The Recorder, Vol. 132, No. 147, July 30, 2008
Chris Scott Graham and Jill Kopeikin
Many companies operate under the assumption that a robust patent portfolio is the sine qua non to the best protection of intellectual property.
Consistent with this philosophy, employees are instructed to compile the information necessary to apply for patent protection, and significant company resources are expended in that pursuit. By applying early and often to patent both key developments as well as incremental attributes, companies implement a de facto IP strategy heavily weighted toward patent protection.
Recent developments in patent law, however, suggest that this kind of IP strategy may not be in the best interests of all companies. And even companies with established patent programs would be well-served by re-evaluating how they're managing their most valuable assets.
DOWNSIDE RISK
An aggressive patent holder can use his or her portfolio to exclude competitors from a market through proceedings before the International Trade Commission or to obtain damages in district court. A well-publicized patent portfolio can also be an effective deterrent, announcing barriers to market entry a competitor must consider.
However, seeking patent protection as an IP strategy comes with downside risk. A company implementing a patent strategy to protect its IP is disclosing its cutting-edge technology to the public. And obtaining a patent, by the nature of the proceedings before the U.S. Patent and Trademark Office, is fundamentally inconsistent with the protections under the Uniform Trade Secrets Act.
To obtain a patent, the applicant must place in the public domain information that may constitute valuable trade secrets, including a written description of the invention that is specific enough to enable a person of ordinary skill in the art to practice the invention without undue experimentation. The description must also disclose the best mode contemplated by the inventor for practicing the invention.
Through this process, information that might otherwise constitute a trade secret under the UTSA will be made public under most circumstances within 18 months of the application being filed -- whether or not a patent ever issues on the application. Should the USPTO reject the application, all of this information becomes freely available to the public, and cannot thereafter constitute a trade secret. Even when the application successfully matures into an issued patent, a company must consider obtaining foreign counterpart patents in those countries where the company expects to compete.
Attacks on the process of obtaining and enforcing patents have recently increased. The USPTO, under pressure to step up its productivity, has attempted to promulgate rules to place more hurdles and limits on the application process.
The courts also have been more active recently in limiting the rights of patent holders. From making the issuance of permanent injunctive relief less certain, especially for plaintiffs who do not manufacture or use the patented invention, to increasing the rights of licensors to challenge the validity of patents, the U.S. Supreme Court has been increasingly willing to weigh in on patent issues.
UTSA-CENTRIC
While a company may proudly point to a large patent portfolio, changes in the patent landscape suggest that the UTSA may be better-suited as the primary means through which a company can protect its most valuable IP.
Companies that adopt a UTSA-centric strategy, in return for the ongoing obligation to make reasonable efforts to maintain the secrecy of the information, enjoy benefits diametrically different than those afforded under the Patent Act. For example, a patent owner typically enjoys a right to exclude others from using the inventions claimed by the patent for 20 years after the application was filed. By contrast, as there is no specified term under the UTSA, a company receives 'permanent' protection as long as the information otherwise continues to qualify as a trade secret.
The scope of protection under the UTSA also conceptually includes wider coverage than under the Patent Act. The invention, to be patented, must be 'novel' and a combination of old elements will face significant challenges under the more stringent 'obviousness' standards recently laid down by the U.S. Supreme Court. By contrast, a compilation of otherwise public information can constitute a trade secret without having to meet the more stringent standards of patentability.
Likewise, while a claim for infringement of a U.S. patent requires the infringing act occur in the United States, protection under the UTSA extends extra-territorially as long as the out-of-state defendant's conduct causes injury within the United States.
There are also differences in the proof required at trial between the Patent Act and the UTSA that bear on which IP strategy to implement. For example, while the defendant's state of mind is irrelevant for purposes of liability, willful patent infringement can result in treble damages. By contrast, misappropriation of trade secrets is an intentional tort, and the defendant will not be liable unless and until he knew or should have known that his acquisition, use or disclosure of the trade secret was wrongful.
An additional complication in relying on the UTSA is the fact that not all 50 states have adopted its provisions. Even in those states following the UTSA, adoption is not entirely uniform. For example, while threatened misappropriation under the UTSA can be enjoined in California, use of the Doctrine of Inevitable Disclosure to restrict the mobility of former employees has been rejected.
IP protection programs that involve patents and trade secrets are not mutually exclusive, and a strategy that carefully considers the pros and cons of both courses will provide the most robust form of protection.
Chris Scott Graham serves as the managing partner of Dechert's Silicon Valley office. He and Jill Kopeikin are partners in the intellectual property group there. Their practices focus, in part, on intellectual property, complex civil disputes, investigations and unfair competition/business practice claims.
FNNote 1. Practice Center articles inform readers on developments in substantive law, practice issues or law firm management. Contact Jessie Seyfer with submissions or questions at jessie.seyfer@incisivemedia.com or www.callaw.com/submissions.
