Hub

Written by: Edward Kelly Tilleke & Gibbins International Ltd.

Protection of Intellectual Property Rights Needed to Secure Thailands Claim to Be the Detroit of Asia
he Thai automotive sector, comprising automobiles, light trucks, motorcycles and parts, with the aid of the Thai governments Ministry of Industry and the Thai Automotive Institute (TAI), has gone to great lengths to develop the regions reputation as the Detroit of Asia. In fact, the Institute has set clear objectives in a Master Plan document with the goal that Thailand will be the automotive production base in Asia that adds value to the country with strong domestic supplier base by 2011. TAI has invested over Baht 8.7 billion to improve human resource development, upgrade manufacturing technology, establish research and development (R&D) centers including test tracks, create an IT center to analyze industry trends, and develop an export promotion center to further promote freer trade with countries such as the U.S., Japan, and Australia. In addition,

some positive progress has been made in the area of intellectual property protection. According to the Executive Summary, in order to achieve these goals, it is vital: 1) To set a clear vision, mission and direction for the development of Thai automotive industry in the next ten years; 2) To identify problems and obstacles facing the development of the Thai automotive industry; 3) To formulate policy framework that encourages international trade and other potential businesses; 4) To design strategies, measures and action plans for the development of the Thai automotive industry which are in compliance with the National Economic and Social Development Plans (2002-2006); and 5) To recommend roles and responsi-

bilities of the Ministry of Industry and other agencies responsible for the automotive industry. The plan has seen a great deal of success in the development of the Thai automotive industry as well as in the formulation of policies and strategies to address some of the problems facing the industry. Proof of the success is found in the Thailand Automotive Industry Update for 2005, wherein the Kingdom is self-branded as The Detroit of Asia. According to this study, Thailand is the second largest pick-up truck market after the U.S. The Thai automotive industry accounted for 12% of Thai GDP in 2004 and generated the countrys second highest level of export revenue after computer and electronic parts. The number of cars and trucks produced in Thailand between January and August 2005 increased 22% from the same period in 2004 to 710,889 units and is ex-

Chevrolet/Daewoo Matiz

Chinas Chery QQ

Yamaha Mio

24 F Thai-American Business / September-October 2006

pected to easily exceed 1,000,000 for the whole of 2006. Of vehicles produced, 38% were for export. Rapid growth in exports over the past ten years through foreign investment has resulted in the development of an extensive base of suppliers in the region estimated at nearly 4,000 companies. By increasing the supplier base, TAI hopes to attract business from OEMs located in other countries that will require the same types of components manufactured in Thailand for Thai manufacturing centers. In addition, manufacturers like Toyota see great potential for the smaller passenger car market in Thailand which could develop more quickly if government officials cut excise taxes on cars as well. Likewise, manufacturers see opportunities to work with the Thai government to develop and promote flexible fuel small cars like the Focus FFV in an effort to lower pollution levels in traffic congested Bangkok. The good news bodes well for the Thai Automotive Industry, but manufacturers still express reservations and concerns directed towards issues of counterfeiting and patent infringement that are endemic in parts of Asia, with Thailand occupying a position as a regional manufacturing and transshipment hub of fake goods. Counterfeit products, particularly in the automotive sector, pose serious risks to consumers, owing to the lack of quality assurance. When a consumer sees a branded good in the market, the consumer expects intuitively that the branded product is backed by the brandowners reputation for consistency,

quality, and safety. Counterfeiting tends to destroy consumers trust in brands because the notion of guaranteed quality and safety is destroyed. In the case of the automotive market, the failure of fake replacement parts that are passed off as legitimate parts affects the reputation of the manufacturers, dealers, and service centers. Counterfeits truly present a lose-lose proposition: the customer is ultimately dissatisfied, and possibly faces threats to his/her personal safety, while brandowners good will suffers and resources that could be directed towards R&D are instead consumed in prosecuting counterfeiters. With the coming introduction in Thailand of a new Product Liability Law,

for that fake Louis Vuitton bag. Losses can be quantified in dollar terms and in social terms. The American Chamber of Commerce in China estimated losses from counterfeiting and piracy in the range of U.S.$250 billion, and future estimates show the number keeps on rising. In the automotive industry alone, the Automobile Manufacturers Association estimates counterfeit parts to be a U.S.$12 billion global problem. The U.S. Department of Commerce estimates that the U.S.$3 billion in losses to the U.S. economy equates to over 200,000 jobs that could have been created in the automotive sector. As recently as June 7, 2006, U.S. Representative Joe Knollenberg (R-MI) testified before the U.S.-China Econom-

The American Chamber of Commerce in China estimated losses from counterfeiting and piracy in the range of U.S.$250 billion, and future estimates show the number keeps on rising.
rights holders face the new threat of potential product liability (which allows for punitive damages and class actions) in the event that the rights holder is found to have been negligent in failing to police the market to eliminate/suppress counterfeit goods. In such cases, the hazards presented by the introduction of counterfeit parts presents unacceptable risks for consumers (in terms of safety) and for the genuine manufacturers (in terms of liability and risk to reputation). Clearly, counterfeiting is not a victimless crime, despite the internal rationalization of the tourist shopper looking ic and Security Review Commission that the U.S. Customs Service estimated 750,000 jobs have been lost to counterfeiting, largely affecting small business owners in the U.S. Both manufacturers and U.S. Congressmen have made counterfeit automotive parts a priority as the number of infringers and parts continue to grow. Delphi Corp., the largest automotive supplier in the U.S., stated that they are working with our trade partners to get our arms around the problem, and U.S. Rep. Mike Rogers (R-MI), even posts pictures of counterfeit parts on his congressional website.

Infringing model

Seized infringing motorcycles for Design Patent infringement

Parts and accessories seized by Thai authorities

The American Chamber Of Commerce In Thailand F 25

Thailand as a Regional Hub

Some countries are more notorious than others for their infringement on intellectual property rights, particularly in the automotive industry. China, generally accepted as ground zero in the war on counterfeits, often evokes thoughts of fake consumer goods such as purses or watches, but fake parts also include brake pads and oil filters. Neal Zipser, vice president for the Motor and Equipment Manufacturers Association, a group representing suppliers, succinctly stated, When people buy a fake Rolex or Gucci handbag, they know they arent getting the real thing. But when people get an oil filter or brake pads, they dont want to take a chance on buying a knockoff. Several foreign automotive manufacturers including General Motors, Toyota and Honda, filed claims against their lenge to IP rights owners because of its role as a manufacturing and export hub for fakes. Thai law enforcement and Customs have responded to the calls for more effective action against the trade in fake goods, particularly in the automotive sector. For example, in October of 2005, an elite Thai law enforcement unit, the Department of Special Investigation or DSI, seized some 50,000 counterfeit automotive parts and accessories bearing unauthorized trademarks of Mercedes Benz, Chevrolet, Honda, Saturn, and BMW. DSI officials estimated that the seizure of parts and equipment was valued at more than one billion Thai baht (over U.S.$25 million). The raid was one of the largest of its kind in Thailands history of intellectual property enforcement. parts were completely interchangeable between them. Copying and infringement on the scale of the DaimlerChrysler and Yamaha cases discussed above tends to adversely impact Thailands ability to attract R&D operations and foreign direct investment. What investors seek, and what high tech ventures need, is a level of security and confidence that the resources devoted to innovation and creativity will be protected so that an adequate return on such investments is possible. OEMs and suppliers alike may face the same challenges. In that regard, Thailands success as the Detroit of Asia will continue to depend, in part, on effective enforcement and protection of intellectual property rights. The Thai Automotive Institutes strategic plan to develop key areas of the industry will all be for naught if unscrupulous operators are permitted free reign to rip off innovative designs, brands and inventions. Because the automotive sector represents such an important component of Thailands ability to compete on the world stage, more cooperation between government, industry, and the legal community is needed in the enforcement of intellectual property rights. With the right mix of skilled labor, R&D investment, technology transfer and a more secure environment for innovation, the branding of Thailand as the Detroit of Asia is well within reach.

Thailands success as the Detroit of Asia will continue to depend, in part, on effective enforcement and protection of intellectual property rights.
Chinese competitors for alleged violations of intellectual property rights. For example, General Motors, owner of Korean Daewoo, filed a claim against Chinas Chery Automobile because Cherys QQ was alleged to be a slavish copy of the Chevrolet/Daewoo Matiz. It was no coincidence that many parts including the doors and hood were interchangeable between the models. Honda faces a similar problem with the CRV and the Shuanghuan Laibao SRV. Thailand, a country obviously much smaller than China, nevertheless presents a disproportionately large chal The October 2005 raid also uncovered more than 50 operations using signage and trademarks of DaimlerChrysler so as to have customers believe that they were among the network of authorized dealers and service centers when in fact the operations had no commercial relationship with the company. This unauthorized use of trademarks presents just as much risk to the consumer as the trade in counterfeit parts, because, again, there is no guarantee of quality in the provision of services by unauthorized dealers. Another recent series of raids by DSI resulted in the seizure of nearly 1100 fully assembled motorcycles worth more than Baht 45 million from a Malaysian-owned factory in southern Thailand. The motorcycles were seized under the authority of the Thai Patent Act because they were slavish copies of patented Yamaha designs and inventions. In fact, like the Chery QQ and GM Matiz, the motorcycles were virtually indistinguishable and many of the

Edward J. Kelly is Partner of the Intellectual Property Department and Chief Client Relationship Officer, at Tilleke & Gibbins International Ltd. He may be reached at: EKelly@ tillekeandgibbins.com Michael Koi was a student intern at Tilleke & Gibbins International Ltd. and assisted with article. He is now employed as an in house lawyer with Toyota Motor Corporation of the U.S.A.

Thai DSI officials conducting a raid

26 F Thai-American Business / September-October 2006