Following The Money

Posted on June 22, 2009 by Rajiv Sarathy

Deloitte recently published a report on venture investment trends after surveying venture capitalists (VCs) worldwide. According to the report, more VCs anticipate growing their investments in Asia than in the United States. For example, 50% of VCs anticipate increasing their investments in Asia whereas only 17% of VCs anticipate increasing their investments in North America. Thus, it appears likely that as we emerge from the global recession, research and development (R&D) will continue to increase outside the United States, and especially so in China and India. 

Savvy patent applicants already take advantage of the Patent Cooperation Treaty (PCT) to protect their inventions outside the U.S., including in China and India.  However, some companies are understandably reluctant to do so because of the potential costs involved. One way to control these costs is to limit the countries in which patent protection is sought, such as to countries in which a market and/or competitors are likely to exist. 

A question clients often ask is what the point is in filing patent applications in countries such as China, India, and Russia, where intellectual property rights can be difficult to enforce.  China and India are both members of the World Trade Organization (WTO), and the Russian Federation is an "Observer government." According to the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), governments are required to ensure that intellectual property rights can be enforced under their laws, and that the penalties for infringement are tough enough to deter further violations. Over the last few years, these countries have made strides in improving their intellectual property enforcement activities.  Moreover, as their domestic industries mature, these countries are even more likely to enforce the laws because domestic and foreign pressures to do so will mount. 

To remain competitive, U.S. companies will need to seriously consider increasing not only their R&D expenditures, but also their patenting activity -- both in the U.S. and abroad. As I wrote in this blog approximately a month ago, a majority of patent applications filed last year were by inventors located abroad. If American companies fail to protect their inventions, they could lose both domestically and internationally. 

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Will the District Court of D.C. Get Busier?

Posted on May 19, 2009 by Rajiv Sarathy

A company that is threatened by a potential patent infringement lawsuit can file a declaratory judgment action in a federal district court that has jurisdiction. Generally, the threatened company can seek to have the action heard by a court that may be more friendly towards the company than the patent holder. For a court to hear the action, the patent holder must have some minimal contacts in that court's area of jurisdiction. 

Many foreign entities will generally not have the minimal contacts needed. For example, the Federal Circuit Court of Appeals decided in Autogenomics v. Oxford Gene Technology that the foreign patent holder did not have sufficient contacts in California and so the threatened company must file its action in the Federal District Court for the District of Columbia.

The USPTO publishes a report that identifies where the first-named inventor of each patent resides. When the inventor resides outside the United States, it is a reasonable indicator that the patent is owned by a foreign entity. In 2008, 50.3% of the patents fell in this category whereas in 1977, only 35.5% of patents did. This makes sense because an increasing amount of R&D and manufacturing funds are spent overseas. (When I completed my MBA in the early '90s, we were trying to make sense of the service-based economy.)

If the trend in patent ownership continues, the District Court of DC court may see an increasing number of declaratory judgment actions in patent cases.

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