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Trade Secret and the Prior Use Defense

May 14, 2014

Like many companies and inventors, you might choose to forego patent protection and instead rely upon trade secret protection. There are some wrinkles to trade secret protection that should be kept in mind when making that choice.

Trade secret is a perfectly legitimate approach to consider, but it works better for some innovations than for others. A consumer product that embodies the invention might be easily reverse engineered by competitors. A manufacturing or chemical process practiced inside of a company, with a clear understanding amongst employees that it is to remain confidential and with contractual penalties for breach of confidence, will be much more difficult for competitors to discover. A computer-implemented innovation may be easily discernible through the user interface, or it may be hidden deep within the computations of a remote server.

Aside from the suitability of trade secret protection for a specific innovation, there are also some risks of choosing not to file for patent protection that should be kept in mind.

Naturally, without patent protection you will not be able to stop a third party from using and profiting from the same invention, whether they came up with it themselves or whether they learned it from you (absent some contractual relationship). Trade secret only prevents competitors from adopting the technology if it is kept secret. Once the secret is out, there is no recourse available against the competitors other than through breach of contract or breach of confidence litigation.

Also, be aware that someone may be able to stop you from using your own invention if that person later gets a patent for it. Of course, they cannot steal the idea from you and apply for a patent: they would not be an inventor in that case and would have no right to a patent on your conception. However, if they independently came up with the invention they could obtain a patent and they may be able to stop you from continuing to use your own invention, depending upon whether you can qualify for something termed “prior user rights”. There are a couple of scenarios that may arise (outcomes below are based on current US law):

If your invention is still secret (has not been publicly disclosed*) and the other inventor files a patent application you might be able to rely on “prior user rights” depending on how long you were commercially using the invention before the other inventor filed. If you were using it commercially for more than one year before the other inventor filed, then you may have prior user rights**. However, if you have been using it for only six months, then the other inventor could legitimately file a patent application any time in the next six months and, eventually, obtain a patent that would stop you from continuing to use the invention.

If your invention has been publicly disclosed, then the other inventor cannot file a later patent application unless that inventor also publicly disclosed the invention before your disclosure and the patent application is filed within one year of that other inventor’s earliest disclosure.

As a result of the above, if the invention is still secret but has not been in commercial use for more than one year then the inventor has a difficult choice to make:

(a) keep it secret and rely upon potential prior user rights at the risk that another inventor files a patent application before the one year of use is reached, or

(b) give up all secrecy and pre-emptively publicly disclose the idea to prevent anyone from later filing a patent application (unless they may have already publicly disclosed).

A third option is to file a patent application, which effectively prevents another person from filing a later patent application for that invention, but which does not become publicly available until 18 months after filing. In the end, it is similar to option (b) since both involve disclosure, except that the patent application remains confidential for 18 more months and it has the potential of maturing into enforceable patent rights.

It is also important to note that prior user rights are a defense to an allegation of patent infringement and not a license to use the patent. You may be restricted to the scope of activities (the location and scale of use) that you had at the time the prior user rights were established. This may prevent you from growing your business on the basis of those rights. They also typically cannot be sold or transferred (other than as part of the company or line-of-business).

Those choosing not to file a patent application need to be aware that they may be giving up more than the potential patent rights. They should carefully consider whether they will rely upon trade secret and prior user rights, or whether they will preemptively disclose the invention publicly to prevent any later-filed patent applications, keeping in mind the downside risks of each approach.