Rich Sybert, partner at Gordon and Rees, says it is malpractice for a firm to provide intellectual property counseling without considering the international implications, even if a company is only planning to sell in the United States. (photo/lambertphoto.com)

San Diego is a magnet for the world’s most talented engineers, scientists and inventors. They develop innovations that move markets domestically and, increasingly, around the world. So it seems reasonable to assume that the intellectual property rights of the ideas that give rise to products would naturally follow the invention and the inventor wherever they go.

But it isn’t so.

“All intellectual property (IP) protection is territorial,” says Rich Sybert, a partner at Gordon and Rees. Therefore, a company that wishes to distribute worldwide must run the gauntlet of IP hurdles in each country where it plans to sell. In fact, companies are advised to protect their intellectual property in international markets even if they have no intention of selling there.

“It is malpractice to provide IP counseling without considering the international implications, even if a company is only planning to sell in the U.S.,” says Sybert. A firm might change its mind about entering international markets for any number of reasons, including favorable currency exchange rates. “And there is the possibility of competing or infringing products coming in from overseas,” Sybert adds.

IP lawyers say it’s a good idea to learn about IP protection options when the product is in development, rather than waiting until the decision to take the product international.

“If you come to me after you already have your distribution in place, it’s better late than never, but better earlier than that,” Sybert explains. “In most jurisdictions outside the U.S., if you disclose your invention, then you’re no longer allowed to file a patent application. In Japan, for example, you have to file before you disclose. So if you showed a prototype at a trade show, you may be out of luck.”

Lawyers also stress the importance of having IP protection not only in markets where the product may be sold, but also where it is manufactured. This is necessary in the unfortunate event that an offshore partner decides not only to manufacture the inventor’s product, but the knockoff as well.

Baker & McKenzie partner Howard Wisnia advises companies to focus their intellectual property enforcement on the contract they have with the manufacturer. (photo/lambertphoto.com)

“It happens more often than you might think,” says Howard Wisnia, partner at Baker & McKenzie.

Companies need to focus their IP enforcement on the contract they have with the manufacturer, says Wisnia, since they may not be able to rely on the manufacturing country’s laws to provide adequate IP protection.

“I practiced in Hong Kong for 10 years,” Sybert says, “and we had numerous occasions when a plant employee would walk across the street to a competing factory and hand over the plans.”

Software products are typically harder to protect. “There are certain countries where you cannot get effective software patents,” says Wisnia. “Europe has been struggling with this issue for a decade, because they have a requirement that the invention be a ‘technical innovation’ and software doesn’t fall within (the definition).”

Foreign jurisdictions also can be sticklers for detail. “Outside the U.S., they are a lot stricter about making filing and response deadlines,” says Scott Harris, partner at Fish & Richardson. “In the U.S., you can pay a fee or say you’re sorry; in Japan, if you miss a deadline, you’re dead.”

Even so, complying with a country’s rules in properly filing for IP protection doesn’t mean an exporter will be able to count on enforcement of IP rights. “For San Diego companies, obtaining a Chinese patent is not tremendously difficult,” says Tom Arno, a partner with Knobbe Martens. “But in enforcing it, the more local partnering you have, the better off you’re going to be.”

In China, says Sybert, the IP holder has to “hire the enforcement.” Hire the enforcement? “Some Americans think that’s a bribe, but it’s not in their culture,” Sybert explains. “If you want them to conduct a raid, you have to hire a raid, and God help you if they raid a factory and they don’t find the knockoffs, or might have been tipped off that you were coming.”

Often, however, the rights holder is most concerned about the knockoff product being sold in the U.S. In that event, the holder of IP rights is advised to notify the U.S. Customs Service of their IP protection and the authorities will seize the knockoff products.

Hazards noted, IP practitioners say the situation is improving.

International business practices of all sorts are undergoing standardization, and governments are adopting protocols that allow the inventor to file in his home country, which serves as a placeholder in filing in overseas jurisdictions.

Typically, these protections are contained in treaties that allow the rights holder to take advantage of a “home application” to make similar overseas applications at the same time, within a window of typically six to 12 months that dates back to the home application. The Bern Convention, for example, covers copyright, while trademarks are governed by the Madrid Protocol. Patents are addressed by the Patent Cooperation Treaty or PCT.

“You can file the PCT application within one year of the original U.S. application,” says Michael Farber, of counsel at the Catalyst Law Group. “There is a centralized search and examination, and if it is determined the product is patentable, most countries will honor that. But within 18 months after you file the PCT, you have to file applications in the individual countries where protection is desired.”

Julian Zegelman, an intellectual property associate at Catalyst Law Group, right, shown here with of counsel Michael Farber, says inventors should look at their intellectual property as an asset that can be leveraged into opportunity to become partners and collaborators overseas. (photo/lambertphoto.com)

Julian Zegelman, an IP associate at Catalyst, says inventors should look at their intellectual property as an asset that can be leveraged into opportunity to become partners and collaborators overseas. “That’s why protecting your rights in the U.S. and overseas has to be a coordinated effort,” he explains.

The effort should begin early in product development. “In many cases, IP protection is one of the first things venture capitalists will look at,” Farber adds.

Will the patchwork of national and international systems ever merge into one seamless IP protection system?

“I think it’s going to be a halfway house,” says Sybert. “We will see more and more international cooperation. For example, the European Union just joined the Madrid Protocol, and the U.S. recently amended its copyright law to extend the copyright to the author’s life plus 70 years,” which tracks the European approach. Patent law reform legislation being considered in Congress would change the right to patent protection from a first-to-invent standard to first-to-file, as in Europe.

Harris suggests running a cost/benefit analysis before deciding in which countries to pursue IP protection. “You get the best bang for the buck filing in the U.S.,” says Harris. “Outside the U.S. typically you’ll pay five times to 10 times as much, and for that you get some protection, but you could quickly reach the Law of Diminishing Returns.”

It’s not unusual for a European patent to run six figures, compared to about $30,000 in the U.S. “In some countries, they look at the patent system as a profit center,” Harris adds. So, an inventing company must decide whether it’s worth paying five times as much as in the U.S. for protection in a country like Japan, which offers roughly one fifth of the market.

“People tend to be more nervous about the situation than is warranted,” says Arno. “In many cases, enforcement of IP legal rights is cheaper overseas than here.” Europeans are as concerned about being caught up in some legal proceeding in the U.S. as Americans are about being in a legal dispute outside the U.S., Arno says, because the U.S. legal system is adversarial and expensive.

“For the most part, in marketing overseas there’s not a lot more to be afraid of than there is domestically,” says Arno. “Everyone has fax, e-mail and speaks English. You can hire attorneys in Germany and they are no more difficult to deal with than we are here.”

When exploiting intellectual capital, remember it’s the idea that’s the engine. “Protected properly, intellectual property is as much an asset to your company as anything else,” Zegelman says.