Intellectual Property Directions

Keeping your invention as a trade secret just got a lot less risky under the new patent laws – assuming, that is, that your invention is a process or apparatus that you use internally to  make a product or perform a service for a customer. On the other hand, if your secret is embedded in what you are selling – enterprise software sold/licensed under non-disclosure, for example – then you are probably still at risk of being sued for infringement should someone later patent your invention.

Let’s be clear about what the trade secret risk was, prior to September. Perhaps you had invented a manufacturing technique that allowed you to produce widgets significantly faster/better/cheaper than any other manufacturer. From the finished product, no one could reverse engineer your internal manufacturing technique. Typically you would try to keep the details of your technique as a trade secret instead of filing a patent application. Why? You kept it as a trade secret because your patent application, by definition, reveals your secret process and yet it is hard to enforce your patent since you would not be able to tell from your competitor’s finished products if they are infringing your patent.

The risk, however, is that a competitor who independently invented the same technique after you did was (and still is) free to patent it. And once his patent issued, you would be an infringer. Of course, it’s true that it’s hard for your competitor to enforce his patent rights against you, since your finished products don’t reveal your infringing activities. But nevertheless, you were put at risk of being sued for infringement even though you had invented the invention first and had been using it for perhaps many years.

But at last the new patent law has removed this Catch-22, at least in most cases. Under the new law, your prior commercial use of your invention will serve as a defense against an infringement suit. To make use of this defense , generally, you must be able to prove that you were using the invention “commercially” at least one year prior to the filing date of the patent application. Essentially you have to be using that great manufacturing technique to actually make and sell products.

Notice that these “prior user rights” only protect you from an infringement suit for using the invention. It does not allow you to sell copies of the invention to other manufacturers. But as of this past September, you can feel a little less paranoid about being on the losing end of an infringement suit for using your own trade secret invention. As always, it is a good idea to discuss your patent strategy with your patent attorney to understand how the details of the law affect your situation.

Like many pieces of major legislation, the September 16th passage of the “America Invents Act” had some people running around with their hair on fire… whereas the reality is that many of its most ballyhooed provisions don’t come into play for a year or more. In the next couple of posts I’ll review what you need to think about now…and eventually review what you need to think about later.

The provisions of the act can be broken down into three groups; those coming into effect on or before November 15, 2011, those coming into effect on September 16, 2012, and those coming into effect on March 16, 2013. [For the nit-pickers, yes, some of the later provisions will apply to pending or even issued patents, so there is some earlier impact than their effective dates]. Anyway, let’s look at the most significant provisions that are or will be in effect by a month from now.

Provisions that affect everyone (financial):

1. There is now a 15% surcharge on Patent Office fees.
2. Starting 11/15 there is a $400 “electronic filing incentive” (actually a paper filing disincentive surcharge)
3. There is now a “Micro-Entity” filing category that qualifies for a 75% discount off filing fees.

Item 1. is pretty clear and is already incorporated into the fee schedule from the PTO.
Item 2. is also clear – so if you are almost ready to file a (non-provisional) application on paper, do it before 11/15 to save yourself $400 ($200 small entity).
Item 3., when you read who qualifies as a micro-entity, is really directed at the independent inventor. Here are the qualifications:

• Qualifies as a small entity;
• Has not been named as an inventor on more than 4 previously filed patent applications;
• Did not, in the calendar year preceding the calendar year in which the applicable fee is paid, have a gross income exceeding 3 times the median household income [approximately $50,200]; and
• Has not assigned, granted, or conveyed (and is not under obligation to do so) a license or other ownership interest in the application concerned to an entity that, in the calendar year preceding the calendar year in which the applicable fee is paid, had a gross income exceeding 3 times the median household income.

Note that being named as an inventor on a patent assigned to a prior employer doesn’t count against you.

Prior User Rights (trade secrets):

The only other immediately effective provision of importance to most of my clients is the expansion of “prior user rights”. Prior user rights means that you can be protected from an infringement suit IF you can prove that you were using the invention commercially in secret for at least a year before the patent holder disclosed the invention publicly.

Under prior law you had a Catch-22 situation; you could maintain your trade secret for years and suddenly risk being sued for infringement should someone else patent your invention, or you could file a patent application, which made your secret public, and risk never being able to enforce your patent (since the actual invention in a trade secret is inherently not visible to the outside world).

Under the new law you can maintain your secrets and still have an infringement defense. It would appear that you will be okay if you maintain an evidentiary chain showing that you were using the invention in commerce. For example, keep process control records that show use of the invention to make a product that you sold. Even stronger as evidence - involve a third party who has no financial interest in the invention. For example, a trusted customer to whom, under NDA, you have revealed the processes you used to fill his orders.

As the President mentioned last night, the long awaited (feared?) patent reform bill passed the Senate by a large margin yesterday. As I have mentioned in the past, I don’t think the much ballyhooed change to first (inventor) to file will have much impact on large or small businesses. See the NY Times article linked below.

Contrary to what Valerie S. Gaydos, a Baltimore-based investor in early-stage companies, is quoted as saying ["It will create a rush to the patent office, with innovators seeking to file anything and everything. The applications will be less complete, less well written and it will create more of a backlog.”], there is no reason to “rush to the patent office” unless you think a competitor is also working on the identical invention.

That is, unless you, right now, believe that your patent application will be involved in an interference proceeding. Statistically, a minuscule percentage of applications are involved in interferences. And if you DO believe that your patent application will be involved in an interference proceeding under the current rules, well, you had better be rushing to the patent office anyway, since, again statistically, you are unlikely to win if you are NOT first-to-file.

BUSINESS DAY   | September 09, 2011

Fighting Backlog in Patents, Senate Approves Overhaul
By EDWARD WYATT
The Senate sent to President Obama a bill that changes the system for determining priority at the patent office for inventions and provides additional financing for an agency.

McDermott Will & Emery has been closely monitoring the Patent Reform Act of 2011.  After a cloture vote last evening shut off debate on H.R. 1249 the U.S. House of Representatives’ version, the Senate appears poised to approve the bill in the coming day(s).