The Trade Secret Owner Has de Facto Prior User Rights -- No. 23

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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.

Ellis concluded in his classic treatise on Trade Secrets that "[t]o give a patent to a subsequent inventor without barring him from suing the first inventor and secret user of the invention, would be to offer, as a reward to anyone who could discover the invention by independent research, the economic scalp of the first inventor and secret user." A similar sentiment, according to Bennet, resides in the cogent maxim, "A Constitutional award to one inventor does not mandate a Constitutional penalty to another."  In the literature referred above, it is also emphasized that a prior user right or an in personam right includes three major elements:  (1) it is a first inventor's common law right; (2) it is required by principles of equity and due process; and (3) not granting it amounts to taking property without compensation. The contrary position, espoused by patent über alles advocates, holds that when the choice is made to forego a patent and to rely instead on trade secret protection, the trade secret owner assumes the risk of being enjoined by the patentee.  This is also a clearly untenable position.  How can there be such an assumed risk when the Supreme Court recognized trade secrets as viable and compatible alternatives to patents and when per Bennet "no court has ever decided a case in which the issue was even raised."

The 1983 Gore v. Garlock decision has mistakenly been interpreted as putting an end to this debate by resolving the perceived conflict in favor of the patentee.  Far from it, this case only held that trade secrets of a third party are not prior art. Such a holding is an entirely different proposition from a holding that the trade secret owner is an infringer vis-à-vis the patentee.  Maintaining secrecy is a sine qua non in trade secret law and is not to be equated with "concealment" in patent law.  This concealment means, in a 35 U.S.C, § 102(g) context, only too long a delay in filing a patent application in relation to another applicant, i.e., in a situation where both resort to the patent system.  This is to be clearly distinguished from a situation where one party relies on the trade secret system and is outside the patent system altogether.  

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This page contains a single entry by Carol Ruh published on October 9, 2008 1:15 PM.

Exemplary Cases Prove The Compatibility of Patents and Trade Secrets -- No. 22 was the previous entry in this blog.

RETIREMENT: THE FINAL FRONTIER is the next entry in this blog.

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