David Perla and Sanjay Kamlani recently left Pangea3 LLC, a legal process outsourcing (LPO) company as agreed to a purchase agreement almost two years ago. Pangea3 LLC is a LPO company that began by doing document review for litigation support. It is reported that they sold the company for an estimated sum of $40 million.
Growth of LPO
The LPO industry has been growing for a few years now. Some estimate that this will be about a $350 million to $1.1 billion industry by the 2013-2014 time frame.
Law firms and general counsels began farming out low level work to workers in India in an effort to reduce costs. These were typically manual tasks such as document review and other low level litigation work. However, due to advances in technology, LPO have begun to experience an increase in outsourced work involving technology enhanced work such as predictive coding.
Struggles with LPO
LPO companies struggle with growth from three different fronts. First, in house counsels want to keep the work close to home for one reason or another. In response, companies performing legal process outsourcing have begun to open U.S. offices. Second, LPO companies face competition from law firm that attempt to set up their own internal LPO shops. However, this has not materialized as of yet. Third, the biggest competition that legal process outsourcing companies face is from others that have learned from the mistakes of early LPOs and set up their own shop. These include:
USPTO stance of preparation of a patent application abroad
A few years back, I used to receive a ton of unsolicited email from LPOs that wanted me to send patent preparation work to them to reduce costs. I’ve never gone that route because of the quality issues. Also, the law seemed to prohibit the use of LPOs for the use of patent preparation. Under U.S. law, applicants must obtain a foreign filing license to file a patent application in a foreign country. See MPEP 140. In other words, you can’t file your patent application in a foreign country unless the government authorizes you to do so. If you transfer your technology to a foreign country, you are transferring technology without authority from the U.S. government.
With the growth of legal process outsourcing, a small minority of applicants, law firms and others attempted to outsource the preparation of a patent application abroad for filing in the United States. However, on July 23, 2008, the USPTO published a notice in the Federal Register that informed the inventing community that a foreign filing license from the USPTO is not an authorization to export subject matter out of the United States for the purposes of patent preparation services. More importantly, the USPTO indicated that individuals must contact the Bureau of Industry and Security (BIS) at the Department of Commerce for appropriate clearances.
The BIS has promulgated the Export Administration Regulations (EAR) governing exports of … technology, including technical data… . 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.
Some legal process outsourcing companies do not list patent preparation as a service, while others do. Unless they are getting clearances, they may be violating EAR and the foreign filing license requirements of the USPTO.
Interestingly, the LPO companies appear to provide patent search services. However, doesn’t patent search services also need to be cleared through BIS and the foreign filing license requirements of the USPTO. A patent search is related to the preparation of a patent application. The patent search is the first step, albeit an optional step, towards filing a patent application. See 37 CFR 5.11 (c). Moreover, to conduct a proper patent search, the technology to be patented must be sufficiently described and transferred to a foreign country to allow the foreign patent searcher to properly conduct the search. Otherwise, how would they know what to look for? Perhaps, the industry for patent searches is still not large enough industry for the USPTO to warrant coming in and warning them that outsourcing patent searches outside of the United States violates the EAR and the foreign filing requirements.
I invite you to contact me with your patent questions at (949) 433-0900 or James@OCPatentLawyer.com. Please feel free to forward this article to your friends. As an Orange County Patent Lawyer, I serve Orange County, Irvine, Los Angeles, San Diego and surrounding cities.