IP: Value of trade secrets bolstered by new prior commercial use defense

The AIA offers extra protection to trade secrets

The passage of the Leahy-Smith America Invents Act (AIA) brought change not only to U.S. patents, but also to trade secrets. Under the AIA, a trade secret owner can now, under certain conditions, use a trade secret as a defense to patent infringement.

Upon the invention of a new technology, a company or research institution will choose between protecting the invention by filing a patent application or maintaining the invention as a trade secret. Trade secrets work best when the invention is not readily observable and cannot be reverse engineered when a product is released. Trade secrets also are generally less expensive to maintain, at least initially, as the company does not incur costs for filing and prosecution of a patent application.

A key risk of choosing the trade secret route is that a competitor could independently develop the technology and obtain a patent that would preclude you from using your trade secret. AIA tempers that risk by creating a defense to patent infringement.

An accused infringer can avoid a finding of patent infringement by demonstrating that they were commercially using the invention in the U.S. for at least one year prior to the earlier of either:

  • The filing date of a patent application, or
  • The date of public disclosure by the patentee during the patentee’s grace period.

The commercial use can be 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. According to the U.S. Patent and Trademark Office (USPTO), the prior user right embodies a balance between the equitable economic interests of the earlier user against the larger goal of the patent system.

The prior use defense was previously in effect for business method patents, but has now been expanded to all technologies. Congress expanded this prior use defense to harmonize U.S. trade secret law with that of other countries. The new prior use provision is a defense, but not a basis for attacking the validity of a patent or even a basis for pursuing post grant review or inter partes review of a competitor’s patent.

While the power of trade secrets is strengthened by the new law, the  defense may be challenging to employ because it requires a high burden of proof of clear and convincing evidence. Much of the evidence to support this defense will be documentation that occurred at the invention and development stage. That evidence typically is found in laboratory notebooks, research reports and memorandum, correspondence, raw data printouts, nondisclosure agreements and invention review committee minutes.

It is worth noting that another AIA provision, the move from the first-to-invent to the first-to-file system, at first glance suggests that inventors do not need to preserve invention records. That evidence was typically relied upon in interference proceedings to establish earlier dates of conception, reduction to practice and diligence. Although interferences are being phased out, the need to preserve research and development documentation remains in view of the new prior use defense, as well as for other AIA provisions such as derivation proceedings.

The AIA includes several other limitations to the prior use defense. The defense cannot be licensed, assigned or transferred to another party other than in connection with an assignment or transfer of the entire business to which the defense relates. The defense also is geographically limited to only those sites where the invention was used before the critical date. Additionally, there is an exception for patents owned by or assigned to universities or affiliated technology transfer organizations.

Reliance on trade secrets and the prior commercial use defense still does not impart as much certainty as the filing of a patent application. A patent application has a verifiable filing date, a detailed description of the invention and claims that define the scope of the invention. The patent application generally publishes, thereby telling competitors that a particular entity owns the idea and may enforce it upon the eventual grant of a patent. That publication may also be prior art to later filed patent applications.

By relying upon a trade secret, an entity also runs the risk that a competitor could file a patent application on the same technology within one year of the commercial use of the protected technology. If that application is issued as a patent, the prior use defense may not be available.

Contributing Author

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Janelle Waack

Janelle Waack is a partner at Novak Druce + Quigg LLP and focuses on interference matters before the United States Patent and Trademark Office Board...

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