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Should Your Company Obtain Foreign Patent Protection?

Posted on Mar 5, 2014 in Articles

This article originally appeared in The Legal Intelligencer on March 5, 2014.

There are 196 countries in the world, and virtually all of them have intellectual property legislation. In today’s global market, international protection of innovation is a must. For a company to grow, it must protect the use, sale and/or manufacture of its technology. In the absence of such protection, technology is copied without permission, and the organizations that invested heavily to develop that technology fail to receive a return on their investment. Thus, if your business is based on proprietary technology, protection of that technology in foreign countries is extremely important.

On many of my flights to Asia, I have had opportunities to chat with business owners who make or sell their products in foreign countries. Sometimes, I am told that foreign patent protection is not desired, often because of the costs of procurement and enforcement. While the owners acknowledge that theft of their technology is certain, the way that they deal with this fact is by continually innovating and staying ahead of their copycat competition. Others tell me that their foreign manufacturing is covered by nondisclosure agreements (NDAs), and hence they don’t see the need for patent protection. Their foreign manufacturing partners have valuable proprietary data that enables the products to be produced. Yet, there is only minimal concern that the technology will be stolen, because of a belief that an NDA provides adequate remedies.

These business owners have declined to obtain foreign patent protection, but perhaps they should reconsider their positions. While the cost of obtaining foreign patent protection can be expensive, the potential market may justify the cost. Companies such as Apple or Procter & Gamble, for example, sell their products in almost every country in the world. If a U.S. company has a market in a foreign country, and it does not obtain patent protection in that country, then it risks unauthorized copying and sales in that country without recourse.

Procurement costs, however, can quickly add up. Simply filing a completed patent application in Great Britain (i.e., without incurring any prosecution or grant costs) can cost around $3,000 (for an application of average size). In China, the costs associated with filing a patent application are around $4,500. In Japan, the costs associated with filing a patent application are more than $7,000. As you can imagine, if a company is trying to protect its technology with patents in more than a hundred countries, the expense can be astronomical.

How does one go about obtaining patent protection in a foreign country? What issues or concerns does a business owner need to be sensitive to?

For small and midsize companies, there are considerable advantages in having a U.S. attorney handle the foreign patent procurement. Fortune 500 companies maintain a large network of foreign attorneys that they repeatedly use for their foreign patent needs. Smaller U.S. companies, however, need to be very careful approaching foreign attorneys directly. A U.S. IP attorney who handles foreign patent work can give value to a client in many ways. For example, when a U.S. attorney works with a foreign firm, the two firms may have reciprocity. In other words, each firm wants to do good work for the other firm so that the two firms will continue to exchange work. This desire for “repeat business” is a strong motivator for the foreign firm to do good quality work. As another example, U.S. attorneys who deal with foreign patent procurement maintain large networks of foreign attorneys in many different countries. These U.S. attorneys know the reputations of their foreign counterparts, and that they provide high-quality service. U.S. attorneys with foreign caseloads also usually have a good sense of how much a foreign attorney should charge, and the ability to question and dispute foreign charges that appear to be too high. Requiring accountability from a foreign attorney is very important for controlling cost.

Each and every country has different rules for filing a patent application and obtaining a patent. Certainly, U.S. and foreign patent procurement has similarities. There are, however, also significant differences. In Europe, for example, claims cannot be broadened after an application has been filed. China has the infamous “Rule 33,” which typically limits claim amendments to actual words that appeared in the patent specification at the time of filing. Singapore has exceptionally complex rules for requesting examination. Canada interprets the “Summary of the Invention” as a limitation on the scope of their claims. Attorneys with significant foreign experience are often familiar with many of these differences between the U.S. and foreign patent systems. U.S. attorneys can draft patent applications with these issues in mind in order to reduce costs and procure patents with greater scope of protection.

Translation costs can comprise a significant portion of the expense of foreign patent filings. Patent applications need to be translated into the language of the country in which the patent will be obtained. For a 25-page patent application, translation into Spanish can cost roughly $2,200, translation into Korean can cost roughly $2,400, and translation into Japanese can cost roughly $4,000. While all foreign law firms offer translation services, there are also independent translation companies that provide translations at a lower cost. Cheaper translations, however, may not be desirable. If an independent translation service makes an error, and the faulty translation is used by a foreign firm as a patent application, the foreign firm will refuse to take any responsibility for the consequences of that mistake.

Experienced U.S. attorneys know, however, that there are ways to reduce cost. The Patent Cooperation Treaty, for example, allows one international patent application to be filed. The international application can later be “nationalized” in individual countries. In this manner, applicants have time to assess the commercial value of the invention before deciding in which countries to expend money and resources. At the time of this writing, 148 countries were members of the Patent Cooperation Treaty.

Similarly, the European Patent Office allows a European patent application to be filed, and examined, while registration in individual countries (along with translations) can be deferred to a later date. Other strategies are available. Sometimes, cheaper rates can be obtained by asking one firm to handle multiple countries. For example, some firms in Taiwan will also handle a simultaneous filing (through their subcontractor) in China. There are many other firms that can handle applications in multiple countries simultaneously.

Foreign patent protection results in more malpractice claims than any other type of claim served against an intellectual property firm. Often, the malpractice claims relate to missed filing application deadlines. Competent U.S. attorneys not only rely on strong docketing systems to ensure timely patent application filings, but they also have many safety measures in place to ensure that their foreign associates have confirmed that the application has actually been filed.

Of course, even if a company owns a foreign patent, that simply gives it the right to protect its intellectual property. If infringement does occur, the cost of stopping the infringement and obtaining damages can be significant. There are ways to try to manage those costs. In some countries, litigation might be the best way to proceed. In other countries, arbitration might be the most desirable option. One litigation jurisdiction in a foreign country may be better than another for adjudicating a particular type of controversy. One arbitrable body may be desired (or required) for a U.S. company over another. Attorneys in each foreign jurisdiction will have personal knowledge of which forums are best for protecting a company’s interests.

Foreign patent protection can be an expensive undertaking, but given the growing markets in which most companies operate, it is often a sound and worthwhile investment.

– by Lawrence Ashery

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