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  • 1. Topic X IP Issues in Outsourcing & Exports: The Challenges
  • 2.
    • What & Why is Outsourcing? 2. Merits & Demerits of Outsourcing 3. Risk Management of Outsourcing 4. Outsourcing to/from SMEs 5. IP Issues in Outsourcing 6. Termination Provisions 7. Conclusion
  • 3. What is Outsourcing? Vendor (Outsourcee) A company’s retaining a 3rd party to perform some function that was or would be performed by the company itself Customer (Outsourcer) Transferring a company’s non-core functions to another service providing company so that it can focus on its core business
  • 4. Why is Outsourcing Necessary? Vendor (Outsourcee) Customer (Outsourcer) Logical Reason - efficiency - Empirical Evidence - boom -
  • 5. Why is Outsourcing Necessary? - The same reason international trade is more efficient than local self-supply - Somebody can do the same job more efficiently or with lower cost Logical Reason
  • 6. Why is Outsourcing Necessary?
    • 30% British companies have moved to abroad(china , India)
    • Up to 80% of leading enterprises will include outsourcing in their biz. by 2005
    • The US IT industry will save $390 billion by 2010 through offshore outsourcing software development(IBM….India)
    • - In the USA alone, $100 billion revenue in 2000 and up to $200 billion by 2005
    Empirical Evidence
  • 7. Why is Outsourcing Necessary?
    • IT Industry has led outsourcing boom
      • the easiest & most profitable field
    • Proliferates deeper & wider
      • offshore outsourcing being common
      • outsourcing common to SMEs
      • even in the biz. of the Patent Offices
    Areas of Outsourcing
  • 8. Outsourcing: KIPO’s Experiences 1st Step: Non-core jobs (cleaning, security) - from the 1980s 3rd Step: Even semi - core function (searching) - from the New Millennium 2nd Step: Information Technology (KIPOnet) - from the 1990s
  • 9. Outsourcing: IP Office of Singapore Even Core Business
    • Outsourcing patent examinations to other big Offices which are more efficient in examinations
    • Without substantive examination, recognizing examination results of some reliable Offices
    • Focusing on the area where it can be more efficient than other Offices
  • 10. Outsourcing: IP Office of Singapore SurfIP
    • SurfIP is a special project by the Intellectual Property Office of Singapore (IPOS). As an IP portal that offers a comprehensive suite of services supporting both the layman as well as the professional user, you can:
    • Research IP Information
    • Search for Prior Art
    • Gather Business Intelligence
    • Monitor Technology
    • License Your IP
  • 11. Merits & Demerits of Outsourcing
    • Efficiency
      • There is somebody around the world who can do this job more efficiently than I myself do
    • Risk Distribution
      • Vendor is better in dealing with concerned risks
    Merits Demerits
    • - Complex legal Issues, especially in IP matters
    • Disclosure of important information to vendor
    • I am the best in the world in solving my own problem
  • 12. Risk Management of Outsourcing
    • Vendor as a young tiger
      • future competitor in the core business
    • Vendor as a trouble maker
      • liability for the torts caused by vendor
      • important information leaks outside
    • Vendor with different understanding
      • in cultural and legal matters
    • Very complex legal issues
      • many areas of law
      • even laws of 2 countries in offshoring
  • 13. Outsourcing to/from SMEs Outsourcing being common to SMSs Outsourcing more imperative for SMEs - globalization due to the Internet - indispensable IT network - endless effort to reduce cost in all aspects - great opportunities to expand markets - limited human resources and experiences - no expertise accumulated as a multi-player
  • 14. An offshore vendor must show:
    • - government support - infrastructure
    • communications - location
    • labor pool features - country law
    • English proficiency - company history
    • cultural compatibility - managers profiles
    • labor cost advantage - etc.
    • quality control system
    • tech. capabilities
    • business capabilities Reliability!!
  • 15. Due Diligence in Offshoring
    • Limited sources of information about the other party in a foreign country
      • use, if necessary, informal investigation service
      • confirm that vendor actually has the staff and facilities necessary or it may subcontract
      • employee background check necessary
  • 16. Due Diligence in Offshoring
    • Among polled 5,231 Executives across North America & Europe:
      • 45% as success
      • 36% as failure
      • “ Offshore 2005 Research: Preliminary Findings and Conclusions” (Ventoro, October 2004)
    Estimate on the Success of Offshoring
  • 17. IP Issues in Outsourcing
    • Timing
      • at the very first contact with the other party
    • Subject Matter
      • all information from one to the other party
      • patent applications, trade secrets, etc.
    • Duration
      • for at least 3 – 10 years unless written permission to disclose it sooner
    • Exclusion
      • the information disclosed to the public without a fault of the vendor
      • the information already beheld by vendor
    Non-disclosure agreement
  • 18. IP Issues in Outsourcing
    • fragment work among several vendors so that no single vendor has a complete picture of it
    • demand vendor to do “reasonable effort” to protect your trade secret
      • due classification of confidential information
      • restricted access
      • education & awareness
      • the same rule applies to downstream 3 rd party
    • establish monitoring mechanism
    Practical Protective Measures
  • 19. IP Issues in Outsourcing
    • Issue
      • who owns the IP developed during agreement?
    • IP that vendor develops to provide services
      • vendor typically claims ownership
      • customer may receive a “use” license
        • continued license after termination?
      • there is any 3 rd party involved?
    • IP that vendor develops at customer’s request
      • customer typically claims ownership
        • or at least strong license to use it
      • vendor may insist on “license-back” grant
    Ownership of IP Developed During Outsourcing
  • 20. IP Issues in Outsourcing
    • Government approval required for assignment of patent rights to foreign entity
    • Assignment must be recorded with the State Intellectual Property Bureau
      • Recording with foreign trade bureau may also be required
    • Basically, any technology contract with a Chinese vendor is subject to the relevant regulations governing approval and/or registration of technology import and export
    Ownership of IP Developed During Outsourcing Unique Requirements in China
  • 21. IP Issues in Outsourcing
    • Contract cannot demand a Chinese vendor:
      • tie-in (purchase of unnecessary item)
      • payment of royalty for expired or invalidated patent
      • no improvement of imported technology
      • no obtaining of similar technology from other sources
      • unreasonable restriction in choosing channels for purchasing necessary items
      • unreasonable restriction of production volume, sale prices, production types, etc.
    Prevention of Unfair Competition in China
  • 22. IP Issues in Outsourcing
    • Payment of Royalty for Expired/Invalidated Patent & Disclosed Trade Secret?
      • no need to pay royalty for expired patent
        • if there are 2 or more patents concerned, royalty must decrease after a patent’s expiration/invalidation
      • no established rule for disclosed trade secret
        • it may depend on the contract
        • you need to clarify that you don’t have to pay royalty even during contract term if the trade secret is disclosed without your fault
    Prevention of Unfair Competition in China
  • 23. IP Issues in Outsourcing
    • No golden rule
      • vary greatly depending on the scope of the services provided and the size of the deal
    • Typically
      • one party wants the other party to defend and indemnify against claims that arise out of the other party’s activity
      • reasonable allocation of risks and responsibilities is important
    Infringement of a 3 rd Party IP Right: Indemnification
  • 24. Termination Provisions Think of Divorce before Marriage - Anything under the sun made by man is perishable. - Divorce is more expensive than marriage if there is no agreement prepared beforehand.
    • the grounds for termination
    • the recovery procedure to avoid termination
    • the kind & period of notice required for termination
    • provisions which will be effective after termination
      • warranties, indemnification, confidentiality, etc.
    • non-competition clause
  • 25. Non-competition Clause
    • Possible Scenario
      • A key employee of a Vendor who knows some important information of yours or even your trade secret goes to work for a competitor of your company
    • Non-competition clause
      • for a reasonable period (2-3 years)
      • must be effective under the applicable law
        • there is non-competition compensation?
  • 26. Conclusion
    • Very complex issues today and tomorrow
    • The unavoidable uncertainty makes drafting a good outsourcing contract almost impossible for even seasoned attorneys
    • “ Certainty is generally illusion, and repose is not the destiny of man.” Oliver W. Holmes, The Path of the Law , 10 Harvard Law Review 457 (1897).
    Importance of Good Agreement Re-emphasized Outsource outsourcing-related decisions! - Do not waste your energy for the outsourcing matters
  • 27. Thank you! any question/comment to Chaho JUNG at [email_address]