Patent Rights and Flags of Convenience in Outer Space

By Matthew J. Kleiman

he development of a thriving commercial space industry will require significant private investment in space technologies. As a matter of public policy, an effective patent system plays a critical role in nurturing new industries by rewarding innovation and promoting public disclosure of new inventions. A loophole in international space law, however, threatens to limit the patent systems ability to incentivize costly research and development of space technologies. Under current space law, each spacecraft is subject to the laws of its country of registration, including that countrys patent laws. This system of national jurisdiction could enable companies to circumvent patents on space technologies by registering their spacecraft in countries where these patents are not on file, just as the owners of merchant ships often register their vessels under flags of convenience, such as Panama and Liberia, to avoid burdensome taxes and regulations in their home countries. Permitting space companies to evade patents using flags of convenience will lessen the value of these patents. Space companies may find it more difficult to secure private financing for research and development activities and be more likely to keep their inventions as trade secrets. This article describes the origins of this loophole in international space and patent law and explains how flags of convenience could undermine the value of patents on space technologies. The article then discusses potential measures to address this problem and recommends a uniform multinational system for registering and enforcing patents for space technologies or, alternatively, a framework for harmonizing the national patent systems of spacefaring nations. Patents on Earth A patent is an exclusive right granted by a national government to an inventor to exclude others from making, using, or selling an invention for a limited period of time (usually 20 years). In exchange for this monopoly, the inventor must disclose the patented

invention to the public. To receive a patent, the invention must be new, useful, and nonobvious. Patents generally cannot be obtained for inventions that have previously been disclosed to the public, by either the inventor or a third party, although some countries, including the United States, give the inventor a oneyear grace period in which to file a patent application following the initial public disclosure of the invention. Because patents are granted by national governments, they are inherently territorial and may only be enforced within the jurisdiction of the granting government. The holder of a U.S. patent, for example, may only enforce the patent against someone who makes, uses, or sells the patented invention within the United States.1 For this reason, an inventor must file a separate patent application in each country where it wishes to obtain exclusive rights to an invention. Organizations such as the World Intellectual Property Organization (WIPO), the World Trade Organization, and the European Patent Organization have undertaken numerous efforts over several decades to harmonize international patent laws and streamline the international patent application process. Even so, the procedures for granting patents and the nature of the exclusive rights that are granted can vary widely from country to country, making applying for and enforcing patents internationally a financial and administrative burden.2 Patents in space Current space law was largely developed during the Cold War and is therefore focused on governing the behavior of the major space powers, not the regulation of private space activities.3 Consequently, none of the major international space treaties specifically addresses how national patent laws may apply to activities in outer space.4 Nonetheless, the 1967 Outer Space Treaty states that a space objects country of registration shall retain jurisdiction and control over such object, and over any personnel thereof, while in outer space or on a celestial body.5 Thus, the treaty permits countries to extend their laws, including their patent laws, to their registered space objects.6 In 1990, the United States extended the reach of its patent laws to U.S.flagged spacecraft through the Patents in Space Act, which provides that any invention made, used, or sold in outer space on a space object or component

Matthew Kleiman is corporate counsel at the Charles Stark Draper Laboratory in Cambridge, Massachusetts. He can be reached at matthew.kleiman@gmail.com. The opinions expressed in this article are the authors own and do not represent the views of Draper Laboratory or any other party.

Published in The Air & Space Lawyer, Volume 23, Number 3, 2011. 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

thereof under the jurisdiction or control of the United States shall be considered to be made, used or sold within the United States for the purposes of [U.S. patent laws].7 Therefore, an invention created on a U.S.registered spacecraft would be deemed to have been invented in the United States and a patent infringement lawsuit based on an activity on a U.S.-registered spacecraft must be brought in a U.S. court and would only succeed if the activity is covered by a U.S. patent. In 1998, the major space powers incorporated this concept of national patent jurisdiction into an intergovernmental agreement concerning cooperation on the International Space Station. Under this agreement, patent jurisdiction over an activity on the space station resides in the country of registration of the space station module where that activity occurs.8 Consequently, Japan, Russia, and the United States each has exclusive patent jurisdiction over activities conducted in its respective space station modules, and any European partner state may claim patent jurisdiction over activities conducted in the space station modules registered to the European Space Agency. The flag of convenience problem in outer space Basing the outer space patent system on the application of national patent laws to registered space objects could limit the effectiveness of patent protection for space technologies. On Earth, a company generally would file patents only in countries where there is a significant market for the patented technology. Once an object is in space, however, it transcends the boundaries and protections of any single terrestrial market or patent jurisdiction. Therefore, companies must apply for patent protection in every country where a competing space object might be registered, potentially a very expensive and time-consuming process. If a company is unable to obtain patent protection in every such country or if a country becomes a potential country of registration after the invention has already been disclosed to the public (e.g., in earlier patent filings), competitors may be able to circumvent the companys patents by using flags of convenience. Similar to the Outer Space Treaty, under maritime law, a ship operates under the law of its country, or flag, of registration.9 The term flag of convenience refers to the practice of registering a ship in a country different from that of the ships owners for the purpose of reducing operating costs and avoiding burdensome regulations.10 In 2009, when measured in terms of total tonnage, more than half of the worlds merchant ships were registered under flags of convenience, with the Panamanian, Liberian, and Marshall Islands flags accounting for nearly 40 percent of the global fleet.11 Due to lax regulations, minimal oversight, and poor record keeping in these countries, flags of convenience are often criticized for creating a permissive environment for criminal activities, poor

working conditions, and environmental damage.12 The Outer Space Treaty laid the groundwork for a similar flag-of-convenience problem in outer space by making the country of registration the basis for applying national laws to space objects. Under the 1975 Convention on the Registration of Objects Launched into Outer Space, which implements the Outer Space Treatys registration requirements, a space object is registered by the launching state, which is either (1) the country that launches or procures the launching of the space object or (2) the country from which the space object is launched.13 Because the term launching state is broadly defined, a company could conceivably select an outer space flag of convenience by either incorporating its business in or launching its spacecraft from the desired country.14 Flags of convenience are likely to raise many of the same legal issues in space as they do at sea, but the unique environment of outer space creates additional problems, particularly with respect to intellectual property protection. Merchant ships on Earth simply transport cargo from one location to another. Once the cargo reaches port, it becomes subject to the laws of the destination country. For instance, if a U.S. company believes that products brought to the United States on a Panamanian-flagged ship infringe on U.S. patents, the company can rely on U.S. patent laws to prevent the sale of the products in the United States. In space, where there is no destination country with its own patent laws, a patent holder who wants to prevent a competitor from using a patented invention on the competitors spacecraft would need to rely on the laws of the country where the spacecraft is registered. If the patent is not on file or is difficult to enforce in that country, the patent holder would be virtually powerless to protect its invention.15 In this early phase of the commercial space industry, commercial space operations are probably too high profile and the barriers to entry too great for flags of convenience to be an immediate problem. Commercial space operations, however, may soon become routine and not subject to as much scrutiny as they are today. Space companies may be able to establish themselves in almost any country they wish, and advances in launch technology eventually may lead to companies being able to launch a spacecraft from almost any country on Earth. Once that happens, flags of convenience could render the patent system largely ineffective at protecting inventions designed for use in outer space. An ineffective outer space patent system would harm the space economy in at least two respects. First, a lack of meaningful patent protection in outer space would reduce the incentive to innovate and develop new space technologies. Second, space companies that are able to ignore patents would obtain a competitive advantage over competitors that are unable to

Published in The Air & Space Lawyer, Volume 23, Number 3, 2011. 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

do so. This could put considerable economic pressure on all space companies to register their spacecraft under flags of convenience, resulting in a race to the bottom that would exacerbate the patent protection problem, along with safety, environmental, and other regulatory problems traditionally associated with flags of convenience.16 Closing the loophole The ideal solution to the flag-of-convenience problem, at least as it relates to effective patent protection, is to create a new multinational patent jurisdiction for filing and enforcing patents in outer space. Under such a system, inventors of space technologies would only need to file a patent in a single jurisdiction, instead of in every possible launching state. Inventors also would be able to rely on the courts (or other enforcement mechanisms) of this new jurisdiction to enforce their patents against outer space patent infringers, regardless of where the infringing spacecraft is registered. Many international organizations and space law experts have advocated a single outer space patent jurisdiction. A WIPO report published in 2004 noted that the best solution [to legal uncertainty regarding intellectual property protection for the space industry is] to declare space and its accessories (for example, launch sites and vehicles) as a single territory with a single and uniform law and with a single and universal enforcement body.17 A recently published space law treatise, meanwhile, similarly argued that general and uniform patent protection for inventions made in outer space would give investors confidence in outer space research and encourage such activities.18 The most significant obstacle to creating a single extraterrestrial patent jurisdiction is the traditional reluctance of terrestrial nations to surrender their sovereignty to international organizations. Although there have been many proposals to establish an international authority governing outer space activity since the beginning of human space exploration, the leading spacefaring nations have consistently rejected such proposals.19 Nevertheless, there are several intermediate measures that the international community can undertake to alleviate the flag-of-convenience problem for patent holders until a single extraterrestrial patent jurisdiction becomes feasible. Spacefaring nations could create a system that harmonizes national patent laws and reduces the financial and administrative cost of applying for patents in as many potential launching states as possible. Such a framework could be modeled on the European Patent Convention (EPC), which provides a single patent prosecution process for all of its member states and thereby significantly reduces the costs of applying for patent protection throughout Europe.20 Members of this system also could agree to recognize and enforce space-related patents filed in

other member states on the basis of reciprocity. To deter the use of flags of convenience in the first place, members could provide tax incentives and government contracting preferences to companies that register their spacecraft in participating states. Yet, even such intermediate measures would not be easy to implement, nor would they completely solve the flag-of-convenience problem. Aligning national patent laws would be a politically difficult task and it is unlikely that every potential launching state would agree to join such a regime. This wariness is primarily attributable to the conflicting views of intellectual property protection held by industrialized and developing nations. While industrialized nations view robust intellectual property protection as a critical component of a technology-based economy, many developing nations are skeptical of strong intellectual property protections. Developing nations tend to believe that intellectual property rights raise prices and profits for one country or company at the expense of the well-being of a developing nation and that weak intellectual property protection is a means of increasing access to the information and technology needed for economic growth.21 Recent efforts by WIPO to harmonize international intellectual property laws foreshadow the difficulties that would be encountered by similar efforts for outer space. While current treaties already address many patent enforcement standards and administrative rules and procedures, WIPOs proposed Substantive Patent Law Treaty (SPLT) aims to align substantive requirements, such as the definition of prior art, novelty, inventive step/non-obviousness, industrial applicability/utility, the drafting and interpretation of claims and the requirement of sufficient disclosure of the invention.22 Because the SPLT is likely to erode the freedom of countries to exclude from patentability types of subject matter or technological fields on public policy or national interest grounds, it has met with considerable resistance from many developing countries with the consequence that negotiations are currently at a stalemate.23 Efforts to harmonize space patents probably would meet resistance on similar grounds from developing nations that aspire to catch up to industrialized nations in the development of space technologies. Despite these obstacles, a harmonized outer space patent system is still worth striving for as a solution to the flag-of-convenience problem.24 The European experience with the EPC demonstrates that implementing a unified, cost-effective patent filing system is possible. Reciprocal patent recognition and enforcement agreements would reduce the number of countries where an inventor would be required to file a patent in order to achieve meaningful protection. Even if many developing countries decline to participate in the system, providing tax incentives and

Published in The Air & Space Lawyer, Volume 23, Number 3, 2011. 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

government contracting preferences to companies that register their spacecraft within the unified system would discourage the use of flags of convenience by making it more difficult for companies that register their spacecraft in nonparticipating countries to compete in the celestial marketplace. Thus, while not as effective as a new outer space patent jurisdiction, these intermediate steps would mitigate the harm that flags of convenience could cause to the outer space patent system and provide additional encouragement for private investment in space technologies. Conclusion This article has illustrated how flags of convenience could handicap the outer space patent system and outlined two possible solutions for this problem: a uniform multilateral system for registering and enforcing patents for space technologies and, alternatively, a framework for harmonizing the national patent systems of spacefaring nations. Persuading countries, particularly developing countries, to participate in either system will undoubtedly be difficult. Nonetheless, these objectives are worth pursuing. As WIPO has recognized, a reliable legal framework for outer space intellectual property rights would facilitate maximizing the collective utilization of public and private resources in the area of space technology for the benefit of all nations.25
1. The U.S. Patent Act defines patent infringement as follows: Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States, or imports into the United States any patented invention during the term of the patent therefor, infringes the patent. 35 U.S.C. 271(a) (emphasis added). For a discussion of the limited circumstances under which a country may enforce its patents outside its borders, see Kurt G. Hammerle & Theodore U. Ro, The Extra-Territorial Reach of U.S. Patent Law on Space-Related Activities: Does the International Shoe Fit as We Reach for the Stars?, 34 J. Space L. 24175 (2008). 2. See generally Graham DutfieLD & uma SutherSanen, GLobaL inteLLectuaL property Law 2242 (Edward Elgar 2008); the GLobaL chaLLenGe of inteLLectuaL property riGhtS 69 (Robert C. Bird & Subhash C. Jain, eds., Edward Elgar 2008); worLD inteLLectuaL property orGanization, inteLLectuaL property anD Space activitieS: iSSue paper prepareD by the internationaL bureau (Apr. 2004), available at http://www.wipo.int/patent-law/en/developments/pdf/ip_space.pdf [hereinafter WIPO iSSue paper]. 3. For a discussion of the difficulty of applying the major space treaties to private property rights, see Rosanna Sattler, Transporting a Legal System for Property Rights: From the Earth to the Stars, 6 chicaGo J. of intL Law 23 (2005). 4. It is important to distinguish between activities carried out in outer space and activities relating to outer space that are carried out at least partially on Earth within the territory of a country. The latter would generally be governed by patent laws of the country or countries where such activities occurred under the general territorial principles of patent jurisdiction. This article is only concerned with activities that occur entirely in outer space and outside the customary reach of the patent laws of any particular nation. See WIPO iSSue paper, supra note 2, 42 (elaborating on this distinction). 5. Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, Including the Moon and Other Celestial Bodies, Oct. 10, 1967, 18 U.S.T. 2410, T.I.A.S. 6347 [hereinafter Outer Space Treaty], art. VIII.

Endnotes

6. For more in-depth discussions on the application of national intellectual property laws to space objects, see franciS LyaLL & pauL b. LarSen, Space Law: a treatiSe 12427 (Ashgate 2009); Hammerle & Ro, supra note 1. 7. 35 U.S.C. 105. 8. Agreement Among the Government of Canada, Governments of the Member States of the European Space Agency, the Government of Japan, the Government of the Russian Federation, and the Government of the United States of America Concerning Cooperation on the Civil International Space Station, Jan. 28, 1998 [hereinafter ISS Agreement], art. 21 (for the purposes of intellectual property law, an activity occurring in or on a Space Station flight element shall be deemed to have occurred only in the territory of the [country] of that elements registry, except that for [European Space Agency]-registered elements any European Partner State may deem the activity to have occurred within its territory). 9. Convention on the High Seas, Apr. 29, 1959, 450 U.N.T.S. 11, art. 6 (Ships shall sail under the flag of one State only and, save in exceptional cases expressly provided for in international treaties or in these articles, shall be subject to its exclusive jurisdiction on the high seas.). However, the law of the flag is not absolute: national courts are willing to disregard the doctrine in favor of overriding public policy considerations. For instance, the U.S. Supreme Court held in Spector v. Norwegian Cruise Line Ltd., 545 U.S. 119 (2005), that a foreign flag could not shield a cruise ship from the requirements of the Americans with Disabilities Act while the ship was in U.S. waters. 10. See BusinessDictionary.com, Flag of Convenience, http:// www.businessdictionary.com/definition/flag-of-convenience.html; Wikipedia, Flag of Convenience, http://en.wikipedia.org/wiki/ Flag_of_convenience. 11. uniteD nationS conference on traDe & Dev., review of maritime tranSport 2009 (2009), available at http://www.unctad.org/en/ docs/rmt2009_en.pdf. 12. See, e.g., Intl Transp. Workers Fed., What Are Flags of Convenience?, available at http://www.itfglobal.org/flags-convenience/sub-page.cfm; european parLiament Directorate-GeneraL for reSearch, the common maritime poLicy (Sept. 1996), at ch. 2, available at http://www.europarl.europa.eu/workingpapers/tran/w14/2_ en.htm; Sock-Yong Phang, Quasi-Flag of Convenience Shipping: The Wave of the Future, tranSp. J., Dec. 22, 1993, available at http:// www.allbusiness.com/operations/shipping/416713-1.html. 13. Convention on the Registration of Objects Launched into Outer Space, Jan. 14, 1975, 28 U.S.T. 695, T.I.A.S. 8480, art. I(a) [hereinafter Registration Convention]. 14. See LyaLL & LarSen, supra note 6, at 94 (comparing the system established by the Registration Convention to the registry system in international shipping and the concept of the flag of convenience and explaining that this system will permit commercial entrepreneurs . . . to avoid the rigors of legal requirements as to supervision and liability [by] setting up shell companies in countries less spacecompetent than others); orG. for econ. co-operation & Dev., Space 2030: tackLinG SocietyS chaLLenGeS 177 (OECD 2005) (questioning whether the concept of launching state . . . opens the door to a flag of convenience approach to space faring); Michael Gerhard, National Space LegislationPerspectives for Regulating Private Space Activities, in Space Law: current probLemS anD perSpectiveS for future reGuLation 90 (M. Benko & K.U. Schrogl, eds., Eleven Intl 2005) (There seem to be certain tendencies towards a flag of convenience situation in space law since some States are offering a legal framework that is very advantageous financially to private entities, which encourages them to establish themselves in these States territory, which these States are not willing to take full responsibility (and consequential liability) for the activities of such entities.); permanent.com, LeGaL hiStory anD iSSueS 7.3.1.1, available at http://www.permanent.com/ep-legal.htm (postulating that a spacecraft owned by an offshore company established in a flag of convenience country would not be subject to the Outer Space Treaty, regardless of where the spacecraft was launched from). 15. See Hughes Aircraft Co. v. United States, 29 Fed. Cl. 197, 242 (1993) (finding that there was no infringement of a U.S. patent claiming an apparatus for controlling a spacecraft by a satellite that never entered the United States, was built and primarily controlled from the United Kingdom, and was launched off the coast of Kenya from a U.S.-provided launch vehicle by a team of Italian engineers). See also Hammerle & Ro, supra note 1, at 26365 (discussing the Hughes case

Published in The Air & Space Lawyer, Volume 23, Number 3, 2011. 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

and noting that direct control of the satellite by the U.S. government (the alleged infringer) would have been required to give a U.S. court extraterritorial jurisdiction over the infringement claim). 16. Cf. J. Jonas Anderson, Hiding Behind Nationality: The Temporary Presence Exception and Patent Infringement Avoidance, 15 mich. teLecomm. tech. L. rev. 1, 41, 42 (2008) (describing similar effects resulting from the ability of ship owners to avoid patent infringement liability using the temporary presence defense). 17. WIPO iSSue paper, supra note 2, at 82. 18. LyaLL & LarSen, supra note 6, at 127. 19. Id. at 56061 (in the early days of space it was never likely that the US and the USSR . . . would consent to the transfer of their authority . . . to the control of an International Space Agency . . . [and] it seems clear that in the immediate future a global international operational space agency will not be created.). 20. See European Patent Office, http://www.epo.org. 21. Bird & Jain, supra note 2, at 11. 22. worLD inteLLectuaL property orGanization, SubStantive patent Law harmonization, available at http://www.wipo.int/patent-law/en/ harmonization.htm. 23. DutfieLD & SutherSanen, supra note 2, at 39. 24. Ingo Baumann, Diversification of Space Law, in Benko & Schrogl, supra note 14, at 70 (an important feature of harmonized national space legislation is that it hinders the emergence of forum shopping or flag of convenience tendencies). 25. WIPO iSSue paper, supra note 2, at 84.

Published in The Air & Space Lawyer, Volume 23, Number 3, 2011. 2011 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.