Congress is not limiting its intellectual property legislation to just patents. Senators Whitehorse and Graham announced yesterday that they are proposing new legislation to aid US companies in protecting their trade secrets via expanded criminal penalties. While just in a “discussion draft” stage, the proposed legislation includes provisions that “cover foreign-sponsored trade secret theft, that victim companies can weigh in on how to protect trade secrets during criminal prosecutions, and to ensure that foreign hackers that victimize American companies can be held accountable.”
Among its provisions, the proposed legislation would:
expand coverage to prohibit government sponsored hacking
allow owners of the trade secrets more input in cases
clarify that the statute covers trade secret theft that is facilitated by means located in the US
clarify that “foreign instrumentalities” include companies that are substantially subsidized by foreign government entities
expand trade secrets to include negotiating strategies and positions
clarify that liability exists for any knowing conveyance of stolen trade secrets to foreign governments
make trade secret theft a RICO predicate act
The text of the discussion draft can be found here, along with a summary of the key provisions.
There was an interesting article on CNBC yesterday that highlights a popular misconception people have regarding how to protect their ideas and innovations. While people often think of using patents to protect their ideas, the law provides a number of different mechanisms (such as trade secrets) that can often be far more useful and valuable than patents. The article highlights how some of the most valuable intellectual property in the world, such as the Dr. Pepper formula, KFC’s “Secret Recipe of 11 Herbs and Spices,” and the formula for WD-40, is not patented, but is instead protected as a trade secret.
Both patents and trade secrets provide important protections for an individual’s or company’s innovations, but they protect them in very different ways. Patents generally entitle an inventor to the exclusive right to make, use, and sell the invention described in the claims of the patent for a 20-year period from the date the patent application is filed. As part of the quid pro quo for obtaining this government-sanctioned exclusive right, the inventor must describe how to make or use his or her invention in sufficient detail that a person in that field would be able to make or use the invention without significant difficulties. Once that 20-year period expires, anyone is free to use that invention.
Trade secrets, on the other hand, potentially can last forever and the law will prevent others from improperly taking or using the invention, as long as the individual or company takes sufficient steps to keep the invention secret. Thus, a former employee who happens to know the secret will not be allowed to make the product in competition with the inventor, or a competing company cannot use industrial espionage to steal the secret. The law does not prevent another from using the secret if the person independently and lawfully discovers the same invention on his or her own, though. It only protects the inventor from others who have improperly discovered or used the secret.
From these brief descriptions, it is clear that patents better protect some kinds of inventions, while keeping the invention a trade secret may better protect others. For instance, it may make more sense to consider patenting the invention when the innovative aspect of an invention is readily seen simply by looking at a product (such as with a paper clip or a pop-top soda can). The law will protect the inventor from anyone else making or selling the same invention for 20 years, even if that other inventor independently came up with the same idea. Trade secret protection is likely of little to no value in this case, because once the invention is sold, everyone knows what the invention actually is.
On the other hand, inventions such as the Dr. Pepper formula are not easy to determine, even when you have a can of Dr. Pepper in your hands. The precise ingredients and the process by which they are blended are not apparent. This kind of invention lends itself to being kept as a trade secret because the invention is not easily reversed engineered. If Dr. Pepper had chosen the patent route instead, it would only have had an exclusive right to make and sell the soda only for 20 years, after which everyone could make exactly the same product. By protecting it as a trade secret, it potentially can keep its invention a secret forever.
One of the keys with trade secrets is that the inventor must take reasonable and active steps to keep the invention secret. As the article mentions, many of these companies restrict knowledge of the complete formulas or processes to only a handful of individuals and take steps make sure that the products are manufactured in such a way that no one can determine what the recipes are. If an inventor does not take steps to keep his or her invention secret, the law will not do it for him or her.
Obviously, both patent and trade secret law are far more complex than what is discussed here. However, the basic principles are useful to understand so that the right questions can be asked and the right strategies considered when deciding how to protect your secrets and inventions.
The Patent Reform Act of 2011 portends yet another problem for small business folks trying to develop technology, and more importantly trying to enforce it. We have written about the pending legislation in prior posts. If it passes the US Congress, and if the “first to file” patent rule is therefore adopted by the USPTO as the law, patents will go to those with superior resources, in-house legal departments and the wherewithal to file patents on a moment’s notice. Gone will be the rule that “invention” is the starting point. It will be the result of a race to the PTO.
This is only part of the current IP problem for small businesses however, and the bigger problem is litigation cost. Small businesses simply cannot afford to bring or defend intellectual property lawsuits. If they are the plaintiff, it is likely that they have been given advice by counsel on the anticipated expense of patent or trademark enforcement litigation. Legal fee costs, expert witness costs, deposition costs, demonstrative evidence for trial costs and lost opportunity time for employees can add up quickly and it is important for the client and counsel to set a budget and to discuss each phase of the litigation with a projection of costs. Sadly this cost discussion is often ignored and we have received calls from potential clients who have exhausted their litigation budgets and who are nowhere near a settlement or trial. Frustrated they seek new counsel, but often new counsel is hampered by the inability to properly fund the ongoing litigation.
More difficult perhaps is the plight of the small business (or individual) defendant in an IP suit. These litigants are often ill-prepared for the costs and rigor of defending litigation in Federal Court. Having never been sued before, but having read about the high cost of lawsuits, they frequently seek legal counsel with the plea: “Can we end this quickly as I can’t afford to be in a lawsuit?” When Plaintiff is seeking to shut down production and sale of the new defendant’s chief product line, the answer to this question may not be easy. I tell them sure – we can end it early – all you need to do is stop making the product that is your main source of revenue, agree never to make it again, pay the plaintiff money for their alleged damages and pay all of their legal fees. These legal fees are generally not insignificant and may have been generated by one or more large law firms at enormous billing rates.
The client, who may even have solid defenses, is then faced with a difficult choice between: 1) Ignore the defenses and cave in quickly with all of the resultant cost and loss of income; 2) Engage in some litigation to try to establish some leverage for a favorable settlement or 3) Take the chance that expensive litigation will, over time, allow a favorable result and perhaps even an award of attorney’s fees to repay the defendant for the litigation cost. It is option 2 which poses the problem of delicate balancing by lawyer and client. How much litigation and cost is enough to create favorable settlement leverage? The client needs to balance the revenue/profit of the allegedly offending product or mark, against the phased cost of litigation. We can project that phase one (investigation, pleadings, Federal Rule initial disclosures, status conference before the court etc) might cost “x” dollars. The client can decide whether that cost is appropriate against the revenue stream attributable to the product or mark, and determine when to make the settlement move. There is never, of course, any guarantee that the settlement option will work and therein lies the balancing act problem. The client may get stuck in long litigation and need to simply fight its way out. Good communication between lawyer and client is critical to making these decisions.
With the dawn of the new year, it is time to consider getting your annual checkups. IP assets often form the core assets of a company—enabling the company to provide its goods and services and to prevent others from encroaching on its valuable property. Regardless of the size of your company, maintaining the health of these assets should be a key priority, so a company’s IP portfolio should undergo a routine review to make sure the assets are in top shape and no issues have arisen.
Among the many things that can be done in an IP checkup (or audit) is to determine which assets are currently being used. Are their underutilized assets that should be utilized? Or, can these assets be sold or licensed to someone else? An IP audit can verify that you have the proper title or license to the IP assets you do use and that all maintenance fees have been paid to maintain the enforceability of these assets. An IP audit can not only assess the assets you have, it can serve as preventative medicine to help ward off lawsuits. With the recent plague of false patent marking cases that have been filed throughout the country, verifying that the goods you provide are properly marked and any expired patent numbers have been removed can help avoid needless and expensive litigation.
An IP audit provides the mechanism to obtain a current snapshot of the status of a company’s IP assets. Like any other kind of checkup, an IP audit can range from a broad, general review and inventory of the assets to a detailed analysis of some or all of the assets. Often, the audit begins with the broad review to identify potential problems and then prioritizes which problems to focus on.
Our Law Firm: Houston Harbaugh in Pittsburgh, Pa. Business Litigation. Pittsburgh Strong.®
Contact our Pittsburgh Intellectual Property, Data Security, Trade Secret, DTSA and Technology Attorneys at Houston Harbaugh, P.C. through IP Section Chair Henry M. Sneath at 412-288-4013 or email@example.com. Some posts herein were published by the law firm Picadio Sneath Miller & Norton, P.C. (PSMN®) which has merged with HoustonHarbaugh, P.C. and are used by permission. DTSALaw® is a federally registered trademark. See Firm Website at: www.hh-law.com