Practitioner Beware: Outsourcing Patent Applications May Be Illegal

Michael E. McCabe, Jr.Outsourcing, Patent Ethics1 Comment

I am solicited on an almost daily basis by overseas organizations offering deeply-discounted patent application drafting services.  It may very well be that such services, which typically originate from countries where there is an abundant supply of technically-skilled labor, can offer a competitive product at significant cost savings compared to fees charged by U.S. patent practitioners for equivalent services.  Thus, there may be a strong financial incentive–especially for university and corporate counsel looking to save on IP legal costs–to “offshore” application drafting and strategically limit the involvement of U.S. patent counsel to discrete tasks, such as “cleaning up” the (foreign drafted) specification or focusing only on crafting the patent claims.

The practice of outsourcing, particularly in the field of patent law, has developed into a multi-billion dollar business with foreign countries, particularly India.  As one source indicates, “inventors, businesses, and even some patent law firms use overseas companies to conduct novelty searches and to assist in drafting and prosecuting U.S. patent applications.”

As a value play, outsourcing patent application drafting and related services seems to make sense.  Moreover, the practice is not going away–if anything, it is exploding.  See Don’t Check Your Ethics at the Door: The Ethical Implications of Legal Service Outsourcing, by Professor Lisa Dolak, Michael E. McCabe, Jr. and Tyler Maulsby, Univ. of Tex. Law School 13th Annual Adv. Patent Law Institute (Mar. 1, 2018).

The question, however, is whether all of this patent preparation and prosecution legal services offshoring is legal?

Maybe not.

What Activity is Covered?

Many practitioners are well aware that when they file a U.S. patent application, the application is initially reviewed by the Office and other departments (including the Department of Defense) to determine if the application discloses technology that implicates U.S. national security concerns.  If the application does not contain such sensitive information, then the USPTO issues a foreign filing license.  Once the foreign filing license (or FFL) is received, the applicant is generally free to file his or her application in a foreign country.

The FFL process is different from the process of exporting technology to prepare a U.S. patent application to be filed in the USPTO.

When an individual, university, law firm, or company in the U.S., without prior authorization from the federal government, outsources patent application and related document preparation services to an overseas source for the purpose of filing that work product in the USPTO, they may be violating U.S. export control laws.

What Is The BIS and the EAR? 

The United States has established a system of controls over the export of technological information.  Such information includes technology that is typically included in a patent application.

Who administers these controls?  Meet “The BIS” and “The EAR”

The BIS, also known as the “Bureau of Industry and Security,” is an office within the Department of Commerce.  According to its website, the mission of BIS is to “Advance U.S. national security, foreign policy, and economic objectives by ensuring an effective export control and treaty compliance system and promoting continued U.S. strategic technology leadership.”

The BIS is charged with administrating, implementing and enforcing the EAR, also known as the Export Administration Regulations (EAR).  Those are the regulations that dictate whether the technology is sensitive enough, or the destination country or use suspect enough, to require an export license.

What Has the USPTO Said? 

In 2008, the USPTO published guidance on the proper outsourcing of technology overseas.  According to the USPTO, applicants who want to export subject matter abroad for the preparation of patent applications to be filed in the U.S. should contact the BIS for the appropriate clearance.  The PTO explained that the Export Administration Regulations administered by BIS govern the export of “technology, including technical data.”  Such “technology” and “technical data” include information included in patent applications.  Consequently, technical data related to inventions made in the U.S. should not be exported for filing U.S. patent applications unless complying with the BIS and EAR procedures and obtaining the appropriate clearance.

So Must I Comply With BIS/EAR Before Offshoring My Application Drafting?

Maybe.  Whether an export license is required depends on the item’s technical characteristics, the country of destination, the end user, and the end use.  The technical characteristics and country of export will dictate whether a license is required for the country of the intended export.  The BIS has developed a “Commerce Control List” (CCL) of products, equipment, and technology that have predominantly commercial applications but may also be diverted for proliferation or military purposes, such as nuclear materials, materials processing, electronics, computers, telecommunications, navigation and avionics, and sensors and lasers.

It should be emphasized that “export” is broadly defined and includes a disclosure, transmission, or transfer, whether oral or in writing, of commodities, technological information, data, and software.  BIS has prepared guidance on the compliance and record-keeping process generally.  See https://www.bis.doc.gov/index.php/documents/pdfs/1641-ecp/file

Even if an item is not specifically designated on the CCL based on its technical characteristics, a license may still be required (and the export could still be prohibited) based upon other factors, such as the destination of the export (such as to an embargoed country), the end-user, and the end-use.

Once one has determined that a contemplated export of technology requires a license, then they will need to submit an export license application.  I understand from practitioners who do this on a regular basis that obtaining such a license is not significantly time consuming, and the BIS can sometimes review and turn around licenses in one or two business days.

Whether anyone has ever actually been disciplined for “offshoring without a license” is unclear.  As of this writing, I have not found a single published USPTO disciplinary decision in which a practitioner was professionally disciplined because they violated the export regulations.

But then again, who wants to be the first?

What About Non-Application Offshoring?

Many outsourcing providers will do more than draft applications.  Searching, for example, is a common service offered by legal service outsource providers.  If someone is looking to have a comprehensive invalidity search performed, then what is being “exported” to the foreign country may be quite limited–such as a patent number.  Furthermore, freedom-to-operate (FTO) searches may not require a client to share or export technology to the service provider.

Is Outsourcing Ethical?

Even if the outsourcing is technically legal (either because it was done with a license, or a license was not required), that is a totally different issue from whether it is ethical.

Practitioners must exercise their jobs with competency, respect the confidentiality of their clients’ confidential information, not engage in unethical fee-splitting, and adequately communicate with their clients at all steps of the engagement.  Practitioners have a duty to supervise as well, and that duty includes overseeing and controlling the work of outsource service providers.

Thus, just because someone complies with BIS/EAR (or is exempt from obtaining a license) does not mean that they have fulfilled their ethical duties to their clients.

Is Patent Outsourcing Going Away?

One might have thought that the warning shot issued by the USPTO back in 2008 may have had a deterrent on offshoring patent application drafting.  At the time, notable commentators such as Gene Quinn of IP Watchdog fame proclaimed the death knell of outsourcing, opining in a post at the time that the PTO’s guidance would “have an enormous impact,” and would lead to the “end patent outsourcing to India.”

To paraphrase Mark Twain, the reports of the death of patent application outsourcing have been greatly exaggerated.

On the contrary, legal service outsourcing is a multi-billion dollar industry.  Moreover, in the patent space, the practice of outsourcing application drafting, as well as search tasks, appears to be growing, with more and more service providers relying upon their cheap labor source to provide their services.

If you intend to move into this area and offshore your patent legal services, caution is the key.  Practitioners need to be vigilant to abide by U.S. export laws and remain mindful of not only their legal duties but also their ethical duties.

 

 

One Comment on “Practitioner Beware: Outsourcing Patent Applications May Be Illegal”

  1. The BIS needs to start enforcing this as this is the first I have heard of it – and it seems no one cared about the 2008 guidance at all. I certainly hadn’t heard about it until now – though I only graduated from law school in 2015.

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