Foreign Outsourcing of Application Preparation May Require Export Administration Review [US}

According to the USPTO on July 23, 2008, applicants and registered patent practitioners are reminded that the export of subject matter abroad pursuant to a license from the United States Patent andTrademark Office (USPTO), such as a foreign filing license, is limited to purposes related to the filing of foreign patent applications. Applicants who are considering exporting subject matter abroad for the preparation of patent applications to be filed in the United States should contact the Bureau of Industry and Security (BIS) at the Department of Commerce for the appropriate clearances.

If an invention was made in the United States, technical data in the form of a patent application, or in any form, can only be exported for purposes related to the preparation, filing or possible filing and prosecution of a foreign patent application, after compliance with the Export Administration Regulations (governing exports of dual-use commodities, software, and technology, including technical data, which are codified at 15 CFR Parts 730–774) or following the appropriate USPTO foreign filing license procedure. See 37 CFR 5.11(c). A foreign filing license from the USPTO does not authorize the exporting of subject matter abroad for the preparation of patent applications to be filed in the United States.

Information regarding the EAR may be obtained from the BIS Web site at http://www.bis.doc.gov. Questions regarding the EAR should be directed to the BIS’s Outreach and Educational Services Division at (202) 482–4811.

India on growth wave into new age of tech globalization

No longer simply an epicenter of outsourcing, India is riding a new wave of globalization as the economics of the technology business turn it into a regional design and development hub. The subcontinent is seeing an explosion of business and forging IT partnerships with neighbors as diverse and disparate as China, Egypt, Pakistan, Australia and Dubai, as these and other would-be technology players strive to usher in a new phase of tech-driven development to the region, which includes North Africa, the Middle East and the Gulf states.

This new geotechnology axis is destined to have a profound impact on the global IT and technology sectors, and its arrival marks a turning point in the shift of the industry's balance of power from West to East. "We are seeing a whole new age of globalization today," according to analysts at Bengaluru-based Prayag Consulting. "Three countries that are taking full advantage of this paradigm shift are Israel, China and India."

As India extends its connections throughout Asia, Australia, the Middle East and Africa, it will emerge not just as the region's business and technology leader, but as a more powerful player in the global IT sector. That will have a ripple effect on the entire market as next-generation semiconductor and system development--including embedded-systems design--follows trends that arise from the burgeoning domestic and regional economies.

This factor was topmost in the minds of the India Semiconductor Association as ISA convened its 2008 Vision Summit in Bengaluru recently. The organization expects that India will evolve from a design-oriented industry into a major electronics manufacturing hub before the end of the decade.

It was also the underlying theme at another recent event in Mumbai, as would-be regional tech players like Egypt, Australia and China vied for notice from India-based IT service and technology development companies at the India Leadership Forum.

Among the most revealing sessions at the Mumbai event were the "focused country sessions." These informational and networking meetings underscored the spillover effect of India's IT success, pointing to bright prospects for smaller regional players eager to ride India's coattails and become part of the new regional development axis.

Pakistan is already enjoying the knock-on effect of India's steady rise as a regional and global IT superstar. With a population of 160 million, Pakistan will be the first in the world to complete a nationwide deployment of WiMax wireless communications technology. This boost in infrastructure will help make its technical talent pool more competitive and will serve as another catalyst for regional economic development.

"It's a case of petrodollars at work," noted Shahid Azim, the Harvard-educated CEO of Braintree Group (Islamabad, Pakistan).
Like India, Pakistan has a large pool of well-educated engineering and IT professionals eager to participate in the global IT sector. With the Pakistan economy enjoying robust growth, Western companies are looking to India's neighbor as another source of technical IT talent.
"The idea is to set up R&D centers. It's just beginning," Azim said, projecting optimism that Pakistan will follow India's well-worn path to global significance.

With the aim of unlocking the technology potential of the Middle East, the Gulf and Africa, Egypt's General Authority for Investment (GAFI) also came to Mumbai in search of potential partnerships. Marshaling a 55-person delegation of Egyptian corporate executives and government officials, GAFI mounted an aggressive diplomatic and commercial initiative at the Leadership Forum designed to foster long-term relationships with its historic trading partner, India, and to position Egypt as a player in the evolving regional development hub.

With a GDP growing at 7.2 percent per year and a mobile-phone growth rate of 50 percent per year, Egypt also boasts one of the region's lowest IT outsourcing cost structures--lower than Eastern Europe's--including the world's lowest telecom costs. The nation is undergoing tax, customs and financial-sector reform, and has a talent pool consisting of 300,000 graduates with strong commercial, engineering and science backgrounds. Its unique multilingual heritage with English, French, German, Italian and Spanish language skills also works in Egypt's favor. Multinational investors active there include Mentor Graphics, Oracle, Vodaphone, IBM, Microsoft and Sun Microsystems.

Outsourcing and Offshoring Gain Traction in U.K. Legal Market

On the western edge of New Delhi, amid the glittering office developments of the suburb of Gurgaon, the newest part of Clifford Chance's global empire is open for business. Unlike the firm's other offices, however, this outpost is not practicing law, still a prohibited activity in India for overseas law firms. Instead, the Clifford Chance office houses a group of Indian IT and accounting specialists, part of the Magic Circle firm's back-office function. By moving these operations out of higher-cost offices in Europe and the United States, chief executive David Childs predicts, the firm will save £30 million ($60 million) during the next three years.

When it comes to outsourcing, the U.K. legal community still lags far behind many multinational corporations and major U.S. firms -- but U.K. firms are beginning to catch on. Clifford Chance's new Gurgaon facility makes it the first global firm to locate part of its support business in India. Two other Magic Circle firms -- Allen & Overy and Linklaters -- have already outsourced some back-office functions to Indian contractors, while Eversheds has outsourced a large chunk of its IT function to a U.K.-based specialist.

No major U.K. firms have gone so far as to outsource legal work, and not every British firm is convinced of the virtues of outsourcing even back-office functions. Freshfields Bruckhaus Deringer has yet to make a move in that direction, although chief executive Ted Burke admits that outsourcing is something that the firm will have to look at. Slaughter and May is even less interested. "Clifford Chance operates a different business model from ours in the approach to international legal services," says practice partner David Frank. "Their decision to outsource to India will be driven by economies of scale that are not relevant to us."

Lawyers and consultants attribute the legal sector's reticence to conservatism and concerns over confidentiality. But outsourcing companies such as Williams Lea are now targeting British law firms, confident that demand will grow. "Many of our other markets have reached a plateau, and we've noticed an upsurge in interest from the U.K. legal market," says Tony Davies, business development director for Williams Lea's legal division in the United Kingdom.

Among U.K. firms, A&O took the lead in 2003 when it signed an agreement with outsourcing specialist OfficeTiger to move part of its document management function to the Indian city of Chennai. In Linklaters' more modest foray offshore, it now draws IT support from India-based IT specialist Pro Systems.

Then there's Clifford Chance's more radical bid to cut costs. In 2004 the firm outsourced part of its document production function to an Indian center operated by Integreon Managed Solutions Inc., a global outsourcing specialist, which then advised Clifford Chance on setting up its own facility in New Delhi. To date, the firm has focused on moving basic accounting and IT functions to India, covering such things as payments to suppliers, invoices, expenses and IT system development.

In contrast to outsourcing efforts by other Magic Circle firms, Clifford Chance's Indian staff are all direct employees of the firm. "It's all fairly small-scale compared with what financial institutions have done, but having 100 people in New Delhi will be a big deal for us," Childs says. Two senior members of staff, operations director Wayne Phillips and financial controller Jo Harvey, have relocated to India to manage the office. By keeping the facility part of Clifford Chance, the firm maintains direct control while taking advantage of economies of scale. "You need to treat the offshore center as an integral part of the firm, with complete transparency between it and the rest of the firm," Childs says. "It sounds fairly obvious, but these are areas where you can make mistakes."

The question for Clifford Chance is how much of its business it can transfer overseas. So far it has only moved IT and accounting operations out of London, with New York and Germany next on the list. Childs refuses to comment on which, if any, business areas might follow. "We don't want to affect morale among what is a very good cadre of business services staff [in the U.K.]," Childs says. Outsourcing specialists such as Roy Marshall of Magellan Consultancy Services Ltd. suggest that paralegal work could be handled from a lower cost base offshore; marketing materials or pitch documents could also be prepared from a remote facility.

Outside the Magic Circle, Eversheds has undertaken one of the most ambitious outsourcing projects, signing a deal last December with European IT services provider Computacenter plc to outsource a large chunk of its IT operation. This agreement covers such functions as Eversheds' IT service desk and IT training and saw 79 former employees of the firm transfer to two U.K. Computacenter offices. U.K. managing partner Bryan Hughes describes the move as "largely cost-neutral." Instead, the drivers were access to more sophisticated IT systems and a realization that the IT function could be managed better by a dedicated supplier. "We're not IT experts," Hughes points out. Although Eversheds hasn't moved anything offshore, Hughes expects to visit India later this year to assess various options. "There is a hint of inevitability about it," he says.

To a large extent, the U.K. firms are catching up with many of their U.S. counterparts. Orrick, Herrington & Sutcliffe, perhaps the most aggressive outsourcer, first established its own global operations center in West Virginia in 2002 to handle some support services in IT, finance, human relations and marketing. Two years ago it outsourced the rump of its document management function to Williams Lea, again in West Virginia. Baker & McKenzie, meanwhile, was one of the first to transfer some support functions abroad to what it rather imaginatively calls an "insourced offshore facility" -- a 350-strong operation in Manila that handles various IT and marketing functions, saving Baker around $10 million a year.

Reducing overhead is at the top of the list for most firms considering the outsourcing route. A legal secretary in India, handling basic secretarial work such as transcribing files, costs £12,500-£14,000 ($26,000-$28,000) annually, compared with up to £35,000 ($70,000) in London. Suppliers and consultants, however, stress that it's not just about the bottom line. "Cost is the hook, but improved service levels and getting access to better qualified people are definitely ancillary benefits," says Magellan's Marshall. Having access to IT or secretarial support located overseas can mean that a firm is covered 24 hours a day and thus is better placed to cope with the demands of cross-border cases or deals.

Marshall admits that the whole concept of outsourcing still carries some negative connotations. "The gut reaction is that it's about call centers, but this has nothing to do with call centers," he says, alluding to the customer complaints that recently forced British companies Powergen Ltd. and Lloyds TSB Group plc to close their Indian call centers. Some firms have concerns over keeping client matters confidential. Williams Lea says that it has yet to have a security breach; keeping control of offshore operations, as Clifford Chance and Baker & McKenzie do, provides even more of a safeguard.

The pressure to improve profitability while associate wages and property costs continue to soar means that interest in outsourcing and offshoring among British firms will only grow. Clifford Chance's New Delhi pioneers can expect company soon.

Richard Lloyd
The American Lawyer
09-19-2007

Neglect of Intellectual Property may breach Fiduciary duty [Outsourcing Contracts]

A fiduciary is an individual, corporation or association holding assets for another party, often with legal authority and duty to make decisions regarding financial matters on behalf of other party. The directors and officers of a corporation are fiduciaries of the corporation and its shareholders. The fiduciary duty includes the obligation to prevent a waste of corporate assets and other actions and omission which damage the corporation. With the growing importance of IP in a companys overall value, any IP mismanagement is seen as a serious waste of corporate assets. By outsourcing, the organization gives up control over physical access to its system and the control over all company functions becomes more flaccid. The inability to tightly control all aspects of the company increases the risk of illegal activity such as piracy which may constitute a breach of fiduciary duty. The fiduciary responsibility of the directors encourages them to oversee IP assets more closely. The relationship between an organization and its outsourcing firm is not considered to be fiduciary (Op. cit., Mylott). In this light, the management should consider how effectively it will be able to control functions in its offshore entity. The officers and directors must carefully plan how to supervise the people directly managing the offshore part of the corporation. If this control is not planned and executed properly, the company may find its intellectual property falling victim to illegal activities such as piracy and its high level management subject to litigation for breaching fiduciary duty to the corporation and its U.S. stockholders by allowing such illegal activities to occur.