October 2008 Archives

It is often alleged that trade secrets provide weaker protection as they are fraught with serious disadvantages.  Indeed, independent discovery and reverse engineering are defenses against trade secret misappropriation charges and leakage is a constant threat.  The Supreme Court in the Kewanee Oil case recognized this problem, and stated, "[P]atent law acts as a barrier, trade secret law functions relatively as a sieve." Moreover, there exists a belief that a later inventor/patentee of the same invention can enjoin a trade secret owner as an infringer from practicing his or her own invention

In the United States, section 273 of the Patent Code includes the "First Inventor Defense."  Unfortunately, this "first-to-invent-defense" provision bears little resemblance to a true prior user right provision, as exists abroad and as was initially introduced as part of proposed patent reform legislation.  The present version has exceptions and limitations that make it meaningless.  It is meaningless because "serious and effective preparation" for commercial use is excluded, and it is this development stage that is crucial.  The prior invention concerning which the defense is asserted is now required to have been reduced to practice more than one year before the patentee's filing date, and it is precisely within a year that inventions often are conceived independently by more than one inventor due to outside stimuli.  The defense, which was to apply only to manufacturing processes anyway, rather than across the board, as it should, was further constricted to cover only methods of doing business, newly patentable in the wake of the State Street Bank decision.

Very importantly, however, a good case can be made in the United States for the general proposition that the trade secret owner has a de facto prior user right to continue the practice of his trade secret based on two major premises.  The first is that much thoughtful literature, going back to at least 1944, postulated such a right. Secondly, the fact remains that it has never happened that the later patentee enjoined a trade secret owner.

The industrial diamond process technology of General Electric Corporation (GE) and the Wyeth v. Natural Biologics and C&F Packing v. IBP and Pizza Hut decisions are excellent illustrations of the synergistic integration of patents and trade secrets for securing invulnerable exclusivity.

The artificial manufacture of diamonds for industrial uses was a very lucrative business for GE.  GE also had the best proprietary technology for making such diamonds.  GE patented much of its technology and some of the patents had already expired, so that much of the technology was in the technical literature and in the public domain.  However, GE also kept certain distinct inventions and developments secret.  American and foreign companies were very interested in obtaining licenses to this technology but GE refused to license anyone.  Unable to make progress with GE, certain foreign interests resorted to industrial espionage.  A trusted fast track star performer at GE, a national of the foreign country in question, who was above suspicion, was enticed with million dollar payments to spirit away GE's crown jewels.  Eventually, GE discovered the employee's deception, and the authorities caught, tried, and jailed him.

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