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Many companies grapple with the high cost associated with obtaining patents. That’s why virtually every sizable organization is considering some form of patent outsourcing as a means of dramatically reducing costs in its patent process. Even the U.S. Patent and Trademark Office is considering it. Under the patent office’s “strategic initiative,” the PTO will attempt to outsource some of its work. The PTO is considering quite a mild alternative, however-requiring all work to be done by U.S. citizens on U.S. soil under very constrained conditions. Still, this shows that even the patent office is assessing whether some, or maybe all, of its work could be done less expensively outside its own walls. Is this true for all law firms? By some estimates, 60% of all legal work by 2016 will be done in India. India has the cost advantage: A major U.S. firm usually quotes the cost of $10,000 to $15,000 to prepare and file a patent application; that patent application can be prepared for $2,500 to $3,500 in India. This makes it four to five times cheaper to do the work in India. Who can ignore this economic fact? The issues of outsourcing and offshoring present a relatively small number of points that need to be considered. The outlook for patent practitioners is not all doom and gloom-they can find new business opportunities from the inevitable outsourcing that will occur. As a threshold issue, outsourcing and offshoring are two very different models. Outsourcing is simply sending work from one organization to another. U.S. law firms have conventionally outsourced the preparation of certain patent functions: formal drawings, certain clerical patent functions and searches. This outsourcing sends the work to organizations with lower overhead. Outsourcing of patent application drafting has been suggested-for example, a U.S. law firm could use nonlawyer engineers for technical writing of patent applications. Offshoring means the work is sent outside the United States. The work presumably is sent to a country like India or Ireland that has a supply of skilled technologists with good English language skills and relatively low labor rates. Virtually any patent-related task can be sent to such an offshoring organization. Captive firm or independent contractor There are two major models for offshoring: the captive firm model and the independent contractor model. Under the captive firm model, a U.S. firm opens a private office in, for example, India. Dedicated local managers are hired to train the local people. Everyone in the office works for the single firm. This requires a huge investment by the law firm opening the office, but in return provides the best offshoring service. The independent contractor model requires almost no financial commitment from the sending firms. Work is sent to an independent contractor that accepts work from many different parties, presumably from multiple law firms and institutions. Offshoring is not without its significant problems, however. Need for quality work is an important factor It is crucial that the work done by the offshoring organization be of the highest quality. Patent enforcement often rises and falls on a single word in the patent. Additionally, recent law from the U.S. Court of Appeals for the Federal Circuit makes it increasingly important to have the patent filing exactly right when it’s first submitted. Can the work ever really be as good as what a quality U.S. practitioner would do? The consensus among professionals is that sufficient training can produce quality patent work. Indian engineers are among the most ambitious in the world. The India Institute of Technology is 10 times more competitive than any university in the United States. The graduates of this and other prestigious Indian universities are highly motivated individuals who certainly can be trained to do the work. However, many observers agree that it takes two years of training before a group starts producing economies of scale. The investment in such an endeavor becomes staggering. Even after work is sent to a trained offshore specialist, that work will never be sent out without an attorney in the United States carefully reviewing it and comporting it to the highest standards. This is no different from a law firm model in which a senior partner gives work to a junior associate. That junior associate does the work, which is then reviewed by the senior partner. What about the market perception of the value of an offshore-drafted patent? Patent applications are often filed as a valuation tool. The venture community may look with disfavor on an offshore-drafted patent. It probably makes less sense to offshore patent work in a situation where valuation is crucial. Even so, while there is a training issue involved in offshoring patent work, the economics make offshoring very attractive. Practitioners will need to adapt to using $30/hour Indian specialists in place of our in-house $300/hour junior colleagues. Will there really be that much of a price advantage from offshoring? The work is initially billed at a much lower rate. That work is then reviewed by a U.S. attorney. If the training has been successful, the overall costs will still be less. What about the office action responses and other patent-related matters? The Indian firms believe that they will be able to do the work on all aspects of patent prosecution-including office actions. A sufficiently trained Indian specialist may be able to do this cost-effectively. There will be other costs, but there remain savings to be had this way. Some Indian professionals have suggested that price is not the only reason for offshoring. Both in-house and law firm patent attorneys have substantial workloads. Offshoring may be a way of getting that work to someone else, to free up resources internally. Export administration issues still remain Perhaps the most difficult issue confronting offshoring is export control. There are two distinct bodies of export control laws. The Patent Office itself requires companies to obtain an export license to file or send a patent application of any type outside the United States. This applies only to patent applications-that is, when the information has been written into patent application form. The patent office’s version of export control does not restrict export of raw technology. However, the export administration arm of the Commerce Department enforces extensive export regulations. Under the agency’s export administration regulations, “technology” is specific information necessary for the development, production or use of a product. The rules extensively regulate any export of “controlled technology.” Many things, including “computer-related technology,” are subject to export control. The specifics of what the regulations control lie beyond the scope of this article, but almost any technology may be subject to export controls. If a technology is export-control regulated, it cannot be sent outside the United States or even shown to a foreign national. Under the so-called “deemed export rule,” an export is considered to have taken place when technology is released to a foreign national, even if that foreign national is in the United States. Technology is released for export when it is available for foreign nationals for visual inspection, when exchanged orally or when made available under the guidance of persons with knowledge of the technology. This broad definition encompasses virtually all forms of technology to all non-U.S. citizens. However, the Commerce Department will grant export waivers for technology. Even though export control is another bump in the road to offshoring, law firms may be able to develop billable expertise in identifying and obtaining government waivers for controlled technology. Confidentiality and privilege issues Sending information offshore requires sending confidential information to someone who is not a U.S. attorney, not subject to U.S. privilege law-in fact, not subject to U.S. law at all. The action arguably is a waiver of privilege and confidentiality on its face. Under the captive law firm model, lawyers can contract directly with the specialists doing the work. The independent contractor model is more problematic. Companies may well be sending their crown jewel technologies to individuals who have no legal requirement to keep them confidential. This lack of confidentiality presents a problem, but an argument could be made that, because there are only two degrees of separation between virtually every ambitious Indian practitioner, anyone who appropriated information like this would be found out and never would work again. Not an entirely satisfying answer, but perhaps the one law firms need to accept unless they are going to open a captive office in India. Chapter 37 � 1.56 of the Code of Federal Regulations imposes a duty of disclosure to the U.S. Patent Office of all information that is relevant to the patent application. When a company offshores patent work, a whole new group of people become subject to this duty of disclosure. In the independent contractor model, this may include knowledge learned from completely unrelated casework. While there are pitfalls, offshoring has huge potential cost savings. If handled correctly, this can be a win-win situation for everyone. Scott C. Harris is a principal in the San Diego office of Fish & Richardson, where he focuses on patent prosecution and counseling, with an emphasis on patent strategies for forming and maintaining a patent portfolio. He can be reached at [email protected].

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