Working on It: An Overview of Patent Working Requirements, Part 1
As clients and legal counsel begin to develop global patent portfolios, one topic comes up annually: working requirements. A working requirement is a provision of a national patent statute that states an owner of a patent must practice the patented invention within the country that granted the patent. To satisfy the requirement, a patent owner may need to build new manufacturing capacity in the country, utilize existing capacity in the country, or license the patented invention to a third-party for manufacturing the patented invention, or perform the patented process, locally. Consequences for not working a patented invention in contravention of local statutes may include monetary sanctions, as well as potential for loss of patent rights or compulsory licenses to third parties.
Intellectual Property (IP) often requires strategy and understanding of the client’s goals and resources to optimize the outcomes for the client. For many clients, the protection of their IP rights requires managing a global patent portfolio. Fundamental aspects of this management involve effective and routine communication with the client as well as an understanding of the value of a patent in different jurisdictions or countries. Rights to IP directly impact the economic status of the IP owner, as well as impact economics of the patent granting country.[1]
In this regard, managing global patent portfolios involves much more than what is required for filing and prosecuting an application to grant. Managing a patent post-grant involves understanding a business strategy for a designated patent owner along with understanding in which jurisdictions patent activity is taking place. Management of a post-grant patent portfolio also requires determining whether the patent owner will want to keep paying annuities to maintain an active patent as well as understanding other legal requirements or proceedings that may occur after grant, such as post-grant challenges, potential litigation, and working requirements.
With the globalization of technologies and economies, many patent systems worldwide may have similar features. For example, one common topic that exists globally: “working requirements” of a patent. A “working requirement” is a provision of a national patent statute that states an owner of a patent must practice the patented invention (i.e., to manufacture or import the invention) within the country that granted the patent.
Working requirements are meant to support the development of domestic industry. To satisfy the requirement, a patent owner may need to build new manufacturing capacity in the country, utilize existing capacity in the country, or license the patented invention to a third-party for manufacturing the patented invention locally.
The requirement that the patented invention be practiced in the country also positively impacts employment in the country, since local workers would likely be employed to work the invention. A skilled labor force and manufacturing capacity is the legacy of the patent working requirement that would benefit the country long after the patent has expired. The local manufacturing rationale for working requirements in developing countries balances the investment these countries are making to harmonize their patent laws with international standards.
As “working” is not universally defined, working of a patent can include advertising, sale, licensing, manufacture, importation, as well as other specifically defined activities. In many instances, the country which granted the patent right may routinely require information from the patent owner that demonstrates the patent is being worked. Depending on the requirements for working, this information could include profits from sale, proof of importation, and showing of licensing activity. In circumstances where the patented invention is not being worked, the patent owner may need to disclose potential reasons for why the patent is not being worked.
Often, there may be a period of time within which working must occur. After that period, local regulators may excuse non-working under certain circumstances. Indicating why a patent is not being worked may not be necessary unless a third party challenges the “working” activities.[2] There may be consequences for not working a patent that may include: monetary sanctions, loss of patent rights, and compulsory licenses to third parties. In some instances, there may be no consequences.
For example, in the case of a third-party request, the local regulator may authorize a compulsory license between the patent holder and the third party. A granted compulsory license allows a third party to produce a patented product or practice a patented process without the express consent of the patent owner. Such licenses are included in the World Trade Organization’s (WTO) agreement on intellectual property—the Trade-Related International Aspects of Intellectual Property Rights Agreement (TRIPS Agreement).[3] In some locales, the patent owner may be fairly compensated upon issuance of a compulsory license. In rare cases, the patent rights may be cancelled and dedicated to the public after non-working of the patent is established.[4]
While “working requirements” are not explicitly mentioned, the TRIPS Agreement (effective Jan. 1, 1995) provides minimum standards for regulation of different forms of IP for rights holders. TRIPS is a global agreement that includes provisions for “use without the authorization of the right holder, but are made subject to conditions aimed at protecting the legitimate interests of the right holder.”[5] A majority of countries are participating WTO members—currently at 164 members—while some countries in Northern Africa and Middle East are observers under negotiations.[6] Few countries, such as Greenland, Eritrea, and North Korea, are not participating.
Thus, “working a patent” may be necessary to consider when managing a client’s global portfolio. Each country can define what “working a patent” means, which, due to the differing definitions, can often make international harmonization within the bounds of the TRIPS Agreement complex. Many countries share a general “working requirement” component to an issued patent’s activity. Often, working requirements state “an owner of a patent must practice his or her patented invention within the country that granted the patent.”[7] A select few countries may require filing of a “statement of working,” which is a periodic statement—usually annual—indicating that a patent is being worked. Notably, India has—at the time of writing—the most stringent requirements.[8]
As outlined above, managing a global patent portfolio includes maintaining information about patent usage for each country in which a patent is granted. Advertising activity, licensing activity, practice of a patented method, manufacture or importation of a patented product, as well as the relevant parties and values of the activity, or reasons for which patents are not being worked, are necessary information to be gathered by the legal team managing the portfolio. This often requires effective communication between the legal team and the business teams as well.
In conclusion, effective counsel should regularly communicate with their clients about the existence of working requirements in countries where protection of IP is desired. Ideally, ongoing client communication will provide advanced information to develop effective strategies to defend against potential consequential inquiries, such as compulsory licenses. Strategies for client-counsel communication should include anticipation of deadlines for submission of any necessary documentation, such as a statement of working, to maintain patent ownership.
In effect, legal representatives should communicate any applicable working requirements, and the totality of information required to complete working statements or to otherwise prove working, such that the client is made aware of and can gather and provide pertinent information to support working, such as where, when, and how a client is doing business in a country in which IP protection is desired. Examples of working requirements in various jurisdictions will be discussed in next month’s Part 2 of this article.
[1] Sople, V. V. Managing intellectual property: The strategic imperative. PHI Learning Pvt. Ltd., 2016.
[2] Trimble, M. “Patent Working Requirements: Historical and Comparative Perspectives” UC Irvine Law Review, vol. 6, 483, pp. 483-508.
[3] Compulsory Licensing of Pharmaceuticals and TRIPS (https://www.wto.org/english/tratop_e/trips_e/public_health_faq_e.htm) World Trade Organization. Accessed on 07/14/2022.
[4] Trimble, supra note 2.
[5] Overview: the TRIPS Agreement (https://www.wto.org/english/tratop_e/trips_e/intel2_e.htm#patents) World Trade Organization. Accessed on 07/14/2022; see also TRIPS, Art. 31.
[6] Trimble, supra note 2.
[7] Trimble, supra note 2.
[8] The Authors sent an informational request to local counsel in countries where our clients typical file. Special thanks to our friends and colleagues that responded to our informational request.
