The protection of intellectual property (``IP") is not uniform throughout the world, as you might expect. Businesses in third world nations and developing countries, like Brazil, the Asian Tigers, and India, often ignore the existence of patents, copyrights, and other proprietary information, sometimes with the knowledge and even the aid of their governments. Given that the true export of these nations is usually not the actual product being produced and sold (which can be made many other places), but rather the cheap labor used to produce those products, it is not surprising that these nations are uninterested in protecting IP. The developing nations have all of the labor and materials necessary to produce a valuable good at a cheaper price, they simply lack some patent or other exclusionary legal device that is effective in a nation halfway around the world. Enforcement is negligible, if possible at all, and the profits can be enormous. If you were them, would you forbear from producing the product? Probably not. The governments are really not blameworthy either, since their primary interest is to help their own people, and if the only bad result is that some rich industrial nation's businesses end up making less money than they otherwise would, what real harm is there? (Many unemployed and underemployed citizens in the developed nations could probably answer that, but that is another topic entirely.)
Even among the more developed countries and the G-7, there is a high amount of IP infringement and outright theft. Again, the governments involved often do not even bother to mask their support of their ``hometown" malefactors. No nation, including America's own apple pie-fed businesses, can claim purity in the area of IP theft.
Given that any valuable idea that you put into the international marketplace is likely to be stolen, what can you do to limit the losses? The most common method of protecting technology transfers across international borders is a licensing agreement or franchise contract. To enter into such an agreement, the developer or holder of the IP rights in one country must first obtain the legal right to ``own" that same information in another country by filing with the foreign jurisdiction. Of course, this is not as simple as filling out a form, and it almost always requires obtaining local legal help with the foreign nation's IP laws. Once the IP protection is obtained, the holder then licenses the business in the foreign country to use the information or technology in the other country.
The person who is licensing the information to a foreign business needs to be aware that they have lost some measure of control over their IP information at this point. Once you give someone your valuable information, there is the chance that they may give it to to others or simply ignore the licensing agreements terms concerning payment for that information. After all, what are you going to do, sue them? In many parts of the world this would be a laughable threat. So after you give up your valuable IP information to a foreign business, be aware that you have increased the risk of that information being spread to unauthorized parties or used in ways you would not otherwise allow. So spend a fair amount of time and money investigating potential foreign businesses to whom you are considering licensing your IP information.
Patent Protection:
Well over one hundred nations have laws governing what we recognize as patents, so the idea of a patent is one that is widely shared throughout the world. The problem is that not every nation treats patents the same way. Some nations have very strict and established guidelines, such as the U.S., Canada, etc., while others give only nominal protection to patent holders without really providing any protection against infringement.
But most patent laws around the world can be grouped into two basic types. Registration systems require people applying for patents to submit the appropriate documents and fees to the government. The government then issues the patent without any inquiry into whether the patent should be granted. The patent thus granted is then open to challenge by anyone who may infringe upon it later, and the validity of the patent has to be proven before a tribunal who decides whether the patent will be respected by the government.
The second type of patent system is the Inquiry and Examination system, which is like the one the United States currently has. In this system, the business seeking a patent applies to the government from whom the business wants a patent. The government then investigates the state of the art involving the patent application, or a public disclosure of the application is made to allow others to challenge the application. Following this period of investigation or public notice, a patent is either granted or denied based on what was uncovered during the examination period. Once a patent is issued in an Inquiry and Examination system, the courts of that nation usually take it as valid and give it all the legal protections due patents unless it is shown that the patent should not have been issued in the first instance.
There are many agreements between nations concerning reciprocity or mutual recognition of patents, and this may make it easier to obtain a patent in particular countries once one is obtained from your home nation.
The major international agreement concerning the international recognition of patents are the 1970 Patent Cooperation Treaty and the 1883 Convention Union of Paris (which also dealt with trademarks, service marks, trade names, industrial designs, and unfair competition). The European Community has, of course, entered into the EC Patent Convention, under which a single patent is issued and enforceable throughout the EC.
The 1883 Paris agreement gives the basic rules for how the roughly ninety countries who signed the agreement will treat foreigners applying for patents. Under the 1883 agreement, the ``right of national treatment", found in Article 2 of the 1883 agreement, forbids nations from treating foreigners differently than they would treat their own citizens who apply for or own patents. So an American who applies for a patent in France must be treated just as any French applicant would. Similarly, an American who holds a French patent, for whatever it is worth, must be treated by the judicial system just like a French patent holder would. Just as importantly, the 1883 agreement gives patent applicants in their home country ``rights of priority" when filing in another, foreign jurisdiction if the files for a foreign patent within twelve months of filing in its home country. Patent applications in the foreign country are not dependent upon the outcome of their home nation's application. So you could fail to get the American patent but possibly still receive the German and French one. This avoids the need to file a patent in every country at the same time. Of course, you will want to file in all potential markets as soon as possible.
It is important to note, however, that the 1883 Agreement did not alter the rules concerning what is or is not patentable. Those laws are still up the national governments.
The Patent Cooperation Treaty is an agreement designed to reduce the cost of obtaining international patents by implementing more uniform procedures. Rather than submitting an application for each nation, the roughly forty nations which signed the PCT allow inventors or holders of IP to file in certain countries. The patent offices of the United States, Japan, Sweden, the European Patent Office, and Russia are designated as ``International Searching Authorities." An application for a patent in more than one country can be submitted to one of these countries. This triggers a search for any similar devices by the ISA for any previous patents that may cover the relevant area. The ISA then forwards the application along with its search results to any PCT nation where patent protection is sought. Note, however, that each PCT nation still determines whether or not the patent should be granted according to its own laws.
International Patent Licensing:
Licensing is often essential to foreign expansion. Any foreign subsidiary or joint venture will need to have its rights and obligations set out prior to its startup, and a licensing agreement of patent technology is often part of this. Also, licensing patented technology to a foreign firm could avoid the need for relatively large initial outlays in foreign jurisdictions, outlays which may be at risk due to local laws or local political conditions. But licensing still leaves the patent-holder/licensor open to legal risks.
Third-world countries often regulate patent licensing and other forms of intellectual property licensing. Royalty payments may be limited, export restrictions imposed, mandatory grants of technology improvement or other contractual matters are often controlled by foreign law. Clearly, the existence of such laws and their effects must be clearly understood by both the attorneys drafting contracts as well as the businessperson who seeks licensees overseas.
But the third world nations are not the only ones writing laws that seem intent on prying patent rights away from foreign licensors. The European Community's Court of Justice handed down some regulations which have many of the same effects as some third world statutes. The regulations prohibit production restraints, outlaws retail price-fixing by the licensor, forbids the licensor from limiting to whom the licensee can sell, limits a licensor's right to compel licensees to ``grant back" any improvements the licensee makes on the patented product, and preserves a licensee's right to challenge the patent. Moreover, the exclusive licensing agreements, the allocation of ``territory" to licensees, trademark rights, duration of the license, protection of ``know-how" (trade secrets), quality control, and discrimination among licensees are all covered by European Community regulations. Make sure your lawyer is up on all of this before you start talking to that nice German firm interested in marketing your product.
Legal risks are not limited to the regulations directly affecting the licensing of intellectual property. The royalty payments that are due under the marketing contract can be subject to currency exchange regulations, taxation laws, or other regulations which may have the effect of reducing the money which may be taken out of the country by the licensing business.
A license may be combined with a trade agreement where the licensor supplies needed materials or personnel to the foreign licensee. Sometimes such trade agreements are a way to get around limits on royalty payments and other restrictions on the outflow of capital, so again, make sure that your attorney and consultant weave these considerations into your business strategy.
Thank You,
Tony
D. Anthony Bright / CEO / Founder
PDCA Holdings, LLC
2765 Michigan Ave Rd
Cleveland TN 37323
Office # 423-473-1525
Cell Ph # 423-716-5829
FAX # 423-473-1090
e-mail->tbright@pdcaholdings.com
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