The new U.S. administration’s interest in tariffs has put the process of nearshoring front and center. What is nearshoring? That’s when goods are sent into the U.S. tariff-free from a country with a free trade agreement and a bilateral tax treaty with the U.S., which in the Americas includes Canada and Mexico, members of the United States-Mexico-Canada Agreement and other nations such as Chile, Brazil and Colombia. Some examples of nearshoring include a focus on Canada in steel, air compressors and heavy trucks, and Mexico for automobiles and electronic parts.

Trade policies and treaties by the United States in recent years have led to more nearshoring to the Americas, a trend that is expected to continue. The countries chosen for nearshoring may shift, however, particularly if tariffs are imposed on countries in which the U.S. has a trade agreement, such as Mexico or Canada. Regardless, nearshoring involves significant patent implications.

The need to obtain patent protection for innovations throughout the supply chain in multiple countries is critical. This article—developed in part from a conversation with Serge Lapointe, a partner at Fasken in Canada, and Allan Jarry, founder of JarryIP in Chile—will focus on the evolving landscape of patent prosecution in the Americas.

Patent Prosecution Differences Across the Americas

As industries in Mexico, Canada and other countries in the Americas continue to grow due to nearshoring, it is important to understand patent protection, not just in the U.S., but across the supply chain from Canada to Mexico and the rest of Latin America.

There are some important nuances in each of these jurisdictions. For example, the U.S. has a first-filing requirement to file in the U.S. if any part of the invention was developed domestically. This is true even if the inventors are not U.S. residents, and even if the inventors include foreign residents. This is significant, because Mexico has become the second-largest U.S. trading partner, which has forced it to develop supply chains not just into the U.S. but into other Latin American countries as well, to keep pace with demand.

In contrast, Canada does not have a first-filing obligation. Furthermore, the Canadian Patent Office will give priority to any foreign application filed up to 12 months before the Canadian filing. Similarly, key U.S. trading partners in Latin America do not have a first-filing regulation, and will also give priority to any foreign application filed up to 12 months before the domestic filing.

Incentives to File for Patents Across the Americas

In the U.S., there are several incentives designed to encourage patent application filing, including innovations directed to green technology or otherwise toward reducing greenhouse gas emissions. Applicants may be eligible for accelerated examination without paying any additional fees. Canada also has incentive programs.

Regarding research, the Canadian government has developed a scientific R&D tax program known as Scientific Research and Experimental Development. This program is one of the most generous globally, offering tax credits for expenditures on eligible R&D activity, which can include the development of patentable technologies. It is but one of many additional programs focused on R&D and startups, all supporting innovation.

There are also regional programs, such as a deduction applied to innovators in Quebec. This provincial program is known in many countries as a patent box, and offers a reduced tax rate on income derived from the commercialization of intellectual property.

Furthermore, like in the U.S., Canada expedites examination of some green-technology patent applications. The eligible technologies may involve water, air, soil, energy and fuel, with all types of inventions, including devices, method, processes, composition, bacteria and enzymes. There is no cost to obtain a green-tech expedited examination, and it is often completed quickly, within a year.

Mexico and other Latin American countries also offer incentives. For example, Chile focuses on encouraging R&D with several programs involving grants and co-financing for R&D projects and patent protections.

These include equity-free funding, visa support, office space and mentoring for startups, financial support for technology commercialization and technology transfer, and tax incentives and deductions of up to 35% of R&D expenses from income tax.

Specific to intellectual property, the fast-track Patent Prosecution Highway program is available not just in the U.S., Mexico and Canada but also in Brazil and Colombia. As in the U.S. and Canada, there is a fast-track system in Chile for green patents, as well as specific programs for the mining and energy sectors.

Further, Mexico and many of the Latin American countries tend to make patent grant decisions based on the patent prosecution in the U.S. For example, if a patent application within the same family has been granted in the U.S., Mexican examiners will cite that patent and request that the claims be adjusted to match what was already being granted in that country. This can help to save costs while extending protections to the desired jurisdictions.

The Challenge of Patenting Software-Related Innovations

The patentability for innovations involving software has been a hot topic not just in the U.S. but in other countries as well. As a result of court decisions and U.S. Patent and Trademark Office policy changes, it has become somewhat difficult to obtain U.S. patent protection for direct software innovations.

This is because software is often treated as merely an abstract idea, as the innovation could in theory be made with pencil and paper or in one’s mind. To avoid such an issue, software-based patent applications need to have something more that makes an improvement to the physical world, such as improving memory or processing use or automating some machine.

Patentability of software inventions can be complex and tricky in Canada as well. To avoid being considered a mere abstract idea, a software innovation should have a tangible effect or change in the real world when it is executed or when it is functionally applied.

It’s not enough for the software to solely manipulate process or present data without producing a concrete, tangible result. To have a tangible effect or change in the real world, the software must produce a physical effect or a change in the operation of a physical process, machinery or the computer itself.

The invention claims will then bring a solution to a technical problem. This specific test varies and is often subject to interpretation by the patent examiners or the courts.

In various Latin American countries, the process is similar to Canada’s, with software patents allowed only after a deep examination. As is the case in Canada, a tangible effect or change in the real world is required when the software is executed or when its functionality is applied. That said, some software-related patents have been issued in countries including Mexico, Brazil and Chile, especially for apps and artificial intelligence-related software.

In some cases, using a smartphone is considered the means of operation, with the actual physical components of the smartphone controlled by the software. In Chile, for instance, the key to obtaining patents for an algorithm is eliminating their abstraction. By demonstrating in the patent request its specific technical application, such as determining concrete variables and using technical means to execute the algorithm, a patent may be granted.

Filing Patent Applications in Multiple Jurisdictions

One key factor in filing patent applications in multiple jurisdictions is whether the country participates in the Patent Cooperation Treaty, designed to facilitate filing in multiple countries. Several Latin American countries are not members, including Argentina, Bolivia, Paraguay, Venezuela, Guyana, Suriname and Uruguay. Uruguay’s legislature has approved the treaty, but it’s not clear when it will be implemented.

The only way to use the treaty system from a nonparticipating country is to have residence in a country that does have a treaty. Thus, it’s not uncommon for a patent application from a nonparticipating country to include as one of its inventors a resident of a country with the treaty.

Changes on the Horizon

The patent landscape in the Americas is not remaining static. For example, the Canadian government has just proposed modifications to Canadian patent rules to introduce a patent term extension system. This change, which took effect Jan. 1, will extend a patent term when an application has faced unreasonable delays caused by the Canadian Intellectual Property Office.

The change is an obligation resulting from the U.S.-Mexico-Canada Agreement. It will apply to Canadian patent applications filed on or after Dec. 1, 2020, that have been subject to unreasonable delays.

Mexico has been updating its IP laws to better align with international standards. In recent years Mexico adopted a new patent law introducing significant changes, including adjustments to patent terms and the definition of patentable subject matter. The U.S.-Mexico-Canada Agreement also triggered IP rights changes such as protection for biologic pharmaceuticals and enforcement procedures for digital property infringement.

Chile has adopted the Patent Prosecution Highway and created the green-tech fast track, as well as a new, shortened prosecution term for supplemental protection requests. Brazil, meanwhile, has significantly reduced its longstanding patent application backlog, which in the past was as long as 10 years.

Conclusion

With the new U.S. administration potentially focused on implementing even more draconian trade restrictions, nearshoring in the Americas is only expected to grow. Companies operating throughout the nearshoring supply chain will continue to have incentives to protect their intellectual property, and their patent prosecution attorneys will be kept on their toes as the patent landscape from country to country continues to evolve.