Trade Secrets Become More Significant After AIA

Patent law has recently undergone significant reform with the enactment of the America Invents Act (AIA). One such reform improves the value proposition of trade secrets.

Before the AIA, an accused infringer who had practiced a patented invention in secret for many years prior to the patentee’s filing date could not rely on a so-called “prior user right,” unless the patent was for a so-called “business method.” Under the AIA, prior user rights have been extended to any technology. Having a robust trade secret, and practicing that trade secret prior to later patenting by another can provide an invaluable affirmative defense to patent infringement charges through prior user rights.

The AIA also expanded what is available as prior art to patent applications and patents, thereby expanding the universe of material prior art over which a claimed invention must be novel and non-obvious. In view of these developments under the AIA, companies may now opt for trade secret protection; because a trade secret does not require novelty or non-obviousness to be valuable and protectable.

The Uniform Trade Secrets Act defines trade secrets as having two key elements. A trade secret is information that: (1) derives economic value from being not generally known or readily ascertainable by proper means; and (2) is the subject of “reasonable efforts: under the circumstances to maintain its secrecy. When a trade secret owner makes a claim for trade secret misappropriation, the owner must prove that these two criteria are met, by clear and convincing evidence.

Generally, to have made “reasonable efforts” to maintain secrecy, a company should have robust employment agreements and policies, non-disclosure agreements with investors and consultants, and mechanisms to prevent public disclosure–both intentional and accidental. The magnitude of these efforts depends on the value of the trade secret.

As with patents, laboratory notebooks can be valuable in identifying, protecting, and proving the existence and maintenance of trade secrets. Many companies also maintain an inventory or mechanism to identify trade secrets internally. Such systems can assist in proving the existence of trade secrets, that the company adequately protected those secrets, and can help quantify the value of the trade secret—for both financial and legal purposes.

For many technologies, a patent’s limited life span of twenty years from filing provides adequate protection. However, for inventions whose useful lifespans have the potential to be much longer, trade secrets offer a more valuable option because the protection can last indefinitely, i.e., as long as the secret can be kept. Many famous inventions have taken advantage of trade secret protection–the formulations of WD-40 and Coca-Cola are well-know examples. Since all patents eventually expire, trade secrets can be critical to inventions that may not gain market acceptance and momentum for a long time.

The remedies available for trade secret misappropriation and patent infringement include both monetary and injunctive relief. In patent cases, the prevailing plaintiff can be awarded a reasonable royalty and/or lost profits, but cannot disgorge the infringer’s profits. Unlike patent cases, a trade secret judgment can award the plaintiff its losses as well as the defendant’s unjust enrichment. Both types of protection also permit additional monetary relief for a defendant’s willful or malicious conduct.

 

A wide variety of innovations may be protected by patents and/or trade secrets. Deciding which path to follow is made more difficult with the expansive changes introduced by the AIA. However, trade secrets provide a crucial component of a robust intellectual property portfolio and should not be over looked.

Tags:

Snow On/Off