Industry Tools: Foreign Patent Filing
The USPTO website makes clear the limits of a U.S. patent:
“Since the rights granted by a U.S. patent extend only throughout the territory of the United States and have no effect in a foreign country, an inventor who wishes patent protection in other countries must apply for a patent in each of the other countries or in regional patent offices. Almost every country has its own patent law, and a person desiring a patent in a particular country must make an application for patent in that country, in accordance with the requirements of that country.”
Devising a foreign patent strategy is an important business decision for any technology-based business. As the economy becomes more global, inventors and companies built around inventions must carefully consider whether filing only in the United States provides adequate protection for the intellectual property that is key to the success and growth of their business. In order to protect their investment, VC’s expect there be a plan to address how to handle international opportunities and threats to the intellectual property. It's a popular practice with the United States holding the number one spot in patent filings with the European Patent Office in 2012.
Ignoring foreign markets is less and less an option.Failure to file for protection in foreign markets precludes reaping licensing benefits from potential business partners and competitors there. It fails to prevent competitors from reverse engineering and producing copycat products in any non-U.S. market. The following case study from a 2012 USPTO report to Congress (discussed further below), is illustrative:
A small American imaging firm operated in the market for scanners. The owner had previously
been an employee at Kodak and had a sophisticated understanding of imaging technology. The firm’s scanner products commanded quite high prices in the market, upwards of $10,000 per unit, as the scanners themselves reflected the state of the art. Not surprisingly, a great deal of patented technology and software went into developing and producing the firm’s scanners.
The firm’s owner, however, met with its intellectual property counsel and learned that acquiring
international patent protection, particularly through the PCT process and in light of the translations required for multiple foreign jurisdictions, was procedurally complex and quite expensive. Therefore, management made the business decision to obtain patents only in the United States and in Australia, but not, for example, in Europe, Japan, or China—major trading partners of the United States
Soon after, at an industry conference in Germany, the owner discovered that a German firm was demonstrating scanner products that used the very same core technology that he had pioneered. The German company was well-funded and successful, and was quite candid that it had derived its products from the American inventor and his small business. Yet the German firm highlighted its considerable corporate backing and network of clients and existing service agreements, and carried away a great deal of business as a result. The American inventor consulted his intellectual property counsel regarding the situation in Germany, but learned that he was bound by his earlier economic decision to abdicate patent protection in most foreign countries. Unless the German firm imported its scanners into the U.S., disputing the expropriation was, ironically, not worth the option.
Later, testifying before Congress on this issue, the American small business owner lamented that his intention had never been to drive the German firm out of the market. To the contrary, he would have preferred to do business with them: grant them a license and mutually enjoy the benefit of their resources and distribution networks. Only his early and difficult economic choice left him with no bargaining position. He had unwittingly made a royalty-free donation to an overseas competitor only too grateful to capture the market and the jobs, without taking the risk or expending resources on research and development. (p. 15)
Deciding to file for foreign protection may make sense, but determining by which method and where, is complicated and dependent on a number of factors that may not be known at the time. The myriad of decisions that go into determining whether to file for a US patent is already an involved, expensive, time-consuming and unpredictable decision. (Which attorney should I use? How long will it take? Is there unidentified prior art? Is there someone else in the same area further along the commercialization curve? Is there a licensee ready to combine other technology into a competitive product? How much will it cost?) The same questions apply with regard to foreign filing. Businesses based on technology are more and more expected to address whether to file for foreign patent application, and if so, where and by what method?
The complicated number of options and cost of pursuing foreign patents require skilled counsel in making educated determinations regarding which, if any countries o seek protection in and how and when to best go about executing the applications. Understanding the Patent Cooperation Treaty (“PCT”) options, foreign filing requirements, options for patent review, and Paris Convention provisions is only one part of the equation. The knowledge must then be applied to the specific technology and the markets for it in hundreds of economies. The high cost of foreign patenting occurs early in the life of companies when funding and cash flow is limited. Even when an international strategy can be envisioned, it is little wonder that the costs of filing for foreign patents are simply prohibitive for many start-ups.
The opportunity costs of the failure of US start-ups to obtain foreign patent protection is a question the Smith Leahy American Invents Act directed the USPTO look at. In its report to Congress titled: International Patent Protections for Small Businesses, the USPTO examined the ability of small businesses to protect their IP internationally, and the costs to the US economy of a failure to do so. It also examined possible methods to provide assistance in this area, such as a revolving fund loan program or a grant program to help small businesses defray the costs of filing, maintaining and enforcing international patents. There is a recognition that job creation comes from small businesses and that businesses based on technology have difficulty meeting the expense and decision points involved with preserving the ability to file foreign patents when they are first starting up and filing for US patent protection.
The report, which was compiled with limited time, resources and information, was not able to make policy recommendations with regard to a program of taxpayer-funded financial assistance to support small business foreign patenting. It recommended that the US government engage in diplomacy and harmonization to reduce the costs associated with filing foreign patent applications, and that the USPTO and SBA expand IP education and training initiatives aimed at American small businesses, and engage industry to discuss how best to support U.S. small business efforts to patent internationally.
The take-away message to technology based companies is do not ignore obtaining patent protection in the foreign markets for your product. It could make a world of difference.