A call center in New Delhi, India, fields questions from a utility customer in a small town in Pennsylvania. An accounting firm in Mumbai, India, provides back-office services for a growing Texas company. An IT company in Perumbavoor, India, provides Internet support to a manufacturer of amplifiers in Washington state.
With debate over outsourcing growing, should a tech company’s general counsel think about enlisting engineers in India to draft patent applications? The availability of highly trained technical personnel who possess a generally excellent level of fluency in English, combined with a significant cost differential vis-a-vis patent-drafting costs in the United States, make outsourcing to India quite attractive.
That cost differential will only widen, because President George W. Bush signed the Consolidated Appropriations Act of 2005 on Dec. 8, 2004. It significantly increases the fees charged by the U.S. Patent and Trademark Office (USPTO) for filing, searching and examining patent applications. The bill also increased the maintenance fees required to keep a patent in force after issuance. It’s not unusual for GCs to pay attorneys’ fees of $10,000 or more for drafting a patent application and $2,000 for responding to an office action from the USPTO. An office action is a letter from a patent examiner discussing the status of an application for a patent.
The opportunity to obtain these professional services at a discount of 50 percent or more clearly appeals to GCs with a tight budget. However, before sending the company’s sensitive technical information to a patent drafter in India or elsewhere, GCs should carefully consider the myriad of laws that regulate exportation of technology from the United States. Violating these laws can result in unenforceability of a later-obtained U.S. patent, refusal of future export licenses, fines and even imprisonment. Thus, general counsel must ensure that the financial savings of outsourcing are not outweighed by the cost of regulatory compliance and the risk of inadvertent violations.
Of the two stages in obtaining a patent, outsourcing is most attractive in the first phase: patent drafting. During drafting, a patent attorney or patent agent meets with an inventor, learns about the technology, and prepares a patent application that discloses and claims the invention in accordance with the somewhat Byzantine requirements of the USPTO. During the second phase, patent prosecution, lawyers typically present arguments to the patent examiner in support of allowance of the patent. A lawyer makes his argument between the time he files the application and the USPTO issues the patent.
Although GCs potentially could outsource both phases, patent-drafting is the best candidate for two reasons: the larger attorney cost during this phase and the need for frequent interaction with the USPTO during the prosecution phase.
Once an applicant has filed a U.S. patent application, he can, generally within a one-year window, file corresponding applications in foreign countries, either directly with the foreign patent offices or under an international treaty known as the Patent Cooperation Treaty (PCT).
The Invention Secrecy Act (ISA) of 1951, 35 U.S.C. 181-188, plays an important role in foreign filings. It requires that before an applicant can file an international or foreign patent application on an invention made in the United States, it must obtain a foreign filing license from the USPTO. The USPTO reviews every U.S. patent application upon initial filing to determine whether it should grant a foreign filing license. In the vast majority of cases, it does. On rare occasions, however, if the USPTO determines that disclosure of the subject matter of a U.S. patent application would harm national interests, it will impose a secrecy order prohibiting such disclosure. If an applicant wants to file a foreign or international application on an invention made in the United States without first filing a U.S. patent application, it can make a request for a foreign filing license to the USPTO without concurrently filing a U.S. patent application.
The intent of the ISA was to allow the USPTO to evaluate the national security interest potential of technology developed in the United States before the inventor disseminates the technology to foreign countries. However, technology has rendered the act somewhat obsolete. Today it is quite simple to fax or e-mail a description of new technology to a foreign national for preparation of a patent application, receive the prepared patent application back by e-mail and file the original application first in the United States. While such an action complies with the letter of the ISA, it may run afoul of various other export regulations � the repercussions of which may be severe.
Export controls apply not only to the export of physical goods but also to the transfer of technical information and know-how. Various departments and agencies within the federal government have enacted regulations to control this transfer. For example, the U.S. Department of State’s Directorate of Defense Trade Controls regulates technology relating to military applications in accordance with the Arms Export Control Act and the International Traffic in Arms Regulations. The U.S. Department of Commerce restricts or prohibits exports to certain countries through the Bureau of Industry and Security. Thus, export of technology in any of these areas would be extremely dangerous absent a thorough review of the regulations promulgated by all of these various agencies.
More pertinent, however, to most patent applications are the export regulations relating to dual-use technology that may have commercial and potential military applications. Various agencies promulgate regulations that may affect export of dual-use technology. Among them is the U.S. Department of Commerce’s Commerce Control List (CCL). The CCL classifies technology into many different export control classification numbers (ECCNs). Depending upon the ECCN into which a certain technology is classified, the technology may be eligible for a license exception, may be eligible for export to some destinations with no license required or may require a license for export to all destinations.
Therefore, if a certain technology falls into a classification allowing export with no license required or export under a license exception, a patent practitioner may be able to self-classify the technology under the appropriate ECCN and export the technology without further procedural restrictions. However, because the liability for violation of the export regulations may be severe, a high degree of certainty of proper classification and appropriate recordkeeping is required. If, of course, the technology is such that a license is required, the applicant would need to make the appropriate application for license.
In light of the large number of regulatory agencies that limit or prohibit sending patent data overseas, outsourcing patent-drafting has the potential for significant advantages and significant risks. If foreign firms � particularly those in India � develop expertise in patent-drafting as they have done in the fields of back-office support and software development, the potential exists for GCs to obtain a good quality product at a reduced apparent cost.
In certain instances, particularly in the case of a company whose technology falls regularly within a certain classification, the cost of investigating and complying with the regulatory framework may be merited if a significant volume of related patent applications may then be outsourced.
On the other hand, for those companies whose technology spans numerous classifications, and for law firms that receive patent application drafting requests from many different clients in many different technological areas, the cost of regulatory compliance may well outweigh any financial gain. In either case, outsourcing of patent drafting should be undertaken only after careful research and with eyes wide open.
Jonathan P. Osha is a partner in Houston’s Osha Liang, which focuses on intellectual property law. He graduated from George Mason University School of Law and holds a bachelor of science degree in electrical engineering from Cornell University.