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FThai-American Business / September-October 2006

THAILANDASAREGIONALHUB

The Thai automotive sector, com-prising automobiles, light trucks,

motorcycles and parts, with the

aid o the Thai governments Ministry

o Industry and the Thai Automotive In-

stitute (TAI), has gone to great lengths

to develop the regions reputation as the

Detroit o Asia. In act, 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 countrywith strong domestic supplier base by

2011.

TAI has invested over Baht 8.7

billion to improve human resource

development, upgrade manuactur-

ing 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 urther promote

reer trade with countries such as the

U.S., Japan, and Australia. In addition,

Written by: Edward Kelly

Tilleke & Gibbins International Ltd.

Protection of Intellectual PropertyRights Needed to Secure ThailandsClaim to Be the Detroit of Asia

some positive progress has been made inthe area o intellectual property protec-

tion.

According to the Executive Sum-

mary, in order to achieve these goals, it

is vital:

1) To set a clear vision, mission and di-

rection or the development o Thai

automotive industry in the next ten

years;

2) To identiy problems and obstaclesacing the development o the Thai

automotive industry;

3) To ormulate policy ramework that

encourages international trade and

other potential businesses;

4) To design strategies, measures and

action plans or the development o

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 o the Ministry o Industryand other agencies responsible or

the automotive industry.

The plan has seen a great deal o

success in the development o the Thai

automotive industry as well as in the

ormulation o policies and strategies to

address some o the problems acing the

industry. Proo o the success is ound in

the Thailand Automotive Industry Up-

date or 2005, wherein the Kingdom issel-branded as The Detroit o Asia.

According to this study, Thailand is the

second largest pick-up truck market a-

ter the U.S. The Thai automotive indus-

try accounted or 12% o Thai GDP in

2004 and generated the countrys sec-

ond highest level o export revenue a-

ter computer and electronic parts. The

number o cars and trucks produced in

Thailand between January and August

2005 increased 22% rom the same pe-

riod in 2004 to 710,889 units and is ex-

Chevrolet/Daewoo Matiz Chinas Chery QQ Yamaha Mio

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The American Chamber O Commerce In ThailandF

pected to easily exceed 1,000,000 or the

whole o 2006. O vehicles produced,

38% were or export.

Rapid growth in exports over the

past ten years through oreign invest-

ment has resulted in the development

o an extensive base o suppliers in the

region estimated at nearly 4,000 compa-

nies. By increasing the supplier base, TAI

hopes to attract business rom OEMs lo-

cated in other countries that will require

the same types o components manuac-

tured in Thailand or Thai manuactur-

ing centers. In addition, manuacturers

like Toyota see great potential or the

smaller passenger car market in Thai-

land which could develop more quickly

i government ocials cut excise taxeson cars as well. Likewise, manuacturers

see opportunities to work with the Thai

government to develop and promote

fexible uel small cars like the Focus

FFV in an eort to lower pollution levels

in trac congested Bangkok.

The good news bodes well or the

Thai Automotive Industry, but manu-

acturers still express reservations and

concerns directed towards issues o

countereiting and patent inringement

that are endemic in parts o Asia, with

Thailand occupying a position as a re-

gional manuacturing and transship-

ment hub o ake goods.

Countereit products, particularly

in the automotive sector, pose serious

risks to consumers, owing to the lack

o quality assurance. When a consumer

sees a branded good in the market, the

consumer expects intuitively that the

branded product is backed by the bran-

downers reputation or consistency,

quality, and saety. Countereiting tends

to destroy consumers trust in brands

because the notion o guaranteed qual-

ity and saety is destroyed. In the case

o the automotive market, the ailure o

ake replacement parts that are passed o

as legitimate parts aects the reputation

o the manuacturers, dealers, and ser-

vice centers. Countereits truly present

a lose-lose proposition: the customer is

ultimately dissatised, and possibly aces

threats to his/her personal saety, while

brandowners good will suers and re-

sources that could be directed towards

R&D are instead consumed in prosecut-

ing countereiters.

With the coming introduction in

Thailand o a new Product Liability Law,

rights holders ace the new threat o po-

tential product liability (which allows or

punitive damages and class actions) in

the event that the rights holder is ound

to have been negligent in ailing to police

the market to eliminate/suppress coun-

tereit goods. In such cases, the hazards

presented by the introduction o coun-

tereit parts presents unacceptable risks

or consumers (in terms o saety) and

or the genuine manuacturers (in terms

o liability and risk to reputation).

Clearly, countereiting is not a vic-

timless crime, despite the internal ratio-

nalization o the tourist shopper looking

or that ake Louis Vuitton bag. Losses can

be quantifed in dollar terms and in social

terms. The American Chamber o Com-

merce in China estimated losses rom

countereiting and piracy in the range

o U.S.$250 billion, and uture estimates

show the number keeps on rising. In the

automotive industry alone, the Automo-

bile Manuacturers Association estimates

countereit parts to be a U.S.$12 billion

global problem. The U.S. Department o

Commerce estimates that the U.S.$3 bil-

lion 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)

testied beore the U.S.-China Econom-

ic and Security Review Commission

that the U.S. Customs Service estimated

750,000 jobs have been lost to counter-

eiting, largely aecting small business

owners in the U.S. Both manuacturers

and U.S. Congressmen have made coun-

tereit automotive parts a priority as the

number o inringers and parts continue

to grow. Delphi Corp., the largest auto-

motive supplier in the U.S., stated that

they are working with our trade part-

ners to get our arms around the prob-

lem, and U.S. Rep. Mike Rogers (R-MI),

even posts pictures o countereit parts

on his congressional website.

Parts and accessories seized by Thai authoritiesSeized inringing motorcycles or Design Patent

inringement

The American Chamber of Commerce in China estimated

losses from counterfeiting and piracy in the range of U.S.$250billion, and future estimates show the number keeps on rising.

Inringing model

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FThai-American Business / September-October 2006

THAILANDASAREGIONALHUB

Some countries are more notorious

than others or their inringement on in-

tellectual property rights, particularly in

the automotive industry. China, gener-

ally accepted as ground zero in the war

on countereits, oten evokes thoughts o

ake consumer goods such as purses or

watches, but ake parts also include brake

pads and oil lters. Neal Zipser, vice

president or the Motor and Equipment

Manuacturers Association, a group rep-

resenting suppliers, succinctly stated,

When people buy a ake Rolex or Gucci

handbag, they know they arent getting

the real thing. But when people get an

oil lter or brake pads, they dont want

to take a chance on buying a knocko.

Several oreign automotive manu-acturers including General Motors, Toy-

ota and Honda, led claims against their

Chinese competitors or alleged viola-

tions o intellectual property rights. For

example, General Motors, owner o Ko-

rean Daewoo, led a claim against Chi-

nas Chery Automobile because Cherys

QQ was alleged to be a slavish copy o

the Chevrolet/Daewoo Matiz. It was no

coincidence that many parts including

the doors and hood were interchange-

able between the models. Honda aces a

similar problem with the CRV and the

Shuanghuan Laibao SRV.

Thailand, a country obviouslymuch smaller than China, nevertheless

presents a disproportionately large chal-

lenge to IP rights owners because o its

role as a manuacturing and export hub

or akes. Thai law enorcement and

Customs have responded to the calls or

more eective action against the trade in

ake goods, particularly in the automo-

tive sector. For example, in October o

2005, an elite Thai law enorcement unit,

the Department o Special Investigation

or DSI, seized some 50,000 countereit

automotive parts and accessories bear-

ing unauthorized trademarks o Mer-

cedes Benz, Chevrolet, Honda, Saturn,

and BMW. DSI ocials estimated that

the seizure o parts and equipment was

valued at more than one billion Thai

baht (over U.S.$25 million). The raid

was one o the largest o its kind in Thai-lands history o intellectual property

enorcement.

The October 2005 raid also uncov-

ered more than 50 operations using sig-

nage and trademarks o DaimlerChrys-

ler so as to have customers believe that

they were among the network o autho-

rized dealers and service centers when in

act the operations had no commercial

relationship with the company. This

unauthorized use o trademarks pres-

ents just as much risk to the consumer

as the trade in countereit parts, because,

again, there is no guarantee o quality in

the provision o services by unauthor-ized dealers.

Another recent series o raids by

DSI resulted in the seizure o near-

ly 1100 ully assembled motorcycles

worth more than Baht 45 million rom

a Malaysian-owned actory in southern

Thailand. The motorcycles were seized

under the authority o the Thai Patent

Act because they were slavish copies o

patented Yamaha designs and inven-

tions. In act, like the Chery QQ andGM Matiz, the motorcycles were virtu-

ally indistinguishable and many o the

parts were completely interchangeable

between them.

Copying and inringement on the

scale o the DaimlerChrysler and Yamaha

cases discussed above tends to adversely

impact Thailands ability to attract R&D

operations and oreign direct invest-

ment. What investors seek, and what

high tech ventures need, is a level o se-

curity and condence 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 ace the same

challenges.

In that regard, Thailands success as

the Detroit o Asia will continue to de-

pend, in part, on eective enorcementand protection o intellectual property

rights. The Thai Automotive Institutes

strategic plan to develop key areas o the

industry will all be or naught i unscru-

pulous operators are permitted ree reign

to rip o innovative designs, brands and

inventions. Because the automotive sec-

tor represents such an important com-

ponent o Thailands ability to compete

on the world stage, more cooperation

between government, industry, and the

legal community is needed in the en-

orcement o intellectual property rights.

With the right mix o skilled labor, R&D

investment, technology transer and a

more secure environment or innova-

tion, the branding o Thailand as the

Detroit o Asia is well within reach.

Edward J. Kelly is Partner o the

Intellectual Property Department

and Chie Client Relationship Ofcer,

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 employedas an in house lawyer with Toyota Motor

Corporation o the U.S.A.

Thailands success as the Detroit o Asia will

continue to depend, in part, on efective enorcement

and protection o intellectual property rights.

Thai DSI ofcials conducting a raid