Green laws unearth trade secrets

Intellectual property (IP) protection has been more of a footnote than a hot issue when debating Europe's green laws. But that may be about to change. In the wake of the European Union's environmental laws, third parties are emerging to collect and handle sensitive product information.

In the EU, the risk is likely to be manageable. But as the directives catch fire and are adopted worldwide, third parties operating in countries with more relaxed IP protection will have unprecedented access to what many consider competitive secrets.

There is no question that electronics manufacturers are concerned about this," said Mark Myles, services director at the GoodBye Chain Group (Colorado Springs, Colo.).

The IP problem was highlighted as China drafted its own version of the EU Restriction of Hazardous Substances (RoHS) directive, declaring a worrisome difference in implementation. Europe's RoHS regulation allows products on the market, although compliance must be proven if challenged by the authorities.

In comparison, China RoHS states that before a product can be sold on the domestic market, it must first undergo a RoHS substance analysis at a Chinese testing lab. Because manufacturers don't want to lose the huge mainland market, their electronics products will eventually flow into Chinese test labs.

While the laboratories are supposed to test for compliance, the facilities are outfitted with the requisite experts and equipment to go deeper into chemical formulas — to unearth the secret recipes for products — as well as for reverse engineering and deconstructive analysis.

Industry sees China as a risk due to its track record for reverse engineering and product copying.

"In China there is less recognition of IP protection than in the U.S. or Europe, both from a cultural and legal perspective," said Robin Gray, executive director of the National Electronic Distributors Association (NEDA) in Alpharetta, Ga., who also has heard from manufacturers worried about the testing issue.

Of course, anybody has the opportunity to take a product and reverse engineer it, if they're willing to spend the money.

But when China RoHS launches, manufacturers will foot the bill. Moreover, they will also have to rely on the lab's pledges that only compliance testing will be done and that all data will be kept confidential.

"When you're talking about a set of experts in testing facilities whose sole purpose is to reverse engineer products, there are concerns over what they're going to do with the information that they're obligated to get," said Eric Karofsky, senior research analyst at AMR Research Inc. (Boston, Mass.).

Reverse engineering is certainly a possibility. Companies operating in China have seen competitors' products reverse engineered and copied, sources said.

Geoffrey Bock, program manager for RoHS/WEEE at TUV Rheinland of North America Inc. (Newtown, Conn.), pointed out that if a manufacturer wants to obtain China's "CCC" mark, which is safety related, a product must be sent to a Chinese lab for deconstruction and testing. The procedure has made manufacturers uneasy because they believe their devices are being reverse engineered, he said.

Foreign labs hope to be authorized to do RoHS testing in China. Bock said that Europe is finalizing RoHS testing standards that could in principle be adopted by all compliance testing labs worldwide. If the standards are widely accepted, it may open the door for non-Chinese labs to be accredited for RoHS testing.

TUV has also asked Chinese authorities through its Hong Kong office to become a designated RoHS test lab. Mohammed Faraj, global business manager for restricted substances at Underwriters Laboratories, said UL's lab in Suzhou as well as partner labs UL works with in China, are also applying to the government for RoHS testing accreditation.

IP found in material analysis

IP is generally thought to be in the circuitry or software. But RoHS lab experts could simply choose to go deeper in their material analysis of a specific component and find out what makes it more successful than rival products. That's why labs operating in the U.S. and Europe such as Underwriters Laboratories and TUV Rheinland are bound by non-disclosure agreements and other security measures.

The formula for a connector, for example, could reveal why it provides faster data transfer speeds with less errors. "If you know the exact alloy content, the percentage of tin or other elements they might use, you have the specific recipe for putting the product together," Gray said.

Myles added that the formula for a capacitor's dielectric material is in some cases considered IP. Moreover, the performance of transducers or sensors can also be dependent on the materials used and physical dimensions involved.

Through destructive testing, a lab could find out the exact proportion of materials and substances. "The test results in a rival's hands could give an edge in understanding a particular sensor or transducer's performance," Myles said.

More leaks to be plugged

RoHS is not the only green law that involves the handling of sensitive information.

The European Union's Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) directive, which goes into effect in 2007 and involves registration of chemicals used in European-based manufacturing, was initially criticized for putting confidential business information at risk. (See related article: REACH chemicals legislation nears final adoption.)

Manufacturers and chemical suppliers had feared secret chemical formulas for their products were destined for a public database as part of the REACH directive's requirement to register chemical substances. EU authorities, however, have now obligated the database to operate under an NDA for specific information.

Nevertheless, certain chemical recipes are IP and many in the chemical and electronics industry are reluctant to disclose it to a third party they can't control, said Christian Pophal, head of corporate environmental affairs and safety at Infineon AG (Munich, Germany).

"In a very specialized chemical field, the formula is the only key success factor of the supplier and if it goes public it loses business," Pophal said.

The WEEE directive is another area of IP concern. Confidential data provided during WEEE registration, which includes anticipated sales volume, is held by a third party. Most importantly, recycling data must be kept secure.

"It comes back to the fact that you are deconstructing product and that involves IP issues," Karofsky said.

A company might want to know why a competitor is getting more recycling value from his PC, or how close rivals are to meeting compulsory recycling targets.

TUV Rheinland holds product dismantling sessions during which an expert identifies hazardous and recyclable materials. Each nut and bolt is weighed, and calculations such as for the exact percent of plastic and steel are used to determine a pass/fail mark on meeting the required recycling target.

"Only the recycler can have access to this information because it is proprietary," Bock said.

EU recyclers are required to follow guidelines on information security. But WEEE, like the other legislation, is spreading. Korea and China also plan to implement their versions of WEEE, and Taiwan has announced an intention to adopt it.

Bock added that design-for-environment methods, for example, reveal how the product has been designed for ease of disassembly. While design-for-environment is at an early stage, it will only become more complex and increasingly proprietary.

"There will be new design information, designing for RoHS, end of life and soon for EuP designing for energy efficiency," Bock said. "There is a lot of proprietary information floating around."

Original text is here