Patent/Trade Secret Complementariness -- No. 19

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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.
Professor Chisum concluded that “(a)n inventor is not required to supply ‘production specifications’” nor “processes or materials…for commercial manufacturing convenience or for accommodating the needs of a particular supplier or customer.”  And Tom Arnold allows as how “(p)atents do not disclose the engineering detail of any particular embodiment of a product nor the production engineering for its commercial manufacture.”  And it is particularly the manufacturing area that is grist for trade secrets.

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.

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About this Entry

This page contains a single entry by Carol Ruh published on April 23, 2008 1:42 PM.

More survey results regarding the value of trade secrets as compared to patents -- No. 18 was the previous entry in this blog.

Federalizing Trade Secret Law: A Cause Whose Time Has Come -- No. 20 is the next entry in this blog.

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