Prior Use Defense: Trade Secrets v. Patenting II


Indroduction

This blog is a clarification of my prior article entitled Trade Secrets v. Patenting.  In my prior article, I stated that a party using a technique or method in manufacturing as a trade secret would lose the right to continue practicing the trade secret if the secret technique or method became subject of a patent by the independent discovery by a third party.  This is not entirely accurate. The party may be able to assert a Prior Use Defense.

Discussion

One of the changes made by the American Invents Act (AIA) effective 2012 was broadening the Prior User Defense.  This defense initially arose from the court decisions establishing the patentability of business methods.  Recall my previous references to the State Street Bank & Trust v. Signature Financial Group case decided in 1998.   

This defense was codified in 35 U.S.C. Section 273. A party that had used a method in the past would not be barred from future use as a result of a third party being awarded a patent for the method.  (The patent would still be effective to block others that began using the now patented method or technique.)

The AIA made the defense available to all technologies or methods, i.e., it is no longer limited to business methods.  The AIA also raised the level of proof required to successfully assert the defense against a patent holder (patentee).  

The broadened category of users now includes entities that in the past had the directed or controlled the use of the technology/method.  For example, a contractor could continue receiving the beneficial use of the trade secret practiced by its subcontractor. 

To utilize the defense the entity must meet the following standard:  A qualifying entity must produce clear and convincing evidence of good-faith “commercial use”

in the United States more than one year before the earlier of the patent’s effective filing date or Section 102(b)’s public-disclosure date without derivation from the new inventor’s efforts/discovery and there having been no.  See 35 U.S.C. 273.  The “public -disclosure date” is the date the new third party inventor first disclosed the invention by public use, etc.   See my post “Behind the First to Invent Rules”.  

“Commercial use” under section 273 includes an actual use, such as an internal use, or an arm’s-length sale or transfer of an end result of the use, i.e., sale of products that were manufactured or assembled utilizing the trade secret/patent subject matter.  Commercial use also includes marketing or use subject to a premarketing regulatory review period or laboratory use for which the public is the intended beneficiary.

Conclusion

I remain biased against keeping manufacturing or business methods as a trade secret.  Please note that the above describes a DEFENSE to a patent infringement suit.  Asserting such a defense in infringement litigation can be expected to be very expensive.  

Copyright David McEwing, 2019