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While an agreement among partner nations addresses patent rights on the ISS, future space commercialization efforts could be jeopardized by a loophole in inernational space law. (credit: NASA)

Patent rights and flags of convenience in outer space


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The 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 can play a critical role in encouraging innovation and investment in budding high technology industries. Patents give inventors a period of market exclusivity for their inventions in exchange for disclosing their new inventions to the public. This limited monopoly provides an incentive for companies to invest in new technologies, while the public disclosure requirement allows inventors to design around and improve upon earlier inventions. A loophole in international space law, however, threatens to limit the patent system’s ability to properly incentivize private investment in new space technologies.

Permitting space companies to evade patents using flags of convenience will lessen the value of these patents.

Under current space law, each spacecraft is subject to the laws of its country of registration, including that country’s 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 the inventions they do create 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 measures that spacefaring nations can undertake to address this problem.

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 non-obvious. Patents generally cannot be obtained for inventions that have previously been disclosed to the public, either by the inventor or a third party, although some countries, including the United States, give the inventor a one-year 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. 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.

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. Consequently, none of the major international space treaties specifically addresses how national patent laws may apply to activities in outer space.

Under a 1998 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.

Nonetheless, the 1967 Outer Space Treaty states that a space object’s 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.” Thus, the treaty permits countries to extend their laws, including their patent laws, to their registered space objects. Accordingly, in 1990, the United States extended the reach of its patent laws to US-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 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 [US patent laws].” Therefore, an invention created on a US-registered spacecraft would be deemed to have been invented in the United States and a patent infringement lawsuit based on an activity on a US-registered spacecraft must be brought in a US court and would only succeed if the activity is covered by a US patent.1

In 1998, the major space powers incorporated this concept of national patent jurisdiction into the 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. 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 company’s 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. The term “flag of convenience” refers to the practice of registering a ship in a country different from that of the ship’s owners for the purpose of reducing operating costs and avoiding burdensome regulations. In 2009, when measured in terms of total tonnage, more than half of the world’s merchant ships were registered under flags of convenience, with the Panamanian, Liberian, and Marshall Islands flags accounting for nearly 40% of the global fleet.2 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.3

Flags of convenience could render the patent system largely ineffective at protecting inventions designed for use in outer space.

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 Treaty’s registration requirements, a space object is registered by the “launching state,” which is either the country that launches or procures the launching of the space object, or the country from which the space object is launched. 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.4

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 US company believes that products brought to the United States on a Panamanian-flagged ship infringe on its US patents, the company can rely on US 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 competitor’s 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.

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 may eventually enable companies 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 not able to 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.

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 would also be able to rely on the courts of this new jurisdiction to enforce their patents against outer space patent infringers, regardless of where the infringing spacecraft is registered.

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.”

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.”5 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.”6

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.7 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. Members of this system could also 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, 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.”8

Despite these obstacles, a harmonized outer space patent system is still worth striving for as a solution to the flag of convenience problem. 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 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 non-participating 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. 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.”9

References

  1. For more in depth discussions on the application of national patent laws to outer space activities, see Francis Lyall and Paul B. Larsen, SPACE LAW: A TREATISE (Ashgate Publishing Company, 2009), 124–27; Kurt G. Hammerle and 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. 241–75 (2008).
  2. UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT, REVIEW OF MARITIME TRANSPORT 2009 (2009), available at http://www.unctad.org/en/docs/rmt2009_en.pdf.
  3. See, e.g., INTERNATIONAL TRANSPORT WORKERS’ FEDERATION, 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, TRANSPORTATION JOURNAL, Dec. 22, 1993, available at http://www.allbusiness.com/operations/shipping/416713-1.html.
  4. See Lyall & Larsen, supra note 1, 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 space-competent than others”); ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, SPACE 2030: TACKLING SOCIETY’S CHALLENGES (OECD Publishing, 2005), at 177 (questioning “whether the concept of launching state …opens the door to a ‘flag of convenience’ approach to space faring”).
  5. WORLD INTELLECTUAL PROPERTY ORGANIZATION, INTELLECTUAL PROPERTY AND SPACE ACTIVITIES: ISSUE PAPER PREPARED BY THE INTERNATIONAL BUREAU (April, 2004), available at http://www.wipo.int/patent-law/en/developments/pdf/ip_space.pdf, at ¶82 [the WIPO Issue Paper].
  6. Lyall & Larsen, supra note 1, at 127.
  7. Id. at 560–61 (“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.”).
  8. Robert C. Bird and Subhash C. Jain (eds.), THE GLOBAL CHALLENGE OF INTELLECTUAL PROPERTY RIGHTS (Edward Elgar Publishing, Inc., 2008), at 11.
  9. WIPO Issue Paper, supra note 5, at ¶84.

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