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Focus shifts towards trade secrets

Speakers in a session on trade secrets at the AIPLA Annual Meeting said that as US patent holders are growing increasingly concerned about the state of patent protection, they are looking more towards trade secret protection as a means of protecting innovation.

AIPLA Trade secrets

Several speakers, including James Pooley of James Pooley Law Group and Robert Titus of Eli Lilly, explained that patents are traditionally seen as a stronger means of protection than trade secrets. However, recent developments in US law may have shifted this perception.

“Patenting seems to have come under attack and feels like a riskier alternative [than before],” said Pooley, who is former Deputy Director General of WIPO. He pointed to recent cases such as Mayo, Nautilus, Bilski, Alice and Octane as developments that have made it more difficult to enforce patents. He also characterized inter partes reviews as procedures that were supposed to strengthen the integrity of the patent system, but have instead turned against patent holders. “[The IPR process] has caused the title of very good patents to be questioned,” he said.

Whether an innovator should protect a particular piece of technology using patent or trade secret protection depends on several factors, including the type of innovation involved and the company’s goals. Titus explained that one of the advantages of a patent is that it gives a monopoly on the technology, though if the technology is later found to be unpatentable then the company’s disclosure has just revealed considerable information to the public.

Trade secrets do not run this risk of public disclosure, but the problem is that if a third party invents and patents the same technology, then you may have lost your freedom to operate. Furthermore, the client or the scientists who came up with the technology may wish to publish in journals about it, which would not be possible if kept as a trade secret. A third option is to disclose the technology, which prevents others from patenting it, though you lose the ability to monopolize it or use it as a competitive advantage.

Titus stressed that it is important to be goal-oriented when making these decisions, to really think through how this piece of information or potential invention fits into the overall business plan.

“This is the interesting discussion that we have internally: what would you do with this?” he said. “Do you want to just protect your innovation? Do you just want to make sure you have exclusivity for what you’re doing? Or do you want to deter a competitor? Do you want to raise the bar for a generic entry? Do you want to make it more difficult for a competitor to move into an area? Do you want to get some licensing revenue from the innovation?”

Titus said that the AIA has actually made trade secret protection more attractive by making prior user rights stronger, thus potentially making freedom-to-operate concerns less of a problem should a third party seek a patent on your secret technology. He warned that, though there are restrictions on the prior user defense (for example, the right cannot be transferred) and it is still narrower than in many other countries, this expansion will help to make trade secret protection a more viable option for many companies.

Congress is also paying more attention to trade secrets, with the 2015 Defend Trade Secrets Act (DTSA) under consideration in both the House and the Senate. The legislation would create a Federal trade secret regime, where currently it is covered by varying state laws. As Danielle Vanderzanden of Ogletree Deakins explained, the draft legislation would standardize and help to clarify several important issues. For example, the legislation would set a statute of limitation of five years, where currently some states such as Alabama and Idaho have statutes of limitation of as short as two or three years. In addition, the legislation provides for both ex parte seizures and injunctive relief, key enforcement tools that currently are not available in several states.

Pooley concluded: “The ground is shifting much more frequently and in ways that are harder to predict. So we need to focus on these issues in a way that traditionally we haven’t been looking at them.”

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