Intellectual property breaches are a growing threat in the supply chains of global companies, a new report has found.

In a new white paper, law firm White and Case says that while most companies monitor their supply chains for the threat of disruption and possible environmental or health and safety issues, many firms have not considered the potential damage that could be done by the use of unauthorised intellectual property (IP) among their suppliers.

But more and more IP including patents, copyrights, software and even trade secrets which have not been paid for or approved by the owner are filtering into global supply chains. Most of the time this occurs without the knowledge of the firm procuring the goods.

Unlicensed software is one of the biggest threats, especially in some emerging markets: seven of the top ten countries for pirated material are in Asia, according to figures from OECD. Indonesia comes top – it is believed that 86 per cent of all the software sold there is unauthorised.

The effects of using unauthorised IP can be tangible, the report says, not least because it gives some companies an unfair business advantage at the expense of others. Because the cost of licensing agreements and other compliance measures is avoided, there is an immediate financial benefit to the companies who infringe IP in the first place and all of those who carry unauthorised IP in their supply chains.

Significantly, the legal risk to companies whose suppliers have infringed IP law can be sizeable, but so can the damage done to their global reputations. This in itself could lead to long-term consequences for business success.

European IP law is less well developed than that of the US or Japan, according to White and Case, largely as a result of disparities between the legislation in the EU’s member states. Legal uncertainty can be a key factor in the dissemination of pirated goods, the reports suggests, since it is unclear in some cases exactly who will be held liable for the breach.

White and Case says that firms need to protect themselves in their contracts, increase compliance training for IP and adapt their supply chain management techniques to make sure they are affected as little as possible.

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