Tags: America Invents Act, Economic Espionage Act, AIA, EEA, trade secrets, patents
Intellectual Property | IP Litigation | Patents | Legislation | Trade Secrets
You can't swing a patent application around a room of IP lawyers without hitting a commentator who has written or spoken about the impact of the recently-enacted America Invents Act (AIA) on future patent prosecution and litigation. In contrast, very little, if anything, has been written about the impact of the AIA on the future of trade secrets. Will it lead to greater use of trade secret protection by companies? Are there particular categories of trade secrets that are more likely to be affected than others? These are just a few of the questions being raised in the wake of the AIA.
This will be the first of several posts over the coming months analyzing different aspects and provisions of the AIA and their potential impact on the use of trade secrets. Today's post will focus on the AIA's expansion of what is known as the "prior commercial use" defense (or as some are simply calling it, the "prior use" defense); I have have a follow-up post next week evaluating the impact that defense may have on trade secret and patent protections. Let me begin by predicting that expansion of the prior commercial use defense is going to inexorably lead to greater reliance on trade secret protections for many commercial activities. While my bias may be showing here, I am not alone in reaching this conclusion (no less an IP blogging authority than the IP Watchdog has concluded that that "the law now favors the party that keeps the trade secret over the party that dissemnates the information for the benefit of the public.")
I think this is the only conclusion that one can reasonably draw after looking at the statute, its exceptions, and the many situations and activities that will now potentially fall within this defense. Simply put, a trade secret owner who thoroughly documents the commercial activity at issue should be able to withstand a claim of patent infringement if he or she meets the criteria below.
Recent History of the Prior Use Defense: To understand this defense, you have to look briefly at its recent history. Prior to the AIA’s enactment, 35 U.S.C. 273 limited the prior use defense to business methods patent infringement claims. Under that defense, a defendant could avoid liability if, acting in good faith, he or she "actually reduced the subject matter to practice at least one year before the effective filing date of such patent, and commercially used the subject matter before the effective filing date of such patent."
When this defense was codified in 1992 to address concerns in the financial industry about the scope of business method patents, it was greeted with skepticism by many in the patent community. One commentator later described it as a “reprieve” for trade secrets and a “disaster” for patent law, and expressed concern that it would dilute the importance of patents, undermine the policy of shared innovation so central to patent law, and possibly lead to dogs and cats sleeping together. In all seriousness, those concerns proved to be unwarranted, as it appears that most business owners elected to secure patent protection rather than rely on the perceived vagaries of that defense.
That may now change. The AIA now will extend the prior commercial use defense from business method patents to patents for processes, machines, manufactures, and compositions of matter issued after September 16, 2011. The prior commercial use must take place between the earlier of one year before the effective filing date of the patent application or public disclosure by the patentee. Assuming that it can meet that temporal standard, the defendant must also show that the invention or process was, in good faith, commercially used in the U.S. in an internal commercial use, in an actual arm's length sale, or other transfer that resulted in a commercial use. (A link to the full text of the new provision can be found here).
This is a significant expansion of this defense and it is important to understand what it can do for a company, as well as what it cannot do. Of course, it is important to remember this is simply a defense, not a right. In other words, it is a safe harbor that protects the inventor or company that wishes to use the invention or process in private. It is not, however, a means for invalidating or affirmatively challenging a patent.
To take advantage of this defense, a company will bear the burden of demonstrating its prior commercial use by clear and convincing evidence. Therefore, there will a premium on assembling and maintaining reports, logs, laboratory notebooks, and emails documenting that commercial activity. (I will talk about this in greater detail next week). Limitations on the Prior Commercial Use Defense: And, naturally, like any good sausage, I mean law, there are multiple exceptions to the prior commercial use defense. For example, this defense is personal to the party performing or directing the performance of the commercial activities at issue and can only be transferred if the entire enterprise or business line is sold or transferred. Other limitations include:
Next week, I will spar with my patent colleague, James Schweikert (who generously contributed his thoughts and time to this post) about the pros and cons of patents vs. trade secrets in this unfolding prior commercial use context. Until then, have a happy and safe holiday.
Tags: America Invents Act, AIA, patents, patent application, trade secrets, 35 U.S.C. 273, prior use defense, clear and convincing evidence, commercial activity, patent reform, prior commercial use
General | Intellectual Property | IP Litigation | Patents | Legislation | Trade Secrets
As lawyers, we sometimes lose sight of the purpose that gave rise to a statute or legal doctrine in the first place. For that reason, it is refreshing to read an opinion that takes a step back to thoroughly examine the underlying goals behind the legal principles at issue. The U.S. Court of Appeals for the Eighth Circuit's recent holding in AvidAir Helicopter Supply, Inc. v. Rolls-Royce Corp., Case No. 10-3444 (8th Cir., Dec, 13, 2011), is one of those rare cases that methodically does so in the trade secret context. In affirming the trade secret rulings by the district court under Indiana and Missouri law, the Eighth Circuit reiterated three core principles of trade secret law: (1) unlike patent law, trade secrets derive their primary value not from their novelty but rather from the fact that they are secret and require effort and resources to compile; (2) that commercial ethics are the key underpinning of trade secret law; and (3) the fact that a trade secret may be reverse engineered does not render that trade secret unprotectable.
This dispute arose from the misappropriation of technical information necesary to secure FAA compliance for the repair and maintenance of a helicopter engines developed by Rolls-Royce. Because Rolls-Royce's predecessor, Allison Engine Co., had failed to exert tight control over that technical information, third-party overhaul shops saw the opportunity to step in and compete for those ervices. One of those repair and overhaul shops, AvidAir, secured some of that technical information without Rolls-Royce's consent in the 1990s. As Allison, and later Rolls-Royce, sought to improve the controls over that information, they discovered that AvidAir had improperly secured that technical information from authorized maintenance shops and was using it to repair and overhaul those engines.
After a jury awarded $350,000 to Rolls-Royce for the misappropriation of the technical information, AvidAir appealed and argued that the information was not worthy of trade secret protection. AvidAir argued that the technical information at issue did not provide independent economic value because there was only a trivial amount of information that was not readily ascertainable from prior publicly available materials and that those improvements offered no engineering advances.
The Eighth Circuit rejected that contention, reasoning that the "existence of a trade secret is determined by the value of a secret, not the merit of its technical improvements. Unlike patent law, which predicates protection on novelty and nonobviousness, trade secret laws are meant to govern commercial ethics."
The Eighth Circuit rejected AvidAir's other main argument, that the information could be easily reverse engineered, by focusing on AvidAir's conduct. Noting that AvidAir repeatedly elected to take Rolls-Royce's information rather than compile it on its own from publicly available sources, the Eighth Circuit held that AvidAir's conduct belied any claim that the information was readily ascertainable or not valuable to a competitor. By so doing, the Eighth Circuit joined other courts that have recently rejected a defendant's efforts to "retrace" its steps and argue it could have gathered the information from publicly available sources.
The takeaway? The AvidAir opinion does not break any new ground, although it may provide support for those cases where the trade secrets at issue are close calls. The opinion's real value comes from its methodical analysis and affirmation of the key concepts underpinning trade secret law.
Tags: trade secrets, patents, Eighth Circuit, AvidAir, Rolls-Royce, helicopter engine, readily ascertainable, reverse engineer, independent economic value
General | Intellectual Property | IP Litigation | Trade Secrets
An important decision by the Federal Circuit supporting a robust application of irreparable injury in the patent context should prove useful to trade secret plaintiffs. While that decision, Robert Bosch LLC. v. Pylon Mf'g Corp., 2011-1096 (Fed. Cir., Oct. 13, 2011), acknowledges that the U.S. Supreme Court's decision in eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006), “jettisoned the presumption of irreparable harm as it applies to determining the appropriateness of injunctive relief," it cautions district courts not "to ignore the fundamental nature of patents as property rights granting the owner the right to exclude.” (Thanks to fellow partner Deborah Coleman for bringing this to my attention and to my colleague Robert Latta for his help with this post; a copy of the opinion is attached below).
Writing for the majority, Judge Kathleen O'Malley noted that while categorical rules for the application of injunctive relief have been abolished and district courts enjoy inherent discretion to fashion equitable relief, that does not mean that district courts “act on a clean slate.” Bosch, at *11. Rather, district courts should apply traditional legal standards in fashioning equitable relief. Id.
To that end, the Federal Circuit reversed the District Court of Delaware's denial of a permanent injunction, reasoning that the plaintiff, Robert Bosh LLC, had more than adequately proven irreparable injury. For example, the Federal Circuit held that the presence of multiple competitors in a single market place, without more, does not negate a finding of irreparable harm. Id. at *14. According to the court, a patentee is not obliged to sue all infringers at once and to hold otherwise would abolish injunctive relief in all market places operating with more than two competitors. Id. Additionally, the Federal Circuit rejected the district court's reasoning that a patentee could be denied injunctive relief simply because the patent represents technology which makes up a non-core part of the patentee’s business. Id. at *15. “Injuries that affect a “non-core” aspect of a patentee’s business are equally capable of being irreparable as ones that affect more significant operations.” Id. To hold otherwise, reasoned the court, would encourage large industrial corporations to subdivide their operations into child companies, each focusing on a different product line. Id.
Finally, the Federal Circuit emphasized that a district court should assess the financial condition of the infringer before the alternative of money damages is found to be adequate. Id. at 23. It held that a district court's failure to ascertain whether monetary damages are truly a meaningful or viable alternative to an injunction may qualify as reversible error. Id. Additionally, in assessing the third eBay factor, the balance of hardships, the court recognized that an injunction cannot be avoided simply because the infringer is a smaller company or because the primary product sold by the infringer is an infringing one. Id.
The takeaway? Any decision affirming the element of irreparable injury in an IP context is generally a good thing for the trade secrets bar, but the Federal Circuit's vigorous defense of the application of irreparable injury in Bosch is an especially welcome development. eBay should have had minimal impact on trade secret injunction requests since irreparable injury is rarely, if ever, presumed in the trade secret context. However, because eBay was perceived as a "bell weather" decision in the IP context, it may have caused courts to hesitate in issuing otherwise appropriate injunctions. In other words, eBay may have had a "spill over" effect on trade secret claims. Likewise, the Federal Circuit's recognition of the necessity of a defendant's solvency when considering the adequacy of a remedy at law (i.e., money damages) should benefit all potential plaintiffs seeking an injunction.
Bosch v. Pylon.pdf (1.10 mb)
Tags: Federal Circuit, patents, O'Malley, trade secrets, injunction, irreparable injury, eBay, Bosch, Pylon
General | Injunctions | Intellectual Property | IP Litigation | Patents
Welcome to The Trade Secret Litigator.
Last year, a lawyer attending a seminar that I was presenting asked me what websites she could follow to stay current on developments in the area of trade secrets and non-compete law. It occurred to me that while there has been a tremendous growth in the number of blogs by lawyers, there had not been a corresponding growth in the number of blogs dedicated to the commercial, practical and legal issues arising out of trade secret law and the law of non-competes. That is not to say there are not excellent blogs that are out there that cover trade secrets issues, but I believe that this area remains under-represented, particularly given the dramatic growth of trade secret law.
About 10 years ago, my practice began to increasingly consist of TROs, injunctions, and other forms of emergency litigation. As I did more of this work, trade secret and covenant not to compete cases came to dominate my practice. Since the beginning of the economic downturn in late 2007, I sensed that companies were filing more trade secret cases and that coverage of them by the mainstream media such as The Wall Street Journal, Forbes and others had increased significantly. The infamous Mattel/Bratz dispute, the Starwood/Hilton case, the EMC/Donatelli dispute and the Hewlett Packard/Hurd case have all received significant media attention and have reinforced that there is indeed something going on here.
David Almeling's two outstanding empirical analyses on the growth of trade secrets litigation published in 2009 and 2010 in the Gonzaga Law Journal clinched it for me. For anyone seriously practicing law in this space, these two articles are required reading. The growth in my practice and the increasing interest and growth in this area of the law were confirmed by these groundbreaking articles by David and his colleagues.
This growth has coinceded with certain economic realities. First, a brutal economy has served to further fray the relationship between employer and employee. Desperate people do desperate things. As 93% of the disputes analyzed by one of the Almeling article arose out of relationships where the parties knew each other, the deterioration of this relationship presents kindling for trade secret disputes. Second, the increasing mobility of employees has created more flashpoints for disputes over non-competes and similar agreements. Third, the ongoing developments in mobile device technology that allow for the compressing and movement of tremendous amounts of information present greater opportunities for unscrupulous actor. Finally, as companies scale back and attempt to be more efficient in their intellectual property budgets, many are reacquainting themselves with the benefits of using trade secret law, rather than its more expensive relation, patent law, to protect their intellectual property (more to follow on this possible trend). For these and other reasons, I believe that this area of the law is experiencing a true renaissance.
So why I am writing this blog? The simple answer is I enjoy what I do and I enjoy sharing my experiences with others. Of course, I also hope this blog becomes a resource for and kindles a dialogue among others truly interested in this area of the law. As a result, in addition to posts about recent and noteworthy legal decisions, this blog will also speak to practical litigation issues that frequently accompany trade secret litigation, consider larger societal and technological trends that affect this area, and, finally and perhaps most importantly, speak to administrative and human resources issues that also arise in this context and that need to be considered to protect trade secrets.
Having been on both sides of the aisle, representing plaintiffs as well as defendants, I will attempt to cover both sides of the debate on issues as they arise in this area; however, I'll admit in advance that since my bias is toward the side of the plaintiff, my posts will likely ultimately reflect that perspective.
Again, welcome aboard!
Tags: trade secrets, almeling, patents
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