Ethics Corner

November 2005

Unexpected Pitfalls In Offshore Patent Preparation

By Paul F. McQuade

When contemplating the ethical risks facing contractors complying with myriad regulatory requirements, intellectual property often is overlooked.

Apart from accounting abuses—such as using corporate research and development funds to shelter and indirectly recapture cost overruns on government contracts—intellectual property presents potential risks.

For example, certain practices growing in popularity among cost-conscious patent applicants and large-volume patent filers have created an outsourcing boom.

Industrious, imaginative firms offer U.S. companies the opportunity to have their patent applications drafted by engineers and patent agents in countries such as India and Philippines, where wages are low but the pool of engineering talent is considerable. With e-mail as a convenient mechanism for transferring invention disclosures, business managers and in-house counsel pressured to reduce outside costs logically might turn to one of several off-shore vendors to draft patent applications for filing in the U.S. Patent and Trademark Office (USPTO).

The development of these services is a relatively new phenomenon as globalization and outsourcing of all forms reach new heights. However, use of such services can run afoul of regulatory compliance requirements.

Traditionally, the U.S. company that created an invention would initiate patent protection by filing an application in the U.S. and, to the extent international protection was desired, would file under the Patent Cooperation Treaty an application that eventually could be nationalized in those countries where protection was desired. Before filing the domestic U.S. application internationally, a foreign filing license must be obtained.

The foreign filing license does not authorize any offshore technology transfer that takes place between a U.S. inventor and the foreign firm that drafts the patent application. Rather, that technology transfer must be reviewed in advance to ensure that the subject technology does not require authorization pursuant to either the International Traffic in Arms Regulations (ITAR) or the Export Administration Regulations (EAR) for the export.

If the underlying technology is of U.S. origin, then the ensuing technology transfer must undergo the same export controls analysis pursuant to the applicable U.S. regulations, as if the inventor shipped a prototype of his invention to a consultant in India for review. Transmitting technology via facsimile or email constitutes an export.

Another misconception is that the technology passing between the U.S. inventor and the foreign patent preparation service will eventually be published—and therefore “in the public domain.” Then the pre-publication technology transfer constitutes published or publicly available information and is therefore excluded from the EAR.

Inventions exchanged with foreign nationals outside the United States for purposes of patent drafting and later filing with the USPTO does not constitute published information under the EAR, and therefore is not exempt from export control analysis. Once filed, the USPTO, in consultation with the Departments of State and Defense, might issue a secrecy order and ban further dissemination.

Disclosing the substance of the technology to foreign nationals in drafting the patent application offshore therefore raises some troublesome issues. If, for example, the technology forming the basis of the invention is controlled pursuant to the EAR for export to India, the inventor must, absent an exception to the license requirement, secure an export license before transferring technology to an Indian patent drafting company.

Clearly, there are ways to explore ethical cost savings through intellectual property outsourcing. However, contractors should be wary of service providers who promise costs savings without regulatory review. To avoid exposure, the patent drafting company should be asked to produce an advisory opinion from relevant export control sections of the Commerce or State Department supporting the company’s legal opinion that no export analysis is required.

Paul McQuade is a shareholder in Greenberg Traurig’s Intellectual Property and Government Contracts Practices in McLean, Virginia.

The opinions expressed here are solely those of the authors and are not intended to provide legal advice or represent the view of NDIA or the NDIA Ethics Committee.

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