Making Electronics Just Got 25% More Expensive In The US (?)

[Scodiddly]

My only real personal data point so far was just a couple days ago when I went to order some MOSFETs, a particular number that's beloved by the Arduino crowd because it's a convenient interface between a 3 volt microcontroller and a practical switched load. 

Mouser, Newark, Digi-Key, etc. were all out of stock. I finally bought a few from a hobbyist supplier at a substantial markup.  Best guess was companies buying out the suppliers in anticipation of either price hikes or unavailability.

 

[scott2000]

Mouser, Newark, Digi-Key, etc. were all out of stock. I finally bought a few from a hobbyist supplier at a substantial markup.  Best guess was companies buying out the suppliers in anticipation of either price hikes or unavailability.

Exciting times.... I'm hopeful some equilibrium will come to pass through this.....

 

[Scodiddly]

RE: New Tariffs

Dear Valued Customer,

As I am sure you are aware, the United States and China are embroiled in a trade dispute. As a result, the United States Trade Representative (USTR) recently published a list of products imported from China that will be subject to an additional 25% tariff beginning on July 6, 2018. Unfortunately, this list includes products that we sell to you.

We are working closely with our suppliers to see if we can mitigate the impact of these tariffs; however, we will be forced to pass through the 25% tariff on parts imported from China to our customers.

PEI-Genesis appealed to the USTR to eliminate tariffs on our products during the comment period before the tariffs were finalized, citing the impact on our customers. We are disappointed that the USTR chose to move ahead anyway.

With our suppliers input we are gauging the scale and scope of impacted items. We will continue to share updates with you as they become available.

 

[dmp]

IP theft

Does China actually steal IP? As I understand it, USA companies are required to partner with a Chinese company to do business in China. Then the technology is passed to the Chinese partner.
The USA companies are voluntarily entering into this arrangement.
Is there more to it than this?

Compare this to other voluntary contract law, such as employees in the USA who voluntary sign away rights upon taking a job (arbitration, non-compete) . Are they being stolen from?
Or companies doing business in Europe that now have to comply with GDPR, which negatively affects their anti-privacy business models. Are they being stolen from?

I have trouble seeing how anyone is defending Trump's game plan here, especially anyone who believes in free trade, limited government. Strange times.

 

[JohnRoberts]

Does China actually steal IP? As I understand it, USA companies are required to partner with a Chinese company to do business in China. Then the technology is passed to the Chinese partner.
The USA companies are voluntarily entering into this arrangement.
Is there more to it than this?

That is the obvious IP theft going on in plain sight (more goes on surreptitiously).  FWIW in the early days of our country we stole European IP...  : .  China needs to mature to become a more responsible world citizen.  I have read about many positive changes in China over the last decade, but they are still China and that will never change.

Only recently has China (because of pressure to reform) liberalized that specific rule, and for the last few months we have heard about car companies (and more) building their own factories in China without partners.  Tesla just announced one the other day, but Elon tends to announce a lot of things he doesn't always deliver in a timely fashion. 

The proposed tariffs add fuel to building manufacturing assets in China to service that huge market tariff free, while even without tariffs there are benefits to servicing local markets with local production, now that IP is less at risk (of course IP can still walk out the factory's back door like before).

Compare this to other voluntary contract law, such as employees in the USA who voluntary sign away rights upon taking a job (arbitration, non-compete) . Are they being stolen from?

That is why we have courts.... SCOTUS just outlawed the involuntary union membership and dues collection from people who didn't want to join the union.  Voluntary employment contracts are just that. (I suspect your unspoken argument is that business has an unfair advantage. ) 

When I was hired at Peavey I was asked to sign a non-compete and release to them for any inventions I came up with. Over the course of my employment I assigned multiple patents to them for nominal amounts (typically $1). A little awkwardly I was only presented with the release contract to sign after I was already working there for over a year.  :  I attached a 2 page list of my prior art that I did not grant to them gratis.  8)  There are already legal precedents covering "work for hire" where inventions that are made on employer time with employer tools, is already considered employer's property, so I considered signing the agreement moot or redundant.

Or companies doing business in Europe that now have to comply with GDPR, which negatively affects their anti-privacy business models. Are they being stolen from?

The EU is nominally protecting citizens privacy, but is also trying to protect their home industries. Causing big US technology companies to make less profit is a win-win... basically all countries work for their own self-interest, and this is no different.  GDPR is likely to become the world-wide standard so US companies are biting the bullet to do it across the board, before they have to.

I have trouble seeing how anyone is defending Trump's game plan here, especially anyone who believes in free trade, limited government. Strange times.

I doubt I could explain it to your satisfaction, so won't waste your time and mine. 

JR

 

[dmp]

My point is how can it be called stealing if companies are voluntarily entering into the agreement. You may think the rule is bad, but I don't see how it can be called stealing.

 

[JohnRoberts]

My point is how can it be called stealing if companies are voluntarily entering into the agreement. You may think the rule is bad, but I don't see how it can be called stealing.

The forced technology transfers are only one aspect of the IP acquisition by hook or crook.

Reportedly more than 90% of music and movies in china are counterfeited, not to mention computer software. This is getting better as China finds they have IP of their own to lose, but the Chinese government has been found to be complicit in some cyber theft.

This is just one case https://www.scmp.com/business/china-business/article/2154190/chinese-wind-turbine-maker-sinovel-must-pay-us59m-punishment Involving wind turbine technology, I'm sure you could find many more but i do not feel like doing your homework.

I repeat it is slowly getting better, no doubt from the increased pressure on them to reform.  The rule change about requiring Chinese business parters just changed in April.

JR

PS: While at Peavey I saw numerous Chinese knock-off Peavey products, some intentionally misspelled Peavey.

 

[john12ax7]

My point is how can it be called stealing if companies are voluntarily entering into the agreement. You may think the rule is bad, but I don't see how it can be called stealing.

I think you are missing what is actually going on.  Suppose you design a product,  then hire a Chinese contract manufacturer.  At the next trade show you will see your same product now rebadged under other Chinese company names.  This is just one example that I have direct knowledge of it happening.

Any agreements or NDAs you might have had would do nothing.  The big boys like Apple have enacted protocols to minimize this, like strict accounting of material in vs product out.  This is not generally feasible for a small manufacturer.

 

[dmp]

I think you are missing what is actually going on.  Suppose you design a product,  then hire a Chinese contract manufacturer.  At the next trade show you will see your same product now rebadged under other Chinese company names.  This is just one example that I have direct knowledge of it happening.

Any agreements or NDAs you might have had would do nothing.  The big boys like Apple have enacted protocols to minimize this, like strict accounting of material in vs product out.  This is not generally feasible for a small manufacturer.

Sounds like Behringer or any number of other examples.

I read a bit about the micron case which is interesting:
https://www.nytimes.com/2018/06/22/technology/china-micron-chips-theft.html

I think this is more what is at the heart of it than german style microphone rip offs.

I was playing devil's advocate a little bit, since it seems simple anti-government, anti-regulation mindsets also want things like this to be 'illegal', not realizing that regulations or agreements are needed to create the laws. And a strong, independent, fair justice system to enforce regulations and contract law.
IP protection is important and as I've posted before it is a form of Government regulation. Trump and the Republicans vilify regulation and they are also attacking the credibility of the justice system. Trump grandstanding at the bully pulpit is just turning into one disaster after another.

 

[JohnRoberts]

I think you are missing what is actually going on.  Suppose you design a product,  then hire a Chinese contract manufacturer.  At the next trade show you will see your same product now rebadged under other Chinese company names.  This is just one example that I have direct knowledge of it happening.

This is not the most common while it does happen. I recall one time while at Peavey we found Peavey drums made in a Chinese CM for sale in Italy. I guess they thought we wouldn't catch them, we did.

The more common problem is some small factory who was a major supplier for years being told to walk away from the lucrative business.  This happened when Marshall moved their guitar amp production from Korea to India to save a few pence.  Overnight a new low end guitar amp brand was created and they found themselves competing with their own design.  :

Another more subtle technology transfer is when you teach a CM how to make something, that technology can sneak out a back door.  The classic example of this was the QSC RMX amps.  Prior to QSC tooling that up in China, Chinese companies would bring me prototype amps at trade shows hoping to sell under the Peavey brand. Their technology was literally decades behind the times, and laughable.  After the QSC development their home grown amps suddenly became competitive. I know about this because last century I spent time in HK working with a large Chinese OEM to tool up an amp for Peavey. That amp never happened when Hartley got talked into raising the price and making it in the US (a huge mistake IMO). It was my bad karma to end up product manager over this too expensive US amplifier line extension. They were good (great) amps but just too hard to justify why they existed in an already full line of US made power amps.  Years later when Peavey gave into the market forces demanding Chinese built amp prices, the QSC technology had already leaked out the back door and it was relatively easy to find a CM who could build ours for us in China.   

I do not know for a fact but QSC may have made the leap to Chinese manufacturing because they heard rumors we were doing it. The QSC program was hugely successful and almost immediately copied by a behringer version. 

Any agreements or NDAs you might have had would do nothing.  The big boys like Apple have enacted protocols to minimize this, like strict accounting of material in vs product out.  This is not generally feasible for a small manufacturer.

We hired a full time representative who was based in HK and could easily travel into China to work with our CMs. You really need full time boots on the ground to keep these distant factories running smoothly and honestly.

While on a visit over there I was inside the same factory that was building Behringer SKUs (this was before Behringer built their own factory). The factory was a huge 5 story building and I was not allowed on the same floor as the Behringer product was being assembled.  Behringer ended up quitting this CM reportedly over quality disputes, while we used them for multiple SKUs with zero problems.  One possible explanation is that the CM uses the components that you specify, so specifying inferior components to reduce cost could result in production problems. Un-shippable product quickly becomes a cash flow problem. This is mostly a guess while I did hear gossip from people connected to that CM.

I think you are missing what is actually going on.  Suppose you design a product,  then hire a Chinese contract manufacturer.  At the next trade show you will see your same product now rebadged under other Chinese company names.  This is just one example that I have direct knowledge of it happening.

The toy industry was notorious for blatant rip offs. Some US companies could show a new toy at a trade show and the ripoff copies would already be for sale by the holiday.

Sounds like Behringer or any number of other examples.

Behringer was different, I was in the trenches competing with him back then. Behringer was a western company (German?) who discovered how inexpensive manufacturing was in China a few decades ago so arbitraged that low manufacturing cost to win market share with lower prices. He would literally cherry pick successful products from other (often smaller) western companies, then introduce near identical but significantly cheaper versions into western markets. 

Behringer enjoyed massive growth, profit, and multiple lawsuits during the early days of harvesting this low hanging fruit. It was only natural that at some point they would run out of products to copy. (They did one near identical copy of one small mixer I was already making in China, probably because he could. )  Peavey did sue him once over copying one of my patents (FLS) but Peavey did not win that case in court.

I read a bit about the micron case which is interesting:
https://www.nytimes.com/2018/06/22/technology/china-micron-chips-theft.html

Just one of many, not only was this behavior tolerated by the Chinese government but it was actually encouraged policy to make Chinese technology stronger.

I think this is more what is at the heart of it than german style microphone rip offs.

I was playing devil's advocate a little bit, since it seems simple anti-government, anti-regulation mindsets also want things like this to be 'illegal', not realizing that regulations or agreements are needed to create the laws. And a strong, independent, fair justice system to enforce regulations and contract law.

that regulation did not exist inside China, and only recently since they have their own IP to lose have they started getting serious about IP rights and law.

IP protection is important and as I've posted before it is a form of Government regulation. Trump and the Republicans vilify regulation and they are also attacking the credibility of the justice system. Trump grandstanding at the bully pulpit is just turning into one disaster after another.

opinions vary (i'll leave it for others to identify which logical fallacy that one is)  :. As I have said many times before some regulation is necessary to keep unfettered capitalism in check. Too much regulation leads to crony capitalism and hurts small company competition by rewarding the large companies that can pass along the costs of excess regulation to the customers (us).

I credit President Trump with pressuring China to make its recent changes toward more fairness (like the recent dropping of the Chinese partner restriction).  This has been a slow evolution as China matures into a consuming economy, but there is still a lot of work to do to bring them in line.

JR

 

[john12ax7]

I've been curious as to how some of the blatant audio ripoffs are accomplished. Is it reverse engineering? Or is the CM in on it?

 

[JohnRoberts]

I've been curious as to how some of the blatant audio ripoffs are accomplished. Is it reverse engineering? Or is the CM in on it?

Back last century when I was meeting with a huge Chinese OEM, I was in one of their engineering labs (in HK).  At the time my contact (a VP) he bragged about having 100 DSP coders in a lab in mainland China that he used to reverse engineer stuff. 

The VP I met with was American and pretty sharp IMO.

=========

Many rip-offs are done the old fashioned way...  I recall when Behringer's version of the QSC RMX came out, people took them apart and posted pictures showing the obvious packaging similarities.  A friend of mine worked at QSC and wrote the RMX OM. He recognized copy he wrote for QSC that was cut and pasted into the Behringer OM. (Since then most companies copyright manuals and lit. When they copied my small mixer they literally copied my specs from my data sheet.  )

The better CMs are very professional and don't need to mess with stealing IP, while they all suffer from a "grass (profit) is always greener in the other guy's yard"  syndrome. There are numerous examples of successful CMs buying consumer brands outright hoping to get the rest of the profit.

The big Chinese OEM I visited already owned at least one Brit speaker company (and more industrial companies).  Hon Hai (aka Foxconn), the huge Chinese CM made wealthy by building I-phones for apple has purchased Sharp for the consumer products, at the moment they are trying to buy Belkin (?).

A lot of the blatant product copying over the last few decades was done in plain sight because many products have zero patent or copyright protection in force. I learned the hard way that even patents can be beat with good enough lawyers.

JR

 

[scott2000]

Off topic sorta....

A bit over 10 years ago I had an invention that I sent off to one of those Invent  companies. It was for a tape edge sealer for painting......Submitted my drawings and everything. They got back to me and told me it was going to cost thousands of dollars to do everything they do in their process. Labs, patents, etc....

I didn't have the money.... I'm sure it's a coincidence but, the Frog Tape came out a couple of years later..... I guess I'm glad I didn't have the money, seems it could've been wasted if someone already had something in the works....

I still have my sealed envelope with my invention I mailed to myself unopened thinking that was a real thing to do..... :-\

 

[JohnRoberts]

Off topic sorta....

A bit over 10 years ago I had an invention that I sent off to one of those Invent  companies. It was for a tape edge sealer for painting......Submitted my drawings and everything. They got back to me and told me it was going to cost thousands of dollars to do everything they do in their process. Labs, patents, etc....

I didn't have the money.... I'm sure it's a coincidence but, the Frog Tape came out a couple of years later..... I guess I'm glad I didn't have the money, seems it could've been wasted if someone already had something in the works....

I still have my sealed envelope with my invention I mailed to myself unopened thinking that was a real thing to do..... :-\

Mailing yourself proof is an old wives tale. In fact a dated, signed, witnessed disclosure was the standard practice, but I believe patent law has been harmonized recently to protect first to file, not first to invent, so dated proof independent of filings is now moot. 

Thousands of dollars is a reasonable price (actually a little cheap) for writing and filing a patent.  I paid between $5k and $10k for filing my drum tuner patent and that was with me writing most of the patent and drawing all the artwork myself. I paid a real patent lawyer to write the claims and that was money well spent because the claims is where the rubber meets the road.  (My Peavey FLS patent that Behringer was able to copy and get away with when sued, was arguably because Peavey's original patent claims were not written sufficiently broadly. )

So getting a budget patent could be expensive wallpaper and may still be worthless in court.

I have notebooks full of ideas and over the decades I have seen many turned into products by other people independently of me.

I found out after the fact that one of my several Peavey patents was already in the prior art (so technically invalid), but that one was never tested in court.

If you think about it, with millions of engineers (hundreds to thousands in a narrow field) trying to solve the same problems it is hard to imagine there aren't more similar independent solutions (not to mention the ancients are always stealing our ideas).  8)

JR

PS: The patent mills are just working to get the piece of paper and not interested in securing a strong patent. Peavey's lawyers were IMO not far from that. I recall one later patent application for Peavey where the lawyer didn't even want to do a search. By then patents were on the internet so I did the search myself.  In the 70s I travelled down to Arlington, VA and did a patent search. Back then a patent search meant physically searching through "shoes" (drawers), full of paper patents.  ???