Dr Kumar is Vice President, Patent Operations at Clairvolex, a premier Indian IP outsourcing company. He is a Ph.D in Bio-Chemistry from Delhi University and a registered Indian patent agent. Prior to Clairvolex, he was practising patents at Lex Orbis, a premier IP firm in New Delhi.
It ought not to be lost on our readers that Dr Kumar’s note comes at a time when the US and many world markets are taking a beating and many patent clients are looking to cut costs. Although LPO’s are not just about “cost arbitrage”, cost cuttings are a major driver of this booming legal sector.
USPTO Notice on the “Scope of Foreign Filing Licenses” – Implications for the IP Outsourcing Industry
A recent USPTO notice titled “the Scope of Foreign Filing Licenses” has been widely discussed in the context of its impact on the IP outsourcing industry. The language in which the notice is worded probably prompted a commentator to ask if “it sounds like the Death Knell for Indian LPOs” . The stated purpose of the notice is rather straightforward. It is in the form of a reminder to patent applicants and registered patent practitioners that a foreign filing license does not authorize them to send invention disclosures abroad to draft patent applications for eventual first filings in the United States. This article analyzes the implications of this notice, (if any), on the emerging IP outsourcing industry.
The Objectives of the Notice
The notice is titled “the Scope of Foreign Filing Licenses”. This means the objective of the USPTO is to explain the scope of the foreign filing licenses issued under Part 5 of Title 37 of the Code of Federal Regulations (CFR) . The notice, which essentially is a reminder to patent applicants and registered patent practitioners, carries two messages:-
a. The export of subject matter (read invention disclosures) abroad (read to a country like India) pursuant to a foreign filing license is limited to purposes related to the filing of foreign patent applications.
b. Applicants who are considering export of subject matter abroad (meaning thereby sending invention disclosures from the United States to a country like India) for the preparation of patent application to be filed in the United States should contact the Bureau of Industry and Security (BIS) at the Department of Commerce for appropriate clearances.
The supplementary information of the notice further explains that the PTO has been receiving requests for foreign filing license with “short abstracts, PowerPoint® slides and even titles of the invention as the disclosure”. A foreign filing license granted on the basis of such a short description of the invention may not authorize filing abroad the ultimate resulting patent applications and may not authorize any additional material added after the initial request for foreign filing license. By implication, a request for foreign filing license must accompany a disclosure sufficiently describing the invention, though the notice does not specify what constitutes a sufficient disclosure. The notice however states that a foreign filing license obtained, basing itself on a short technical disclosure may not authorize a resulting foreign application with additional material.
Foreign Filing License
At the outset, it is important to know what the US law says with respect to foreign filing license. The rules concerning foreign filing license are codified under 37 CFR Part 5. According to the rules, a foreign filing license must be obtained to file a patent application abroad for an invention made in the United States, if the applicant does not intend to file a US patent application or if the foreign application is filed before 6 months of filing the US patent application . The license must be obtained before filing such foreign patent application including any modifications, amendments, or supplements thereto or divisions thereof or for the registration of a utility model or industrial design .
37 CFR 5.11(b) explains that a foreign filing license would also authorize the export of technical data abroad for purposes relating to the preparation, filing or possible filing and prosecution of a foreign patent application without separately complying with the regulations contained in 22 CFR parts 121 through 130 (International Traffic in Arms Regulations of the Department of State), 15 CFR parts 730–774 (Regulations of the Bureau of Industry and Security, Department of Commerce) and 10 CFR part 810 (Foreign Atomic Energy Programs of the Department of Energy). Here arises the first issue for consideration – Does the scope of a foreign filing license as articulated in 37 CFR 5.11(b) confine to the preparation, filing or possible filing and prosecution of a foreign patent application? The notice says it does. And the notice goes onto clarify that – “a foreign filing license from the USPTO does not authorize the exporting of subject matter abroad for the preparation of patent applications to be filed in the United States” and advises applicants to contact the BIS for appropriate clearances. This necessitates a review of the provisions contained in 15 CFR Parts 730-774 .
The Bureau of Industry and Security (BIS), the Export Administration Regulations (EAR) & the Commerce Control List (CCL)
The Bureau of Industry and Security (BIS) is an agency under the US Department of Commerce responsible for implementing and enforcing the Export Administration Regulations (EAR), which regulate the export and re-export of most commercial items. The items regulated by the BIS are often called the “dual-use” items, which means that the item can have both commercial and military or proliferation applications. A comforting statement in the BIS’s ‘Introduction to Commerce Department Export Control’ is that “a relatively small percentage of total U.S. exports and re-exports require a license”.
License requirements are dependent upon an item’s technical characteristics, the destination of export, the end-user, and the end-use. The exporter must determine whether the export requires a license. The BIS recommends that ‘When making that determination consider what is being exported, to where, who will receive the item and what will it be used for’ . The Commerce Control List (CCL) refers to a list of controlled technologies (covered items) under the export control jurisdiction of the Bureau of Industry and Security (BIS). CCL contains 10 categories of controlled items:
Category 0 – Nuclear Materials, Facilities & Equipment (and Miscellaneous Items)
Category 1 – Materials, Chemicals, Microorganisms, and Toxins
Category 2 – Materials Processing
Category 3 – Electronics
Category 4 – Computers
Category 5 (Part 1) – Telecommunications
Category 5 (Part 2) – Information Security
Category 6 – Sensors and Lasers
Category 7 – Navigation and Avionics
Category 8 – Marine
Category 9 – Propulsion Systems, Space Vehicles and Related Equipment
Each of the [above] categories is divided into 5 Product Groups:
A. Systems, Equipment and Components
B. Test, Inspection and Production Equipment
Items subject to the EAR that are not controlled by the CCL Category or do not fall under any other category in the CCL are designated by the number EAR99. EAR99 items generally consist of low-technology consumer goods and do not require a license in many situations. However, if the export of an EAR99 item is to an embargoed country, to an end-user of concern or in support of a prohibited end-use, a license may be required. It may be noted that the export control laws apply only to those technologies that are covered in the CCL category or by the EAR99. The technologies that do not fall under the above mentioned categories would not attract the export control laws.
Numerous technical fields where inventive activities take place regularly seem to be falling under the 10 categories of controlled items listed in the CCL. As such, it becomes mandatory for US patent filers to carry out an export clearance check before sending invention disclosures to India for the purposes of drafting patent applications. So, the following points emerge from the analysis:
a. US patent filers should not consider a foreign filing license as the authorization required to send invention disclosures to India for drafting a complete patent application
b. US patent filers must conduct an export clearance check before sending invention disclosures to India for drafting patent applications
c. If the export clearance check reveals that the subject matter is a controlled item, the US patent filer must seek the necessary clearance from the BIS.
Now let’s look at how the notice impacts the IP outsourcing industry in general.
Implications for the IP Outsourcing Industry
The following propositions capture the implications of the USPTO notice on the IP outsourcing industry:-
A. The notice will have no bearing on any IP service rendered by an Indian vendor relying on publicly available information such as published patent applications, issued patents, expired patents, and the information available at the Public PAIR of the USPTO’s website.
B. Examples of offshore IP services that will be unaffected by the notice are:
(1) Invalidity Search: Search for identifying arts that can be used to invalidate a patent. Invalidity search does not involve sharing of technology between an instructing client in the United States and a vendor abroad, in a country such as India. All that needs to be shared is the number of the patent that is to be validated. The instructions will trigger a search and analysis, mainly of the File Wrapper which is again available to the public; leading to identification of potentially damaging disclosures are grounds that could be used to invalidate a patent.
(2) Proofreading of issued US patents. A pre-cursor to correct errors in an issued patent caused by the PTO or by the applicant by filing a certificate of correction is to proofread the patent. Proofreading involves comparative review of the patent application and the issued patent in light of the various prosecution steps (such as claim amendments) as captured in the File Wrapper. So, the notice has no bearing on this activity as well.
(3) Freedom-to-operate (FTO) search. Search and analysis to identify patent applications or patents that could potentially block the freedom to market a new product or process does not require the client to share/release/export technology from the United States to an overseas destination where a vendor rendering such service is located.
(4) Remote Electronic Docketing is a major service line in the Indian IP offshoring space. The Indian outsourcing vendors, especially those who are backed by established IP law firms, are able to deliver high quality (read error free) docketing services remotely to US corporations. The USPTO notice has no direct bearing on docketing services. However, it could be argued that the Indian docketing personnel must not be given access to an invention disclosure stored in the same server. This is easy to achieve by configuring an appropriate access level.
(5) Office Action Response Aid – Some of the Indian vendors, especially those having knowledge of US patent prosecution, help US companies write technical summaries of the grounds for claim rejections cited by the Examiners. Typically these are technical summaries and do not contain qualitative statements or opinions. The Office Actions are available in the Public PAIR so are the filed applications and voluntary amendments, if any, made prior to the issuance of the office action. Therefore, the notice will have no bearing on this service as well.
(6) Novelty Searches. If a client in the United States wants an Indian vendor to conduct novelty searches, the client will be required to send a technical description of the subject matter to be searched upon to India. The vendors would typically have a standard format in which the search inputs/submissions are captured. Based on the search inputs/submissions, the searchers will develop the search strategy (the choice of databases, the search methodology (the parameters used for the search), the key words, the key strings, narrowing down the results, enlisting the most relevant art in the order of relevance etc.). The following questions arise for consideration:
a. What extent of technology needs to be disclosed for a searcher to perform a sophisticated and targeted novelty search?
b. Whether a client needs to disclose the invention, fully or even partially, for a searcher to develop the search strategy?
c. Can the search input be such that it does not amount to export of technology to an overseas destination by a US client?
It is very much possible that the technical description required to perform a novelty search can be articulated in a manner that does not amount to sending the complete invention disclosure abroad, warranting an export control check.
(7) Patent Licensing Support Services such as claim charting & product to claim mapping. These services strictly employ publicly available information and the notice will not have any bearing on them.
(8) White space analysis, patent mapping, technology landscape studies. No invention or confidential or proprietary technology needs to be shared with an overseas vendor to perform white space analysis, mapping and landscape studies. As such, the notice will not have any bearing on these services lines.
(9) File Wrapper Analysis for litigation or licensing support is performed on the basis of the documents available at the Public PAIR of the USPTO and does not involve release of technology by a US company to an overseas vendor.
(10) Paralegal Services. This is a major service line in the Indian IP outsourcing industry and does not strictly confine to the prosecution of patent or trademarks application at the USPTO. Many vendors, especially the ones promoted by IP law firms, have substantial knowledge of managing global patent and trade marks portfolios. The functions include – IDS management, recordal of assignment/change of name, attending to missing part filing, management of correspondences with associates, and a number of paralegal services connected with IP prosecution. Some of these services are closely linked to docketing, and some can be delivered stand alone. As in the case of docketing, so long as the paralegals have no access to invention disclosures, the USPTO notice will have no bearing on these services. It is feasible to configure restricted access and ensure that a paralegal does not get access to invention disclosures.
In addition to the above, numerous Client-Specific IP functions that the Indian vendors handle do not require release of technology from the US corporations to Indian vendors. A recent study by Value Notes reveals how rapidly the Indian IP outsourcing space is evolving. The services that drive the growth of this space include patent searches, analytics, docketing, paralegal and prosecution support functions. These are scalable services that are run on robust processes deployed alongside docketing platforms. And as such, they are scalable. The hiring, training and retention of personnel can be much faster in these areas as compared to patent drafting and patent illustration. US companies who have taken the lead in IP outsourcing see substantial value in off-shoring a variety of paralegal functions and in discovering newer functions that can help them reduce costs, turnaround time and maintain a highly efficient and lean in-house IP department.
Therefore, rendering the final analysis the USPTO notice:
(A) Will have no or little bearing on the majority of the services rendered by the Indian outsourcing industry
(B) Has no bearing on the drafting of patent applications by Indian vendors based on inventions made in India at the R&D facilities of US corporations – a trend that is on the rise
(C) Has no bearing on the huge amount of off-shore IP work originating from the rest of the world.
Accordingly, the USPTO notice will not adversely impact the growth of the Indian IP outsourcing industry. As someone jokingly put it, the notice on the contrary helps the Indian vendors to add another service line – export clearance check! From a practical point of view, many high quality patent attorneys involved in managing off-shored IP functions in India believe that patent drafting is not a candidate function for a scalable off-shoring program. But, this can be the subject for another debate and an extensive analysis. US corporations will continue to drive IP outsourcing forward so long as it makes better business sense to them. Outsourcing IP functions by US companies to Indian vendors is a credible, and by now empirically validated value proposition. Regulatory barriers seldom withstand the forces of globalization. The free movement of services across the nations will continue to rise in an increasingly ‘flattening world’. Quality, management advantages and cost savings will continue to drive forward the fast emerging IP off-shoring space.