For many US companies conducting business
internationally, Intellectual Property (IP) is a key business component. Not
only is the development of new IP critical to many businesses, for continued
growth strategies, but IP protection is now a central business interest. This
significance was recognized as far back as 2002 by the US Congress in the
passage of the Sarbanes-Oxley Act (SOX), which required, among other things,
that companies must incorporate systematic programs for protecting and
monitoring IP assets as a part of an overall SOX compliance program.
IP in relation to anti-bribery and anti-corruption
programs under the Foreign Corrupt Practices Act (FCPA) were recently explored
in an article by authors Doug
Sawyer and T. Markus Funk,
in an article entitled "The IP
Practitioner's 'Cheat Sheet' to the FCPA and Travel Act: Introducing the IP
FCPA Decision Tree" published in the BNA Bloomberg Patent, Trademark
& Copyright Journal (January 27, 2012). The thesis, as presented by the
authors, is that with so many companies going global, IP is routinely and
simultaneously "owned and litigated in multiple jurisdictions." As such it
poses significant risk for anti-bribery and anti-corruption program scrutiny as
"the tactics used to register, challenge or enforce those IP rights in foreign
jurisdictions must be carefully viewed" under the FCPA.
IP Anti-Corruption Red Flags
IP rights by their nature are created by a government.
Within this context, the authors note that there are several IP Red Flags which
should be noted and followed up on if they appear. IP Red Flags include some of
the following: a patent being allowed unusually quickly; an opposition to a trademark
being granted before the entire process has been completed; and a foreign
customs official robustly enforcing company A's anti-counterfeiting agenda,
while ignoring company B's agenda. Compounding these Red Flags is the knowledge
of the company, whether it is a US public or a private equity owner. Under the
FCPA, both the Department of Justice (DOJ) and the Securities and Exchange
Commission (SEC) interpret a principal's ''knowledge'' constructively to
include circumstances where the company fails to exercise due diligence by, for
example, following up on Red Flags. More ominously, the UK Serious Fraud Office
(SFO), in its Press Release announcing the Mabey and Johnson enforcement
resolution under the Proceeds of Crime Act, said the following:
The second, broader point is that
shareholders and investors in companies are obliged to satisfy themselves with
the business practices of the companies they invest in. This is very
important and we cannot emphasise it
enough. It is particularly so for institutional investors who have the
knowledge and expertise to do it. The SFO intends to use the civil recovery
process to pursue investors who have benefitted from illegal
activity. Where issues arise, we will be much less sympathetic to
institutional investors whose due diligence has clearly been lax in this
respect."
Anti-corruption Pitfalls in the IP Context
The authors detail some of the specific pitfalls a
company may face in registering or in otherwise protecting their IP rights in
the international context. While noting that the FCPA prohibits payments of
'anything of value' such as "gifts, cash, unreasonably high commissions," paid
directly a company or through foreign business partners, "to foreign officials
in order to ensure IP registration, or to oppose registration or enforcement of
other companies' IP."; the authors caution that often times IP investments
which are made abroad "frequently go through foreign transaction partners who
'know the local system'." Compounding this problem is the fact that many foreign
countries "require the retention of one or more foreign associates,
facilitators, and intermediaries to effectively register and enforce a robust
IP program." Lastly, the authors write that even when "accommodating seemingly
simple requests from a customs official to pay for costs, such as
transportation required in sending officers on an anti-counterfeiting
operation, requires a determination of whether the payment is a legal
facilitating payment under the FCPA." Of course facilitation payments are not
legal under the Bribery Act so the issue is even more problematic.
Prevention
The authors correctly note that having an anti-bribery
and anti-corruption program which meets both the DOJ's 13 point minimum best
practices is critical. The pitfalls listed out above, which certainly point
towards training of your own employees on what is and is not permissible, is
key for protection. Under the FCPA, the question of who is a foreign
governmental official can be vexing. However, in the IP context, such an analysis
should be straightforward as such rights are only granted by a government, any
dealing around IP rights creation and enforcement should be assumed to involve
a foreign governmental official. Clearly the FCPA requires training on what
actions are not permissible.
In addition to a thorough vetting, contracting with and
management of any foreign business partners your company might utilize in the
IP context, companies "must be ever vigilant when hiring third parties or local
counsel to help to register, or oppose the registration of, their IP."
Likewise, IP owners should be equally aware that any actions in relation to
government officials or third parties to aid the granting process, or
''motivating police and prosecutors, must do so in a manner that does not
violate the FCPA" or local laws.
As companies move towards IP as much of the basis of
their business values, increasing pressure will build for registration and
protection of these rights. Anti-corruption laws such as the FCPA make clear
that there can be no corruption when obtaining or enforcing these rights. Your
company would do well to perform an anti-corruption risk assessment on your IP
program to ensure it is not caught with any of the problems detailed by the
authors.
Decision Tree
I would also commend you to this article for another
reason. They have included a most excellent, decision making tree which you can
use in analyzing anti-corruption issues in the IP context. I could not cut and
paste it into this article and post on the WordPress.com site so you will have
to download the article to review and use it. However I would suggest that you
take the time to do so as it presents a visual manner to think through and
analyze the issues raised in their article.
Visit the FCPA Compliance and Ethics Blog,
hosted by Thomas Fox, for more commentary on FCPA compliance, indemnities and
other forms of risk management for a worldwide energy practice, tax issues
faced by multi-national US companies, insurance coverage issues and protection
of trade secrets.
This publication contains general information
only and is based on the experiences and research of the author. The author is
not, by means of this publication, rendering business, legal advice, or other
professional advice or services. This publication is not a substitute for such
legal advice or services, nor should it be used as a basis for any decision or
action that may affect your business. Before making any decision or taking any
action that may affect your business, you should consult a qualified legal
advisor. The author, his affiliates, and related entities shall not be
responsible for any loss sustained by any person or entity that relies on this
publication. The Author gives his permission to link, post, distribute, or
reference this article for any lawful purpose, provided attribution is made to
the author. The author can be reached at tfox@tfoxlaw.com.
© Thomas R. Fox, 2012
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