Jorda on Trade Secrets

Patent/Trade Secret Complementariness — No. 19

2008-04-23T18:42:52Z

In prior blogs I railed aplenty about the many misconceptions about the patent/trade secret interface and the deep-seated belief that patents and trade secrets are incompatible.

A typical, illustrative and specific sample of such misperceptions comes from “The Trade Secret Handbook — Protecting Your Franchise System’s Competitive Advantage” by Michael Lockerby, American Bar Association, 2000. In it the following relevant passages appear:

How Do Trade Secrets Differ from Other Forms of Intellectual Property? (p.11)

…..

The issuance of a patent obviously destroys trade-secret protection. However, the franchisor should maintain the confidentiality of any patentable trade secrets while the patent prosecution process is pending. One reason that this is important is that a patent may never be issued.

…..

Can Trade-Secret Protection Coexist with Other Forms of Intellectual Property Protection? (p.12)

There is considerable overlap between the scope of copyright protection and the scope of trade-secret protection.

…..

In contrast, patent protection is fundamentally inconsistent with trade-secret protection. The quid pro quo for what is essentially a government-granted monopoly (sic) with respect to the patented invention is full disclosure so that it will be in the public domain upon expiration of the patent. However, the patent prosecution process does allow for protection of trade secrets until such time as the patent actually issues.

These passages reveal misunderstandings and half-truths at best. Let me parse these passages to see what is wrong with them.

“Issuance of a patent obviously destroys trade-secret protection.”

This is clearly too broad a statement and a half-truth. Trade secret protection ceases to exist only for precisely that which is disclosed in the patent specification. But patent applications are normally filed very early in the research stage, after a first reduction to practice, in order to obtain the earliest possible filing or priority date. The specification of such an early application typically describes in relatively few pages only rudimentary lab or shop experiments done and samples or prototypes obtained. Hence, patents rarely disclose the ultimate scaled-up commercial embodiments. Tons of associated or collateral know-how not found in the specification are needed for commercial production and use of patented technology.
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Another cogent insight from Tom Arnold resides in his statement that it is “flat wrong” to assume, as “many courts and even many patent lawyers seem prone” to do, that “because the patent statute requires a best mode disclosure, patents necessarily disclose or preempt all the trade secrets that are useful in the practice of the invention.” Note there is not even preemption.

In light of these authoritative pronouncements, it is amply clear that trade secrets can coexist with patents and survive patents upon expiration or invalidation. In this regard, the Pizza Hut case provides a telling lesson. In C&F Packing v. IBP and Pizza Hut, Fed. Cir. 2000, where two C&F patents on a manufacturing process for pizza sausage toppings were held invalid on summary judgment on on-sale bar grounds but their trade secrets on this process were held enforceable after trial, Pizza Hut had to pay $10.9 million for trade secret misappropriation.

“The franchisor should maintain the confidentiality of any patentable trade secrets while the patent prosecution process is pending.”

This again is a half-truth at best because any collateral know-how and improvements that are important or indispensable to the practice of the subject invention but not disclosed in the spec should be maintained as trade secrets also after the patent issuance. See the Pizza Hut case. And invention disclosures of course also should be closely guarded before filing as one of the best examples of a species of trade secret that comes to mind. Thus, it is not only during the patent pendency that trade secrecy needs be maintained.

“Patent protection is fundamentally inconsistent with trade-secret protection.”

On the contrary! In fact, patents and trade secrets dovetail inextricably as they are highly complementary and mutually reinforcing. All patents are born as trade secrets. Trade secrets are the first line of defense: they precede patents, accompany patents, and follow patents.

In fact, they are inextricably intertwined, because the bulk of R&D data and results or associated, collateral know-how for any commercially important innovation cannot and need not be included in a patent application but deserves, and requires, protection which trade secrets can provide. It is unnecessary and, in fact, shortsighted to choose one over the other. The question is not whether to patent or to padlock but rather what to patent and what to keep a trade secret and whether it is best to patent as well as to padlock, that is, integrate patents and trade secrets for optimal synergistic protection of any innovation.

“The quid pro quo is…full disclosure so that the invention will be in the public domain upon expiration of the patent.”

First of all, full disclosure refers to or includes enablement and best mode. But the best mode requirement is no impediment to the coexistence of patents and trade secrets because this requirement is a very subjective one as it applies
• only at the time of filing,
• only to the knowledge of the inventor, and
• only to the claimed invention.

And most importantly, after expiration 20 years later a best mode disclosure in a patent is most likely to be completely moot.

Here let me again quote Professor Chisum: “(A)nother rationale behind the best mode requirement that it is intended to allow the public to compete fairly with the patentee following the expiration of the patents, is not tenable as it ignores the realities of the patent system and the commercial market place because rarely will that disclosure be of competitive interest when the patent expires.”

This reveals another disconnect between a patent system that was instituted over 200 years ago to protect plowshares and simple implements and a patent system for protection of present-day high-tech innovation.

More survey results regarding the value of trade secrets as compared to patents: Patent/Trade Secret Complementariness No. 18

2008-04-01T15:00:00Z

In the last blog I recited extensive findings from a 2003 IPO survey to the effect that 88% of the corporate respondents considered trade secrets as their really important intellectual assets. Interestingly, Dennis Crouch in his March 12 blog, offers a summarization written by James Bessen and Michael Meurer of their recent book Patent Failure. In it they note that

“Surveys also find that in most industries (pharmaceuticals are the exception!) R&D managers report that lead time, goodwill, trade secrecy and other means of appropriatia are more effective than patents in obtaining returns on their R&D investments (Levin et al. 1987, Cohen et al. 2000). For this reason, it is not surprising that survey research also finds that most inventions are not patented (Arundel and Kabla 1998, Cohen et al. 2000). On average, large European firms applied for patents on only 36% of product innovations and 25% of process innovations.”

Their answer to the obvious question “Why don’t patents reliably encourage R&D and growth?” is that “it is hard to sustain patent laws and institutions that make patents work like property.” That is an abstruse answer, to say the least, because patents do work like property because they are property. A better answer is that patents are not the be all and end all, as was recognized in the 2003 IPO survey, because they have limitations and weaknesses, i.e. strict patentability requirements, early publication and invent-around opportunity. And that is not all because the existence of three dozens of reasons for invalidity or unenforceability of patents cannot be overlooked. Likewise, other attrition factors for patents exist, such as:

getting a patent and getting an enforceable patent are two different things,
the average patent life is only five years due to non-payment of maintenance fees,
enforcing a patent is a daunting and expensive task,
only limited coverage is obtained in foreign countries, etc.

Still it is very important to go the patent route but it should be complemented by trade secret protection for collateral know-how to assure a fall-back position a la Pizza Hut decision, where patents were invalidated on summary judgment on on-sale bar grounds but the complementary trade secrets were validated after trial.

2003 IPO Survey Results: Patent/Trade Secret Complementariness No. 17

2008-03-14T19:43:14Z

In an earlier blog I referred to the 2003 Survey of the Intellectual Property Owners on Strategic Management of Intellectual Property and related that the results showed, according to 88% of the responses, that the really important intellectual assets are skills and knowledge which implicates trade secrets.

Among other specific findings in this IPO Survey anent trade secrets are the following:

All but 6% of responding companies do compete on the basis of proprietary technology.

Loss of trade secret protection would damage 80% of respondents’ ability to sustain their competitive advantage.

All but 3% of respondents build competitive advantage on internally developed know-how.

Only 1/3 of respondents would maintain R&D spending after losing trade secret protection.

Over 2/3 of respondents report that NCAs and NDAs are effective in their industry.

43% of respondents agree that many of their most important ideas cannot be effectively protected with patents due to serious limits to patent protection.

67% of respondents believe that most patents are not thought to be insuperable obstacles and can be invented around.

Two-thirds of respondents agreed that trade secret law is an effective way for them to retain control of important technology.

In light of these results, let no-one treat trade secrets as the “black sheep,” “orphan,” “stepchild,” or “ugly sister” of the intellectual property system, as the members of the “Patent über alles/trade secrets are the cesspool of the patent system” school of thought are wont to do.

The Putative “Differences” Between Patents & Trade Secrets Supposedly Determining the Choice Between Them Are Not There: Patent/Trade Secret Complementariness No. 16

2008-03-06T18:41:53Z

In the past — and even today — if trade secrecy was contemplated at all, for example for manufacturing process technology, which can be secreted unlike gadgets or machinery, which can be reverse-engineered, the question always was phrased in the alternative. For example, titles of articles discussing the matter read “Trade Secret vs. Patent Protection,” “To patent or not to patent?,” “Trade Secret or Patent?,” “To Patent or to Padlock?,” etc. Anent this choice, the respective advantages and disadvantages, for example, in terms of duration and scope of protection, are considered controlling. However, on scrutiny the perceived differences are not there. The patent life may be more or less than twenty years from filing and a garden-variety type of trade secret, far from being indefinite, may last but a few years. Nor is there a difference as regards the scope of protection with “everything under the sun made by man” being patentable. And while a patent does, and a trade secret does not, protect against independent discovery, a patent leads to efforts by competitors to design or invent around and a trade secret, properly guarded and secured, may withstand attempts to crack it.

In greater detail, as for the respective duration of patents and trade secrets, it is simplistic to state that the patent life is twenty years from filing and trade secrets last indefinitely and let it go at that. Patents too can last longer than twenty years. They can be extended by up to five years or longer under the Drug Price Competition and Patent Term Restoration Act of 1984, the Uruguay Round Agreements Act of 1994 and the American Inventors Protection Act of 1999 or by private acts. Patent coverage can also be extended by a process of “evergreening,” that is, by filing for improvement patents. And of course a patent can have a life of less than 20 years if it lapses for non-payment of maintenance fees or if the patent or patent claims are held invalid or are abandoned, disclaimed or dedicated. ]]> On the other hand, when it comes to trade secrets the term may be indefinite but that is rarely the case, the notable examples of the Coca-Cola formula, the musical instrument cymbal, the Angostura Bitters, etc. to the contrary notwithstanding. Most products or devices are subject to analysis or reverse engineering sooner or later and manufacturing techniques more susceptible to trade secrecy may also lose secrecy in various ways. Trade secrecy may dissipate in a matter of a few years in view of the high degree of employee mobility and inadvertent or deliberate leakage. Again the perceived differences in duration may not exist as a practical matter.

Anent subject matter scope of protection via patents and trade secrets, the common perception is that the scope of possible protection for trade secrets is much broader than for patents. If § 101 of the Patent Code is compared with the definition of a trade secret from the Uniform Trade Secret Code, that appears to be the case. The list of patentable categories according to the Patent Code (process, machine, manufacture or composition of matter) is a very brief one indeed, while the definition of trade secrets is open-ended, especially since it also includes commercial matters, such as, customer lists and other business information. However, on closer scrutiny and taking into account the Supreme Court decision in Chakrabarty (1980 — establishing the patentability of living organisms) to the effect that “everything under the sun that is made by man” is patentable, and the holding in State Street Bank that formerly unpatentable business methods and computer programs are also patentable, the scope of patent protection is equally all-encompassing. It is true that to be patentable fairly stringent requirements must be met in terms of novelty, utility and unobviousness, etc. but on the trade secrets side there are also fairly stringent requirements in terms of commercial value and secrecy measures that have to be put in place and maintained. Thus it appears that the differences when it comes to scope of protectable subject matter are not very large at all, if there are any.

Even with respect to the nature of protection, the question arises whether there is really a crucial difference. It is true that patents confer exclusive rights, that is the right to exclude others from making, using, offering to sell, selling or importing a given invention. On the other hand, trade secrets provide no protection against independent developers or those who reverse-engineer or analyze products that are secret or are produced by secret processes. But here too a patent application or patent, after they are published and the invention is disclosed, often spur competitors to invent around and develop improved products which may be separately patented and may not be dominated and become commercially much more important than the earlier more basic invention. The trade secret, on the other hand, if proper security measures are taken, may be safely maintained for a longer period of time. Also an important patent may cause competitors to seek invalidation.

Regarding touted differences in terms of costs and efforts required in obtaining and maintaining patents and in securing and maintaining trade secrets, there may not be much of a difference either, even though it is true that patenting can be expensive. However, implementing measures to safeguard trade secrets, if not already in place for other business and legal reasons, may be equally expensive or over a period of time even more expensive. But the matter of cost and effort is of no import when it comes to protecting important technology.

Trade Secrets and the Best Mode Requirement: Patent/Trade Secret Complementariness No. 15

2008-02-15T19:43:20Z

Anent the subject of Patent/Trade Secret complementariness, the best-mode requirement is a big bugaboo, based on the colossal misconception that patents and trade secrets are completely incompatible because of the best-mode requirement. In fact, there is nothing wrong with obtaining patent protection for a patentable invention and maintaining trade secret protection for the volumes of associated or collateral knowledge and know-how which is not contained in the patent specification after disclosing the “best mode,” whatever it may be at the time of filing when only embryonic R&D data may be available. There is another huge misconception about the best-mode requirement and that is that it is unique to U.S. patent law. Most recently, I noted a statement to that effect in the 2008 edition of Patent Law in a Nutshell, authored by none other than CAFC Judge Randall Rader, George Washington University Professor Martin Adelman et al. That did it for me and I dispatched the following remonstration to them: “Gentlemen, Recently I leafed through your 2008 edition of Patent Law in a Nutshell. It’s a gem of a book. Congratulations! In doing so, I paid some attention to the “Best Mode” chapter, as I believe that the best mode requirement is no impediment to relying simultaneously on trade secret as well a patent protection for almost any invention, i.e. trade secrets protection for the tons of collateral knowledge and know-how which is not contained in the specification after disclosing the best mode, whatever it may be at the time of filing when most often only embryonic R&D data are available. See my piece on “The Best Mode Requirement: What is Fact and What is Fiction,” Germeshausen Center Newsletter, Winter/Spring 2004, p.13-15 (www.piercelaw.edu/germeshausen/news.php). I couldn’t agree more with your conclusion and recommendation that the best mode requirement is a “misfit” and “unnecessary vestige” and should therefore be scrapped and I commend you for stating it so forcefully. Just a couple of queries. You state on p.216 that “the United States is the only country with a best mode requirement.” Such a statement appears also on p.497 of your Cases & Materials on Patent Law, Second Edition. I’ve seen or heard such statements often. Everybody says it. For example, Kevin McGough states that “(o)ther nations don’t have this requirement.” (IP Law & Business, June 2004, p.34). Even Donald Chisum says it in his “Best Mode Concealment…” article p.279 of “Computer & High Technology Law Journal,” Vol. 13, 1997. I did so myself. In my article on the best mode requirement, referenced above, I too allowed as how it is “unique to U.S. patent law.” However, a Brazilian alumnus of mine, Joao Marcos Silveira, promptly corrected me upon reading my article by quoting Art. 24 of the Brazilian Industrial Property Law: “The specification shall clearly and sufficiently describe the subject matter, in a way as to enable a person skilled in the art to which it pertains to carry it out, and shall set forth, when applicable, the best mode of execution.” This raised the following question for me: If Brazil, what about other countries? So I posed this question to Dr. Konrad Becker in Basel, Switzerland (former Ciba-Geigy Patent Department Director, now Pierce Law Adjunct Professor) and this is what he reported back: “Up to now, I also had the (wrong) impression that the ‘best mode requirement’ is unique to US patent law. I have made a quick search for ‘best mode’ (or rather ‘best’) which allows to find ‘best method,’ ‘best manner’ and the like) in the WIPO collection of laws for electronic access (www.wipo.int/clea/en) and found the following information: ‘Best mode’ requirements can be found in Brazil and China, but also in the Andean Pact Decree 486 and the corresponding national laws, and in the laws of Mexico, Panama, Nicaragua, Belize, Argentina, New Zealand, Australia, India, South Africa and Kenya.” So there you have it! The requirement is not at all uncommon abroad. Incidentally, South Africa amended their Patents Act in 2002 and removed the best mode requirement by deleting the phrase “disclose the best method of performing the invention known to the applicant at the time when the specification is lodged at the patent office” and by adding to the written description requirement the phrase “in order to enable the invention to be performed by a person skilled in the art of such invention.” In other words, enablement is good enough, as you also pointed out. Forgive me for also questioning your statement on p.212 “…continuing applications — including continuations, divisionals, and continuations-in-part — that claim priority to an earlier application do not require an update of the best mode disclosure.” That certainly is true for continuations and divisionals but is it also true for CIP’s? I don’t think so and my colleague Professor Tom Field agrees with me. Already in 1977 when I was Chief IP Counsel at Ciba-Geigy I stated in Patent Bulletin No. 6 that “…R&D and Patent staffs will have to continue to pay special attention to the best mode requirement at the time of filing new as well as CIP applications.” So my firm belief has always been that if you file a continuation-in-part to add and cover new matter, for which you don’t get the parent filing date, you would also have to include any new best mode that was developed after the parent filing date. How can it be otherwise? The Transco decision (Transco Products v. Performance Contracting, 32 U.S. P.Q. 2d 1077, (Fed. Cir. 1994)), with its extensive discussion of the difference in terms of new matter and effective filing date between continuation and divisionals, on the one hand, and CIP’s on the other hand, merely holds that a best mode disclosure need not be updated when filing a continuing application that contains no new matter. It does not hold and is not susceptible to an interpretation that a CIP application containing new matter can exclude an expanded or a better mode when developed after filing of a parent application.”

Are trade secrets nothing but “baby patents”?

2008-01-18T16:09:16Z

Are trade secrets nothing but “baby patents”? After incredibly derogatory and defamatory statements about trade secrets, which I have heard in the past, such as, “trade secrets don’t have a single redeeming virtue” from a corporate chief IP counsel and “trade secrets are the cesspool of the patent system” from a Washington, DC IP professor, comes the dismissive statement that trade secrets are nothing but “baby patents”. This opinion was expressed in a recent meeting, which I attended, of West Legalworks in New York City on “Advanced Strategies for Cultivating, Exploiting, Tracking and Protecting Your Intellectual Property,” by the moderator of a Roundtable Discussion on “Choosing the Optimal IP Strategy for Your Company”. As I cover trade secrets, trade secret licensing and hybrid patent/trade secret licensing in my Technology Licensing course, it occurred to me that this “baby patent” comment would be a good problem for the final exam in this course on December 13, 2007. I asked the students to write a brief essay on whether this statement is a correct or an incorrect characterization of trade secrets. ]]> Trade secrets cannot be considered as “baby patents.” Trade secrets are so important that they should not be considered as “baby patents.” Patents and trade secrets are actually highly complementary and mutually reinforcing. The truth is that patents and trade secrets can not only coexist, but dovetail and are in harmony rather than in conflict with each other. “(T)rade secret-patent coexistence is well-established, and the two are in harmony because they serve different economic and ethical functions.” (Prof. Donald Chisum) Indeed, patents and trade secrets are inextricable intertwined, because the bulk of R&D data and results or associated, collateral know-how for any but the simplest invention, cannot and need not be included in a patent specification even if in hand before filing, but deserves and requires, protection via trade secrets. And such data and know-how are immensely important because, as a practical matter, patented technology without access to associated or collateral know-how is often not enough for commercial use because patents rarely disclose the ultimate scaled-up commercial embodiments. Trade secrets are a component of almost every technology license and can increase the value of a license up to 3 to 10 times the value of the deal if no trade secrets are involved (per Mel Jager). It’s also noteworthy that patents are but tips of icebergs in an ocean of trade secrets, with over 90% of all new technology being covered by trade secrets and over 80% of all technology licenses covering proprietary know-how, i.e. trade secrets, or constituting hybrid licenses embracing patents and trade secrets. Any contention that trade secrets cannot coexist with patents on a given invention overlooks the simple truths that the best made requirement applies i) only at the time of filing ii) only to the knowledge of the inventor, and iii) only to the claimed invention. In conclusion, let it be said that it is unproductive to base decisions for protecting innovative technology and commercial and technical know-how via patents or trade secrets solely on postulated differences between the two and the presumed respective advantages and disadvantages flowing therefrom. Trade secrets are a viable mode of protection and can be used in lieu of patents but, more importantly, they can and should be relied upon side by side with patents to protect any given invention as well as the volumes of collateral know-how, because for from being irreconcilable, patents and trade secrets in fact make for a happy marriage as equal partners. Hence, it is patents and (not “or”) trade secrets. With patents and trade secrets it is clearly possible to cover additional subject matter, invoke different remedies in litigation and have one standup when the other becomes invalid or unenforceable and thereby exploit the overlap and strengthen exclusivity. Utilizing both routes for optimal protection should be a critical part of any IP management strategy.

Protection of Software via Patents and Trade Secrets

2007-12-07T15:42:55Z

This past Monday, December 3, 2007, I gave a talk in Cartagena, Colombia on the Patent/Trade Secret interface in the protection of software. I was invited to do so by ASIPI (Interamerican Association of Intellectual Property) at their XIII Work Sessions and Administrative Council Meeting, held in Cartagena on November 30 to December 5. This meeting featured seven panel discussions, one of which (Panel 4) dealt with the controversial topic of “Software Protection via Patents.” It was to explore the controversy from business, academic and governmental perspectives and also “discuss alternative ways to protect innovation in the software industry.” With James Pooley (AIPLA President) as moderator, Dick Wilder of Microsoft represented business and Giancarlo Marcenaro of the Colombian Superintendence of Industry & Commerce spoke for government. Protection of alternative ways was my topic. The paper, which I prepared for the panel discussion and which will be translated into Spanish and published in ASIPI’s Derechos Intellectuales series, dealt first, because of the title, with the development of software patents, the current USPTO regulations, current cases shaping software patent protection, the differences between US, European, Japanese, and Korean software patent protection. It also gives an example of software patent enforcement, examines the impact of software patents on innovation and entry into the software market, and briefly outlines how Open Source Software Licenses can affect software patents. The crux of my presentation, however, was that all IP categories can be enlisted in a complementary, rather than alternative, way to protect software. I advocated reliance on trade secrets while obtaining copyright as well as patent protection on software. Finally, my paper postulates that sui generis protection would be the most suitable form of protection, as was proposed when the issue first arose in the mid-sixties. The first point I made related to the importance of integrating all IP categories for synergistic multiple protection via exploitation of the overlap because this can cover additional subject matter, strengthen exclusivity, afford additional remedies and provide backup in case of invalidation of an IPR. Then I focused on how trade secrets are compatible with and complement copyright protection, which is true only for software, inasmuch as the Copyright Statute and a regulation of the Copyright Office (Copyright Circular 61) permits the blocking out of trade secrets by, e.g., submitting only the first and last 25 pages of the copyright application. This recognizes officially the existence of trade secrets in software development and the need to protect them without foregoing copyright protection. Importantly, trade secrets are also compatible and complementary with patents to protect software. Patent applications need only disclose the best mode and enablement of the software innovation and the code itself and collateral know-how need not be disclosed, but can be maintained as trade secrets. The glue holding the patentable and trade secret ideas together, which transforms these ideas into expression, is often the technical know-how, the grist for trade secrets. Software libraries, compilers, implementation schemes, and code optimizations techniques constitute just the tip of the iceberg in the average software company’s know-how. Any contention that trade secrets cannot coexist with patents on a given invention because of the best mode requirement, overlooks the simple truths that this requirement applies: • Only at the time of filing, • Only to the knowledge of the inventors, and • Only to the claimed invention. In fact, the best mode requirement is actually no impediment to the coexistence of patents and trade secrets for almost any invention. Patent applications are normally filed very early, providing only rudimentary R&D data. Tom Arnold asserted that it is “flat wrong” to assume, as “many courts and even patent lawyer seem prone” to do, that “because the patent statute requires a best mode disclosure, patents necessarily disclose or preempt all the trade secrets that are useful in the practice of the invention.” (1988 Licensing Law Handbook). Almost every software program consists of a combination of patentable material, copyrightable material and proprietary information and know-how, i.e. trade secrets. Copyright protects against literal copying of the code, in whole or part. Trade secrets, allowed to be redacted out of the copyrighted code, protect important innovations that, for one reason or another are not disclosed in a patent application, as well as collateral know-how. The patented inventions, of course, fall under the protection of the Patent Act. Thus, it is clear that software protection is possible via trade secrets, copyrights or patents individually or simultaneously under the Copyright Statute together and side by side with trade secrets as well as under the Patent Law again in conjunction with trade secrets. The best of all worlds! In no other area of artistic or technological innovation is such total integration and exploitation of overlaps across the IP spectrum possible. However, I submit that such an all-inclusive protection scheme would be rather convoluted and expensive and because of this and because each applicable IP category has shortcomings as means for effective software protection, given the special nature of software, a sui generis type of protection system should have been fashioned. Many believed that copyright protection was inappropriate for being an “artificial construct,” inasmuch as the aims of copyright law and computer programming are diametrically opposed, the former stressing subjective, individualistic, creative elements and the latter, objective, technical and scientific systematization. Software is functional, non-literal by nature as it performs a task or generates output. Also a copyright term for 100 years is incongruous for protection of ephemeral software programs. However, there are also significant problems with patenting software, in particular the statutory subject matter (algorithm) issue and the non-obviousness requirement. With patent and copyright forms of protection thus being “Procrustean beds,” the notion of a sui generis form of protection for software had considerable appeal. Indeed, I remember well that the first impulse by the IP profession back in 1965, when the issue first arose, was to provide a sui generis form of protection and sui generis IP protection is not uncommon at all. It exists for the protection of plants and artistic products. Moreover and very significantly, Congress, in 1984, fashioned the Semiconductor Chip Protection Act (17 U.S.C. § 901) to protect mask works for ten years in a copyright-like manner. This was done hastily and improvidently according to some practitioners and this statute is apparently rarely used. While the Intellectual Property Owners Association (IPO) and others are strongly in favor of a “unitary patent system,” it can be argued equally or more forcefully that a “frozen in time one size fits all patent system” (per former PTO Commissioner Bruce Lehman) is not well suited for protection of software, given its special, i.e. sui generis nature. Also, Congress had no hesitation to pass the Vessel Hull Design Protection Act of 1998 as sui generis protection (17 USC 1301 et seq.) and recently even passed broadening amendments. And protection for databases via a sui generis protection regime has also been under consideration. In conclusion, it is incontrovertible that both copyrights and patents in conjunction with trade secrets are available for synergistic multiple protection of software. However, from a puristic point of view, properly drafted sui generis protection for software could provide more appropriate and less controversial protection for software. Karl F. Jorda

Jorda on : Initial Patent/Trade Secret Evaluation Guide

2007-11-15T16:00:31Z

A reoccurring question in intellectual property management involves the initial election between seeking patent protection on a given development and attempting to maintain trade secrecy in that development. To facilitate this initial election and to determine the center of gravity (often patents for products and trade secrets for processes), I developed the following “Initial Patent/Trade Secret Evaluation Questionnaire.” To avoid the implications of “invention” and to cover the wide variety of innovations which may be addressed by this questionnaire, the term “development” is used in a generic sense. Download the Questionnaire and Considerations The eleven questions in this questionnaire have been arranged not in the order of perceived importance but by “function,” roughly following the areas of marketing (Questions 1-4), technical (Questions 5-8), and legal (Questions 9-11). Each question would be answered on a scale of 1 to 10. These values are then totaled. With the current number of questions, this sum would range from 11 to 110. If the sum approaches the higher end of the scale (above 75), trade-secret protection would seem favorable; a sum at the lower end (below 45) would suggest that patent protection would be more advantageous. At times, values in the middle range (45–75) will result. Such a score suggests that it doesn’t really matter which approach is followed initially. For example, trade-secret protection might be appropriate for manufacturing-process technology, which competitors might find easier to re-create; patents make sense for products that can be analyzed or reverse engineered. However, there need be no prejudice about resorting to the other strategy to protect collateral aspects and improvements.

Jorda on : Exploitation of the Overlap Between Patents and Trade Secrets is Paramount

2007-11-08T13:00:00Z

At this point I should make it unequivocally clear that my position is not that trade secrets should be embraced in favor of patents, nor is it my intention to denigrate patents in any way by embracing trade secrets over patents. What I have practiced in my career and what I endorse as the best policy and practice is to obtain patents as center of gravity in an intellectual property portfolio and maintain trade secrets as underpinnings for patents to protect unpatentable collateral know-how and show-how. Books, articles and presentations on intellectual property rights almost always, even nowadays, speak to patents, copyrights and trademarks as discreet subjects and with scant coverage of trade secrets. However, doing so overlooks the fact that legal protection of innovation of any kind, especially in high-tech fields, requires the use of more than one intellectual property category. This results in integration of intellectual property rights for dual, triple or multiple protection.

Jorda on : Trade Secrets Have Special Attributes

2007-11-01T13:00:00Z

From the definitions of trade secrets given earlier, the following salient characteristics of trade secrets can be perceived. There is no subject matter or term limitation, nor is there a registration requirement and, in fact, there is not even a tangibility requirement. Furthermore, there is no strict novelty requirement, and trade secret protection obtains as long as the subject matter is not generally known or available. But secrecy is the most important criterion — a sine qua non — without exceptions. Hence, reasonable affirmative measures must be taken to safeguard and maintain trade secrecy. Among such measures are: • Memorializing a trade secret policy in writing • Informing employees of the trade secret policy • Having employees sign Employment Agreements with confidentiality obligations • Restricting access to trade secrets (on need-to-know basis) • Restricting public accessibility (escorting visitors) • Locking gates and cabinets to sites that house trade secrets • Labeling trade secret documents as proprietary and confidential • Screening speeches and publications of employees • Using secrecy contracts in dealing with third parties • Conducting exit interviews with departing employees, etc. While sufficient economic value or competitive advantage is also an indispensable requisite, the proper touchstone is not “actual use” but only “value to owner,” which means that negative R&D results can also provide a competitive advantage according to the law of the Unites States. Misappropriation of trade secrets is actionable if there is acquisition by improper means, or there is use or disclosure of a trade secret that was acquired improperly or in violation of a duty to maintain confidentiality. “Improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means, while “proper means,” which do not support a claim for misappropriation, include independent discovery, reverse engineering, or discovery from observing what has been allowed to enter the public domain. Remedies for misappropriation of trade secrets include actual and punitive damages, profits, reasonable royalties and injunctions.

Jorda on: Trade Secrets Have a Long History

2007-10-25T13:00:00Z

Trade secret law is the oldest form of IP protection, and already in Roman times the law afforded relief against a person who induced another’s employee (slave) to divulge secrets relating to the master’s commercial affairs. Trade secrecy was practiced extensively in the European guilds in the Middle Ages and beyond. Modern trade secret law evolved in England in the early 19th century — in response to the growing accumulation of technology and know-how and the increased mobility of employees. Recognized in U.S. by the middle of the 19th century, Peabody v. Norfolk (98 Mass. 452 (Mass. 1868)) held that a secret manufacturing process is property, protectable against misappropriation; secrecy obligation for an employee outlasts the term of employment; a trade secret can be disclosed confidentially to others who need to practice it and a recipient can be enjoined from using a misappropriated trade secret. This decision anticipates the characteristics of our present trade secret system and by the end of the 19th century the principal features of contemporary trade secret law were well established. It is interesting to note that Henry Perritt believes that indeed trade secrets are “the oldest form of IP protection” and that “patent law was developed as a way of protecting trade secrets without requiring them to be kept secret and thereby discouraging wider use of useful information.” (Henry H. Perritt Jr., Trade Secrets 1-1, 3-7 (Practising Law Institute 2d ed. 2006)) That makes patents supplements to trade secrets and not trade secrets supplements to patents as is commonly assumed.

Jorda on: Trade Secrets are Not Secrets

2007-10-18T15:21:27Z

It is a serious misconception that it is reprehensible to keep inventions secret, inasmuch as this supposedly flies in the face of the patent system, the essence of which is disclosure of inventions for the benefit of the public. However, in light of the decision in Dunlop Holdings v. Ram Golf (7th Cir. 1975), it is clear that the public does receive benefits from trade secrets, as there is no suppression in an economic sense. ]]> Dunlop Holdings court gave three reasons

… why it is appropriate to conclude that a public use of an invention forecloses a finding of suppression or concealment even though the use does not disclose the discovery. First, even such a use gives the public the benefit of the invention. If the new idea is permitted to have its impact in the market place, and thus to ‘promote the progress of science and useful arts,’ it surely has not been suppressed in an economic sense. Second, even though there may be no explicit disclosure of the inventive concept, when the article itself is freely accessible to the public at large, it is fair to presume that its secret will be uncovered by potential competitors long before the time when a patent would have expired if the inventor had made a timely application and disclosure to the patent office. Third, the inventor is under no duty to apply for a patent; he is free to contribute his idea to the public, either voluntarily by an express disclosure, or involuntarily by a noninforming public use. In either case, although he may forfeit his entitlement by monopoly (sic) protection, it would be unjust to hold that such an election should impair his right to continue diligent efforts to make the product of his own invention.

Moreover, independent creation is quite likely, as was recognized by the Supreme Court in the Kewanee Oil case (1974):

Even were an inventor to keep his discovery completely to himself, something that neither the patent nor trade secret laws forbid, there is a high probability that it will be soon independently developed. If the invention, though still a trade secret, is put into public use, the competition is alerted to the existence of the inventor’s solution to the problem and may be encouraged to make an extra effort to independently find the solution thus known to be possible.

As a practical matter, others, often several or many employees, usually know the trade secret, suppliers may also be “in the know” and governmental agencies may likewise be informed. Moreover, there may be a licensee or several licensees who definitely would have the secret details of a product or process. And independent creation is indeed possible if not likely. Besides, most trade secrets may dissipate within a few years, given the high incidence of employee mobility on top of possible threats of reverse engineering or analysis of products. Hence, it is plausible to conclude that trade secrets can be considered as “wasting assets,” whose average life perhaps is only about three to five years. Indeed, Mary Lyndon estimates in her article “Secrecy and Innovation in Tort Law and Regulation” (N.Mex L. Rev., 1993) that “the useful life of patents — when designed around — (is) about four years and trade secrets (is) much shorter.” And Edwin Mansfield explains in his article “How Rapidly Does New Industrial Technology Leak Out?” (34 J. Indus. Econ. 217, 219-21 (1985)) that information about the detailed nature and operations of a new product or process is in the hands of at least some rival firms within a year, on the average, after a new product is developed, and sometimes within six month.” Edwin Mansfield is not only one of the best known American economists but in the 1980’s he was also a pioneering author on patents and Innovation, based on empirical studies. Therefore, I can contend with a straight face that trade secrets are “secret” only in a limited legal sense and the term “trade secret” is a constricted term of art.

Jorda on : Terminology Misconceptions

2007-10-08T13:00:00Z

After reciting the trade secret definitions, a word about nomenclature and terminology associated with the usage of the terms “know-how” and “trade secret” is quite germane to clear up semantic confusion. While the key requirement of a trade secret is secrecy, definitions of “know-how” are completely silent on secrecy as can be seen from the following definitions:

Know-how. The knowledge and skill required to do something correctly. (The American Heritage Dictionary, p.705)
Know-how. Information that enables one to accomplish a particular task or to operate a particular device or process. (J. Thomas McCarthy et al., McCarthy’s Desk Encyclopedia of Intellectual Property, p. 330 (3rd ed. 2004)).
Know-how is knowledge and experience of a technical, commercial, administrative, financial or other nature, which is practically applicable in the operation of an enterprise or the practice of a profession. (International Association for the Protection of Intellectual Property, Mexican Congress Resolution (1973)).

]]> Thus “know-how” per se is not protectable as an intellectual property right. It acquires trade secret status only if it is secret, has economic value and measures are in place to secure its secrecy. Know-how is intellectual property, which becomes an intellectual property right upon qualifying as a trade secret, which is exactly like the relationship between an invention and a patent.

A juxtaposition of the intellectual property/intellectual property right relationships will elucidate this:

Intellectual Property		Intellectual Property Right
Invention		Patent, Trade Secret
Know-how, Invention		Trade Secret
Brandname		Trademark
Work of Authorship		Copyright

Inventions and know-how as intellectual property turn into patents and trade secrets as intellectual property rights upon compliance with stringent legal preconditions.

Since we don’t speak of “inventions and patents” and “invention and patent licenses,” it is correspondingly inappropriate to refer to “know-how and trade secrets” and “know-how and trade secret licenses.” “Proprietary know-how” is a possible but not ideal synonym for a “trade secret,” as it may not include inventions when protected under the trade secret regime.

If Patents, Trade Secrets, Trademarks and Copyrights are “intellectual property,” as some contend, then the question arises what are Inventions, Know-How, Brandnames and Works of Authorship. Usage of terms like “products of the mind” or “intellectual assets,” as has been suggested, would be difficult to popularize. Besides the term “intellectual asset” is already and confusingly used for Patents, Trade Secrets, Trademarks and Copyrights.

Jorda on : What is and What is not a Trade Secret

2007-10-05T13:00:00Z

From the definitions recited before, it is possible to glean what is a trade secret and what is not a trade secret. On a primal level a trade secret is simply information and knowledge. More specifically, it is any proprietary technical or business information, often embodied in inventions, know-how and show-how.

The three basic requisites, mentioned before, are critical limitations on trade secrets and frequent pitfalls in trade secret enforcement and litigation and this is especially true of the need to maintain secrecy. There is a further significant restriction on the scope of trade secret protection: any information that is readily ascertainable as well as personal skills of employees cannot embody protectable trade secrets. ]]>

Trade secrets are not only applicable as protection devices to early-stage inventions, subpatentable innovations or manufacturing processes, as is commonly but mistakenly believed. For example, in the Inventors’ Digest (July/August 2002, p.10) a Trade Secret is characterized as a “process or method that is used to produce a product and those who developed the process or method chose not to patent it but, instead, chose to keep it a secret from the world.”

Another unfortunate misconception appears in the “Report of the Committee for Study of Invention, sponsored by the Lemelson-MIT Program and the National Science Foundation (April 23, 2004)”: Trade secrecy can be used in the early research and development stages, before patents are sought. Trade secrets protect subpatentable innovations.”

That patentable inventions of any kind can also constitute trade secrets is indisputable in light of the landmark Supreme Court decision in Kewanee Oil v. Bicron, which recognized trade secrets as perfectly viable alternatives to patents. This decision merits a more detailed discussion, which will follow.

Jorda on : Definition of a Trade Secret

2007-10-02T16:02:55Z

There are three common threads in all trade secret definitions. They are three requirements that must be met for enforceable trade secrets to exist. The information must be

a secret in the sense that it is not generally known in the trade,
valuable vis-à-vis the competition that does not possess it and
the subject of reasonable efforts to safeguard and maintain secrecy.

]]> A trade secret is any information, including a formula, pattern, compilation, device, method, technique, or process, that: (i) 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 (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The most widely used definition of a trade secret in the United States is found in the 1929 Restatement of Torts. It reads:

A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers.

In applying this definition to determine whether a trade secret existed, courts have relied on the following criteria:

the extent to which the information is known outside of the business,
the extent to which it is known by employees and others involved in the business,
the extent of measures taken to guard the secrecy of the information,
the value of the information to the business and to competitors, and
the ease or difficulty with which the information could be properly acquired or duplicated by others.

The most recent and clearly the broadest and best definition of a trade secret is set forth in the “Restatement (Third) of Unfair Competition, §39 (1995).”

A trade secret is any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.

It is to be hoped that this definition will in time replace the earlier definitions recited above. As of 1996 there is in the United States also a federal criminal trade secret statute, the EEA, Economic Espionage Act (18 U.S.C.A. §§ 1831-1839), with the following definition:

The term “trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if — (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public.