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The New Patent Law in New Zealand

The Calculus of Patent Versus Trade Secret Protection Under the Newly Revised U.S. Patent Law

7 years ago


By Steven J. Hultquist, Principal, Hultquist, PLLC                                                                      

The "prior commercial use defense" provisions under Section 5 of the America Invents Act became effective on September 16, 2011.

These provisions impact the choice of whether patent or trade secret protection is most beneficial for an invention.

At the outset, it is to be noted that trade secret protection is increasingly difficult to maintain in a correspondingly increasingly transparent world. Proliferating analytical tools may make it easy for others to decipher and reverse engineer inventive developments and products. A WikiLeaks/Facebook mentality that all information is and should be free may hold greater sway over ex-employees than the confidentiality strictures of an employment agreement. Further, the legal requirement that affirmative measures be taken to preserve and protect the trade secret character of an innovation may fail to be properly implemented on a day-to-day basis, with the result that trade secret legal protections are lost.

In short, the conceptually perpetual duration of trade secret protection is seldom successfully maintained, and frequently cannot even be sustained over the two decade period that would otherwise be available for patent protection. In this respect, the realities of a flat competitive world aggregate to defeat the trade secret, as competitive activities lead to subsequent independent discovery of the trade secret innovation and its patenting by others.

Further, attempts by the original discoverer to hedge the issue with filing of a U.S. provisional application, to defer the ultimate determination of patent versus trade secret route until a time close to the expiration of the provisional application, may have unintended consequences, if the provisions of the newly revised Patent Law are not considered.

Thus, a decision to allow a provisional patent application to expire without continued patenting effort may leave the provisional filer with the erroneous impression that the invention has been documented in the abandoned provisional application, and as the original inventor, such provisional filer will be unimpacted by any subsequent discovery and patenting of the same invention by others.

In fact, the mere filing of a provisional application that is allowed to expire without further patent filing will not "immunize" a party against subsequent patent infringement charges if a later inventor patents the same invention and asserts the patent rights against later commercial exploitation of the invention by the original inventor.

Under the new law, the prior inventor's rights are limited by 35 USC 273 ("Defense to infringement based on prior commercial use"):

§ 273. Defense to infringement based on prior commercial use

(a) IN GENERAL.—A person shall be entitled to a defense

under section 282(b) with respect to subject matter consisting of

a process, or consisting of a machine, manufacture, or composition

of matter used in a manufacturing or other commercial process,

that would otherwise infringe a claimed invention being asserted

against the person if—

(1) such person, acting in good faith, commercially used

the subject matter in theUnited States, either in connection

with an internal commercial use or an actual arm’s length

sale or other arm’s length commercial transfer of a useful

end result of such commercial use; and

(2) such commercial use occurred at least 1 year before

the earlier of either—

(A) the effective filing date of the claimed invention;

or

(B) the date on which the claimed invention was disclosed

to the public in a manner that qualified for the

exception from prior art under section 102(b).

Thus, the operative question in any decision to elect trade secret protection is whether any "commercial use" of the invention within the meaning of the statute has been/will be made. If no such prior commercial use is made, the original inventor/trade secret holder will be subject to patent infringement claims by a subsequent inventor patentee of that invention, for activities of the original inventor in later exploiting the invention. This is the risk that must be assumed as a consequence of opting for trade secret protection.

It should be noted here that the new law also provides that the defense is not available against patents owned by universities or by their technology transfer organizations.

The foregoing underscores the need for careful consideration of whether and under what circumstances to rely on trade secret protection, against the alternative of pursuing patent protection. The trade secret must always be assessed in terms of the relevant product cycle, potential for near-term obsolescence, intensity of the competitive environment, existence of alternative products, potential for reverse engineering, prospects for successful patenting efforts, and the likelihood that trade secret efforts will achieve effective protection.

Steven Hultquist, Principal

Hultquist, PLLC

December 10, 2011


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