5 Ways To Leverage Trade Secrets

Note: This is the fourth of a series of articles on the America Invents Act (AIA), the sweeping patent reform legislation signed into law in September 2011.

One of the most notable changes in the AIA provides companies accused of patent infringement with a new defense based on "prior user rights." This might sound like a phrase that only a patent attorney could love, but in a world in which technology products are increasingly complex, the protections it provides can be vital. Here’s why:

Applying for patents on every one of the many inventions that go into today’s complex products isn’t practical. The costs and time commitments to actually write and file the applications would be prohibitive, and some of the resulting patents would be so specific that they would have limited commercial value. Some inventions are more effectively leveraged if they were held as trade secrets instead of being disclosed to the world through the patenting process.

What happens, however, if the invention that your company chooses to retain as a trade secret is independently replicated by a competitor who decides to patent it? If the competitor then sues your company for patent infringement, what can you do? This is where the new prior user rights defense can play a role.

If your company was commercially using the competitor’s patented invention by a sufficiently early date, that commercial use can inoculate your company against an infringement finding. This leaves your company free to continue using the invention without paying any royalties to the competitor who has patented it. The competitor can sue other people for infringement, but your company is off the hook.

Prior user rights aren’t new in US patent law; a provision covering business method patents has been in place since 1999. However, the AIA greatly expanded the scope of these rights. As Representative Lamar Smith (R-TX), one of the AIA’s sponsors, explained in a June 2011 speech in the House of Representatives:

The inclusion of prior user rights is essential to ensure that those who have invented and used a technology but choose not to disclose that technology—generally to ensure that they not disclose their trade secrets to foreign competitors—are provided a defense against someone who later patents the technology.

In effect, trade secrets just got a promotion: They retain the same advantages as before in terms of offering a competitive advantage, while one of their risks—the possibility of being held liable for practicing your own trade secret—has been lowered.

However, the AIA’s prior user rights provision doesn’t provide blanket immunity. For example, it can’t be used against patents that issued before September 16, 2011. In addition, prior user rights generally don’t apply if your company is accused of infringing a patent covering a university invention (the story of that exception and its implications may be worth a separate post of its own). And, if your company’s commercial use doesn’t occur early enough, the defense isn’t available.

What’s clear from the above is that if your company is sued for patent infringement, there’s a new defense that could be valuable. But does that mean there’s no need to give this aspect of patent reform any thought unless and until a patent lawsuit occurs? Absolutely not. Here are some things companies can do right now in light of this new provision:

  • In some respects, the shift from a first-to-invent to a first-to-file system decreases the protective power of internal documentation. However, that documentation can still be important for the prior user rights defense. The success of that defense will depend on the ability to show early commercial use of the invention—a task that will obviously be much easier if you’ve been careful with documentation.
  • In contrast with prior user rights provisions in many other countries, under the AIA those rights protect commercial use, but not preparation for commercial use. A trade secret that isn’t yet being commercially used can’t be used as a defense against infringement.
  • How do you handle an invention that isn’t valuable enough to patent, and isn’t likely to be particularly valuable as a trade secret either? If your company has no short term plans to commercially use the invention, but may want to do so in the future, it’s worth considering a pre-emptive public disclosure aimed at preventing anyone else from obtaining a patent that might later come back to bite you. (However, it’s important to be aware of the consequences of such a disclosure on your own company’s patent rights, particularly internationally.)
  • While it’s clear that the AIA’s prior user rights defense applies to a broad range of patents, the language of the AIA leaves some doubt regarding the precise breadth of that coverage. Companies should keep an eye out for case law or legislative actions that might clarify this issue in the future.
  • By increasing the value of trade secrets, the prior user rights defense alters the set of considerations involved in deciding how to handle new inventions.

While the full impact of the prior user rights defense on the American patent landscape won’t be known for many years, what’s clear now is that it can be an asset for the many companies that build today’s increasingly complex technology products.

[Image: Flickr user Ian Macca]

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  • staff staffer

    "patent reform"...“America Invents Act”

    “This is not a patent reform bill” Senator Maria Cantwell (D-WA) complained, despite other democrats praising the overhaul. “This is a big corporation patent giveaway that tramples on the right of small inventors.”

    Senator Cantwell is right. Just because they call it “reform” doesn’t mean it is. The agents of banks, huge multinationals, and China are at it again trying to brain wash and bankrupt America.   

    They should have called the bill the America STOPS Inventing Act or ASIA, because that’s where it is sending all our jobs.

    The patent bill is nothing less than another monumental federal giveaway for banks, huge multinationals, and China and an off shoring job killing nightmare for America. Even the leading patent expert in China has stated the bill will help them steal our inventions. Who are the supporters of this bill working for??

    Patent reform is a fraud on America. This bill will not do what they claim it will. What it will do is help large multinational corporations and maintain their monopolies by robbing and destroying their small entity and startup competitors (so it will do exactly what the large multinationals paid for) and with them the jobs they would have created. The bill will make it harder and more expensive for small firms to get and enforce their patents. Without patents we cant get funded. In this way large firms are able to play king of the hill and keep their small competitors from reaching the top as they have. Yet small entities create the lion's share of new jobs. According to recent studies by the Kauffman Foundation and economists at the U.S. Census Bureau, “startups aren’t everything when it comes to job growth. They’re the only thing.” This bill is a wholesale destroyer of US jobs. Those wishing to help fight this bill should contact us as below.

    Small entities and inventors have been given far too little voice on this bill when one considers that they rely far more heavily on the patent system than do large firms who can control their markets by their size alone. The smaller the firm, the more they rely on patents -especially startups and individual inventors. Congress tinkering with patent law while gagging inventors is like a surgeon operating before examining the patient.

    Those wishing to help fight big business giveaways should contact us as below and join the fight as we are building a network of inventors and other stakeholders to lobby Congress to restore property rights for all patent owners -large and small.

    Please see http://truereform.piausa.org/d... for a different/opposing view on patent reform.