America Invents Act Brings Major Changes To U.S. Patent Practice
Basics Of Trade Secret Law

America Invents Act Brings Major Changes To U.S. Patent Practice

Timothy J. Lockhart 

On September 16 President Obama signed into law the Leahy-Smith America Invents Act (AIA), the first major reform of U.S. patent law since 1952. The AIA brings major changes to U.S. patent practice, most notably the shift from a first-to-invent priority system to a first-to-file system, which will partially harmonize U.S. practice with most of the rest of the world. (The retention of a one-year grace period for filing patent applications will still distinguish U.S. practice from international practice.) The first-to-file system will become effective in the United States on March 16, 2013.

Other major changes became effective immediately, perhaps most notably the expansion of the “prior commercial use” defense. An entity that made commercial use of an invention more than one year before its inventor applied for a patent on, or publicly disclosed, the invention may now assert such use as a defense to an allegation of patent infringement, provided the user did not derive the invention from the inventor.

Another immediate change is the elimination of most false-marking lawsuits. Going forward, only the U.S. government or an entity that has suffered a “competitive injury” can sue for falsely marking a product with a patent notice. Marking a product with an expired patent is no longer illegal if the patent covered the product prior to the patent’s expiration.

Also, a patent plaintiff may now join defendants only if their alleged infringement arose from the same transaction or series of transactions involving the same accused product or process and the relevant questions of fact are common to all defendants. This change may lead to fewer lawsuits by non-practicing patent owners that formerly sued multiple, unrelated defendants based solely on alleged infringements under different factual circumstances.

Other changes effective immediately or within a year affect the current rules for examination and re-examination patent applications. For example, one change in examination is eliminating the invalidity of a patent for the failure of the applicant to comply with the requirement to disclose the “best mode” of practicing the invention. Other examination changes bar patents “directed to or encompassing a human organism” (an arguably ambiguous phrase that courts may have to interpret) and “tax strategy patents” (with some exceptions for software embodying inventions used for tax preparation or filing).

Some changes, whether effective now or in the future, are more administrative in nature but are nevertheless important. The AIA will eventually allow assignees of inventors and entities to which inventors are obligated to assign patent rights to file patent applications in their own names, a practice not currently permitted. (When implemented, this change may require revision of current employment and invention-assignment agreements.) The AIA directs the U.S. Patent and Trademark Office (USPTO) to create a "micro-entity" status that carries with it a 75 percent reduction in most patent fees.

Also, the AIA authorizes the USPTO to begin charging an additional fee ($4,800 for large entities) for patent applicants that request expedited examination of their applications. The USPTO has published information about the AIA on its website at http://www.uspto.gov/aia_implementation/index.jsp, including a link for subscribing to updates about the USPTO’s implementation of the new law.

The AIA is a complex law with important ramifications for inventors, their employers (if any), and patent applicants and owners. As they seek to protect and exploit their inventions, such entities should seek advice from experienced patent counsel about the implications of the AIA.

Basics Of Trade Secret Law

Timothy J. Lockhart

A trade secret is simply any information that gives its owner an advantage in business by not being generally known. A good example is the formula for the classic Coca-Cola brand soft drink, which may well be the most valuable trade secret in the world. But virtually every business owns trade secrets—often lists of customers and their purchasing history, if nothing else—and those secrets can be both valuable and long-lasting.

While copyright and patent law are exclusively federal, and trademarks exist under both federal and state law, trade secrets are protected almost exclusively by state law. (There are narrow exceptions for criminal violations of the Economic Espionage Act of 1996 and possibly the Federal Computer Crimes Act.) Virginia’s law is its version of the Uniform Trade Secrets Act (VUTSA), codified at Sections 59.1-336 through -343 of the Virginia Code.

The VUTSA defines a trade secret as information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

  1. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

  2. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

That definition makes clear that a trade secret can be almost any sort of confidential information that gives its owner a business advantage. The definition also indicates that the confidential nature of the information is such that it cannot be readily discovered by "reverse engineering" or other lawful means. Thus, although one might be able to determine the ingredients or components that go into a particular product, the method, technique, or process for combining those ingredients or manufacturing and/or assembling those components could remain a trade secret.

To maintain their secrecy, trade secrets, in contrast to other forms of intellectual property (IP), have no registration process. In fact, the rules of the U.S. Copyright Office expressly provide a method of protecting, through exclusion, trade secrets embodied in a deposit copy of software for which copyright registration is sought. The same secrecy requirement means that there is no symbol such as ©, Pat. Pending, or ® to give public notice of a trade secret. However, one can license or assign trade secrets just as with other forms of IP.

A business can protect its trade secrets through a variety of means, including physical and electronic security; contracts with consultants and other independent contractors; contracts with business partners, vendors, and customers; and, most important, employment agreements. Depending on the various job responsibilities of its employees, a business might not have to include general IP-protection provisions in all of its employment agreements. However, a business should include in every such agreement an obligation for employees to protect the employer’s trade secrets.

Moreover, that obligation, and similar obligations in other types of contracts such as confidentiality or non-disclosure agreements or agreements with independent contractors, should last as long as any relevant information remains a trade secret. Thus, although parties might mutually agree that their obligation of confidentiality with respect to information that does not rise to the level of a trade secret will last a finite period of time (three to five years, perhaps), they should not place any finite limit on the duration of their obligation to protect each other’s trade secrets.

While the violation of the exclusive rights of a copyright, patent, or trademark owner "infringes" those rights, in contrast, the violation of the exclusive rights of a trade secret owner "misappropriates" such rights. The VUTSA defines misappropriation as (1) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (2) disclosure or use of a trade secret of another without express or implied consent by a person who:

  1. Used improper means to acquire knowledge of the trade secret; or

  2. At the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was

    1. Derived from or through a person who had utilized improper means to acquire it;

    2. Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use;

    3. Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or

    4. Acquired by accident or mistake.

Under the VUTSA, "improper means" include, but are not limited to, "theft, bribery, misrepresentation, use of a computer or computer network without authority, breach of a duty or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means."

A business that has experienced the misappropriation of a trade secret by a former employee or some other entity has a right to bring a lawsuit seeking monetary and injunctive relief for such illegal conduct. However, determining whether a given piece of information rises to the level of a trade secret is sometimes difficult, as is determining whether "misappropriation" as defined in the statute has actually occurred. Thus, before deciding whether or not to sue for trade-secret misappropriation, businesspeople should consult legal counsel with particular expertise in trade secret law and broad experience in bringing such suits.

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