Bike inventor is winning the war against pirates

It's a common tale among foreign firms struggling to protect intellectual property on the mainland. About 10 years ago, Dahon, a global leader in the production and design of folding bicycles, saw its market share devoured almost overnight by copycat manufacturers. The firm's ordeal began when several key local staff left to set up a rival factory. They took patented technologies and the customer lists with them. David Hon, Dahon's founder and chief executive, sued. But after several years of moving from court to court in different cities, his case seemed increasingly hopeless. 'It seemed like the whole country was against me,' he said. But that unhappy episode took place in Taiwan, back in the early 1990s. By 1995, when Dahon began shifting operations to Shenzhen, it had already learned the painful lessons that await so many new entrants to the China market. 'If anything the problem is worse than in Taiwan,' said Mr Hon. 'Sometimes enforcers [themselves] can be quite ignorant of intellectual property rights... But we are now much more experienced in dealing with this sort of thing.' A physicist by training, innovative ideas have long been at the core of the business for the 64-year-old Mr Hon. Born in Guangdong province during the Japanese occupation, his father once served as the chief tax official in the provincial capital of Guangzhou under the Kuomintang government. After the communists came to power, the family fled to Hong Kong. They moved from place to place, sometimes squatting in rooftop hovels, and as a child Mr Hon helped the family to scratch out a living by hawking T-shirts from streetside stalls. A twist of fate landed him a spot in the prestigious Diocesan Boys' School, where he discovered a passion for learning. He went on to earn a degree in Physics from the University of California at Berkeley, and by the age of 25 found himself in front of the classroom at a branch of the California State University as an associate professor of Physics. After earning his PhD, Mr Hon took a position at Hughes Research Labs in California, where he did groundbreaking work in high-powered laser technology. His research caught the attention of the National Science Federation and Nasa, and his work was soon classified. Some of his innovations in laser technology are still employed in present-day missile defence. But there was a war on in Vietnam, and Mr Hon became distraught by the thought that his work in the lab might be contributing to the destruction. At the same time, the oil crises of the early 1970s were pushing petrol prices in the US to unheard-of levels and creating uncertainty among ordinary people about their future energy and transport needs. Something clicked for Mr Hon, and away from the lab he began spending his evenings and weekends in his garage, tinkering with an idea he had for a foldable bicycle. After going through a series of prototypes he ironed out the design flaws, and it wasn't long before he started to think about finding a market. He spent several years trying unsuccessfully to sell the idea to bicycle companies before deciding to go it alone. By 1982 he had quit his job at the lab, pooled together several investors and around US$2 million in capital, and moved to Taiwan to set up the business. The first folding bike came off the production line two years later. Throughout the design and manufacturing processes, Mr Hon was careful to put as much emphasis on the intellectual assets as on the bikes themselves. He secured patents in major markets such as the US, Japan and Europe for key design features in the hope that, should the bikes prove popular, he could license the technology to other manufacturers. What he didn't plan on was his own staff running off with the company's secrets. Up until 1992, Dahon was practically the only company in the world making folding bicycles and was selling nearly 200,000 bikes annually. But within a year, senior staff had made off with Dahon's newest designs, patents and customer lists. They set up a competing facility in Taiwan and started selling cut-rate copycat bikes into the market. 'They took the latest ideas that weren't in production yet and they were selling for less,' said Mr Hon. 'Our business in Taiwan basically went under.' Mr Hon's lawsuit against the former employees dragged on for years, and eventually involved formal action by the US Trade Representative. After nearly a decade, the case resulted in the former staff paying fines of around US$30,000 each in lieu of jail time. Meanwhile, Mr Hon relocated the bulk of operations to the mainland, beginning with an R&D facility in Shenzhen in 1995. To avoid a repeat of the Taiwan ordeal, he has adopted greater security measures and a new strategic tack. He is an active proponent of intellectual property issues and tries to stay as high profile as possible. Aside from sitting on several industry associations, he is a governor of the local American Chamber of Commerce and an adviser to an intellectual property rights committee under Vice-premier Wu Yi. 'My higher visibility has helped our company to enforce IPR [intellectual property rights],' said Mr Hon. In addition to the PR campaign, Dahon now employs two in-house lawyers to take patent infringers to court. Unlike the experiences of many foreign plaintiffs, he says the results so far have been encouraging. 'I have filed lawsuits against different people and mostly won in China,' said Mr Hon. Those successes are becoming increasingly important as the firm eyes expansion in the mainland market. It now has a network of several hundred distributors to put its bikes on the shelves at more than 2,000 retail stores nationwide. In addition to launching 20 new models of bikes a year, Dahon is looking into new markets like electric bicycles, a niche market elsewhere but big business on the mainland. Security remains a top priority. Entry to Dahon's research lab in Shenzhen is restricted only to R&D employees. On exit, even a reporter's notebook is held up in front of a security camera to verify he wasn't taking the wrong kind of notes. neil.gough@scmp.com