Protecting Your Technology Overseas
By: ADONIS A. NEBLETT & RICHARD E. WEINER
September 2009
As an American company, you know how to protect your technology in the United States, whether through agreements, trade secrets, or patents. You sign confidentiality agreements or non-competition agreements with business partners and customers so that they cannot disclose your proprietary information to third parties or compete with you, and to ensure they use proprietary information about your technology only for specified purposes. You also most likely file applications with the U.S. Patent and Trademark Office to obtain patent protection for your proprietary information and technology. Finally, you may also sign license agreements with your business partners and customers allowing them to use your proprietary information only in the manner you prescribe. While these measures may work in the United States, such measures may not adequately protect your technology and trade secrets overseas.
Confidentiality agreements that would be enforceable in the United States may be invalid in foreign countries. Courts in many foreign jurisdictions have considerable latitude in enforcing agreements between their domestic companies and foreign companies. They consider factors such as whether the obligations placed upon their corporations/individuals are fair and reasonable and whether duress or coercion played roles in the decision to sign the agreement. Courts in foreign countries may take the same approach to enforcement of non-competition agreements—sometimes held invalid by foreign courts on grounds that they are void for public policy reasons, e.g., undue restriction. While license agreements are often found to be enforceable by foreign courts, royalties or other payments that your business partner/customer may be required to pay you for use of your proprietary information may be subject to corporate income tax. Many foreign countries impose a tax on payments for transfer or licensing of technology from abroad.
While the above forms of agreements provide different types of protection, they may not adequately protect your technology overseas due to the obstacles to enforcement mentioned above. If you really want to protect your technology abroad and are concerned about these obstacles, you need to strategically file patent applications directly in individual countries and/or file an international patent application (referred to as a PCT application), which will allow you to later file the same patent application in participating countries of your choice. More than 130 countries participate through various conventions and treaties in the international patent process. While a PCT application does not itself become a patent, it does preserve future rights to file a patent in any country that is party to these conventions/treaties. Once you file a PCT application you may have from 18 to 32 months to make a final decision to file in individual countries. If you first file a U.S. patent application, you have one year from that filing date to file a PCT application or a foreign patent application.
PCT applications are an important cost-management/strategic tool since they allow you to monitor and evaluate your markets and make informed decisions about where to file. In the PCT application process you will receive preliminary opinion on your technology’s patentability, giving you a sense of possible technical challenges to obtaining a patent or whether the path will be relatively smooth to patenting at least some aspect of your technology. This can be important information in your decision to incur the significant costs of filing patent applications directly in foreign countries.
As you think about filing patent applications internationally, also consider what aspects of your technology merit the financial investment of patent protection and whether those aspects can readily be reverse-engineered. If they cannot, trade secret protection may be sufficient. While agreements may face certain obstacles to enforcement abroad, patents issued in foreign countries where you have a market may be the best protection for your technology—enforceable by the foreign courts.
Filing patent applications abroad makes sense to bolster your position abroad, as it provides a tool for revenue generation through exclusion of others from use of your proprietary information and technology or through the licensing of patent rights. If you file only a U.S. patent application, your competitors may be able to use the technology disclosed in your U.S. application to compete against you in foreign countries. This may be reason enough to file a PCT application or to file directly in countries where you most want to protect your market share and competitive advantage. Be aware that, under certain circumstances, a U.S. patent may be enforceable in the United States against a U.S. company that participates overseas in the manufacture or sale of U.S.-patented products.
While there are significant costs involved in filing patent applications, you can manage costs by being strategic about where you file and by focusing foreign patent applications on select aspects of your technology. It is important to consider filing in countries where your current or future markets exist. Your license agreements with foreign business partners/customers will have a different level of enforceability if the technology behind them is protected by patents in the countries where your licensees’ operations are located.
Takeaway
Protecting proprietary information overseas solely through agreements can be tricky business. However, strategic filing for patents abroad can provide additional levels of protection for your technology and your market position.