The perils of patent outsourcing

Innovators and law firms that outsource their patent drafting to India risk falling foul of US export regulations. Peter Ludwig explains

In recent years, legal process outsourcers (LPOs) have become an integral part of the global legal profession. Although initially treated with scepticism by the mainstream legal establishment, LPOs are increasingly embraced by corporate clients – and sometimes even law firms – that are seeking to rein in expenditure in the face of the global financial downturn.

The outsourcing of intellectual property projects – such as patent drafting and prior-art searches – is one of the fastest growing sectors of the burgeoning LPO industry. The reason is clear: the cost of patent drafting can be lowered by up to 75% when done by an LPO instead of by a US patent practitioner.

Even the American Bar Association, in a recent ethics opinion, has acknowledged that “the outsourcing trend is a salutary one for our global economy,” enabling law firms to “effectively and efficiently” represent clients.

Outsourcing the critical task of patent drafting, however, is not as simple as one might think. Problems often arise even before the LPO has started working on the project. One of the most common stumbling blocks is the fact that patent outsourcing often requires an export licence.

For example, an export licence is required when any information about US-based technology is transferred to a foreign national, even if the foreign national resides in the US.

The export trap

While there has not yet been a case brought by the US government regarding the outsourcing of patent drafting work, this is not to say the issue has been overlooked.

On 23 July 2008, the US Patent and Trademark Office (USPTO) expressed its concern over the practice, stating that “[a] foreign filing licence 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.” The USPTO emphasized that in order to outsource patent drafting work, inventors and patent practitioners must abide by the Export Administration Regulations (EAR) promulgated by the Bureau of Industry and Security (BIS). Following this notice, it is highly likely that the US government will begin to file suits against outsourcers of patent drafting material who do not abide by the EAR.

Export is defined as any “transmission of items subject to the EAR out of the United States”, or any release of technology to a foreign national inside the US. It may take the form of a visual inspection of US-based technology by a foreign national, an oral exchange regarding the technology or the application of US-owned technical expertise in a foreign country.

Peter Ludwig is a former patent examiner at the US Patent and Trademark Office. He is currently a third-year law student at Franklin Pierce Law Center in Concord, New Hampshire, where he focuses on patent law and international law. He can be contacted at ludwigpl@gmail.com.