For a number of years, inventors, businesses, and even some patent law firms have used overseas companies to conduct novelty searches and to assist in drafting and prosecuting U.S. patent applications. This outsourcing practice has developed into a multi-billion dollar annual business with foreign countries, particularly India. Recently, the American Bar Association officially authorized the long-standing use of outsourcing by the legal profession, noting that the “outsourcing trend is a salutary one for our globalized economy.” (ABA Ethics Opinion 08-451.)
However, sending technology and data to foreign nationals may violate U.S. export control laws. The U.S. Patent and Trademark Office (USPTO), having “become aware” of the outsourcing of patent prosecution, published a notice in the Federal Register this summer reminding patent applicants to comply with these laws. (Fed. Reg. July 23, 2008, Vol. 73, Number 124, Page 42781.) The USPTO’s patent web portal now requires certification of compliance with export control laws before users may log into the system. These laws provide for severe civil and criminal penalties for the unauthorized export of sensitive technology. It is, therefore, necessary to become aware of the dangers of exporting technology and data in order to avoid inadvertent violation.
The two primary sets of export control laws are the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR). Universities, individuals, and even large businesses are increasingly and unknowingly violating these regulations, which govern the export of both defense-related and commercial products. ITAR contains the United States Munitions List (USML) of restricted articles and services. Any manufacturer or exporter of articles or services found on the USML is required to register with the U.S. State Department’s Directorate of Defense Trade Controls, which helps to validate entities engaged in the defense trade. EAR, meanwhile, contains the Commerce Control List (CCL) of regulated commercial items, including “dual-use” items that have both commercial and military or proliferation applications. Items on the CCL include commodities, software and technology such as, but not limited to, building materials, circuit boards, automotive parts, blue prints, design plans, retail software packages, and technical information. An exporter is responsible for determining whether an export license is required under EAR, based on the item’s classification on the CCL, its destination country, the end-user, and its end-use.
In export control parlance, “export” includes not only the shipment of products abroad, but also technical data which is deemed an export by its mere disclosure or transfer to a foreign national, even if within U.S. borders. With increased global interdependence and connectivity, it is easy to see how violations may occur. Failure to comply with ITAR can result in civil fines as high as $500,000 per violation, while criminal penalties include fines of up to $1,000,000 and 10 years imprisonment per violation. Under EAR, maximum civil files have increased to $250,000 per violation, while criminal penalties can be as high as $1,000,000 and 20 years imprisonment per violation. Consequently, outsourcing intellectual property work to a foreign entity could result in severe criminal punishment.
Sensitive information is often exported when an inventor or company seeks foreign patent protection. Jurisdiction is granted to the USPTO under both EAR and ITAR to conduct security reviews and issue foreign filing licenses, which permit the export of technical data for the limited purpose of filing and prosecuting foreign patent applications. See, (37 CFR 5.11(b).) Although a foreign filing license can be granted within the first six months after filing a U.S. patent application, if no Secrecy Order has been imposed then one is automatically granted after six months, which affords the U.S. government sufficient time for national security review of the technology. Similarly, if a Patent Cooperation Treaty (PCT) application is filed at the U.S. Receiving Office, a security review will be conducted and the application will not be forwarded to a foreign patent office for consideration until foreign filing is granted. See, (PCT 1832.) As a result, it is important to monitor PCT applications to make certain foreign filing is granted before expiration of the time period to enter the national stage in foreign countries. Finally, if the patent application covering technology conceived in the U.S. is initially filed directly with a foreign patent office, the applicant must first petition the USPTO and receive a foreign filing license prior to filing. Failure to obtain a foreign filing license may not only invoke export control laws, but bar U.S. patent protection on the technology.
A foreign filing license is a very limited waiver of export control laws. Its scope is restricted to the subject matter substantially the same as that disclosed to the USPTO. As a consequence, no new matter may be added, even during prosecution of the foreign patent application, unless a new license is first granted for the additional subject matter. In addition, the license is specifically limited to the filing of foreign patents—it remains the applicant’s responsibility to comply with export control laws for any other use, even reporting the filing of a U.S. patent application to a foreign owner.
While outsourcing has become somewhat of a national trend, outsourcing patent work has the potential for severe criminal and civil penalties and the responsibility falls upon the exporter to determine if an export license is required under either ITAR or EAR. Disclosing sensitive technology to any foreigner, even if within the United States, may violate federal law. Counsel experienced in export control matters can help avoid inadvertent violation and the possibility of criminal and civil sanctions.