Michigan Lawyers Weekly
Kelly Burris
Recent events have caused drastic changes in the legal landscape for patents, with yet additional threats looming.
First, a United States Supreme Court ruling in April 2007 (KSR International Co. v. Teleflex, Inc. et al., 550 U.S. ___, 82 USPQ2d 1385 (2007)) significantly raised the bar for patentability, making it much more difficult to obtain patents and also much easier to invalidate existing patents.
For example, the mere substitution of one known element for another is not patentable. Applying known techniques to the known art ready for an improvement, or if there exists a design need or market pressure, weigh against patentability, too. Inventions that create a new synergy, teach away from combining known elements, or combine known elements resulting in a change in function are where the patent fruits may now be borne.
Pending legislation (The Patent Reform Act of 2007 (H.R. 1908, S. 1145)) is gaining momentum and is slated to convert the United States Patent Laws from a "first-to-invent" to a "first-to-file" system. Additional measures include limitations on the amount of damages recoverable in an infringement action, limitations on venue, and allowing the USPTO to have substantive rule-making authority.
Late last year, the United States Patent and Trademark Office (USPTO) egregiously put in place new rules that limited the number of claims per patent and the number of continuation applications.
In the interim, a District Court recently ruled that these new rules promulgated by the USPTO are beyond their rule-making authority. However, the USPTO has appealed the ruling, and with the Patent Reform Act providing substantive rule-making authority to the USPTO, these rules may yet rear their ugly heads.
Finally, the legitimacy of "business method" patents is currently being considered by the Federal Circuit. (Ex Parte Bilski, BPAI 2006). As a result, the time is ripe to revisit an often overlooked alternative to patents as the rights of patentees and the scope of protection for their inventions continues to be squeezed.
Trade Secrets 101
What defines a trade secret? Under the Uniform Trade Secrets Act (14 U.L.A. 437, et seq. (1985), which was adopted in Michigan, a trade secret is information that:
Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
Is the subject of efforts of that are reasonable under the circumstances to maintain its secrecy.
As such, a trade secret can be almost anything that is secret and that derives value from such secrecy. Examples of trade secret information are:
Technical information/research and development
Formulas
Compounds
Prototypes
Processes
Experiments and experimental data
Calculations
Drawings and diagrams
Production/process information
Cost/price data
Proprietary information concerning production processes (e.g. process parameters)
Specialized/custom production equipment
Specifications for production equipment
Production know-how
Vendor/supplier information
Source
Cost/price data
Quality Control Information
Quality control procedures/testing
Quality control manuals
Quality control records
Maintenance Know-How
Sales and marketing information
Sales forecasts
Marketing and sales promotion plans
Competitive intelligence
Proprietary information about customers
Customer needs and buying habits
Proprietary sales and marketing studies/reports
Internal Financial Information
Budgets
Forecasts
Product margins
Product costs
Operating reports
Profit and loss statements
And, there is no term or expiration for trade secrets. As long as the information remains secret and is not independently developed by a third party (more on this later), protection can last indefinitely.
Patents 101
In one respect, patents are essentially the opposite of trade secrets. Patents provide a specified term of protection in exchange for a public disclosure.
The most common type of patent is a utility patent, which protects any useful, new, and non-obvious article, machine, composition of matter, or method for a period of 20 years.
Design patents protect the ornamental or aesthetic appearance of a product for a period of 14 years.
A third type of patent, a plant patent, protects asexually reproduced plants for a period of 20 years.
What if someone told you that having a patent does not allow you to practice your invention? This pronouncement is often a jaw-dropper for new clients and can be difficult for a non-practitioner to understand.
A patent conveys a right to exclude, not a right to practice the invention. More specifically, the patent conveys the exclusive right to make, use, and sell the patented invention.
Suppose that Company A obtains a patent for a new widget and begins to manufacture and sell these widgets. Company B comes along with a new material composition that can be applied to the widget, making it resistant to wear and able to withstand incredibly high temperatures.
Company B obtains a patent on this material composition. Now, Company B starts manufacturing and selling the widgets with the material composition -- practicing their invention, right?
Unfortunately for Company B, they are still manufacturing and selling the widget, regardless of any material composition, and thus Company A would have an action for patent infringement against Company B.
On the other hand, Company A could not put the material composition on their patented widget without infringing Company B's patent. This aspect of patents is too often overlooked, and it is important to reiterate that a patent gives you the right to exclude, not the right to use.
In another contrasting respect to trade secrets, patentees cannot hide confidential information about the invention, because the Patent Laws require a complete disclosure. This complete disclosure includes a written description of the invention, and the manner of making and using it such that a person of "ordinary skill" in the relevant technical field can make and use the invention. Additionally, the "best mode" of the invention must be disclosed.
And unlike trade secrets, even if another party independently develops the same invention, the patentee can stop that party from making, using, selling, offering to sell, or importing the invention during the term of the patent.
When you get to the fork in the road, take it
Often, the intellectual property (IP) that is being considered for protection can qualify for both trade secret protection and patent protection. So how do you decide which one -- or which combination of both -- is best suited for your business?
The first question out of the gate should be: Can the IP be kept secret? If the answer is "no," then it cannot be protected as a trade secret.
Secondly, can the IP be "reverse-engineered"? In other words, can another party test, disassemble, or otherwise analyze your product to determine its structure, how it is manufactured, or what materials are being used? If the answer is "yes," then it cannot be protected as a trade secret.
Next, and not so clear-cut, is the question of whether or not it is likely that another party would independently develop the same, or similar, IP. If it is likely, then the patent route would be the better choice.
Suppose the IP is treated as a trade secret and another party independently develops the same IP, then you have no recourse against them. Worse yet, the other party could obtain a patent on the IP and turn around and enforce the patent against you, even though you came up with it first.
Tough pill to swallow, but it's the price to be paid for keeping the information secret in hopes of immortality for your IP. So far, Coca-Cola has not had to swallow that pill, as their cola recipe remains one of the most famous of all trade secrets.
This said, with the current challenges facing patentees and the increasing difficulty and expense of obtaining and enforcing patents, trade secrets deserve a second look, especially in the manufacturing technology sector, a virtual breeding ground for information that can remain secret and have economic value.
So, let's take a look at the groundwork for trade secrets in considering their viability.
First and foremost, the information must be maintained in secrecy. Too often we hear from clients, for example, that "... we are maintaining that information as a trade secret." Yet, when we enter the client's manufacturing facility, the information is in plain sight.
Operating manuals and instructions are laid open in the work area without any control or supervision, and employees have no idea that the information is supposed to be strictly controlled.
In the end, courts will consider the steps, or lack thereof, taken by your company to safeguard the information. Thus, an established program not only reduces the risk of losing the information, but it also increases the likelihood that courts will step in to protect the information if there is a loss.
With some forms of information, such as customer lists, the decision to protect is a simple one since this type of information is not protectable by a patent. In other forms, such as a minor improvement to a process, the information may not be protectable by a patent if it is very close to known processes. As such, the only choice would be a trade secret.
It is not an all-or-nothing proposition when it comes to trade secrets and patents. Frequently, various aspects of a new product and/or new manufacturing process can have both trade secret protection and patent protection.
The proper mix for every company depends on their specific business environment, future plans, and the current lay of the legal landscape.
Kelly Burris is an attorney at Brinks Hofer Gilson & Lione, where she focuses her practice on the preparation and prosecution of U.S. and foreign patent applications in the mechanical, material science and electrical arts. Contact her at (734) 302-6043 or kburris@usebrinks.com.
