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Sarine Technologies alleges “Copyright violation” and “Technology Theft”
CEO David Block explains steps taken by Sarine against violation

David Block
CEO - Sarine Technologies Ltd
In an exclusive interview with The New Jeweller, Sarine Technologies CEO David Block answers questions following a dramatic raid by Indian tax authorities on a large diamond service provider in Surat last week which has allegedly copied Sarine’s highly successful Galaxy systems for a number of years.

Block says it is an “open secret” in the industry that a number of Indian firms has been copying the company’s technologies and using its software that has been cracked by international hackers.

How long has this been going on and how has it operated?

We have been dealing with this issue for over a decade, but it intensified in 2017. The local Indian media reported last week that the income tax authorities raided three premises of Diora & Bhanderi (“DBC”) on suspicion of tax evasion and ‘under the table’ cash transactions.

The way it works is that the company, DBC, which we believe has copied our patented Galaxy machines, do not deliver them to the clients but keep them on their own premises in a number of large buildings. The main objective of this is to prevent Sarine from taking any legal action against customers that buy the pirated systems. Some of the time, the machines are sold outright to the clients and sometimes they are sold with an ongoing service fee. The manufacturers send their diamonds and employees to work on the machines on DBC’s premises thereby keeping their own business free of any infringing technologies.

As per the reports in the local Surat media, the tax authorities have been investigating this company for more than two years and the ongoing raid that started last week is the result of the in-depth investigation. It was reported that significant amounts of cash, as well as large amounts of diamonds, were confiscated or are being held by the tax authorities. The assumption is that DBC officially reports a very small amount of income which is far less than the actual figures and this is what the tax authorities are investigating.

How difficult is it to copy Sarine’s systems?

Sarine has been developing innovative technologies for the diamond industry for the past 30 years and has invested in the past decade over $100 million in research and development. The development of a new technology like Galaxy is a very challenging and expensive process but once the technology has been developed and systems become available, it can be copied. This is exactly the purpose of patents, which is to protect new and innovative technologies from being copied. Without patent protection, companies will not want to invest in the development process of new technologies. What has happened is that numerous Indian companies have made a replica of our Galaxy machines, thereby infringing our patent as well as software copyrights. The machines are identical inside but they make the outside of the machine look different and put their own logos on the outside covers. In addition, these companies have engaged hackers to crack our proprietary software, which is then sold at rock bottom prices. Sarine invests significant time and resources to protect the technologies but, unfortunately, all software can be cracked eventually.

What is the scale of this illegal activity, in your opinion?

The scale of the activity is not insignificant and everyone in the industry is well aware that this has been occurring over the last few years but limited steps have been taken by the industry to deal with it despite the activities being clearly illegal. In my opinion if a company is willing to blatantly copy our technologies there is a good chance they are involved in additional illegal activities. I believe this raid by the Indian tax authorities is just the beginning of uncovering the true scope of such activities. Until now this was only an issue of technology ‘theft’ but it is now a different matter because tax evasion is basically ‘stealing’ from the Indian government. As a result, the tax and other authorities, who are known to be very strict and aggressive will be pursuing them. I believe there will be significant repercussions from this due to the wide scale of this activity.

What has Sarine done to counter this?

Sarine has patents in India, Israel, the USA, and other countries. We deal with any infringement of our IP very seriously and do not hesitate to take legal as well as other actions at our disposal

Over the years we have also brought this serious issue to the attention of market leaders such as the rough diamond producers, industry organizations, government bodies as well as leading retail diamond and jewelry chains. Alrosa, Tiffany, Signet and many other industry players have sent their suppliers and clients letters warning of the potential implications of the use of infringing technologies. The industry has a responsibility to ensure that the entire supply chain meets high sustainability standards which includes of course, not breaking the law through IP infringement during the manufacturing process. Under US law, shipments of goods that it can be proved to have been manufactured using infringing technologies can lead to the goods being prevented from entering the US market. I believe that the market leaders and industry organizations can take significant steps to ensure the protection of companies who are continuously investing in R&D to keep the diamond industry at the cutting edge of technology and to compete with other luxury segments.

Do you have idea of the range of companies involved?

DBC is not the only company involved in the infringement of our technology and there are several other players both selling copies of Sarine’s Galaxy as well as our planning technologies. Other than the law suit we filed against DBC we have also filed additional lawsuits against some other companies, both for IP infringement of our patents and our software copyrights. These companies are selling the pirated systems and provided services on infringing technology to manufacturers in the industry, many of them large well know names with turnovers of tens or even hundreds of millions of dollars.

Do you believe that the situation will improve and that the illegal activity will end?

I hope that this development will bring about some long-needed change. Diamond manufacturing is already a very challenging business and the fact that some players use cheap pirated technology means that the other players that use legal technologies are at a significant disadvantage as their manufacturing costs are higher. I believe in Karma and that good things happen to good people and vice versa, so I think that there are a lot of very worried manufacturers who have been working with DBC and are afraid that their names and activities will be exposed by the ongoing investigation.

It is obviously difficult to say with certainty what the effect will be, but this may very will act as a strong deterrent going forward.

Overall, we are happy to see action being taken by the Indian authorities and we await further developments with great interest.