Seed IP partner Steven Lawrenz has recently authored an article entitled, “Must you choose between patent and trade secret protection? Actually, no.,” which provides a strategy for pursuing both at once.

ARTICLE

“Must you choose between patent and trade secret protection? Actually, no.” - by Steven D. Lawrenz

Introduction

Patent and trade secret are two forms of intellectual property protection that are widely viewed as antithetical.  Incompatible.

Trade secret protection demands secrecy.  A primary goal and ultimate effect of patent protection, on the other hand, is the broad dissemination of knowledge.

But what if you could pit these two intellectual property regimes against each other for a particular invention, to ultimately choose the one that proves to confer the greatest value?

Patent

An issued patent is a basis for bringing a patent infringement lawsuit against a competitor.  In the lawsuit, a patent’s owner asks the court to award damages compensating the patent owner for the defendant’s use of the invention dating back to the patent’s issuance, and issue an injunction ordering the defendant to stop selling its product or service until it is modified to no longer infringe.

The patent owner can succeed in this lawsuit by proving infringement:  that, among the claims included in the issued patent that each provide a different definition of the invention, there is at least one whose elements are all satisfied by the defendant’s product or service.  Success does not require the patent owner to prove anything about how the defendant’s product or service came to infringe claims of the patent; in particular, the patent owner need not establish that the defendant learned about or derived the invention from the patent owner, either directly or indirectly.

Issued patents and pending applications can be licensed to competitors who wish to use the claimed invention, producing a stream of royalty payments.

The contents of a U.S. patent always become public upon issuance, along with the applicant’s communications about the corresponding patent application during its examination.  By default, the U.S. Patent and Trademark Office also makes this information available to the public 18 months after an application’s filing, via electronic “publication” of the pending application.

Trade Secret

In many companies, a newly-identified invention is subjected to a mutually-exclusive choice:  will the company file a patent application for the invention to seek patent protection, or “keep it as a trade secret?”

The doctrine of trade secret protects information whose secrecy from competitors makes it valuable to a company.  Common examples include customer lists and product design or manufacturing details that could assist a competitor in competing with the company.

Success in a trade secret misappropriation lawsuit relies on showing that the company took prudent steps to maintain the secrecy of the information, and the defendant nonetheless learned the information, and made improper use of it in its business.  Such lawsuits most often occur in the context of the defendant hiring employees having knowledge of the trade secrets from the plaintiff.  In some cases, they relate to hacking or other forms of industrial espionage by or for the benefit of the defendant.

While companies who set up this patent vs. trade secret decision as a mutually-exclusive election often proceed as if their choice not to file a patent application is all that’s needed to confer trade secret protection on the invention, more is required to put them in a position to win a trade secret misappropriation lawsuit.  The company should develop a process to explicitly identify bodies of information within the company as confidential; and establish and reliably operate procedures and mechanisms to prevent them from becoming known outside the company, such as marking them as confidential in a particular way, identifying a group small of people in the company who can access them, imposing electronic and physical security requirements, making clear to all employees their duty to protect confidential information—such as in employment agreements, employee handbooks, and periodic notices—and disclosing them outside the company only when truly necessary, and only subject to rigorous confidentiality agreements.  

Hybrid Approach to Patent and Trade Secret Protection

Publication of a patent application generally precludes a company from succeeding at a trade secret misappropriate lawsuit for the invention, except for details omitted from the patent application.  Despite this tension between patent protection and trade secret protection, a way exists to pursue both simultaneously for the same invention.

A U.S. patent application can be filed with a nonpublication request under 35 USC §122(b)(2)(B)(i).  Doing so causes the patent office to refrain from publishing the application, maintaining it in confidence until and unless a patent issues.  The process for issuing a patent ensures that this event always remains under the applicant’s control:  the patent office can only issue an application as a patent if the applicant takes the affirmative action of paying an issue fee for the application after the examiner assigned to examine it has found some or all of its claims to be patentable.  This permits a company to file and prosecute a patent application without risking any inadvertent loss of trade secret protection, when done in tandem with the steps described above for perfecting trade secret protection.

It typically takes the examiner assigned to examine the application months or years to find claims allowable.  (The scale of this period depends on factors including the area of technology; whether the applicant pays an optional fee to accelerate the examiner’s work on the application; and how difficult it proves to convince the examiner to allow claims.)  At this point, the applicant can assess whether the claim scope offered by the examiner adequately compensates the company for losing secrecy and trade secret protection for the details about the invention contained by (1) the application, and (2) communications with the patent office about the application.  If the allowed claim scope is valuable enough to justify the loss of secrecy and trade secret protection, the applicant can pay the issue fee to obtain issuance of a patent.  Otherwise, the applicant can continue confidential prosecution of the application to pursue allowance of additional claims that would better compensate the applicant for loss of the loss of secrecy and trade secret protection.  Also, at every point the applicant has the option to abandon the application, permitting the applicant to stop expending resources on the application without ever making public its contents or communications with the patent office about it, or risking the viability of trade secret protection.

In general, the company should be more willing to tolerate a loss of secrecy and trade secret protection in exchange for allowed claims whose infringement by important competitors is easier to discover—because those claims are closer to the “surface” of the product or service and more visible to its customers—or easier to show, because they are broader and capture a wider swath of similar activity as infringing.  It may be the case that the importance of secrecy about the details of the invention declines between the patent application’s filing and the allowance of claims, such that the public disclosure of information about the invention that seemed hazardous when the application was filed becomes more benign.

It’s important to note that using a nonpublication request to create this form of optionality trades off against flexibility of a different kind.  A company that files a patent application in the U.S. in pursuit of a U.S. patent can generally choose to refile the patent application in countries other than the U.S., to seek patents for the invention in those countries that can be used to sue in their courts.  When filing a nonpublication request, an applicant must indicate that it doesn’t intend to file any extra-U.S. versions of application.  If after doing so the company decides to proceed with such refiling, it must first withdraw the nonpublication request.  In response to the withdrawal, the patent office will publish the application, likely causing the loss of trade secret protection for details present in the application or communications with the patent office.

Deluxe Edition

By filing a “cluster” of patent applications for the invention, a company can increase the level of optionality it preserves by the hybrid approach.  The patent applications in this cluster can vary in a few different dimensions.  

The first such dimension is depth of disclosure.  Patent applications are subject to a number of patentability requirements.  The enablement requirement of 35 USC §112(a) establishes a standard for the minimum level of detail that must be provided in a patent application about how to implement the claimed invention.  When preparing an application, it is common for practitioners to take a conservative approach by providing a high level of implementation detail that seems very likely to satisfy this enablement standard, to avoid a later finding that a lack of enablement makes the claims invalid, either during examination or enforcement.  The different applications of the cluster can vary by the level—or “depth”—of implementation detail they contain.  For example, a more detailed version of the application may contain details about the architecture of a machine learning model used by the invention, while a less detailed cluster member may not.  While patents resulting from both of these applications may be found to satisfy the enablement standard, this outcome is more certain for the first than the second.  If claims from multiple cluster members are allowed at a time when full implementation details are still viewed as sensitive, the applicant may choose to pay the issue fee for applications containing a lower level of implementation detail, but not pay the issue fee for those containing a higher level of implementation detail, retaining secrecy and trade secret protection for the higher level of implementation detail.

The second dimension is breadth of disclosure.  If there is a possibility that information about some aspects of the invention will ultimately prove more sensitive than information about other aspects, the company can choose to have some applications of the cluster each contain meaningful implementation details about a different part of the invention, all of which are merged in an additional, more comprehensive application in the cluster.  For example, a first application may contain significant details about a machine learning model used by the invention, but not about procedural software used in the invention; a second application of the cluster may contain the latter, but not the former; and a third may contain both.  Individual claims that are each directed to more than one of these parts can be presented for examination in the merged application; claims that are each directed to a single one of these parts can be presented in the application containing the implementation details for just this part.  Individual issuance decisions can be made about these applications at the time of allowance.

Conclusion

Don’t adopt an approach to leveraging patent and trade secret protection in your company that is unnecessarily limited; leave open the possibility of pursuing both for important innovations.

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ABOUT THE AUTHOR

Before entering law school, Steve worked on operating system development for IBM. After beginning his legal career at Seed IP, Steve helped to found Perkins Coie LLP's patent procurement practice, and served as Technology Committee chair. He returned to Seed IP in 2019 to lead its software patent practice. 

Steve is admitted to the Washington State Bar and is registered to practice before the U.S. Patent and Trademark Office, the U.S. Court of Appeals for the Federal Circuit and the U.S. District Court for the Western District of Washington. Steve is a member of the Washington State Patent Law Association. He also serves on the University of Illinois College of Law, Seattle Alumni Chapter board.

Learn more about Steven Lawrenz.

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