Alice five years on: trade secrets are still popular alternative to patents
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Alice five years on: trade secrets are still popular alternative to patents

Businesses say they have increasingly turned to trade secrets since the 2014 SCOTUS decision because of the sustained ambiguity around Section 101; but add that there are challenges along that path too

Trade secrets have become more popular in the wake of the Alice v CLS Bank US Supreme Court ruling in 2014, according to in-house counsel from Alibaba, medical device companies, and the insurance and software industry.

With fifth anniversary of the ruling having passed, sources say there is still a lot of uncertainty around Section 101 of the US Code, even after half a decade’s worth of case law attempting to clarify what falls in the narrowed brackets of patent eligibility.

With the increased levels of ambiguity surrounding inventions that could be seen to be abstract ideas, laws of nature or natural phenomena, many companies are hedging their bets and turning straight to trade secrets to protect their inventions.

In-house sources tell Patent Strategy that while they consider using trade secrets for all inventions, the way Alice has been interpreted by the lower courts means that anything falling on the fringes of eligibility needs further consideration.

“The patents that lost subject eligibility by the SCOTUS decision went right to trade secret protection,” says the senior counsel for a US-based insurance company. “If you’re not going to get a patent, you don’t want to disclose it, so people get trade secrets on things that logically extended to the subject lost by Alice.

“The surge in trade secrets is proportional to what was identified or what became non-eligible for patenting under the 2014 ruling. It is almost a direct correlation.”

Roger Shang, senior director of Alibaba in California, adds: “There can be a number of reasons to opt for trade secrets instead of patent protection, and 101 uncertainty can be one of the reasons.”

Secret trials

Deciding to keep an invention secret comes with its own hurdles; keeping one safely within a company can cost resources that not every business has at its disposal.

“It is fair to say people are moving more to trade secrets. But the thing is that protections for trade secrets are fairly limited. I’d say trade secrets allow you to protect your IP in a different way, and can be helpful if there is no way someone can copy you,” says the IP counsel at a US-based medical device company.

Diagnostic inventions have been hit particularly hard. Medical device companies are allowed to patent a gadget containing a diagnostic tool, but are limited on the protection of the diagnostic method itself.

“Diagnostics are now more difficult to protect,” says the associate patent counsel of a US-based medical device company. “It’s forced us to either take different approaches to patentability, like patenting aspects of the instrument, or more practically moving over to trade secrets.

“Now, trade secrets are hard to protect in their own right when they are out there in the wild.”

“You can protect the electronics of a device; how one circuit is connected to another, where the switch is located and the battery, and so on.

“But let’s be honest – that’s not what we want to protect. We want to protect how it is analysing the blood, how it produces an ultrasound. Those types of diagnosis are much more difficult to protect now under Alice,” says the associate patent counsel.  

The software side

While Alice has caused headaches over the past five years for life sciences companies, it has been a gift for those in the software industry. Freed from the pre-2015 levels of patent troll lawsuits and paying damages for the infringement of dubious patents, software companies now have more resources to devote to other areas of their business.

Chris Mohr, vice president and general counsel for the Software and Information Industry Association, says that software companies prior to the ruling had to go through an expensive process of invalidating patents that were for abstract ideas.  

“The decision has been great – and we think that because of the data that demonstrates spikes in investments in software and network technology. It allows defendants to take an early shot at a bad patent,” he says.

A criticism of the Alice decision is that its limiting of subject eligibility will hurt the tech industry by giving foreign companies with less stringent eligibility requirements a competitive advantage. Mohr says these arguments have not panned out, however, and that the ruling has been a huge benefit for the sector.

“There is no real evidence of harm to the industry. The Qualcomms and IBMs would probably say we need broader eligibility rules or we will lose out to China. But where is the evidence of that? China is filing lots of patents in the US,” says Mohr.

Not everyone in tech agrees that Alice has been beneficial for their industry. The increased level of uncertainty has made it difficult for in-house counsel to know what inventions they can protect, and with the goal posts changing year by year with case law, drafting applications has become more difficult.

“The case changed everything,” explains the senior counsel for IP at a US-based insurance company. “It was a huge change. It could have been a good thing if it had been clear. Instead, the judgment was issued with no clear guidelines for what is eligible and what isn’t.”

“You have 5,000 examiners who have to determine this, and then the way it was implemented relied on case law that followed. It was hard for people to understand, and it was difficult to advise how a technology should be handled.”

In January this year, the USPTO issued guidelines for subject matter eligibility as well as specific examples to help practitioners draft applications. The senior IP counsel says the guidelines bring a little more clarity, but aren’t really helpful because the Federal Circuit said it does not have to uphold the guidelines.

The medical device IP counsel says he believes, despite the original ambiguity created by the Alice ruling, that it has become easier over the past five years to understand what is expected from the patent office.

“In terms of ambiguity, things are certainly getting better,” he says. “Dealing with the Alice decision has become less problematic over time because you now have the possibility to frame the application in a way that is consistent with the case,” he says. 

“The problem is when the eligibility target moves because it takes time to find out where it is. At this point five years out, we have a better understanding of where the target is and how to draft for it. That is, until it changes again.”

And change is coming. This past spring, hearings were held in Congress on drafting new patent eligibility laws. This is a welcome development for those in-house attorneys working in medical devices and diagnostics.

“To fix this eligibility problem, I’d knock down Section 101 and rebuild it from scratch,” says the associate patent counsel. “I’d do a total redo. With 101, there has been so much case law that you really can’t look at the statute and determine what is acceptable anymore.”

Shang at Alibaba agrees that the uncertainty created in the aftermath of the SCOTUS decision has made protecting inventions difficult over the last five years. “We've had some difficulty in predicting what type of cases will receive 101 rejection under Alice. It's difficult to understand the boundaries of software patents,” he says.

With the possibility of new legislation widening the patentability scope for tech, software and diagnostics, perhaps companies will rely less on trade secrets in the future.

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