Exemplary Cases Prove The Compatibility of Patents and Trade Secrets -- No. 22

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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.

Another example of the value of integrating trade secrets and patents is the Wyeth case. Since 1942, Wyeth has had an exclusive position on Premarin, the big-selling hormone-therapy drug.  Its patents on the Premarin manufacturing process--starting with pregnant mares' urine--expired decades ago, but the company has also held closely guarded trade secrets.  On behalf of a pharmaceutical company, which had been trying to come out with a generic Premarin for fifteen years, Natural Biologics stole the Wyeth trade secrets.  Wyeth sued and prevailed, getting a sweeping injunction, as it was an egregious case of trade secret misappropriation.

These cases illustrate extremely well the value of trade secrets and, more importantly, the merits of marrying patents with trade secrets.  Indeed, these cases show that GE and Wyeth could have the best of both worlds.  Were GE's or Wyeth's policies to rely on trade secrets in this manner or, for that matter, Coca Cola's decision to keep their formula secret rather than to patent it, which could have been done, damnable?  Clearly not.

Other recent decisions, such as, C&F Packing v. IBP and Pizza Hut ("Pizza Hut") and Celeritas Technologies v. Rockwell International also demonstrate that it is now well established that dual or multiple protection for IP is not only possible but essential to exploit the IP overlap and provide a fall back position.

In the Pizza Hut case, for instance, the court ordered Pizza Hut to pay $10.9 million to C&F for misappropriation of trade secrets. After many years of research, C&F had developed a process for making and freezing a precooked sausage for pizza toppings that had the characteristics of freshly cooked sausage and surpassed other precooked products in price, appearance, and taste.  C&F had obtained one patent on the equipment to make the sausage and another patent on the process itself.  It continued to improve the process after submitting its patent applications and kept its new developments as trade secrets.

Pizza Hut agreed to buy C&F's precooked sausage on the condition that C&F divulge its process to several other Pizza Hut suppliers, ostensibly to assure that backup suppliers were available to Pizza Hut.  In exchange, Pizza Hut promised to purchase a large amount of precooked sausage from C&F.  C&F disclosed the process to several Pizza Hut suppliers, entering into confidentiality agreements with them.  Subsequently, Pizza Hut's other suppliers learned how to duplicate C&F's results, and Pizza Hut told C&F that it would not purchase any more sausage without drastic price reductions.

IBP was one of Pizza Hut's largest suppliers of meat products except sausage.  Pizza Hut furnished IBP with a specification and formulation of the sausage toppings and IBP signed a confidentiality agreement with Pizza Hut concerning this information.  IBP also hired a former supervisor in C&F's sausage plant as its own production superintendent but fired this employee five months later after it had implemented its sausage making process and Pizza Hut was buying the precooked sausage from IBP.

C&F then sued IBP and Pizza Hut for patent infringement and misappropriation of trade secrets.  The court made two findings: first, on summary judgment before trial that the patents of C&F were invalid because the inventions had been on sale more than one year before the filing date, and second, after trial that C&F possessed valuable and enforceable trade secrets, which were indeed misappropriated.

The above cases are perfect examples of trade secrets serving as fallback positions after patents expire or become invalid and no longer provide any protection.  Indeed, a patent alone can be a slender reed in light of the existence of three dozens of invalidity and unenforceability reasons and other patent attrition factors, such as: narrow claims granted by a patent office, enforcement being a daunting and expensive undertaking and existence of only very limited or no coverage foreign countries, as well as other attrition factors.

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About this Entry

This page contains a single entry by Carol Ruh published on October 2, 2008 1:03 PM.

Trade Secrets and the "Best Mode" Requirement -- No. 21 was the previous entry in this blog.

The Trade Secret Owner Has de Facto Prior User Rights -- No. 23 is the next entry in this blog.

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