In 2015, former President Barack Obama and Chinese President Xi Jinping inked a major cyber non-aggression pact in 2015, agreeing “that neither government would support or conduct cyber-enabled theft of intellectual property,” according to CNBC. This year, President Donald Trump took it a step further, addressing theft of U.S. intellectual property (IP) by levying or threatening to levy import tariffs worth up to $250 billion on China.
Selling abroad? Secure your IP
Worries over intellectual property theft keep American business owners and executives awake at night — whether they’re scrappy founders nursing pre-revenue startups or handsomely compensated C-suite dwellers at Fortune 100 giants. While China gets outsize attention thanks to Xi’s ambitious Made in China 2025 initiative, adequate IP protection is a concern in every international market. U.S. patents and trademarks have no effect overseas, and trade-secret protection is problematic.
“Many people think that a U.S. patent secures your rights outside of the United States, but that’s not the case,” says Jay Erstling, intellectual property advisor at Patterson Thuente Pedersen in Minneapolis. Erstling is the former director of the Office of the Patent Cooperation Treaty and director-advisor to the director general of the World Intellectual Property Organization.
Before venturing abroad, business owners need to think intentionally about the markets they hope to target, the optimal means of securing their IP, and the appropriate U.S. and foreign partners to coordinate with. Pre-planning is much easier — and cheaper — than fighting a rearguard action against foreign counterfeiters and competitors.
Which IP protection is right for you?
First, consult an IP attorney to determine the appropriate types of IP protection to pursue: patents, utility models, trademarks, copyrights or trade secrets (see sidebar). Most forms of IP protection are governed by the Paris Convention for the Protection of Industrial Property.
Contrary to popular belief, patents aren’t always the best option. Trade-secret protection works better for extremely sensitive and hard to discover IP that would devastate your business if disclosed. Coca-Cola refused to enter the Indian market for years because the local law required foreign companies to share trade secrets with local partners — in this case, Coke’s famously secretive formula. Coca-Cola held out until India changed its trade-secret laws in the early 1990s.
Just do it
Next, adopt “use it or lose it” as your mantra. If you plan to file for patent protection in multiple international markets, you’ll need it. Wait too long after lodging your U.S. patent application to file elsewhere, and you cede the world to imitators and copyists. Prospective investors and strategic partners tend to avoid early-stage companies without adequate international IP protection — and, worse, may pull out of deals when due diligence uncovers IP deficiencies.
Under the Paris Convention and the complementary Patent Cooperation Treaty (PCT), patent applicants have 12 months from the date of their first patent application in any signatory state to file additional patent applications in other countries. The easiest route for multimarket applicants is a single filing under the Patent Cooperation Treaty, which entitles you to provisional protection in all 152 PCT contracting states. Patent filings by companies domiciled in PCT contracting states, including the U.S., enjoy “national treatment” in all other PCT contracting states. That is, their patent applications are legally identical to applications filed by local companies.
Another deadline looms 18 months after your first filing. Under the PCT, patent applications must be published “as soon as possible” after this date. Once published, anyone — including international competitors and potential imitators — has access to your IP. This is your true “use it or lose it” deadline.
Technically, you don’t have to do either. Anneliese Mayer, intellectual property attorney at Merchant & Gould in Minneapolis, counsels clients to carefully consider any international business plans during the 12-month gap between the first patent filing (typically the U.S. filing) and the deadline to make foreign filing decisions.
“Use this period to get more clarity on your international-market opportunity, and then determine whether to proceed,” she says.
The PCT filing process extends the timeline for selecting individual countries. This allows more time for an international business plan to evolve before incurring the large expense associated with filing in multiple countries.
It costs about $5,000, give or take, says Mayer.
If you file a PCT application and decide to pursue patent protection in specific national markets, you’ll need to begin filing with the pertinent patent offices a year and a half after the PCT is filed (30 months after your first filing). Once you cross this threshold and enter what’s known in PCT lingo as the “national phase,” your costs will rise dramatically. Depending on the markets, says Mayer, you can expect to pay about $200,000 over several years to file with six national offices.
To keep costs in check, target populous or wealthy markets that align with your business strategy — markets “that you don’t want to be excluded from,” says Mayer. U.S. companies commonly target the European Union, Canada, Mexico, China, Brazil and Australia, she says. Patent protection in non-PCT contracting states isn’t impossible, but it does require a direct filing with the national patent office. Notable non-contracting states include Pakistan, Argentina and Taiwan (which has an IP regime distinct from mainland China).
Find the right local partner
Filing patents with multiple national or regional offices is a big undertaking. You need to make sure that your U.S.-based IP firm has strong relationships with foreign law firms to ensure that your international filings are handled properly.
“You have to talk to a U.S. firm with expertise in your target markets,” says Rachel Zimmerman Scobie, a partner at Merchant & Gould.
Start by partnering with globally networked U.S. IP advisors who understand local idiosyncrasies, says Erstling. The Israeli and Canadian patent-enforcement regimes closely resemble the United States’, so experience with American enforcement actions is a boon in those markets. Germany’s regime is markedly different, limiting North American experts’ efficacy. “For those unfamiliar with national processes, patent-enforcement proceedings can be confusing and scary,” he says.
Patents exist to deter competitors, says Mayer, but they’re not foolproof. Infringement happens all the time. If you can’t devote the resources necessary to enforce a patent outside of the U.S. — a mid-six-figure sum, plus countless work hours — perhaps it’s better to let sleeping dogs lie. A U.S. patent can be used to exclude international competitors from importing their products into the U.S.