The world is changing at a rapid pace, and innovation is more important than ever to grow and sustain a successful business.
A recent State of Innovation report by CB Insights surveyed 677 strategy leaders from major industries including financial services, life sciences and education. Of those surveyed, 84.9% responded that innovation was very important to the success of the company. Notably, companies with revenue exceeding $10 billion ranked innovation of the highest importance.
Further, according to a recent WIPO publication, patent applications around the world increased by 5.2% in 2018 compared to 2017, with applicants filing 3.3 million patent applications. The long-term trend shows patent applications growing worldwide every year since 2004, with the sole exception being 2009, when patent applications fell by 3.8%. This was due to the global financial crisis, during which many corporations slashed their IP budgets dramatically. The uptick in patent applications has increased the workload of IP firms across the globe, creating time and resource constraints within IP departments. Fortunately, IP outsourcing provides solutions to relieve the pressure from these teams, allowing them to cope with the rising demand.
In today’s thriving IP market, outsourcing IP needs has become a common occurrence. Not only does outsourcing reduce costs and save time, but it also allows IP firms and attorneys to deliver a superior customer experience to their clients. Outsourced companies can perform various tasks, such as patent due diligence, which includes novelty, prior art and freedom to operate searches, as well as patent drafting, competitor intelligence reports and portfolio auditing. Although the benefits of outsourcing across all industries are numerous, there are some key issues when considering outsourcing IP work. These include ineffective communication due to the language used by different outsourcing companies and disclosure of confidential information. As outsourcing projects can be complicated and vital to the success of a business, it is imperative that these companies develop systems that minimise the disadvantages and keep the advantages provided by outsourcing.
One of the ways in which this can be achieved is through contract negotiations. This is critical to the success of outsourcing operations. However, due to the intangible nature of intellectual property, difficulties may arise when creating these contracts. For example, some of the intellectual property discussed may be licensed to third parties, which can introduce roadblocks to the outsourcing service, such as privacy restrictions to understanding the licensing agreement in detail.
Another area that requires attention to detail includes the clarification of ownership of the end deliverables when discussing how the outsourcing operation will come to a close. This may detail situations where the client will request all the intellectual property developed by the contracted organisation to be returned to them upon completion of agreed work. These issues should be kept in mind when outsourcing certain tactical and strategic IP work and special focus should be placed on creating forward-thinking agreements in respect to future developments in confidentiality issues as the relationships develop between outsourcer and contractor.
Aside from the legality and complexity of IP firms outsourcing their workload, there is also confidentiality, billing and ethical issues that should be considered. In 2008, the USPTO issued a notice warning that the disclosure of technical data to offshore outsourcing companies to prepare a US patent application is not covered by a foreign filing licence and additional licensing may be required. This can be a major deterrent to patent firms looking to outsource the drafting of patent applications.
Despite these cautions, one of the major benefits of outsourcing is the reduced cost for performing strategic or tactical IP work. However, it is crucial understand how an outsourcing firm will bill clients, especially when billing involves fee splitting. A formal opinion issued by the Colorado Bar Association Ethics Committee adopted in 2009 stated that outsourcing will not constitute fee splitting provided that: “the fee is paid to the outside personnel regardless of the amount charged by the outsourcing attorney to his or client; and 2) the fee is paid to the outside personnel regardless of whether the outsourcing attorney is paid by his or her client.”
These are important distinctions. While fee splitting with outside attorneys is allowed under this opinion, provided that they are agreed upon by the clients and a reasonable fee agreed, it is not allowed with non-attorneys as this would violate Rule 5.4 of both the American Bar Association Model Rules and the Colorado Rules. Therefore, it is important to consider this when determining an outsourcing payment agreement.
It is safe to say that despite the vigilance that is needed to ensure that a successful agreement is reached, outsourcing offers many benefits to IP professionals and firms. The ethical issues outlined above can be minimised with careful planning and risk management, while the benefits of outsourcing are more important than ever in a global market focusing on innovation. The outsourcing market continues to grow and should be considered by IP firms and attorneys keen to remain relevant and flexible in today’s growing marketplace.