Conference on Intellectual Property Rights for SMEs organized by TAIEX in co-operation with WIPO and the Turkish Patent Institute Istanbul, 10 – 11 January 2005 IP Issues in Outsourcing and Exports: The Challenges Karl Rackette Freiburg, Germany

IP Issues in Outsourcing and Exports: The Challenges 2 Outsourcing Outsourcing is a business strategy driven by globalization and rapid integration of economies which marries efficiency with innovation in order to improve the competitiveness of an enterprise or SME

IP Issues in Outsourcing and Exports: The Challenges 3 Outsourcing –Based on principles of comparative advantage –Division of labor (movement of jobs) –Aims at increased profitability (or savings) –Contract manufacturing or subcontracting is used to reduce costs –Aims at maintaining high quality –Within your own country or abroad

IP Issues in Outsourcing and Exports: The Challenges 4 Outsourcing Abroad or offshore –More complex –Political overtones –Cultural differences –Different business environment –Different legal frameworks –Different education and skills

IP Issues in Outsourcing and Exports: The Challenges 5 Outsourcing Demands sharing of a wide array of knowledge Is linked to intellectual property Involves sharing of intellectual property

IP Issues in Outsourcing and Exports: The Challenges 6 Outsourcing Every type of Intellectual Property may be involved –Patents –Utility models –Industrial designs –Trademarks –Copyrights –Trade secrets Additional complexity due to distinct national laws

IP Issues in Outsourcing and Exports: The Challenges 7 Trusting and Monitoring the Partner Contracts are honored Quality standards Trademarks are used as registered Trade secrets are safeguarded Patent renewals and other responsibilities Enforcement of IP rights, piracy, counterfeiting Dispute resolution, exit clauses Ownership of new inventions IP assets of third parties, sublicensing License agreements, scope and terms

IP Issues in Outsourcing and Exports: The Challenges 8 Actions That Need to be Taken Identify and document the IPRs Clarify the inventorship or creatorship Clarify ownership issues depending on which partner created innovations alone or jointly Draft agreements concerning technology transfer, licensing, confidentiality, non-competition, ownership issues, employed inventors compensation Identify infringements Take steps to avoid disclosure of trade secrets Settle questions of jurisdiction and applicable law

IP Issues in Outsourcing and Exports: The Challenges 9 Where Do You Seek Protection? Countries where customers can be found Countries where markets are Countries where competitors are active Countries where product can be manufactured Countries where product is imported / exported Countries where product is used Countries with a strong IP system

IP Issues in Outsourcing and Exports: The Challenges 10 Foreign Investors Reluctance of firms - especially those that are R&D intensive- to invest in countries with weak IP regimes

IP Issues in Outsourcing and Exports: The Challenges 11 Protecting Inventions and Research Results by keeping the invention and results secret by making use of the defense systems offered by the Intellectual Property Rights –disclosing the results in a patent application file disclosure first at a Patent Office before any publication takes place

IP Issues in Outsourcing and Exports: The Challenges 12 Who Grants Patents? A patent is granted for a limited territory by a national patent office or by a regional office that does the work for a number of countries, such as the –European Patent Office, –Eurasian Patent Organization –African Regional Industrial Property Organization –Organisation Africane de la Proprieté Industrielle

IP Issues in Outsourcing and Exports: The Challenges 13 Filing an IP Application first filing at IP Office in home country later filing abroad (claiming priority) –national patent / trademark / design –regional patent / trademark / (design) –international patent application / trademark / design

IP Issues in Outsourcing and Exports: The Challenges 14 Patent Cooperation Treaty provides for the filing of a single international patent application which has the same effect as national applications filed in the designated countries an applicant seeking protection may file one application and request protection in as many signatory states as needed

IP Issues in Outsourcing and Exports: The Challenges 15 Patent Cooperation Treaty (PCT) Filing system for 124 contracting states ( ) to apply for National patents / utility models Regional patents –European patents –Eurasian patents –ARIPO patents –OAPI patents

IP Issues in Outsourcing and Exports: The Challenges 16 PCT Contracting States (124 on 1 November 2004)

IP Issues in Outsourcing and Exports: The Challenges 17 European Patent Convention (EPC) Granting system for 30 EPC countries and 5 Extension states

IP Issues in Outsourcing and Exports: The Challenges 18 EPC Member States The following 30 States are members of the European Patent Organization: Austria, Belgium, Republic of Bulgaria, Cyprus, Czech Republic, Denmark, Republic of Estonia, Finland, France, Germany, Hellenic Republic, Hungary, Ireland, Island, Italy, Lithuania, Liechtenstein, Luxembourg, Monaco, Netherlands, Portugal, Romania,Slovak Republic, Slovenia, Sweden, Spain, Switzerland, Turkey, United Kingdom (Extension states: AL, BA, HR, LV, MK, YU)

IP Issues in Outsourcing and Exports: The Challenges 19 The Madrid system of international registration of trademarks applicable among the countries party to the Madrid Agreement or the Madrid Protocol gives a trademark owner the possibility to have his mark protected in several countries by simply filing one application with a single Office an international registration produces the same effects as an application for registration of the mark made in each of the countries designated by the applicant

IP Issues in Outsourcing and Exports: The Challenges 20 Hague Agreement Concerning the International Deposit of Industrial Designs a procedure for an international registration an applicant can file a single international deposit either with WIPO or the national office of a country which is party to the treaty the design will then be protected in as many member countries of the treaty as the applicant wishes

IP Issues in Outsourcing and Exports: The Challenges 21 Patents / Trade Secrets patents lead to publications of new technology patents expire after e.g. 20 years trade secrets keep new technology confidential trade secrets expire only when they are no longer kept secret

IP Issues in Outsourcing and Exports: The Challenges 22 Patents / Trade Secrets the owner of a copyright or patent makes money from the distribution of the copyrighted or patented material the owner of a trade secret makes money because the trade secret is not published

IP Issues in Outsourcing and Exports: The Challenges 23 What Rights Does a Patent Owner Have? A patent owner has the right to decide who may - or may not – use the patented invention for the period and in the country in which the invention is protected.

IP Issues in Outsourcing and Exports: The Challenges 24 TRIPS Section 7 Protection of Undisclosed Information Protected subject matter information lawfully within the control of a natural or legal person that (a) is secret, (b) has commercial value because it is secret and (c) has been subject to reasonable steps by the rightful holder of the information to keep it secret (e.g. through confidentiality agreements) Such information is called a „trade secret“, but this expression is not used in the TRIPS Agreement

IP Issues in Outsourcing and Exports: The Challenges 25 TRIPS Section 7 Protection of Undisclosed Information The information is secret if it is not generally known (to a limited group of persons only) among, or readily accessible to, circles that normally deal with the kind of information in question

IP Issues in Outsourcing and Exports: The Challenges 26 TRIPS Section 7 Protection of Undisclosed Information The protection consists of offering to natural and legal persons „ the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices so long as such information“ corresponds to the criteria indicated above.

IP Issues in Outsourcing and Exports: The Challenges 27 Trade Secret Protection countries treat trade secrets in a number of ways: special provisions under specific legislation on unfair competition (e.g. Germany, Japan, Switzerland) special provisions as part of another law as an aspect of tort law (e.g. France) special provisions under criminal, administrative, commercial or civil laws

IP Issues in Outsourcing and Exports: The Challenges 28 Trade Secrets industrial secrets related to technical information commercial secrets

IP Issues in Outsourcing and Exports: The Challenges 29 Trade Secrets examples of industrial secrets know-how and technology that may not (yet) qualify for patent protection –no patent application due to lack of inventive step –excluded from patentability –during the pendency of a patent application

IP Issues in Outsourcing and Exports: The Challenges 30 Trade Secrets examples of industrial secrets –technical know-how –research results –manufacturing techniques –test results –production methods –chemical formulae –blueprints –designs for machines –prototypes

IP Issues in Outsourcing and Exports: The Challenges 31 Trade Secrets examples of commercial secrets –the Coca-Cola formula –magic tricks of a magician –marketing plans and marketing forecasts –methods of doing business –business strategies, business plans –financial information, details of price agreements –consumer characteristics –advertising strategies –lists of suppliers or clients

IP Issues in Outsourcing and Exports: The Challenges 32 THE END Thank you for your attention!