Your Best Foreign Patent Strategy May Be a Strong U.S. Patent Strategy

Today, it is common for U.S.-based manufacturers to outsource manufacturing of their product line to countries with lower costs. Perhaps your company has already done so. While this business plan can increase short term profit margins, the company outsourcing its manufacturing to a foreign company is also in danger of exchanging these shorter term gains for the long term value embedded in its intellectual property rights. As an IP Strategist and owner of an IP Strategy and Consulting service (more info here: http://www.jackiehutter.com/), I can tell you that a well-thought out patent U.S. patent strategy can be the best protection when a company is engaging foreign manufacturers to make its product.

Let’s assume that your company is introducing a consumer gadget in the U.S. Business realities today likely require your company to manufacture the gadget in China and import it into the U.S. This plan makes good financial sense, but you are also likely concerned that your Chinese-national manufacturing partner will learn your company’s trade secrets and step out on its own to compete by selling your product design in the U.S. Although your company probably entered into a confidentiality agreement with your Chinese manufacturing partner, are you really prepared to litigate the agreement against this foreign company on its own turf? And, besides, if your partner steals your trade secrets, the damage already exists—you have given your Chinese manufacturing partner a blueprint containing your trade secrets and they are poised to knock-off your gadget into the U.S. to compete directly with your on your home turf.

If your company had the foresight and budget to file for a Chinese patent, you may think you have recourse against the manufacturer under Chinese law. But, as is reported frequently in the press, developing countries often are found to have spotty records of protecting intellectual property rights, especially when the patent holder is not a resident of that country. (See, for example: http://www.businessweek.com/globalbiz/content/mar2008/gb2008035_462577.htm?chan=top+news_top+news+index_global+business) So, even if you invest in patent protection in China (or another foreign country where you plan to manufacture your product), the reality is that, as a U.S.-based company, you are unlikely to enforce your intellectual property rights in that foreign jurisdiction.

This may seem like the proverbial “rock and a hard place,” however, this is not necessarily the case. Indeed, U.S. law provides your company with avenues to prevent a foreign knock-off of your consumer gadget from being imported and sold in the U.S. if you have obtained U.S. patent protection. Importantly, your U.S. patent must be closely aligned with the gadget your company is manufacturing in a foreign country and selling in the U.S. Also, since these avenues relate to U.S. patent rights that your company owns that cover your gadget, any foreign patents you may have obtained are not relevant to these proceedings. In short, if you do not plan to enforce your foreign patent rights in those foreign countries, you should not expend the effort and expense to obtain patent protection there.

The first avenue of U.S. patent rights enforcement is the best-known and most commonly used: patent litigation in U.S. federal court. Using this option, your company can bring a suit for patent infringement against a person or company that is making, using, selling or offering to sell a patented product in the U.S. Also, U.S. patent law can prevent a product made by a patented method to be imported into the U.S. This avenue can be very powerful to stop infringing activity, albeit somewhat expensive and time consuming.

The second avenue of U.S. enforcement that is useful for keeping a foreign knock-off out of your U.S. market is an ITC (“International Trade Commission”) Action. This proceeding is very quick—often being completed in about six months. If you prevail in an ITC action, U.S. Customs is able to stop your knocked-off product from even entering the U.S.

There are far too many details about the benefits and detriments of either a patent lawsuit or an ITC action to provide you with enough detail about protecting your U.S. market from foreign competition. You should contact a patent litigation expert to obtain the specific details. The important point for you to take away from this discussion is that your best foreign patent strategy may be a strong U.S. patent strategy.

Note that sometimes it may be desirable to undertake the effort and expense to obtain patent rights in a foreign country. This is the case, for example, when your company plans to sell your gadget in that foreign country, either now or in the future. Also, a patent filed for today is an investment in the future: countries such as China are expected to have robust intellectual property laws in just a few years. However, if your consumer gadget is not expected to be a gang-buster seller in a foreign country now or in the future, your company is better served by ensuring that patent protection is strong in the U.S., instead of spending time and effort to obtain potentially shaky patent rights in foreign countries.