Outsourcing to India: National Security Subversion & Job Loss

On July 23, 2008, the United States Patent & Trademark Office published an interesting notice in the Federal Register reminding patent attorneys and patent agents that there appears to be widespread and open violations of the Export Administration Regulations within the industry. Shortly after the aforementioned Federal Register Notice was published I wrote, rather naively in hindsight, that this announcement “should signal an end to the $2.2 billion per year patent outsourcing to India.”  See USPTO Ends Patent Outsourcing to India.

Obviously, that hasn’t happened. It seems more and more patent outsourcing is occurring, despite the fact that it is against the law, which seems to bother no one; that is no one other than those in the industry that are losing their jobs to the shoddy work provided by outsourcing companies in India. But what of the ethical concerns? What about the conflict of interest nightmares that India presents? What about the lack of respect for intellectual property rights? Everything seems to be fine and dandy, and likely will remain so right up until things are neither fine nor dandy, but by then it will be too late.

Let’s start with the explanation of the inappropriate behavior as explained by the USPTO back in July of 2008.  The Federal Register Notice explained, in part:

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. See MPEP § 140 (8th ed., Rev. 5, Aug. 2006). The BIS has promulgated the Export Administration Regulations (EAR) governing exports of dual-use commodities, software, and technology, including technical data, which are codified at 15 CFR Parts 730–774. Furthermore, if the 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 EAR 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.

The fact that the outsourcing of patent searches and the preparation of patent applications violates U.S. law only makes perfect sense, particularly when you factor into consideration the requirements of 35 U.S.C. 181 (re: national security) and 35 U.S.C. 184 (re: foreign filing licenses).  Pursuant to Section 181, inventions in which the federal government has a property interest are the subject of a secrecy order upon the request of a the head of the interested Government agency.  If the invention is not one in which the federal government has a property interest the invention can still be subject to a secrecy order if the Atomic Energy Commission, the Secretary of Defense or the head of another defense agency determines the publication or disclosure of the invention would be detrimental to national security.  By openly and willingly tolerating the outsourcing of preparation work of patent applications the clear intention of 35 U.S.C. 181 is subverted.  What good does a secrecy order make if the the information relative to the invention has already been sent overseas?  The old saying about the cat being out of the bag comes to mind.  In fact, once the information is sent to India, or any other place around the globe, review for national security purposes seems almost comical.  The secret, if there needed to be one, is already out.  Talk about closing the barn door after the horse has left the building.

But surely those in India have a vested interested to keep information secret, right?  Surely there are confidentiality agreements in place?  First, no implied or overt secrecy agreement trumps the requirements of federal laws and regulations.  Second, do you really believe that those in India are concerned with U.S. intellectual property laws?  Workers move from company to company to company all within a span of months and all because they can earn an extra dollar an hour somewhere else.  Are they segregated from working on issues where they have worked for competitors previously?  Of course not.

Recently I had an occasion to need to send a DMCA takedown notice to a blog that simply cut and pasted one of my articles and published it as their own.  This blog was operated by ADHIKARI IPC, which is an Indian company that claims to provide a comprehensive range of intellectual property services, or in other words they are an India outsourcing outfit.  These people didn’t care enough about my intellectual property.  They ripped me off and passed of my work as their own.  They even had the audacity to respond to me telling me they didn’t appreciate my characterization in the DMCA takedown notice of what they did as “willful and deliberate,” which of course it was.  They claimed it was done “purely by oversight.”  How is a cut and paste job purely by oversight?

It was easy enough to get these copyright infringers to remove the infringing material with a DMCA takedown notice, and as of today it seems that their entire blog is closed down on blogspot.  I subsequently learned that much, if not most, of what they were publishing was cut and paste infringements of the writings of others.  If they care so little about the intellectual property of others why in the world would you look to them to provide intellectual property services?  Talk about giving the fox the keys to the hen house!  Lack of respect of intellectual property rights seems widespread in India.  So not only does outsourcing violate the Export Administration Regulations, not only does it circumvent 35 U.S.C. 181, but there is no culture of respect of rights.

We learn ever more frequently about U.S. companies providing intellectual property to companies overseas, partners at first, who then take the information and wind up competing on the global market against the creator of the intellectual property.  Can you imagine the shareholder lawsuits for failure to adequately manage a company when it is learned that the leaders of these major tech companies knew or should have known they were handing over the keys to the kingdom to those in India who stole those keys and competed globally against the innovator company?  The loss of rights, particularly trade secrets, is potentially the great unknown in terms of the damage possible as a result of outsourcing.

Look, it is impossible to ignore that many large tech companies are outsourcing patent work to firms outside the United States.  Indeed, many large tech companies are outsourcing a lot of technology work to India and elsewhere.  In fact, so widespread is the generic outsourcing problem that in April of 2010, Robert Reich, a Professor of Public Policy at the University of California at Berkeley and former Secretary of Labor under President Clinton, wrote an article in the Wall Street Journal describing a bleak picture of the U.S. economy.  Reich blamed outsourcing in large part for the loss of American jobs, and said that even with robust job growth of 300,000 jobs per month it would take between 5 to 8 years to return to pre-recession levels of employment.  He concluded that “those who have lost their jobs to foreign outsourcing or labor-replacing technologies are unlikely ever to get them back. And they have little hope of finding new jobs that pay as well.”

Outsourcing is a huge problem, and there are numerous high paying technology based jobs and patent preparation work that could be done here in the United States, and which is actually legally required to be done here in the United States, yet government officials look the other way as these jobs are exported to India and other parts around the globe.

Perhaps the biggest problem for those who outsource their patent work to India isn’t that they are violating the Export laws and rules, or that they are subverting 35 U.S.C. 181, but rather the ethical concerns that simply cannot be ignored.  These ethical concerns are, in fact, inherent in the decision to outsource.  After all, if there are any ethical concerns it is the U.S. lawyers that are enabling the outsourcing that will be crucified once the things start to hit the fan, which they will.

For example, potential conflicts of interest can be waived by the client if they are fully disclosed.  On the other hand, actual conflicts of interest cannot be waived even if fully disclosed and understood by the client.  How does anyone even know if there is a conflict of interest when the work is being done in India?  These outsourcing shops do work for whoever sends work, and those in the industry know that they are working on applications today for company A and tomorrow for company B who is a competitor of A.  These applications deal with the same or similar products, and are far too close to allow any U.S. attorney to engage in the employment of both A and B because of actual conflicts.  Even if the situation only presents a potential conflict, are these Indian companies disclosing that information fully and fairly and getting both A and B to sign off?  Of course not!  What about when the potential conflict matures to an actual conflict, do they stop representing both A and B?  Of course not!  The U.S. attorneys involved who are actually filing the cases at the USPTO are going to wind up being the ones taking the fall eventually because we know that the Office of Enrollment and Discipline always goes after the low hanging fruit; namely those they have easy jurisdiction over.  You know what they say about things rolling down hill, right?

But how is all of this going to come to a head?  Any number of ways really, but it will be in litigation related one form or another.  When you want to take the deposition of the person (or people) in India who were engaged in the drafting of the application things will get interesting.  First, how do you intend to find that person?  No one knows who is responsible for any particular application.  So when one party could have the information and cannot produce it due to faulty record keeping aren’t all inferences drawn against the party who can’t produce the information?

What, attorney-client-privilege did you say?  Get real!  Has any attorney-client-privilege been established let alone maintained with India?  If communications are made with those who are not party to the privilege then there is no privilege.  If these India companies don’t segregate out those working for competitors and they talk amongst themselves it seems like a good argument that any privilege that could have applied was long since waived.  But how could a privilege ever attach when there is a non-attorney engaged in the drafting and provision of legal advice and services? Whether any of this is ultimately the case, can you imagine the discovery that a district court judge might allow down this path?  This is going to be like tugging at a thread — everything will come unwound.