Figure B: Examples of software applications used by …iptheft.nam.org/AVTECH_case_study.pdf1 Introduction Founded in 1988, AVTECH Software Inc. is the leading developer and manufacturer

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Introduction Founded in 1988, AVTECH Software Inc. is the leading developer and manufacturer of hardware and software that provides environmental and security monitoring of computer rooms, telecom, and other IT facilities. As a provider of solutions that keep IT equipment safe for 87% of the Fortune 1000 along with the U.S. government and military, AVTECH is well placed to understand the critical role that IT and software play in innovation, and ultimately a company’s survival. Figure A shows a set of threats against which the Warren, RI based firm’s Room Alert product protects its customers’ IT facilities. Figure A: IT facility protection offered by AVTECH’s Room Alert Monitoring System

As this case study demonstrates, AVTECH has direct experience with many of the issues highlighted in our study of the impact of software theft on U.S. manufacturing. First, President and CEO Michael Sigourney is quick to highlight the critical importance of software at every stage of his company’s design, manufacturing and sales process. Second, AVTECH is well aware that production in the U.S. not only creates local jobs but also facilitates and speeds the process of innovation. Finally, AVTECH has direct experience with many of the unfair competitive practices we witness abroad, including theft of trade secrets and proprietary materials. “Our most important tools” As a vendor of its proprietary Device ManageR software, which allows customers an easy interface with Room Alert monitors network-wide, AVTECH understands the importance of software to the modern business. But AVTECH is not just a producer, but rather an avid consumer of software, without which its operations simply could not run. “The reality is that software represents our most important tools within the organization,” says Sigourney. “Software is the interface of every employee to the productivity of the company.”

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Figure B presents selected examples of the software used every day at AVTECH, along with observations from Sigourney on its importance. Figure B: Examples of software applications used by AVTECH

Sigourney believes that AVTECH’s proprietary information on designs, costs and customers, represents a core competitive advantage, and that high-end software is crucial to managing that information.

Bringing manufacturing home

AVTECH’s experience manufacturing abroad versus in the U.S. illustrates that domestic production is not just an engine for job creation; it also facilitates and enriches the innovative capabilities U.S. companies need to remain competitive. After working with Chinese and Indian contract manufacturers, AVTECH moved all of its production stateside in the past two years, using facilities in Pennsylvania and New England. According to Sigourney, the move has been a resounding success not just for production itself but for the design and R&D portion of his organization. “We’ve reduced shipping costs and improved response time if there’s a technical problem,” he says. “With any design change or problem that arises we can have a top engineer on the manufacturing line within a few hours if needed.” AVTECH’s experience co-locating innovation and production echoes the findings of recent cutting-edge research. In their recent book Making in America: From Innovation to Market, the MIT Task Force on Production and Innovation repeatedly warns that moving production abroad can seriously harm U.S. innovative capabilities, even if a company retains its domestic R&D facilities. “The danger is that as U.S. companies shift the commercialization of their technologies abroad, their capacity for initiating future rounds of innovation will be progressively enfeebled,” state the authors. “That’s because much learning takes place as companies move their ideas beyond prototypes and demonstration and through the stages of commercialization.”

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Figure C shows the advantages that arise when a company’s innovative and productive capabilities are located close together, within the U.S. In this framework, innovation facilitates manufacturing through better and faster communication and improved security of IP and trade secrets. In turn, manufacturing facilitates further innovation through faster learning cycles and simpler logistics. The result is a virtuous cycle, where both innovation and manufacturing capabilities benefit and grow. When software theft costs American manufacturing jobs, and results in those jobs moving overseas, U.S. companies’ vital innovative capabilities also suffer. Figure C: Advantages of locating both innovative and manufacturing capabilities in the U.S.

Protecting intellectual property AVTECH has directly witnessed unfair competitive practices resulting from the theft of its intellectual property in emerging markets. In 2013, the company discovered that Sahasra Electronics, a contract manufacturer based in India, was selling counterfeit AVTECH products and claiming falsely to be an authorized reseller of AVTECH products. Figure D, a snapshot of Sahasra’s website from May 2009, shows that the Indian manufacturer also used AVTECH’s logo without permission. Figure D: Snapshot of Sahasra website from May 2013

Unfair competition from theft of a company’s IP and brand identity has many parallels to the case of software piracy. First, the owner of the IP itself sustains direct harm. In this case, Sahasra removed the offending material only after receiving a cease and desist letter, which forced AVTECH to invest costly effort in enforcing its IP rights. In addition, Sahasra’s unfair competitive practices allow it to save money in its branding, marketing and other business practices, imposing the same type of disadvantage on its competitors that we observe when emerging market firms engage in software piracy. Such practices place an additional strain on firms who play by the rules, further underscoring the need to protect all IP rights in emerging markets.