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Ethical Issues in Foreign Patent Practice: Compliance and Filing

This article explores the ethical issues associated with filing and prosecuting patent applications in foreign countries, including compliance with foreign filing license requirements and export controls. It discusses the ethical rules that may be implicated by the export control regime, the responsibilities of lawyers in foreign patent practice, and the penalties for foreign filing without a foreign filing license.

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Ethical Issues in Foreign Patent Practice: Compliance and Filing

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  1. SHOOK March 7, 2019 Ethical Issues Associated with Filing and Prosecuting Applications in Foreign Countries and Compliance with Foreign Filing License Requirements and Export Controls

  2. SHOOK Overview • 1. Ethical Rules That May Be Implicated By The Export Control Regime • 2. Foreign Filing Licenses • 3. Export Controls Under ITAR & EAR

  3. SHOOK Ethics and Foreign Patent Practice • Rule 1.1 - Competence • A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. KRPC 1.1 • Competent representation can also be provided through the association of a lawyer of established competence in the field of question. KRPC 1.1, comment [3]. • To comply with Rule 1.1, a U.S. practitioner typically associates with a foreign practitioner located in the foreign country of interest.

  4. SHOOK Ethics and Foreign Patent Practice • This association raises several other ethical duties. • Several obvious issues of working with vendors, such as • Rule 1.6 (confidentiality) • Rule 5.3 (responsibilities regarding nonlawyer assistance) • But also some not so obvious issues, such as • Rule 1.2 (advising a client re potential criminal conduct) • Rule 5.1 (responsibilities of partners, managers, and supervisory lawyers) • Rule 8.4 (misconduct)

  5. SHOOK Ethics and Foreign Patent Practice • Rule 5.3 – Responsibilities Regarding Nonlawyer Assistance • Lawyers with managerial authority within a firm must make reasonable efforts to ensure that the firm takes steps to assure nonlawyers do not breach the Rules of Professional Conduct. • The above also applies to lawyers having supervisory authority over the nonlawyers. • Lawyers can be responsible for breaches by nonlawyers.

  6. SHOOK Ethics and Foreign Patent Practice • Rule 1.6 - Confidentiality • A lawyer shall not reveal information relating to representation of a client unless the client consents after consultation. • By virtue of Rule 5.3, neither shall a foreign practitioner hired by the lawyer.

  7. SHOOK Ethics and Foreign Patent Practice • Rule 1.2 – Scope of Representation • A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal. But a lawyer may discuss the legal consequences of any proposed course of conduct with a client.

  8. SHOOK Ethics and Foreign Patent Practice • Rule 5.1 – Responsibilities of Partners, Managers and Supervisory Lawyers • A partner in a law firm, and a lawyer possessing managerial authority in a law firm, shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers in the firm conform to the rules of professional conduct. • A lawyer having direct supervisory authority over another lawyer shall make reasonable efforts to ensure that the other lawyer conforms to the rules of professional conduct.

  9. SHOOK Ethics and Foreign Patent Practice • Rule 8.4 – Miconduct • It is professional misconduct for a lawyer to commit a criminal act that reflects adversely on the lawyer’s honesty, trustworthiness, or fitness as a lawyer in other respects.

  10. SHOOK Foreign Filing Licenses

  11. SHOOK Foreign Filing Licenses • The Foreign Filing License (“FFL”) process is administered by the USPTO • 35 U.S.C. 184 provides a general prohibition on filing a patent application in any foreign country in respect of an invention made in the U.S. unless a license is obtained from the Commissioner of Patents

  12. SHOOK Foreign Filing Licenses • To obtain a FFL, an inventor/applicant must petition the USPTO for the license. • Filing a Nonprovisional application or a PCT application in the USPTO is deemed to automatically include a petition for a FFL. • Filing receipt typically indicates the FFL is granted.

  13. SHOOK Foreign Filing Licenses • If the filing receipt does not indicate the FFL is granted, the applicant can foreign file 6 months after filing the U.S. application so long as no secrecy order has been entered under 35 U.S.C. 181. • Alternatively, a petition may be filed with the USPTO requesting a FFL. • An expedited petition is possible under 37 CFR 5.12(b) for a fee ($200)

  14. SHOOK Foreign Filing Licenses • The scope of a FFL is limited to activities related to obtaining foreign patent protection for the invention described in the U.S. application or petition. • Subsequent modifications, amendments, and supplements are permitted under the FFL so long as: • the general nature of the invention is not modified • not an application required to be inspected under 35 USC 181

  15. SHOOK Foreign Filing Licenses • Penalties for foreign filing without a FFL may include: • Barred from obtaining a U.S. patent for the invention, or if U.S. patent was issued then it is invalid • Criminal penalties for willful violation • Up to $10,000 fine • Up to 2 years imprisonment • Remedy available retroactively for failure to procure FFL • If filed w/o FFL through error • Does not disclose an invention within the scope of 35 U.S.C. 181

  16. SHOOK Foreign Filing Licenses • Side Note • Countries with some type of FFL requirement according to WIPO • Armenia, Azerbaijan, Belgium, Bulgaria, Canada, China, Cyprus, Denmark, Finland, France, Germany, Greece, India, Israel, Italy, Kazakhstan, Korea Republic, Luxemburg, Malaysia, Norway, Portugal, Russia Federation, Singapore, Spain,Sweden, Turkey, United Kingdom, United States, and Vietnam • Variations: • No FFL required (e.g., Australia, Japan, Mexico) • Limited to national security (e.g., Belgium, Germany, Italy, Norway, Sweden, Turkey, United Kingdom) • License generally required in all cases (e.g., France, India, United States) • Peculiar Variations: • First-filing must occur in a foreign country (e.g., Spain, Vietnam) • FFL required only if the inventor is an employee of the government (e.g., Canada)

  17. SHOOK Export Controls

  18. SHOOK Export Controls • As discussed above, the scope of a FFL is limited to activities related to obtaining foreign patent protection. • Unrestricted export of material and information related to a patent application may be subject to additional restrictions, such as the International Traffic in Arms Regulations and the Export Administration Regulations.

  19. SHOOK Export Controls - ITAR • International Traffic in Arms Regulations (“ITAR”) • 22 CFR Parts 120-130 • Implements the President’s authority to control the export and import of defense articles and defense services under the Arms Export Control Act (22 U.S.C. 2778) • Administered by the Department of State’s Directorate of Defense Trade Controls.

  20. SHOOK Export Controls - ITAR • 22 CFR 123.1 provides a general prohibition on exporting a defense article, defense service, or technical data prior to receiving a license from the Directorate of Defense Trade Controls. • Two questions: • (1) what is a “defense article, defense service, or technical data?” • (2) what is an “export?”

  21. SHOOK Export Controls - ITAR • “Defense Article” means any item or technical data designated on the United State Munitions List (“USML”). • This term includes technical data recorded or stored in any physical form, models, mockups, or other items that reveal technical data directly relating to USML items. • The USML includes a long list of items: • Firearms, Guns, Armament, Ammunition, Ordnance, Launch Vehicles, Guided Missiles, Ballistic Missiles, Rockets, Torpedoes, Bombs, Mines, Explosives, Propellants, Incendiary Agents, Surface Vessels of War, Special Naval Equipment, Ground Vehicles, Aircraft, Military Training Equipment, Personal Protective Equipment, Military Electronics, Fire Control, Laser, Imaging, Guidance Equipment, Spacecraft, Gas Turbine Engines, etc.

  22. SHOOK Export Controls - ITAR • “Defense Service” means the furnishing of assistance to foreign persons in the design, development, engineering, manufacturing, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of defense articles • “Technical Data” means: • (a) Information, other than software as defined by 22 CFR 120.10(a)(4), which is required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance, or modification of defense articles; • (b) Classified information relating to defense articles and defense services; • (c) Information covered by an invention secrecy order; and • (d) Software as defined in 22 CFR 121.8(f) directly related to defense articles.

  23. SHOOK Export Controls - ITAR • Technical Data does not include information concerning general scientific, mathematical, or engineering principles commonly taught in schools, colleges, and universities. • Technical Data does not include information in the public domain.

  24. SHOOK Export Controls - ITAR • “Export” means: • An actual shipment or transmission out of the U.S.; or • Releasing or otherwise transferring technical data to a foreign person in the U.S. • This is a “deemed export.” • The term “release” is defined to include: • (1) Visual or other inspection by foreign persons of a defense article that reveals technical data to a foreign person; and • (2) Oral or written exchanges with foreign persons of technical data in the U.S. and abroad. • The foreign person must actually access the technical data for a deemed export to occur. Mere access is not enough.

  25. SHOOK Export Controls - ITAR • The penalties for a violation of the ITAR are severe. • Criminal Penalties: • Up to $1,000,000 fine per violation; • Up to 20 years imprisonment. • Civil Penalties: • Up to $1,134,602 per violation. • Yes, this is the actual number from 22 CFR 127.10(a)(1)(i).

  26. SHOOK Export Controls - EAR • Export Administration Regulations (“EAR”) • 15 CFR Parts 730-774 • Administered by the Department of Commerce, Bureau of Industry and Security (“BIS”).

  27. SHOOK Export Controls - EAR • 15 CFR 736.2 provides 10 general prohibitions on exporting controlled items to listed countries prior to receiving a license from the BIS. • Three questions: • (1) what are the “controlled items?” • (2) what are the “listed countries?” • (3) what is an “export?”

  28. SHOOK Export Controls - EAR • The controlled items are listed on the Commerce Control List (15 CFR 774). • For example, nuclear materials, facilities and equipment, electronics, computers, telecommunications, information security, lasers and sensors, navigation and avionics, marine, aerospace and propulsion, materials, chemicals, microorganisms, and toxins. • The listed countries are those countries listed on the Commerce Country Chart (15 CFR 738, Supplement No. 1).

  29. SHOOK Export Controls - EAR • “Export” means: • an actual shipment or transmission of items subject to the EAR out of the U.S.; or • a release of technology or software subject to the EAR to a foreign national in the U.S. • The term “release” is generally thought to be narrower under the EAR than under the ITAR. After a settlement with GM/General Dynamics, however, the State Department issued new regulations seemingly indicating that mere access is not enough to constitute a release under the ITAR. • Mere access without an actual access is clearly not included in the meaning of “release” under the EAR.

  30. SHOOK Export Controls - EAR • The penalties for a violation of the EAR are severe. • Criminal Penalties: • Up to $1,000,000 fine per violation; • Up to 10 years imprisonment. • Civil Penalties: • Greater of (1) $284,582 or (2) twice the amount of the underlying transaction per violation.

  31. SHOOK Export Controls – Generally • To be in compliance with ITAR/EAR, any required license must be in place prior to exporting anything that is export controlled. • For purposes of intellectual property, the most significant export controls are: • (1) no export without the appropriate government authorization, even within the same company and regardless of geographic location; and • (2) control of unauthorized access to intellectual property by foreign nationals.

  32. SHOOK Export Controls – Collaborative Inventing • Collaborative inventing can present a risk under the ITAR/EAR. • Disclosure of export controlled technical data, information or technology to a foreign person (e.g., a H-1-B visa holder) that is collaborating on a patentable invention may first require the employer to obtain an export license. • This is because under the deemed export rules, any discussions with the foreign person is legally equivalent to exporting the technology to the foreign person country of nationality.

  33. SHOOK Export Controls – Collaborative Inventing • First Example: • Inventor A is working with Inventor B on a patentable invention. Inventor A lives in the U.S. and is a U.S. national. Inventor B lives in China and is a Chinese national. • Inventor A decides to mail test results, drawings, an invention disclosure, or other technical data to Inventor B for review. • This is an export, even if Inventors A and B work for the same company, are working under a joint-venture agreement, etc. • If the technical data is ITAR-controlled, this is a very serious violation because ITAR licenses cannot be granted for exports to China.

  34. SHOOK Export Controls – Collaborative Inventing • Second Example: • Inventor A is working with Inventor B on a patentable invention. Inventor A lives in the U.S. and is a U.S. national. Inventor B lives in China and is a Chinese national, but visits the U.S. office legally on a work visa. • Inventor A decides to walkmail test results, drawings, an invention disclosure, or other technical data across the hall to Inventor B for review. • This is a deemed export. If the technical data is ITAR/EAR controlled, then a violation likely has occurred.

  35. SHOOK Export Controls - Patent Service Outsourcing • Third Example: • Associate A works a Firm P, Q & R, LLP and is supervised by Partner P. Partner P has an office next to Partner Q, the firm chair. On the other side of Partner P is Partner R’s office, but Partner R is never in the office because of an unlimited “business development” budget. • An unsolicited email is received by Associate A from a patent service company representative (we’ll call him Jolly Harry to protect his identity) located in India offering to conduct a freedom-to-operate search for only $500. Thinking this is the deal of the century, Associate A hires Jolly Harry’s firm to conduct the search in relation to a new invention. In order to get the best possible results, Associate A sends a photo of the invention, drawings, an information disclosure form containing a written summary of the invention. • Jolly Harry and all of his employees are Indian nationals. Jolly Harry goes rogue, contacts the inventors with the information from the IDF and defrauds them by claiming to be an African Prince that needs a $500 loan with the promise to pay back 5,00o times over, he also posts the summary of the invention on the Internet. Jolly Harry then apologizes to Associate A and promises not to do it again. Associate A responds by saying it is ok this time.

  36. SHOOK Export Controls - Patent Service Outsourcing • Third Example: • Who may receive the dreaded grey envelope from Stan Hazlett? • (A) Associate A, but no one else • (B) Associate A, Partner P, but no one else • (C) Associate A, Partner P, Partner Q, Partner R • (D) Jolly Harry • (E) Associate A, maybe Partner P, maybe Partner Q, maybe Partner R

  37. SHOOK Export Controls - Patent Service Outsourcing • Third Example: • Who may receive the dreaded grey envelope from Stan Hazlett? • Answer – (E) Associate A, maybe Partner P, maybe Partner Q, maybe Partner R • Associate A may have problems with Rule 1.1 for associating (i.e., hiring) an incompetent/criminal practitioner. • Associate A does have problems with Rule 5.3(b) because he failed to adequately supervise the nonlawyer and then ratified the nonlawyer’s actions. • Associate A may have problems with Rule 8.4 for committing a crime by exporting the invention disclosure materials, drawings, photos, and summary of the invention if the invention concerned export controlled technology. • Partner P may have problems with Rule 5.1(b) if Partner P didn’t make reasonable efforts to ensure Associate A conforms to the Rules of Professional Conduct. • Partners P, Q, and R may have problems with Rules 5.1(a) if the law firm did not make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers (Associate A) in the firm conform to the rules of professional conduct. • Partners P, Q, and R may have problems with Rules 5.3(a) if the law firm did not make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that nonlawyer’s conduct is compatible with the professional obligations of the lawyer.

  38. SHOOK Of Counsel | Kansas City bemeyer@shb.com Bryan Meyer

  39. SHOOK

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