By David E. Rogers, Squire, Sanders & Dempsey L.L.P. and Amy L. Hartzer, IsoPatent
Aug. 12, 2009

International competition is increasing daily. Competitors are nimble and quick to copy, and customers are demanding and looking for the best price. Brand name and personal relationships still carry some weight, but not as in years past. One way for U.S. manufacturers to compete effectively in today’s marketplace is by controlling innovation through intellectual property ("IP"). Given the international nature of business, IP protection should also be international and, to the extent cost effective, coextensive with a business’ current and future market presence.

We suggest a three-step approach to creating an international IP portfolio. First, regardless of location, always utilize contracts and trade secrets with employees and business partners, such as suppliers, distributors and contractors. Second, if practical, use patents to both (i) fortify the protection provided by contracts and trade secrets, and (ii) protect your technology from entities with which you have no contractual relationship. Third, select the countries in which you desire patent protection, which are usually those in which your products are sold or will be sold, and then implement your IP strategy.

Below we explain the IP protection mechanisms, how to select the countries in which patent protection should be obtained, and two case studies that apply these principles.

(1) The IP Protection Mechanisms: Contracts, Trade Secrets and Patents.

(a) Contracts: Whether or not your technology is protected by a patent, it may still be protected by contract. Contracts should always be used with employees and your direct business partners, such as suppliers, distributors and contractors. Contractual protection may even be suitable for customers (for example, if you already enter into contracts with customers to sell industrial machinery.)

The contracts should require your employees and business partners to (i) maintain the confidentiality of business information (such as your technology, designs, marketing plans, costs, selling prices, and the identity of vendors and customers), (ii) not compete with you during the term of the contract and for a reasonable period of time (usually one to five years) thereafter, and (iii) assign improvements to your technology to you.

You can usually select the law that governs a contract and the locale for resolving contract disputes. Select the law of one of the United States that is likely to uphold the contract’s provisions (particularly the non-compete clause) and require any dispute to be resolved in a U.S. court or in arbitration in the U.S. If your employee or business partner is outside of the U.S., check with an attorney in the country where your employee or business partner is located to ensure the contract provisions are enforceable there.

The costs to enter into contracts are the legal fees associated with preparing and negotiating them. Depending on a contract’s complexity and the length of negotiations, plan on about $3,000 - $10,000 per contract with each business partner. The costs for employee contracts are usually negligible.

(b) Trade Secrets: A trade secret is information that both: (1) derives actual or potential economic value from not being generally known and not being readily ascertainable to others by proper means, and (2) is the subject of reasonable efforts to maintain its secrecy. Trade secrets cost nothing to obtain, although maintaining them requires some expense because each person or business exposed to the trade secret should execute a contract with an appropriate confidentiality provision (also called a non-disclosure provision).

Here, all persons and businesses that executed contracts in the preceding Section (a) would be bound to maintain the confidentiality of your business information. By using contracts and other reasonable efforts to maintain the secrecy of your information, trade secret protection protects against the misappropriation of your information by anyone, even persons with whom you have no contractual relationship. That is the added benefit of trade secrets as compared to contracts.

Information that cannot be maintained as a secret includes (1) publicly-available product designs, and (2) things that can be reverse engineered, such as (i) internal components that can be discovered through disassembly of a product, and (ii) material compositions that can be ascertained through laboratory analysis.

Trade secrets have at least one advantage over patents. In many countries, including the U.S., trade secret life is potentially indefinite whereas a patent’s life is typically 20 years from the original patent application filing date.

A major disadvantage of trade secrets is that they do not protect against independent development by a competitor, whereas patents do. Further, once a trade secret has been disclosed to numerous people, even with the proper confidentiality agreements in place, it can be misappropriated without you knowing who was responsible.

Read the rest of this article on pharmaceutical patent and other intellectual property issues on IndustryWeek.com.