Global market strains IP protection strategies

As equipment companies expand into foreign markets, outsource their manufacturing, and form partnerships in developing countries, management of intellectual property (IP) becomes a strategic question. Many companies fail to realize that IP protection requires a business-not legal-analysis, conducted ideally by a team of people from different departments (sales, marketing, and legal) within the organization who should evaluate the business situation and then crunch the numbers, say experts in the field.

"A lot of companies don't think too hard about whether they should patent abroad or not," observes Joe Gortych, an IP lawyer and principal of IPconnect (Colchester, VT), a legal and consulting firm that specializes in optics, photonics, and semiconductor technologies. "Some companies just do it without really knowing why, and some companies don't do it at all when they should."

Factors the team should consider include the amount of business the company expects to do in the countries in question and whether patents are needed to protect a core technology in a country where the company doesn't plan to be active but where competitors reside. Companies also must decide how aggressively they will enforce their IP rights.

Finally, companies should learn what the patent application process involves and how much IP protection will cost in terms of translation, filing, and maintenance fees. "Many companies just get advice from their outside counsel to file a Patent Cooperation Treaty [PCT] application and then later on are shocked by the price of actually obtaining foreign patent protection," says Gortych.

The PCT is a single application that typically costs a few thousand dollars to file anywhere in the world. It is not a patent application, however; it essentially serves as a placeholder, whereby companies are informed of the dates for filing patent applications in individual countries. The national patent filing process is often an expensive undertaking. In Europe, companies can file one patent application for the continent, but they still must pay individual fees country by country.

Ultimately, the team must decide whether obtaining IP protection via national patents is worth it, especially in countries that are in the nascent stages of establishing a national IP system such as India and China. Even in developed countries, IP protection enforcement is not inexpensive. Such expenses are not just monetary; the time and resources that get diverted from other activities when people have to deal with legal issues can be a major consideration. "Litigation is a weapon of mass destruction for many companies," asserts Gortych. Companies are much better off making cross-licensing deals or finding partners to do business within the country who can offer a "home court" advantage.

Making sure that engineers are familiar with international patent laws is another key strategy, especially for companies with development facilities in multiple countries. For example, in the United States, if you publicly disclose an invention, you have a year from that date to file a patent application; otherwise, you forfeit your rights. A first-to-invent rule can protect an invention or a technology-assuming that claim can be proven in court-if someone else tries to patent it. But in Europe and many other countries, patent protection goes to the first to file and there isn't a one-year grace period.

Not patenting a trade secret involves risk. A common misconception in the United Stated is that if another vendor patents your company's "trade secret," the first-to-invent rule provides the inventor with protection. That's not the case-a trade secret is not a complete defense against patent infringement, according to Gortych.

Where the company files patents also hinges on the technology itself. Subsystem and component supplier Avanex (Fremont, CA), with 1,700 patents, manages one of the larger portfolios in the industry. The multinational has engineers working in development facilities in Fremont, CA; Nozay, France; and San Donato, Italy. Many of the company's patents were acquired during its 2004 fiscal year through acquisitions ofAlcatel Optronics, Corning Photonic Technologies, and the Vitesse Optical Subsystems division. The portfolio acquired via Corning includes patents from Corning's acquisition of Pirelli's components division.

Avanex manages what it describes as "700 families of patents," with filings per patent, on average, in two countries. The patents cover core technologies in WDM, amplification, dispersion compensation, switching, routing, and transmission. Maintaining this kind of portfolio is quite expensive, admits Dr. Giovanni Barbarossa, Avanex chief technology officer and vice president of product development. "Fees are due almost every week," he says.

"And the portfolio is still growing," says Barbarossa. The company profits from its patent portfolio by collecting royalties from multiple licenses, most of which are covered by nondisclosure agreements. Avanex also licenses technologies from other vendors, in some cases for free. These licensing agreements authorize Avanex to protect and enforce any patents associated with the licensed technologies.

"We do not have the tony leverage of Corning, which is a massive IP machine," says Barbarossa. "But I can guarantee you, we are not going to let anyone run freely with our IP. Our objective is to make the best use of our portfolio."

How its patented technologies are used, however, plays an important role in Avanex's global strategy. "When our customers such as Alcatel and Nortel design a system, it requires a lot of time, sometimes two or three years, and they are designing-in components from companies like Avanex and JDS Uniphase and Bookham," says Barbarossa. "After they come up with a system, the product is going to be sold worldwide. None of our customers are designing systems specifically for the China market, U.S. market, or European market. If I have a patent in the U.S. and customer X buys that component, to me that's good enough protection."

While optical telecommunications components are often used in systems that result from lengthy design cycles and hours and hours of testing, this same strategy would probably not work in data communications, where multisource agreements and well-developed standards have paved a path for interchangeable devices such as pluggable transceivers.

Other companies have found that nondisclosure agreements provide sufficient protection of intellectual property rights in foreign markets without the high cost of filing multiple patents. Ethernet passive-optical-networking startup Salira Optical Network Systems (Santa Clara, CA) paid close attention to IP concerns before it opened an engineering facility in Shanghai in 2002. Salira initially filed patent applications in the United States at the U.S. Patent and Trade office. But when the company was setting up its Shanghai facility, it was advised by an attorney in China that because of China's recent acceptance into the World Trade Organization, there was a high degree of interest and support from the government in enforcing IP rights. "But you had to do it their way and there were some forms that also had to be filed," recalls Jim Diestel, vice president of marketing at Salira.

At that point, Salira decided not to pay for both the U.S. patent filings and the filings to China. Instead, the company ensured that all employees in China, many of whom were engineers, signed long-term unilateral nondisclosure agreements when hired. "In China, the nondisclosure agreement is a little bit more seriously dealt with than here," explains Diestel. "If there is a situation where IP is taken from one employer to another, and you can prove it, there are actually jail terms that can be levied against the person who did it. That kind of enforcement to us was what we really sought-that disincentive to do it."

Salira made it a point to explain to all its employees when they were hired that this was their practice and that the company would seek to protect its IP. Using this strategy, the company freely shared its IP between its Santa Clara and Shanghai engineers "They needed to be involved in moving us forward," says Diestel. Despite problems with employee turnover at the Shanghai facility with some former employees ending up at competitors, Salira believes its approach to IP protection has been successful. "Overall, we are pleased," says Diestel. "The name of the game is you have to keep innovating, you just can't allow yourself to stay static long enough so that somebody can really go out and copy what you've got."

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