Why off-shore development in Romania help protects your Intellectual Property
Romania is one of the best countries to work with for off-shore development for a variety of reasons. They have a highly skilled, college educated work force who learn english from a young age. And the country provides ideal protection of Intellectual Property for the following reasons:
- As a member of the European Union, significant intellectual property protection exists in Romania for all four types of intellectual Property.
- US and other international arbitration decisions are enforceable under Romanian law.
- Relative to other common outsourcing destinations, Romania has a reputation for being a good place to do business.
- Practical considerations (e.g., minimizing employee turnover) are important to protecting intellectual property when it is developed through outsourcing.
We will look in depth at Romania protects your IP.
1 - The Four Types of IP Protection.
There are four main types of legal protection for IP:
- Trade Secrets
We will discuss these in order.
A. Patents. A patent for an invention is the grant of a property right to the inventor, issued by the Patent and Trademark Office in the United States or a similar body in other countries. The issuance of a patent allows the inventor to enforce its property rights against infringers. Patents are most commonly used to protect physical inventions, but may also be used to protect unique concepts contained in software or the application thereof, although obtaining a patent for software is often more difficult. The most far reaching international law regarding the protection of patented IP is the Patent Cooperation Treaty (the “PCT”) of 1970. The PCT allows an inventor to seek patent protection for an invention simultaneously in each of a large number of countries, including Romania. By filing for and receiving an international patent, an inventor may request protection in an individual member country through a streamlined domestic review and approval process for such country. While patent laws and enforcement mechanisms vary among signatories to the PCT, Romania has restructured and harmonized its national patent related laws to conform to applicable European Union regulations, including the European Patent Convention, which Romania ratified in 2002. Further, as a member of the World Trade Organization (“WTO”), Romania also agreed to comply with the WTO’s rules for trade related aspects of intellectual property, which is an international standard for the protection of IP. As a result of these actions and Romania’s involvement in the PCT, patented IP rights are protected in Romania and patent infringements can also be prosecuted and remedied in Romania.
B. Copyrights. A Copyright is a form of protection provided to the authors of “original works of authorship,” including literary, dramatic, musical, artistic, technical and certain other intellectual works, both published and unpublished. Because software code is often not patentable, copyright protection of the written software code is the most common method of IP protection for software. The World Intellectual Property Organization (“WIPO”) is the preeminent international organization focused on the protection of copyrighted material and other IP. WIPO is a specialized agency of the United Nations that is dedicated to developing a balanced and accessible international IP system. Romania is a member of WIPO and is a signatory to the following WIPO treaties.
- Berne Convention
- Budapest Treaty
- Hague Agreement
- Lisbon Agreement
- Locarno Agreement
- Madrid Agreement (Marks)
- Madrid Protocol
- Nairobi Treaty
- Nice Agreement
- Paris Convention
- Patent Cooperation Treaty
- Patent Law Treaty
- Phonograms Convention
- Rome Convention
- Singapore Treaty
- Strasbourg Agreement
- Trademark Law Treaty
- UPOV Convention
- Vienna Agreement
- WIPO Convention
- WIPO Copyright Treaty
- WIPO Performances and Phonograms Treaty
Each of these treaties has a different focus and objective, but two of the most significant relating to the protection of copyrights are the Berne Convention for the Protection of Literary and Artistic Works, and the WIPO Copyright Treaty. The Principles of copyright protection set forth in the Berne Convention have also been adopted by the World Trade Organization and WTO member states are required to comply with the substantive law provisions of the Berne Convention. This is significant because the WTO provides for enforcement mechanisms if any member country is not in compliance with WTO regulations and policies.
Romania is also a signatory to the WIPO Copyright Treaty (the “WCT”) which specifically focuses on protection of IP related to computers and software. The WCT is a special agreement under the Berne Convention that requires signatories to comply with the substantive provisions of the 1971 Act of the Berne Convention which specifically sets forth IP protection for (i) computer programs, whatever may be the mode or form of their expression, and (ii) compilations of data (databases) or other material in any form, which by reason of the selection or arrangement of their contents constitute intellectual creations. The WCT requires each member country to provide legal remedies against the circumvention of technological measures (e.g. encryption) used by authors in connection with the exercise of their rights and against the removal or altering of information such as certain data that identify works or their authors. The WCT also requires each member country to adopt legal measures necessary to ensure the application of the WCT including ensuring that enforcement procedures are available under such member’s laws so as to permit effective action against any act of infringement of rights covered by the WCT. 2
C. Trademarks. Trademarks are used to protect words, names, symbols, sounds, or colors that distinguish goods and services from those manufactured or sold by others and to indicate the source of the goods.3 As indicated above, Romania is a signatory to the Trademark Law treaty, the Singapore Treaty on the Law of Trademarks and the Madrid Agreement Concerning the International Registration of marks, all of which aim to standardize and streamline the national trademark registration procedures of signatory countries and allow for the enforcement of registered trademark rights in member countries.
D. Trade Secrets. A trade secret is information, including a formula, pattern, compilation, program, device, method, technique, or process, that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosures or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.4 Romania’s adoption of the WTO’s treaty on the Trade Related Aspects of Intellectual Property required Romania to implement certain legal standards for the protection of trade secrets, which it did by adopting the Romanian Unfair Competition Law in 1991. This law defines a trade secret as any information which is not generally known or is not easily accessible to the people usually dealing with this kind of information, which derives economic value from the fact of being secret and for which the legitimate holder took the reasonable steps to keep it secret. Early applications of this law indicate that anything may qualify as information of economic value: a process, the correction of a common error, an invention, an idea, a discovery, a prognosis, a list of clients or suppliers, a strategy, the source-code of software, a formula or a fact. These interpretations expand the scope of material offered protection under this law and provide for broad general protections for trade secrets in Romania. This law also establishes civil, administrative and penal liability for acts of unfair competition in trading or industrial activity, including the misappropriation or unauthorized use of trade secrets.
2 - General IP Protections and Enforceability in Romania.
Another significant development relating to the ability of businesses to protect their IP when doing business in Romania was the admittance of Romania as a member of the European Union in January of 2007. In order to be admitted to the European Union, countries have to demonstrate and maintain certain standards and legal protections, including with respect to the standardization and enforcement of IP related laws. In a European Union Directive on the Enforcement of Intellectual Property Rights issued in 2004, all member states were required to apply effective, dissuasive and proportionate remedies and penalties against those engaged in counterfeiting and piracy to create a level playing field for all copyright and patent holders doing business with European Union member states. The effect of this directive was to require that EU member states have similar laws, procedures and remedies in place to allow holders of IP rights to effectively protect and defend their rights. By becoming part of the European Union,
Romania is required to comply with this directive going forward and also had to meet certain compliance standards prior to being admitted to the European union.
The European Union has focused on protecting IP rights in software through promoting uniform and enforceable copyright and similar laws of members states. It first issued its Directive on the Legal Protection of Computer Programs in 1991, which set forth common minimum standards and model laws to be adopted by member states. A follow-up report issued in 2000 found that the member states had satisfactorily adopted the requirements set forth in the Directive. As a member of the European Union, Romania is also required to meet the standards contained in the Directive and is evaluated along with other EU members for satisfactory compliance.
3. Enforceability of Arbitration Contract Clauses and Awards in Romania.
Romania’s legal system and laws currently in place allow companies to effectively enforce their contracts in Romania, including contractual arbitration clauses requiring arbitration outside of Romania. Romania’s legal provisions respecting arbitration largely follow the principles and structure of the United Nations Commission on International Trade Law’s Model Laws of 1985.5 Further, foreign arbitral awards are enforceable in Romania, pursuant to Article 3703 of the Romanian Commercial Code and Article 178 of Law No. 105/1992, which provide that foreign arbitral awards made by a competent tribunal have evidential force before the Romanian courts with regard to the facts which they establish without the requirement for formal recognition.
Further, Romania has a long history of enforcing both foreign and domestic arbitration clauses and awards. Romania ratified the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards of 1958 and has participated and ratified other relevant international conventions and bilateral treaties on arbitration. Following the fall of communism in Romania, the first major new area where the enforceability of foreign arbitration clauses and awards was tested came with the introduction of franchise agreements for large western corporations seeking to set up franchised operations in Romania. Virtually all franchise agreements include arbitration clauses that designate a forum outside of the country in which the franchised business is located for the settlement of any and all disputes related to the franchise relationship. The success of franchisors in Eastern Europe is evidence of such countries’ willingness to enforce arbitration clauses and awards. One leading authority on contracting in Eastern Europe notes “occasionally problems and misunderstandings do occur but the case of commercial arbitration seems to be one of the success stories in [post-communist] Eastern Europe.”6
4. Doing Business in Romania.
Doing business in Romania is likely simpler and safer than doing business in certain other countries typically used for outsourcing. We reviewed statistics from the Doing Business Project, which is an international data aggregation and quantification service of the World Bank that provides objective measures of business regulations and their enforcement across 183 economies. In 2010 Romania ranked 55th out of 183 countries on the ease of doing business index, whereas India ranked 133rd and China 89th. This index also includes relative rankings for various individual aspects of conducting business in a specific country, including the ease of starting a business, employing workers, paying taxes and enforcing contracts. The report uses data such as the number of days and procedures required to complete a business task such as forming a business or enforcing a contract through the court system and seeks to calculate the average cost of these activities. This information is then compared with similar information for all other countries included in the report. With respect to the ease and cost of enforcing contracts, Romania once again ranked 55th out of 183 countries, whereas India ranked 182nd.
5. Other Considerations for the Protection of IP.
Several non-legal factors also contribute to how well a company will be able to protect its IP when engaging with outsourced developers. The first of these is employee or contractor turnover within the firm developing the IP. In certain countries where outsourcing is a major industry, such as India, employee turnover rates for development firms are high and it is difficult to control the dissemination of information from one development firm to another as employees move between firms. If outsourcing companies have dedicated teams of employees or contractors and the turnover of such employees and contractors is low, there is less risk that sensitive IP information will be disseminated in a manner that is difficult if not impossible to protect against. The ability to pay wages beyond the market minimum is another consideration for protecting IP developed through outsourcing. If an outsourcing firm is able to pay its developers wages that are above the average for the market area, there is less likelihood that the employees will be hired away by a better paying job or have an incentive to spoil their lucrative working relationship by being lax in the protection of the IP they are developing. Romania’s relatively low per capita income levels and highly educated populace make it an ideal place to recruit and retain talented and efficient developers at a relatively low cost. Finally, outsourcing companies that use employees as opposed to independent contractors will likely have better control and protection over the IP that they develop. This is because the laws of most countries will automatically vest ownership of any IP developed by employees of a company in that company, whereas independent contractors are often only contractually obligated to transfer ownership of any IP they develop to the company for which they are currently working. Because this is a contractual, and not a default legal obligation there can be more opportunities for interpretation and compromise than would exist if a developer was employed by the outsourcing firm.
In conclusion, while outsourcing IP development work to countries outside of the United States requires careful consideration, outsourcing development work to Romania may be preferable to other commonly used outsourcing countries, and Romania’s legal protections for IP should offer sufficient protection and enforcement mechanisms for owners of IP developed by Romanian contractors or employees.