FCPA Compliance and Ethics Blog

February 9, 2012

IP Rights under the FCPA

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.

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

February 6, 2012

A Triumvirate of FCPA Resources

One of the great things about blogging about the Foreign Corrupt Practices Act (FCPA), UK Bribery Act and ethics and compliance in general, is that practitioners will forward materials to me to review. Not only does this assist me in my legal practice (yes, I do practice law for a living) but it also provides me with a wealth of materials to write about and share with other compliance practitioners. This week I was the lucky recipient of one email with three such resources from Markus Funk, partner at the law firm of Perkins Coie. I would also note that Markus was the author, co-author or otherwise involved in publishing of all three articles.

The three articles are: (1) “Complying With the Foreign Corrupt Practices Act: A Practical Primer”, authored by the University of Chicago Law School’s Corporate Lab, co-sponsored by Microsoft, and published by the ABA Global Anti-Corruption Task Force; (2) “The IP Practitioner’s ‘Cheat Sheet’ to the FCPA and Travel Act:  Introducing the IP FCPA Decision Tree, authored by Doug Sawyer and T. Markus Funk and published in the BNA Bloomberg Patent, Trademark & Copyright Journal; and (3) “Breaking Down the FCPA, Travel Act, and UK Bribery Act”, by T. Markus Funk, published in BNA Bloomberg White Collar Crime Report.

Complying with the FCPA: A Practical Primer

Whether you are new to the field of compliance or a long time practitioner, this 52 page guide is an excellent one-stop shop for any person who may need guidance under the FCPA. This is the result of the collaboration of several authors, law firms, companies and organizations and the stated purpose of the Primer for this report is to provide: (1) an overview of the FCPA; (2) an analysis of how the federal government – particularly the Department of Justice (the “DOJ”) – enforces the FCPA; and (3) a framework for developing effective compliance programs. It certainly fulfills these goals. The Primer used, as sources, the following materials: (1) the United States Attorney’s guidelines; (2) the United States Federal Sentencing Guidelines; and (3) the Organization for Economic Co-operation and Development’s (the “OECD”) Good Practice Guidance.

The Primer takes as its starting point the DOJ’s 13-point minimum best practices compliance program that is now routinely set forth in each Deferred Prosecution Agreement (DPA) and Non-Prosecution Agreement (NPA) entered into by the Department. A compliance practitioner is also provided with the legal underpinnings of the FCPA, the fundamental components of a best practices compliance program from the DOJ’s perspective and various metrics by which a company can measure and assess the effectiveness of a compliance program. To have all of this in a 52 page Primer is a much needed resource that can be used by all.

 

FCPA and Intellectual Property

In “The IP Practitioner’s ‘Cheat Sheet’ to the FCPA and Travel Act:  Introducing the IP FCPA Decision Tree” co-authors Doug Sawyer and T. Markus Funk discuss the FCPA and its “private bribery twin, the Travel Act” in the context of intellectual property (IP) protection. They note that the reality of 21st century business is that companies are valued largely on the basis of their intellectual property, transforming intellectual property protection into an increasingly central business interest. And with so many US and US-based companies ‘‘going global’’ IP is routinely, and simultaneously, owned and litigated in multiple jurisdictions. IP is, therefore, far from immune from FCPA or Travel Act issues and enforcement.

The authors list FCPA Red Flags in the IP context, which can be such actions (a) a patent being granted unusually quickly; (b) an opposition to a trademark being granted before the entire process has been completed; (c) “a foreign customs official robustly enforcing company A’s anti-counterfeiting agenda, while ignoring company B’s agenda.” To assist the IP practitioner, who may be new to FCPA compliance, or for the compliance practitioner, who may be new to IP issues, the authors conclude their article with a useful decision making tree as a guide to FCPA and Travel Act anti-bribery provisions which “graphically illustrates each analytical step at issue, explains how the Travel Act’s prohibition on ‘‘private’’ bribery fits into the overall anti-bribery puzzle, and seeks to provide a bird’s eye view of this often confusing legal framework.”

Breaking Down the FCPA and Travel Act

In “Breaking Down the FCPA, Travel Act, and UK Bribery Act”, sole author T. Markus Funk, provides the FCPA and Bribery Act compliance practitioner with three handy charts which illustrates the particular steps one must go through to analyze a claim for public corruption under the FCPA and how the Travel Act’s prohibition on private bribery fits into the overall anti-bribery puzzle; a chart explaining how the UK Bribery Act relates to organizations; and a chart which sets out the differences between the FCPA and the Bribery Act. Taken together, these three charts provide to the compliance practitioner with the ‘‘big picture’’ view of these three anti-corruption and anti-bribery laws. It is a very useful short guide to these three laws.

All of these articles fill a valuable niche for the compliance practitioner. I hope that you will review and use them in your practice going forward. I also hope that you will join me in thanking T. Markus Funk for not only authoring or assisting in authoring the above three resources but also for sending them along to me to pass along to you.

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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