Intellectual Property: Patent or Padlock: Patents and Trade Secrets Form the Heart of an Effective IP Strategy - A typical life sciences company probably keeps more than two-thirds of its proprietary


Intellectual Property: Patent or Padlock: Patents and Trade Secrets Form the Heart of an Effective IP Strategy
A typical life sciences company probably keeps more than two-thirds of its proprietary information in the form of trade secrets.

BioPharm International
Volume 20, Issue 2

Patents can also be leveraged against a competitor's trade secrets. Historically, the law has treated patents more favorably than trade secrets when the two are pitted in a head-to-head contest. For instance, even if a competitor was the first to discover an invention, the law prohibits the competitor from later obtaining a patent on the invention if he "suppressed" or "concealed" it as a trade secret. Additionally, a competitor's secret commercialization of the trade secret triggers a one-year statutory bar that prohibits the competitor from later obtaining a patent on that invention. Fortunately, your competitor's secret activities do not prohibit you from seeking patent protection on the same invention, so long as you independently discovered the invention. One significant point needs to be made: there are no clear cases under US law, where a prior user (of a trade secret) has been successfully sued by a patentee for patent infringement. There is no legal prohibition, but perhaps the specific factual scenarios to date have illustrated potential prior art problems for the patentee based on the earlier uses by the trade secret holder, that resulted in negotiation strategies for dispute resolution rather than litigation. Nevertheless, despite a prior user holding a trade secret, the patentee may still enforce his or her after-acquired patent against third parties. It wouldn't be outside the realm of possibilities that a prior user and a subsequent patentee may team up to enforce the patent generally in the marketplace against third party infringers. Antitrust issue may appear in this scenario.


Many business agreements provide either explicit or implicit declassification of information as "confidential" when it falls into certain common categories. For example, information often is excluded from confidential treatment when it becomes known to the marketplace, without fault of the contracting party. Another common exclusion is information that was in the party's possession before disclosure by the disclosing party, as evidenced by written records. For this reason, it is important to memorialize trade secrets. One of the best ways of doing this is to describe these in provisional patent applications. A provisional patent application is essentially a placeholder application, and must be affirmatively moved into the examination process by the applicant. If a provisional application is not refiled as a regular utility application, or otherwise converted before the one-year anniversary of its filing date, it automatically lapses. Therefore, the information contained in that application is not disclosed to the public.

One very important point needs to be made. If the provisional application is moved into the examination process, unless certain precautions are taken, the utility application will eventually publish. If a patent issues from this application, the entire prosecution history, including the original provisional filing, will be accessible by the public. Therefore, the contents of provisional filings must be carefully tracked, and if a patent will eventually be sought for the invention, it should be based on provisional applications having only the appropriate information, not one disclosing globally the company's more sensitive material.

Before entering into any discussions with another party regarding potential business relationships, it is essential to do pretransactional due diligence on the other party. The appropriate level of investigation and its focus will necessarily depend on the particular transaction type, but with respect to IP, there are common steps. First, investigate the potential partner or target. Determine their key products, and inventory the patents, patent applications, trademarks, and all other publicly accessible information to gain insight as to their level of protection.

Against this background, a company must inventory its own information to determine areas of overlap, synergy, or competition and then must take steps to secure any gaps in its IP rights. There is a narrow window to cure deficiencies before commencing any negotiations. Where there is likely to be a significant exchange of information, and where trade secrets are involved, these need to be memorialized and inventoried in order to protect the confidential information of the company before commencing negotiation. It may also be appropriate to file provisional patent applications on more speculative ideas that involve the combined technologies of the two companies. Doing this before signing an NDA increases the strength of any argument that your company had developed these concepts prior to talking to the other company. This may also minimize a company's risk in a patent interference or litigation, should the relationship be less than amicable.

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