Trade Secrets Challenges for Patent Prosecutors and Litigators

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I. TRADE SECRET LAW OVERVIEW

  1. What is a trade secret?

    A trade secret is information of commercial value that is not generally known to others and is not readily ascertainable by proper means. While such information may be patentable or subject to copyright, it is often in the owner’s best interest to keep that information secret rather than to seek the benefits offered by securing a patent or registering a copyright.

    A party’s patent application is published (made public) 18 months after filing. Any information in that application that was a trade secret loses that status once the application publishes. Because there is no certainty that a patent will issue with any of the claims desired by the applicant, and because many claims that do issue are ultimately determined to be invalid or otherwise unenforceable, the applicant undertakes a considerable risk when it decides to abandon trade secret protection for the potential benefits of a patent.

  2. State Law -- Uniform Trade Secrets Act

    The Uniform Trade Secrets Act (UTSA) was published by the Uniform Law Commission in 1979 and amended in 1985. The UTSA in some version has been adopted in 48 states. (Only New York and Massachusetts still rely on common law.) Oregon’s version of the UTSA is found at Or. Rev. Stat. § 646.461, et seq.

    1. What is a trade secret under the UTSA?

      Trade secrets can take many forms. They can be formulas, plans, designs, patterns, supplier lists, customer lists, financial data, personnel information, physical devices, processes, computer software, “negative” information (what doesn’t work), and “know-how.” Even a compilation of generally known facts can be a trade secret, if the compilation confers a competitive edge to whoever has access to it and it is kept secret.

      Under the UTSA, a trade secret has three basic characteristics:

      The information is secret

      For information to be “secret,” it must not be generally known by or readily ascertainable to competitors. A trade secret loses its “secret” status if a competitor of the owner knows about it; the public at large need not know about it for it to cease being secret.

      The information confers a competitive advantage

      The information must also have economic value by not being known. To determine this, courts look at a number of factors: (a) the value the information has to the owner and its competitors; (b) how much effort or money the owner put into developing the information; (c) how seriously the owner tried to keep the information secret; (d) how hard it would be for others to properly acquire or duplicate the information (reverse engineering); and (e) the degree to which the information is publicly available.

      The information is subject to reasonable efforts to keep it secret

      Finally, the owner of a trade secret must make reasonable efforts to keep the information secret. What is reasonable is determined by a cost-benefit analysis that varies from case to case.

    2. Misappropriation of trade secrets

      Trade secrets law provides remedies for “misappropriation.” Under the UTSA

      Misappropriation” means: (i) 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 (ii) disclosure or use of a trade secret of another without express or implied consent by a person who (A) used improper means to acquire knowledge of the trade secret; or (B) at the time of disclosure or use knew or had reason to know that his knowledge of the trade secret was (I) derived from or through a person who has utilized improper means to acquire it; (II) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (III) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or (C) before a material change of his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

      UTSA Section 1(2).

      A party commits misappropriation if it acquires a trade secret by improper means. “Improper means” include theft, fraud, bribery, industrial espionage, breaching a contractual duty to keep something confidential, or inducing others to breach that duty. It is also misappropriation to use or disclose a trade secret knowing, or having reason to know, that the person who gave you the information acquired it through improper means or under circumstances giving rise to a duty to maintain its secrecy or limit its use. For example, if documents are stamped “Confidential,” or “Secret,” this might be give you enough reason to believe that your source acquired them improperly.

      Note that trade secrets laws in many states state explicitly that reverse engineering is not an “improper means” of obtaining information and cannot be the basis for a misappropriation claim. However, you might still run into trouble if you contractually agreed not to engage in reverse engineering, such as in a license or lease agreement.

    3. UTSA Remedies for Acts of Misappropriation

      If misappropriation is found, the UTSA provides a variety of remedies:

      Injunctive Relief: Section 2 of the UTSA empowers a court to order a defendant to stop violating the plaintiff’s rights and to take steps to preserve the secrecy of the plaintiff’s information. Most states provide that an injunction may issue to prevent threatened misappropriation. This means that a court has the authority to order the defendant not to publish or otherwise disclose someone’s trade secrets if it finds that such actual or threatened publication amounts to misappropriation.

      Damages: A court also can make a defendant pay money damages to the plaintiff for the economic harm suffered as a result of a misappropriation. This may include the plaintiff’s losses resulting from the misappropriation and the defendant’s non-duplicative profits derived from it. In lieu of either of those damages, a court can also order a losing defendant to pay a royalty to the trade secret owner. If the court determines that the defendant acted willfully or maliciously, it may award the plaintiff enhanced damages in an amount up to twice its damages.

      Attorneys’ Fees: A court may order the defendant to pay the plaintiff’s attorneys’ fees if it finds that the defendant acted willfully or maliciously in violating the plaintiff’s trade secret rights. On the other hand, if the defendant wins the lawsuit, the court may order the plaintiff to pay the defendant’s attorneys’ fees if it finds that the plaintiff acted in bad faith in filing the lawsuit.

    4. Other UTSA Provisions

      Statute of Limitations. Generally speaking, the limitations period for a trade secret claim runs from the time the plaintiff discovered the misappropriation or the time by which the plaintiff should have discovered it through the exercise of reasonable diligence. The UTSA sets the statute of limitations at three years, but various states have altered that time period.

      Preemption. Section 7 of the UTSA provides that the Act displaces conflicting tort, restitutionary, and other law of the adopting state providing civil remedies for misappropriation. The Act does not affect any contractual remedies whether or not based upon misappropriation or any other civil remedies that are not based on misappropriation. Oregon’s version of this provision is found at Or. Rev. Stat. § 646.473.

      QUERY: Does the UTSA Preempt Claims About Confidential Information That is Not a Trade Secret?

      In Sunpower Corp. v. Solarcity Corp., No. 12-CV-00694-LHK, 2012 WL 6160472 (N.D. Cal. 2012), the court held that the California Uniform Trade Secrets Act (CUTSA) precludes common-law claims even where it is expressly alleged that the information taken does not meet the statutory definition of a trade secret. Accord CDC Restoration & Constr., LC v. Tradesmen Contractors, LLC, 274 P.3d 317 (Utah Ct. App. 2012) (the UTSA preempts claims based on the unauthorized use of information, irrespective of whether that information meets the statutory definition of a trade secret). Some courts take the position that if confidential information is not covered by the statutory definition of a trade secret, it may remain protected under existing common-law or statutory provisions. See Burbank Grease Svcs., LLC v. Sokolowski, 717 N.W.2d 781, 793 (Wisc. 2006) (a civil tort claim not grounded in a trade secret, as defined in the Wisconsin UTSA, is not preempted by the act). See generally Comment, I Have a Secret? Applying the Uniform Trade Secrets Act to Confidential Information That Does Not Rise to the Level of Trade Secret Status, 12 Marq. Intell. Prop. L. Rev. 359 (2008).1

  3. Federal Laws Covering Trade Secret Misappropriation

    1. Defend Trade Secrets Act of 2016

      The Defend Trade Secrets Act (DTSA) was passed by Congress in April 2016 and signed into law by the president in May. The DTSA creates a federal civil cause of action for trade secret misappropriation. It includes civil remedies modeled on the UTSA and an ex parte seizure akin to that in federal trademark law. The law went into effect on its day of enactment and applies to any misappropriation that occurs on or after that date. The statute of limitations is three years from discovery.

      Once misappropriation is found, the federal court is authorized to grant injunctive relief as “reasonable.” If “exceptional circumstances” render injunctive relief “inequitable” then a court may order a reasonable royalty for the misappropriator’s continued use of the trade secret. Depending upon how the statute is interpreted, this language could create a presumption of injunctive relief in contrast to the standard for granting injunctions in patent cases after eBay Inc. v. MercExcange, L.L.C., 126 S. Ct. 1837 (2006).

      The statute also provides for compensatory damages for either (i): (I) “actual loss of the trade secret” and, in addition, (II) “any unjust enrichment” not compensated in (I); or (ii): a reasonable royalty for the use. Willful misappropriation can double damages. The statute also includes an attorney fees shifting provision limited to cases involving bad-faith or willful misappropriation.

      The DTSA does not preempt any state law or, on its face, any other claim for relief or theory of recovery arising out of misappropriation. In addition, state law will control the resolution of ancillary issues as the ownership of inventions, definitions and obligations of confidential relationships, and the enforceability of noncompete obligations.

      Concerns About Employee Mobility. Due to Congress’ concerns about the potential use of the DTSA to restrict employee movement, injunctive relief that would “prevent (or place conditions on) a person from entering into an employment relationship” must be “based on evidence of threatened misappropriation and not merely on the information the person knows.” This does not mean that the employee must expressly threaten misappropriation. Like cases under the UTSA, the determination of the threat level will be based upon circumstantial evidence. The DTSA also states that an injunction preventing or limiting employment cannot “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.”

      Whistle Blower Protection. The DTSA provides immunity from liability for confidential disclosure of a trade secret to the government or in a court filing under seal.

    2. Economic Espionage Act

      The Economic Espionage Act (EEA) outlaws two forms of trade secret theft: theft for the benefit of a foreign entity (economic espionage) and theft for pecuniary gain (theft of trade secrets). 18 U.S.C. § 1831 and 18 U.S.C. § 1832, respectively. The EEA covers theft from electronic storage. Offenders face imprisonment for not more than 10 years in the case of trade secret theft and not more than 15 years in the case of economic espionage. The fines that may be imposed on individuals and businesses are substantial and the sentencing court must order the defendants to pay victim restitution, and the government may confiscate any property that is derived from or used to facilitate either offense.

      The EEA creates no explicit private cause of action. However, conduct that violates the EEA’s proscriptions may also violate other federal statutes like the Computer Fraud and Abuse Act and the new DTSA. The Computer Fraud and Abuse Act is the federal statute governing computer hacking. It provides for criminal and civil actions against anyone who intentionally accesses a computer without authorization (or exceeds his authorized access), and thereby obtains information from a computer, if the conduct involved an interstate or foreign communication.

  4. International Law

    Almost every country in the world recognizes the value of trade secrets and provides some legal protection for them. Any nation that is a member of the World Trade Organization and a signatory to the Agreement on Trade Related Aspects of Intellectual-Property Rights (TRIPS) is obliged to provide this protection. (The language of the UTSA is very similar to the language in TRIPS.) Article 39 of TRIPS requires members to provide a means for protecting information that is secret, commercially valuable because it is secret, and subject to reasonable steps to keep it secret.

II. OWNER-AUTHORIZED DISCLOSURE OR USE OF TRADE SECRETS IN PATENT PROSECUTION

For many technologies, a patent’s limited life span of 20 years from filing provides ample protection. However, for inventions whose value may last much longer, the indefinite length of trade secret protection may offer a better option for preserving the value of the technology. Deciding which protection path to follow or maintain requires consideration of the following changes to patent law introduced by the America Invents Act (AIA).

Prior User Rights. Prior user rights shield a party from patent infringement liability for certain internal uses of an invention that predate another’s patent filing. Before the AIA, an accused infringer who had practiced a patented invention for many years prior to the patentee’s filing date could not rely on so-called “prior user right,” unless the patent was for a business method. Under the AIA, prior user rights have been extended to any process or machine, manufacture, or composition of matter used in a manufacturing or other commercial process. The expansion of prior user rights takes away the risk that your trade secret will be “trumped” by a third party’s later acquired patent. The use of a trade secret prior to later patenting by another can provide an invaluable affirmative defense to patent infringement charges through prior user rights. On its face, the expansion of prior user rights should encourage the use of trade secrecy protection by eliminating the risk that another party will secure a patent that could be used to exclude the trade secret owner from using its technology. This expanded prior user rights defense is available only as to patents issued on or after September 16, 2011. Old Section 273 (pre-AIA) applies to prior patents.

Patenting Long-Held Trade Secrets. As of March 16, 2013, the changes to the patent law adopted by the AIA likely made long-held trade secrets patentable. Under the PTO’s interpretation of the AIA’s changes to 35 U.S.C. 102(a)(1), a secret sale or use activity does not qualify as prior art for a patent application and the underlying inventions could be patentable. Public knowledge of the invention is the key to prior art.2 Of course the trade secret owner deciding to opt for patent protection would need to surrender the protections of trade secret law when a patent issues or application publishes.

  1. Owner-Authorized Disclosure of Trade Secrets in the U.S. Patent Office

    1. The Patent Bargain

      Every patent starts out as a secret. In exchange for revealing that secret, a patent applicant begins a process that may lead to its public disclosure. Until publication, patent applications are kept confidential in the U.S. Patent and Trademark Office (PTO). 35 U.S.C. § 122(a); 37 C.F.R. § 1.14 (describing limited exceptions to this rule: for example, when a published application or patent claims the benefit of the filing date of an abandoned application, the abandoned application may be available to the public). Confidentiality is lost upon the publication of the application, which automatically occurs 18 months from the earliest filing date for the application, or earlier if requested by the applicant. 35 U.S.C. § 122(b). The only way to keep a patent application and materially related information secret is to prevent the application from publishing or issuing as a patent. As the following cases illustrate, when it comes to secrets in a patent application, the rule is “publish and perish.”3

      Accent Packaging, Inc. v. Leggett & Platt, Inc., 707 F.3d 1318 (Fed. Cir. 2013). Accent appealed the entry of summary judgment against Accent’s Missouri Uniform Trade Secrets Act (MUTSA) claim against Leggett. In October 2005, Accent applied for, and was granted, patents for a wire tier device used to bale recyclables or solid waste. In early 2006, Leggett obtained an Accent wire tier device. Accent filed suit against Leggett in April 2010, asserting a MUTSA violation, together with patent infringement claims. The Federal Circuit upheld the dismissal of Accent’s trade secrets claims. Although Accent claimed that Leggett “surreptitiously” obtained and copied its patented device to discover its specifications and tolerances, the device was sold in the regular stream of commerce and Accent did not make any efforts to keep the specifications and tolerances of the device a secret. The Federal Circuit also noted that any specifications and tolerances in Accent’s patents had become publicly available in October 2005 when Accent’s patent application was published and therefore could not constitute a trade secret in early 2006 when Leggett allegedly engaged in misappropriation.

      Foster v. Pitney Bowes Corp., 549 F. App’x 982 (Fed. Cir. 2013). In 2007, Foster submitted a provisional patent application to the PTO for a virtual post office box/Internet passport system (VPOBIP). Because Foster failed to provide a nonpublication request, the PTO made his application publicly available in 2008. After filing his provisional application, Foster met with the U.S. Postal Service (USPS) to discuss the possibility of implementing his VPOBIP concept. Foster also contacted Pitney Bowes (Pitney) via email where he described the VPOBIP concept and explained his intent to partner with USPS. Pitney launched “volly.com” in early 2011 and in November that year, Foster sued Pitney and USPS in Pennsylvania District Court claiming that volly.com copied ideas in his patent application. The district court ruled that there was no trade secret misappropriation because any information that may have been appropriated by Pitney was in the public domain at the time Foster spoke with Pitney. Foster appealed. The Federal Circuit reasoned that to present a prima facie case of trade secret misappropriation, a plaintiff must first show the existence of a trade secret. Here, where Foster allowed publication of his patent application, the information was no longer secret and no trade secret misappropriation could have taken place. Further, there was no evidence that Foster entered into any confidentiality agreement with Pitney. The Federal Circuit therefore affirmed the judgment in favor of Pitney.

      Tewari De-Ox Sys., Inc. v. Mountain States/Rosen, L.L.C., 637 F.3d 604 (5th Cir. 2011). In 2005, Tewari’s CEO (Dr. Tewari) visited Mountain Systems to demonstrate his “zero ppm oxygen meat-packing method” that extended the shelf life of packaged meats. Prior to the demonstration, the parties signed a NDA. Mountain Systems allegedly began using Tewari’s method without permission. Tewari brought suit for misappropriation. However the bulk of the disclosed method could be found in Tewari’s already published patent application. (The application was abandoned after receiving a final rejection on obviousness grounds.) The Fifth Circuit held that, once published, the information in a patent application should be considered “generally known and readily available” and no longer a trade secret. Tewari argued that the patent application publication should not matter because the defendants obtained their information in a confidential transaction rather than from the published application. The appellate court rejected that argument because the application was published prior to the disclosure under the NDA. However, the court noted that the source of a defendant’s trade secret knowledge may be important for trade secret analysis if the publication occurred after the confidential relationship was formed. Although the court found that the material disclosed in the patent application was not protectable under Texas trade secret law, the court concluded that Tewari may have transferred protectable information that was not in the patent application and therefore remanded the case for further proceedings.

    2. Avoiding or Delaying Publication of an Application

      To avoid publication of an application, an applicant must file a nonpublication request with the application. 37 C.F.R. § 1.213. A nonpublication request presented after the application is filed has no effect. MPEP § 1122 (identifying concurrence of nonpublication request with the filing of the application as a statutory requirement that cannot be waived under 35 U.S.C. § 122(b)(2)(B)). A patent applicant may request that the patent application not be published but remain secret until a patent is granted on that application or on a child application. In order to make a nonpublication request, the applicant must file the request with the application and also must certify that the applicant has decided not to file foreign applications claiming priority to the U.S. application. See MPEP § 1122.

      Of course, the applicant may expressly abandon the application and thereby seek to avoid publication. See MPEP § 1125. The PTO warns that even express abandonment is no guarantee that the application will not publish, and that applicants should expect that the application will publish unless the declaration of express abandonment is received by the PTO more than four weeks prior to the projected date of publication. 37 C.F.R. § 1.138.

      Converting a nonprovisional application to a provisional application is a way of delaying publication, if the request to convert is made within 12 months of the filing date of the application. 37 C.F.R. § 1.53. However, the PTO expressly warns that such conversion will not avoid publication of the nonprovisional application unless PTO officials notice the conversion request in time to remove the application from the publication process. MPEP § 601.01(c).

    3. Maintaining Confidentiality of Other Owner-Disclosures of Trade Secrets at the PTO

      Sometimes a trade secret owner, while pursuing patent protection on a related invention, is required by the duty of candor to disclose trade secret information relating to the subject matter of the patent application. In the course of examination, the applicant may desire to submit evidence of novelty or nonobviousness in the form of experimental data or other confidential information. The applicant may also be required by the duty of candor to submit trade secret information of its own commercial activity, or another’s, that could serve as prior art or is otherwise material to patentability. The PTO “is not unmindful of the difficulties this sometimes imposes.” MPEP § 724.

      To maintain the confidentiality of such information, it must be submitted in a sealed envelope with each document clearly labeled “Trade Secret” or “Proprietary” along with a petition for expungement. See MPEP § 724.02 (providing examples of appropriate labels); 37 C.F.R. § 1.59. This does not guarantee that the information will be kept secret. If the confidential submission is found to be material to patentability and the application is granted as a patent, the submission will be opened to the public along with the entire file wrapper when the patent issues. MPEP § 724.04. The petition for expungement will be granted only if the application is abandoned or the confidential information is found not to be material to patentability. Id. In the event that the confidential information is found material to patentability, the applicant still has the opportunity to choose between allowing the patent to issue, which causes the confidential information to be made public, or abandoning the application in order to preserve confidentiality.

      In the context of a protest by a member of the public under 37 C.F.R. § 1.291, confidential information may be submitted to oppose an application. 37 C.F.R. § 1.291 provides for the submission of information other than publications, including any facts or information adverse to patentability, and arguments to that effect. Submission of secrets to oppose another party’s application creates a substantial risk of disclosure for two reasons. First, the information must be served on the other party, the patent applicant. Although the documents can be served on the other party with duty of confidentiality, the PTO will not protect the protester vis-à-vis the patent applicant if the patent applicant breaches confidentiality by, for example, describing and responding to material features of the secret submission in an unsealed office action response. MPEP § 724.03. Second, the protester will not control whether the application issues or goes abandoned. Thus, if the confidential information is found to be material to patentability, the protester will not have an opportunity to choose whether to keep the information confidential by allowing the application to go abandoned because that decision lies with the applicant.

III. UNAUTHORIZED DISCLOSURE OR USE OF TRADE SECRETS IN THE U.S. PATENT OFFICE

Because patent applications typically remain confidential until published, it is very difficult to discover the misappropriation of confidential information in the patenting process until a patent issues or an application is published. For that reason, it should not be surprising that most of the litigation concerning misappropriation of trade secrets in connection with patent prosecution arises after publication and the consequent loss of secrecy of the information.

  1. Rights of Inventors

    An inventor is the individual (or if a joint invention, the individuals collectively) who invented or discovered the subject matter of the invention. The correct identification of all inventors is required by U.S. law. In the absence of an agreement transferring ownership, the inventors are the owners of the patent.

    An inventor may use the services, ideas (so long as it does not rise to the level of conception) and aid of others in the process of perfecting the invention without losing the right to a patent. Hess v. Advanced Cardio. Sys., Inc., 106 F.3d 976 (Fed. Cir. 1997). So, theoretically, someone could misappropriate the secret idea of another without the trade secret owner becoming an inventor of the claimed invention(s) based on that idea.

    QUERY: What happens if the idea or concept that served as the inspiration for the invention was the non-patentable trade secret of another?

    In Altavion, Inc. v. Konica Minolta Systems Laboratory Inc., 171 Cal. Rptr. 3d 714 (Ct. App. 2014), the California Court of Appeal held that ideas can be protectable as trade secrets and affirmed a damages award to Altavion, whose concepts for a digital stamping technology (DST) were misappropriated by defendant KMSL.

    KMSL had previously considered employing DST into a new multifunction peripheral (MFP) device technology that KMSL was developing to self-authenticate printed documents. As part of negotiations for a proposed business partnership to develop this new technology, KMSL received extensive confidential disclosures from Altavion pursuant to a NDA. Ultimately, the business negotiations between Altavion and KMSL broke down.

    Thereafter, KMSL moved forward to develop its own DST solution. KMSL also continued to file for patents encompassing or disclosing Altavion’s DST concepts and ideas (which KMSL had begun to do even as the parties were still talking). After Altavion discovered those patent filings, it sued KMSL for misappropriation of trade secrets.

    At trial, Altavion was awarded around $1.5 million in combined damages and prejudgment interest and more than $3 million in attorney fees, expert fees and costs. KMSL appealed.

    The Court of Appeal analyzed whether Altavion’s design concepts qualified for trade secret protection. The court observed that a design is not a trade secret “to the extent the design elements are disclosed and evident to the end user.” Altavion had disclosed its design concepts only to KMSL, and that disclosure was subject to a NDA. The court concluded that “if a patentable idea is kept secret, the idea itself can constitute information protectable by trade secret law.”

    The appeal court affirmed the trial court’s finding that KMSL misappropriated Altavion’s trade secrets – both the specific design concepts that Altavion had identified as well as Altavion’s DST concept as a whole (being a combination of those elements). The appeal court noted the overlap in protection for ideas under patent law and trade secret law and explained that while an inventor may obtain a patent for novel technology and control the use of the idea, trade secret law protects the inventor’s right to control the dissemination of valuable information, that is, the idea itself.

    Accord Bohnsack v. Varco, L.P, 668 F.3d 262, 279 (5th Cir. 2012 ) (“[a]ny exploitation of the trade secret that is likely to result in injury to the trade secret owner or enrichment to the defendant” constitutes a “use” giving rise to liability for misappropriation (internal quotation marks and citation omitted)). When it filed its own patent application with respect to the invention and ideas disclosed to Varco by plaintiff in confidence, Varco “used” the trade secrets. Although no patent ever was issued, the jury’s compensatory damages award of $600,000 was upheld due to loss of value of the trade secrets.

  2. Resolving Disputes over Inventorship – Derivation Proceedings

    If the trade secrets owner is the actual inventor or co-inventor of the claimed invention that is the subject of another’s pending application or issued patent and has filed its own patent application for the same invention, the trade secrets owner can take steps to be added as the sole or co-inventor/owner.

    The AIA changed many aspects of U.S. patent law, including how inventorship disputes are handled. The AIA established derivation civil actions and derivation proceedings under AIA section 3(h)–(k), which provides for resolution of derivation allegations between owners of patents (35 U.S.C. § 291) and between applicants for patents (35 U.S.C. § 135). Patent-owner disputes will be addressed by civil action in a district court, whereas patent applicant disputes will be addressed by derivation proceedings in the PTO before the new Patent Trial and Appeal Board (PTAB).4

    The new derivation administrative proceeding provides an attractive alternative to litigation. In litigation, an omitted inventor must prove his or her case by clear and convincing evidence. Fresenius USA, Inc. v. Baxter Int’l, Inc., 721 F.3d 1330 (Fed. Cir. 2013) (because issuance of a patent creates a presumption that the named inventors are the true and only inventors, a higher burden of proof is required to overcome the presumption). Under the new PTO derivation process, the evidentiary standard is a preponderance of evidence. 37 C.F.R. §§ 42.400(a), 42.1(d). Also, derivation proceedings are likely to be far less costly than federal court litigation, in part due to more limited discovery.

    For the trade secrets owner looking for a way to prevent publication of its trade secrets, a derivation or inventorship claim based on a published patent or application will likely come too late to protect the secrets from disclosure. By the time a derivation claim is available and resolved, the misappropriated trade secrets will likely have been published. Moreover, a derivation proceeding is only effective if the trade secrets owner wants to risk disclosing its trade secrets rights by filing its own patent application, which application is a prerequisite for a derivation proceeding.

  3. Disputes over Ownership

    1. Proceedings in the PTO

      If the owner of the misappropriated trade secrets can demonstrate that it is the owner of the invention claimed in the patent application there may be an opportunity to avoid publication because the “applicant” can direct prosecution. 37 C.F.R. § 1.46. This includes taking action to avoid publication of the application, such as either abandoning the application or converting it to a provisional application.

      In order to become the applicant for an already-filed application, the proper owner “must establish its ownership of the patent property . . . to the satisfaction of the Director.” 37 C.F.R. § 3.73(c)(1). Ownership is established by submitting to the PTO a signed statement identifying the assignee, accompanied by either:

      • Documentary evidence of a chain of title from the original owner to the assignee (e.g., copy of an executed assignment). The submission of the documentary evidence must be accompanied by a statement affirming that the documentary evidence of the chain of title from the original owner to the assignee was or concurrently is being submitted for recordation pursuant to 37 C.F.R. § 3.11; or
      • A statement specifying where documentary evidence of a chain of title from the original owner to the assignee is recorded in the assignment records of the PTO. Id.

      Becoming the applicant is only possible if there are documents showing a conveyance of ownership interest in the patent application from each named inventor to the applicant. Where the named inventors are all employees or former employees of the applicant, it is possible that a signed invention assignment agreement between each named inventor and the applicant was obtained at the inception of each inventor’s employment. Such an agreement likely would satisfy the requirements of 37 C.F.R. § 3.73 for transferring control and title in the application to the applicant. See also MPEP § 325. The documents necessary to establish ownership may be combined with the applicant’s first request for action on the application. 37 C.F.R. § 3.73. Once the assignment documents are recorded, any patent that issues from the application will issue to the applicant. 37 C.F.R. § 1.46(e). Moreover, the applicant could abandon the application in order to preserve secrecy.

      The challenges of becoming the applicant are exacerbated if the inventors named on the patent include persons unknown to the applicant who possibly had nothing to do with the secret invention or who may have developed improvements to the invention. The trade secret owner must obtain assignment of interests from all named inventors, regardless of whether they are truly inventors or just thieves and imposters, in order to become the applicant and gain standing to control the application in the PTO. To address the inventorship issue through a derivation proceeding, the trade secrets owner either would have to file its own patent application and commence a derivation proceeding or, in the absence of a patent application, it would need to file a trade secrets action in federal court.

    2. Judicial Proceedings Regarding Patent Ownership/Misappropriation

      1. Patent Reassignment

        Where one or more named inventors have not assigned their interests to the trade secret owner, the owner may seek to obtain control of the patent application by pursuing the named inventors/applicants in court.

        A transfer of the patent or patent application may be an appropriate remedy where the subject matter of the patent or patent application was misappropriated or used in violation to a NDA. See Richardson v. Suzuki Motor Co., 868 F.2d 1226 (Fed. Cir. 1989) (ordering Suzuki to transfer its patents and patent applications to Richardson upon finding that Suzuki misappropriated his trade secrets and breached a NDA but not addressing or resolving the issue of inventorship, indicating that was for the PTO to resolve).5

        Relief in the form of an order transferring ownership in the patent or application may be available as a remedy for trade secret misappropriation or breach of contract if applicable. Here are some cases addressing this remedy:

        In Ethicon Endo-Surgery, Inc. v. Crescendo Techs. LLC, No. 1:07-cv-01016, 2009 WL 2707805 (S.D. Ohio Aug. 24, 2009), a jury determined that co-defendant Beaupre had breached an invention assignment agreement with his former employer Ethicon by assigning inventions and patent applications to Beaupre’s startup company Crescendo Technologies. The court found that money damages were insufficient to compensate for the harm done by publishing the plaintiff’s ideas in patent applications and issued an order to transfer the patent applications and all related foreign patents and patent applications to Ethicon. “Where intellectual property has been found to be misappropriated through a patent application, it is appropriate equitable relief to reassign the application.” Id. at *7.

        NOTE: A court order transferring title in a patent application must be presented to the PTO and recorded before the new patent owner can become the applicant and direct prosecution. See MPEP § 325; 37 C.F.R. § 3.73.

        Colgate-Palmolive Co. v. Carter Prods., Inc., 230 F.2d 855, 865 (4th Cir.) (corporate assignee of patent application ordered to assign to original holder of trade secrets all rights to patent applications based thereon), cert. denied, 352 U.S. 843 (1956).

        De Long Corp. v. Lucas, 176 F. Supp. 104, 134 (S.D.N.Y.1959) (when an employee has acquired patents on inventions developed by his former employer, “the courts will hold the wrongdoer to be a constructive trustee of the property misappropriated and will order a conveyance by the wrongdoer to the former employer”), aff’d, 278 F.2d 804 (2d Cir.), cert. denied, 364 U.S. 833 (1960); Becher v. Contoure Labs., Inc., 279 U.S. 388 (1929) (same).

        Saco-Lowell Shops v. Reynolds, 141 F.2d 587, 598 (4th Cir 1944) (requiring assignment of patent based on ideas received by licensee from licensor in confidence during development of invention for market).

        In B. Braun Medical, Inc. v. Rogers, 163 F. App’x 500, 508 (9th Cir. 2006), the Ninth Circuit rejected the use of patent reassignment as a remedy under California’s version of the UTSA. The court reasoned that injunctive relief under the UTSA is only available to protect trade secrets, not to remedy their misappropriation, and since the UTSA preempts any common law remedies, any prior remedy of patent reassignment was no longer available.

      2. Interim Injunctive Relief

        While adjudicating ownership or inventorship of a patent application, a party may seek a temporary order prohibiting the present owner from transferring the application or taking other actions in the patent office adverse to the interests of the putative owner. In Ethicon, the court enjoined defendant Crescendo Technologies from transferring the patent applications at issue until the court had determined who would receive ownership of the applications.

      3. Enjoining the PTO’s Publication of Patent or Application

        In theory, federal courts have jurisdiction to enjoin the PTO from publishing a patent application, just as they have authority to issue orders and adjudicate claims against any federal agency. See, e.g., Hyatt v. U.S. Patent & Trademark Office, 110 F. Supp. 3d 644 (E.D. Va. 2015) (denying PTO’s motion to dismiss Hyatt’s claim that the PTO delayed examination of his patent applications in violation of the Administrative Procedure Act). The difficulty comes in finding a law or regulation that the PTO has clearly violated and that it can no longer correct. See Hyatt v. U.S. Patent & Trademark Office, No. 1:14-cv-1300, 2015 WL 7176108 (E.D. Va. Nov. 12, 2015) (dismissing Hyatt’s claim of unreasonable delay by finding that the PTO was no longer delaying). At least one federal court has considered misappropriation of trade secrets as a basis for enjoining the publication of a patent application by the PTO but concluded that there was no basis for issuing a writ of mandamus against the PTO because there was no law that the PTO was violating. Centrifugal Acquisition Corp. v. Moon, No. 09-C-327, 2012 WL 663766 (E.D. Wis. Feb. 29, 2012)

      4. Damages

        As noted in some of the cases discussed earlier in this paper, an injured trade secrets owner has a remedy in damages. For example, in Ethicon (cited above), the plaintiff obtained roughly $1 million in damages against the individual Beaupre, its former employee, for breaching his invention assignment agreement with the plaintiff. The court also awarded damages against the employee’s startup business, Crescendo Technologies, for tortiously interfering with Ethicon’s relationship with Beaupre, also to the tune of $1 million. The measure of damages could include the lost value of the trade secrets, the cost of creating the trade secrets, and the profits earned by the party committing the misappropriation.

    IV. PROTECTING TRADE SECRETS IN PATENT LITIGATION

    When a client’s valuable secrets are implicated, the rules and practical procedures for maintaining secrecy and avoiding misuse of that information become critical aspects of the litigation strategy.

    1. Pre-Discovery

      In early stages of litigation and even before a lawsuit is filed, parties to a dispute may desire to exchange information in order to prove to the other side the strength of their claims or defenses. For instance, in patent infringement litigation, the accused infringer may want to share confidential trade secret information with the patent holder in order to demonstrate noninfringement or prior user rights. 35 U.S.C. § 273. In the absence of a protective order entered by a court, such disclosure must be addressed through a written agreement.

    2. Protective Orders

      Confidentiality and protective orders are “an ever-expanding feature of modern litigation.” In re Mirapex Prods. Liab. Litig., 246 F.R.D. 668, 672 (D. Minn. 2007). Such orders may be entered “for good cause.” Fed. R. Civ. P. 26(c)(1)(A). The burden of showing good cause falls on the party seeking protection. See generally Robert Timothy Reagan, Confidential Discovery: A Pocket Guide on Protective Orders (2012). Good cause is established when a party demonstrates that disclosure will cause a clearly defined and serious injury. “Broad allegations of harm, unsubstantiated by specific examples, will not suffice.” Glenmede Trust Co. v. Thompson, 56 F.3d 476, 483 (3d Cir. 1995).

      Typical issues addressed in such protective orders include the following:

      1. Blanket Orders

        Blanket “umbrella” protective orders have become quite standardized. Bond v. Utreras, 585 F.3d 1061, 1067 (7th Cir. 2009). It is not uncommon for courts or judges to publish model protective orders in the local district rules or a judge’s courtroom rules. However, counsel should consider the needs of the particular case before simply agreeing to a standard, “one size fits all” protective order. Some issues that require special consideration are discussed in the following sections.

      2. Clawback - Inadvertent Disclosure

        The volume of information sought and disclosed in patent litigation is voluminous and usually in electronic form. Even when a disclosing party has used reasonable processes for review and production of this great volume of information, privileged materials or undesignated confidential information can be inadvertently produced. Such production does not necessarily constitute a waiver.

        Fed. R. Civ. P. 26(b)(5)(B) provides a default “clawback” procedure, under which inadvertently produced information subject to a claim of privilege is returned or sequestered, pending court determination of the applicability of the privilege claim, if it is in dispute. In addition, the ABA Model Rule of Professional Conduct 4.4(b) has been interpreted as requiring an attorney to return inadvertently disclosed privileged or confidential information, and that rule is incorporated into the USPTO Rules of Professional Conduct as § 11.404(b).

        In addition to establishing a procedure in the protective order to clawback privileged and confidential documents, the parties should ask the court to establish a substantive rule for determining questions of privilege waiver by entering a Fed. R. Evid. 502(d) order that privilege is not waived by disclosure, either as an explicit paragraph in the protective order or as a stand-alone order. A protective order should provide that if the receiving party discovers that the disclosing party may have unintentionally produced privileged or undesignated confidential information, the receiving party should promptly notify the disclosing party and should treat the information as privileged or confidential. If the disclosing party timely identifies the materials as inadvertently produced, particularly in the case of privileged information, the disclosing party may request their return within a reasonable, fixed period of time, or a certification of their destruction (subject to the receiving party contesting the assertion of privilege and submitting the documents in question to the court under seal for a judicial determination). The parties should negotiate a procedure for the return and replacement of produced documents where the privileged information was included on a drive or other media that also included non-privileged information, or where the inadvertently produced documents will be redacted rather than withheld in their entirety. The return of any materials that are “clawed-back,” however, should not preclude the receiving party from moving the court for an order that, e.g., the information is not privileged and is not immune from production, or that the circumstances of the production in fact constituted a waiver.

      3. Tiered Categories of Information

        1. Confidential” “Attorney Eyes Only”

          The disclosure of confidential information with an “attorney eyes only” restriction is a routine feature of complex commercial litigation. See Fed. R. Civ. P. 26(c)(1)(G) (“The court may, for good cause, issue an order to protect a party … including … that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a specified way ….”).

          “Confidential” information ordinarily includes non-public information that is less sensitive to public disclosure, whereas “Confidential—Attorney Eyes Only” information is typically reserved for especially sensitive information such as technical, financial, marketing, or information useful for competitive purposes or in preparation or prosecution of a patent application relating to subject matter. The disclosing party should be responsible for designating documents as either “Confidential Information” or “Confidential Information—Attorney Eyes Only.” In some exceptional cases, there may be a benefit to additional level(s) of designation(s).

          It is preferable to grant access to a certain number of non-legal employees of the receiving party. Patent litigation often includes technical and scientific issues that make impracticable a complete division between counsel and the receiving party’s in-house technical and scientific experts. Recognizing the need for collaboration between counsel and certain of the receiving party’s employees, the following is a list of individuals who should be granted access to confidential information:

          • A limited number of specially identified employees of the receiving party whose assistance is necessary to the litigation. These individuals will generally have access to “Confidential Information,” but NOT “Confidential— Attorney Eyes Only.” Receiving parties should avoid designating employees who are involved in the research and/or development of new products. The protective order, however, could include certain additional restrictions on such employees designed to mitigate the risk that disclosed information is used for a commercial purpose unrelated to the litigation.
          • A limited number of specially identified in-house counsel and their administrative support staff. Greater scrutiny, and perhaps additional conditions to access, should be used with respect to in-house counsel who prepare, prosecute, supervise, or assist in the preparation or prosecution of any patent application that pertains to the field of invention of the patents-in-suit. Such additional conditions could include a requirement that the in-house counsel not participate in such activities while the case is pending, or for some other defined period of time. Where the receiving party is a small entity with a small team of in-house counsel, the court should consider whether a party should be exempted from restrictions on prosecution activity.
          • Outside counsel and their administrative support staff, supporting personnel, experts, consultants, or other litigation support service providers.
          • Other designated persons as agreed by the parties. In terms of the notice period required before any such disclosure is made, the receiving party should provide the disclosing party with notice approximately 10 calendar days prior to sharing information with any of the above individuals (the triggering event for this 10-day period is the notification of proposed disclosure by the receiving party). However, notice should not generally be required for disclosure to the following individuals:
            • Individuals who authored or previously received the information;
            • Rule 30(b)(6) designees, as to information authored by an employee of the company for which the designee is to testify;
            • The disclosing party’s own employees; and
            • Any individuals mutually agreed upon by the parties.

          Assuming that the parties agree to include such a designation in their protective order, the party using the “Attorney Eyes Only” designation will ordinarily bear the burden of showing that each document is sensitive enough to warrant such a restriction, and courts have threatened sanctions against parties that label documents “Attorney Eyes Only” either arbitrarily or excessively.

        2. Source Code

          Defendants and third-party software providers are not eager to produce their confidential source code, which may be subject to trade secret protection. See LinkCo, Inc. v. Fujitsu Ltd., 230 F. Supp. 2d 492, 499 (S.D.N.Y. 2002). But being proprietary or confidential does not shield source code from production. When source code is subject to very stringent protection, confidentiality concerns are often alleviated. Leader Techs. Inc. v. Facebook Inc., No. 08-862-JJF-LPS, * 7 (D. Del. Sept. 4, 2009). To adequately protect the secrecy of the disclosing party’s source code, provisions to address the following should be considered for inclusion in the protective order.

          • A separate designation for “Source Code Confidential” information (which may restrict further which individuals may have access). The term “source code” here normally includes source files, make files, intermediate output files, executable files, header files, resource files, library files, module definition files, map files, object files, linker files, browse info files, and debug files.
          • Limitation on the number of “stand-alone” (i.e., not networked) computers that receiving party may view the information.
          • “Stand-alone” computers should be provided at the offices of outside counsel for the disclosing party (or as parties agree), and when the information is disclosed at a location within the control of the disclosing party, then the receiving party should undertake the following obligations:
          • The receiving party should limit its request for access to normal business hours;
          • The receiving party should provide reasonable notice of its request for inspection; and
          • Only those designated under the protective order should be entitled to obtain access to the confidential information.
          • Source code should not be copied (except for printing out of select portion to be used at a deposition or at trial) or decompiled, although selected portions of source code may be printed for later use if labeled “Source Code Confidential” (or whatever designation the parties have previously agreed to). But see Nomadix, Inc. v. Hewlett-Packard Co., No. 09-08441 (C.D. Cal. June 21, 2011) (noting that the deposition of an engineer familiar with the code “could not reasonably be accomplished by poking through reams of paper” and authorizing electronic copies of source code).
          • The disclosing party should supply software with which to view its source code.
          • The disclosing party may supervise outside of room where stand-alone computer containing source code is located, but the disclosing party should not be permitted to review work product generated from the receiving party’s review of the source code.
          • The receiving party should keep a log of who has reviewed source code and when.
        3. Prosecution Bar

          Protective orders preventing litigation counsel from participating in the prosecution of litigation-related patents are commonplace. Prosecution bars are intended to prevent the use of confidential information obtained for litigation to strategically amend patent claims. Versata Software, Inc. v. Callidus Software Inc., No. 12-931-SLR, 2014 U.S. Dist. LEXIS 40469, at *2 (D. Del. Mar. 12, 2014) (“[T]he Federal Circuit has recognized that ‘strategically amending or surrendering claim scope during prosecution’ can implicate competitive decision-making, thus giving rise to a risk of inadvertent use of confidential information learned in litigation[.]” (internal quotation marks and citation omitted)).

          In In re Deutsche Bank Trust Company Americas, 605 F.3d 1373 (Fed. Cir. 2010), the Federal Circuit sought to clarify the law regarding prosecution bars. The Federal Circuit clarified that though a procedural matter, the scope of a proposed patent prosecution bar is an issue unique to patent law and accordingly should be governed by Federal Circuit precedent. The Federal Circuit also clarified the substance of the law regarding patent prosecution bars.

          The Federal Circuit had long held that determining whether certain counsel should be denied access to sensitive information in litigation requires an assessment of whether an “unacceptable opportunity for inadvertent disclosure exists.” Id. at 1378 (internal quotation marks and citation omitted). That fact-specific assessment is made on a counsel-by-counsel basis and turns on the extent to which the particular individual is involved in “competitive decision-making.” Id. (internal quotation marks and citation omitted). The Federal Circuit defined competitive decision making as “shorthand for a counsel’s activities, association, and relationship with a client that are such as to involve counsel’s advice and participation in any or all of the client’s decisions (pricing, product design, etc.) made in light of similar or corresponding information about a competitor.” U.S. Steel Corp. v. United States, 730 F.2d 1465, 1468 n.3 (Fed. Cir. 1984).

          In Deutsche Bank, the Federal Circuit clarified that patent prosecution “is not a one-dimensional endeavor and can encompass a range of activities,” and held that each request for a prosecution bar should be decided on its specific facts. The Federal Circuit adopted a two-step analytical framework for that fact-specific assessment:

          1. a party seeking imposition of a patent prosecution bar must show that:

            the information designated to trigger the bar,

            the scope of activities prohibited by the bar,

            the duration of the bar, and

            the subject matter covered by the bar

            reasonably reflect the risk presented by the disclosure of proprietary competitive information; and

          2. the party seeking an exemption from a patent prosecution bar must show on a counsel-by-counsel basis:
            1. that counsel’s representation of the client in matters before the [US]PTO does not and is not likely to implicate competitive decision making related to the subject matter of the litigation so as to give rise to a risk of inadvertent use of confidential information learned in litigation, and
            2. that the potential injury to the moving party from restrictions imposed on its choice of litigation and prosecution counsel outweighs the potential injury to the opposing party caused by such inadvertent use.

          Deutsche Bank, 605 F.3d at 1381.

          Often, proposed patent prosecution bars not only seek to prevent counsel from participating in normal prosecution, but also to prevent counsel from participating in re-examination proceedings either involving the patents-in-suit or for related technology. Most district courts have taken an unfavorable view of patent prosecution bars as applied to reexaminations. This is because reexamination has been viewed as “a limited proceeding assessing only the patentability of existing claims against specific prior art references.” Xerox Corp. v. Google, Inc., 270 F.R.D. 182, 184 (D. Del. 2010). Confidential information has been viewed as basically irrelevant to those determinations.6 See discussion about application of proposed bars to prevent litigation counsel from handling IPR proceedings at n. 7, infra.

        4. Experts

          District courts have extended the analysis of Deutsche Bank to apply to non-lawyers, such as expert witnesses. See, e.g., Applied Signal, 2011 WL 197811, at *4.

          In Applied Signal, the court observed that “[a]llowing experts who prosecute patents themselves to access confidential technical information without the protection of a prosecution bar . . . poses a tremendous risk of inadvertent disclosure.” Id. at *5. That court also concluded that “[r]equiring a party to replace counsel with whom they may have a longstanding relationship ‘creates a much greater burden than requiring a party to hire different experts.’” Id. (internal quotation marks and citation omitted).

          A well-designed protective order can deal with these types of concerns including, among other things, requiring advance disclosure of the name and CV of a proposed expert with an opportunity to object prior to disclosure of confidential information. In Digital Equipment Co. v. Micro Tech., Inc., 142 F.R.D. 488, 491 (D. Colo. 1992), the district court identified five factors for consideration regarding limitations on expert access to confidential or sensitive information:

          1. the expert’s affiliation with the receiving party;
          2. the extent of regular employment, consultation, or association with the receiving party;
          3. present involvement in the receiving party’s competitive decisions;
          4. the potential for future involvement of the expert in the receiving party’s competitive decisions; and
          5. if the expert’s involvement is deemed beyond the point of independent, the expert’s willingness to curtail or forego future involvement with the receiving party.
      4. Confidential Information Disclosed in Deposition

        Protective orders should permit the parties to designate some or all of a transcript as containing confidential information at the time of deposition, or within some period after the deposition. In the event that the transcript is not identified as containing confidential information at the time of the deposition, or timely thereafter, the transcript may be presumed to not contain confidential information.

      5. Non-parties

        The protective order should cover and protect third parties who may be subpoenaed to disclose information. It is also good practice to have third parties (like experts) sign a document confirming their agreement to be bound by the applicable provisions of the protective order.

      6. Sealing

        It is common to include a provision establishing a procedure that allows the parties to file material designated as “confidential” under seal and sometimes without any judicial review. Electronic court filing case management systems sometimes allow court clerks or counsel to file materials under seal without any judicial review whatsoever. While electronic filing has obvious advantages, some courts have rejected sealing provisions in protective orders allowing parties to file documents under seal prospectively without first obtaining approval from a judge. See, e.g., Stone v. Univ. of Md. Med. Sys. Corp., 855 F.2d 178, 180 (4th Cir. 1988); Proctor & Gamble Co. v. Bankers Trust Co., 78 F.3d 219, 227 (6th Cir. 1996); Citizens First Nat’l Bank of Princeton v. Cincinnati Ins. Co., 178 F.3d 943, 944 (7th Cir. 1999). Counsel should carefully review the local rules and practices in connection with formulating a protective order’s provisions regarding filing materials under seal.

      7. Use of Confidential Material in Related Cases or Proceedings

        The majority of IPRs are filed in response to parallel patent litigation. When negotiating protective orders, defendants should avoid agreeing to any provision that prevent them from using “confidential” information from the litigation in related IPR proceedings directed to the patents-in-suit.7

      8. Dispute Resolution

        The protective order should provide a mechanism and time frame for identifying and resolving disputes concerning the protective order, including designation or re-designation of information as confidential, the release of information to experts, etc.

      9. Disposition on Termination of Proceedings

        Typically a protective order will permit the parties to destroy the information or return it to the disclosing party at the conclusion of litigation. In the case of destruction of information previously exchanged, protective orders often require the parties to certify that the information has been destroyed, while also permitting outside counsel for each party to retain one record copy in the event that a subsequent dispute occurs between the parties.

    3. What to Do When the Protective Order Is Inadequate

      If a satisfactory protective order cannot be secured but another party demands discovery of valuable secrets, the only course is to rest on the objections until the other side moves to compel. Once the motion to compel is filed, the party objecting to disclosure should take care to preserve secrecy during the motion practice by requesting in camera consideration of the motion. If all goes well, the court will deny the motion or will modify the protective order to provide adequate protection for the secrets. If the motion to compel succeeds and the court orders disclosure, the party seeking to protect confidential information has limited options. See generally Cassandra Burke Robertson, Appellate Review of Discovery Orders in Federal Court, 81 Wash. L. Rev. 733 (2006).

      In general, there is no right to appeal an adverse discovery order because the order is not a “final judgment,” which ordinarily is necessary for appellate jurisdiction. 28 U.S.C. § 1291. A once-promising alternative, the collateral order doctrine, allowed appellate review of interlocutory orders that are “too important to be denied review” and “too independent of the cause itself to required that appellate consideration be deferred until the whole case is adjudicated.” Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 546-47 (1949). The circuit courts of appeals were split on this issue in the context of privileged documents, and the Supreme Court resolved the split against the right to appeal. Mohawk Indus, Inc.. v. Carpenter, 558 U.S. 100 (2009) (abrogating case law in Third, Ninth, and D.C. circuits that had allowed collateral order appeals of disclosure orders adverse to a claim of privilege). This is not wholly conclusive of the issue, because a claim of privilege may be distinguishable from claiming a trade secret interest, but this legal development shows the difficulty of finding a path to appellate review. See also United States v. McVeigh, 119 F.3d 806, 810 (10th Cir. 1997) (noting that the circuits are fairly evenly split on whether the collateral order doctrine allows appellate review of nondisclosure orders in criminal proceedings).

      One can refuse to obey the order to compel and then appeal the contempt order. See Church of Scientology of Cal. v. United States, 506 U.S. 9, 18 (1992). The underlying issue of whether the trial court provided adequate protection for trade secrets will be reviewed on appeal of the contempt order. The downside of this option is that, if the appeal is denied, the contempt order is affirmed and the effort to protect confidential information has resulted in contempt of court and the resulting sanctions. Additionally, civil contempt, unlike criminal contempt, is not immediately appealable, and the selection of civil versus criminal contempt is entirely in the discretion of the court. Thus, suffering contempt may not even result in an appealable order. Id.

      Another option is to request a discretionary appeal. 28 U.S.C. § 1292(b). A discretionary appeal is granted upon the district judge’s opinion, stated in the disclosure order, that the order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation. Id. The appeal must be lodged in the court of appeals within 10 days of the order, and the appellate court has discretion to permit the appeal or reject it. While this form of review may be helpful some of the time, it is ultimately a matter of discretion in the trial court as well as in the court of appeals whether discoverability of the confidential information involves a “controlling question of law” over which there are reasonably differing opinions and whether an appeal would materially advance the litigation to an end.

      A final option, a writ of mandamus, is another tool imperfectly suited to this problem. As “extraordinary relief,” mandamus is available only in exceptional circumstances. See Medhekar v. U.S. Dist. Court for N. Dist. of Cal., 99 F.3d 325, 326 (9th Cir. 1996). Various factors are considered for determining whether exceptional circumstances are present, primarily (1) whether the petitioner has no other adequate means, such as a direct appeal, to attain the desired relief. Id.; see also SEC v. Rajaratnam, 622 F.3d 159, 169 (2d Cir. 2010). Other factors may include (2) whether the petitioner will be damaged or prejudiced in a way not correctable on appeal, (3) whether the district court’s order is clearly erroneous as a matter of law, (4) whether the district court’s order is an oft-repeated error, or manifests a persistent disregard of the federal rules, and (5) whether the district court’s order raises new and important problems, or issues of law of first impression. Medhekar, 99 F.3d at 326 (granting mandamus to stay Rule 26(a)(1) initial disclosure discovery while a motion to dismiss was pending, upon a showing of the first, second, and fifth factors); see also Seattle Times Co. v. U.S. Dist. Court for W. Dist. of Wash., 845 F.2d 1513, 1517 (9th Cir. 1988) (granting mandamus to order unsealing of pre-trial criminal records).

    4. Court Records

      Court records are treated differently than documents produced in discovery because the legal standard for justifying confidential treatment changes when a document is filed in court in connection with a dispositive motion or as a trial exhibit. See, e.g., Level 3 Commc’ns, LLC v. Limelight Networks, Inc., 611 F. Supp. 2d 572, 589 (E.D. Va. 2009) (“[W]hen the documents currently at issue were offered into evidence for the jury’s consideration at trial, they became, simply by virtue of that event, subject to the public right of access guaranteed by the First Amendment.”). “[T]he courts of this country recognize a general right to inspect and copy public records and documents, including judicial records and documents.” Nixon v. Warner Commc’ns, Inc., 435 U.S. 589, 597 (1978).

      1. Public Right of Access

        The public right of access flows, in theory, from both the First Amendment and from the common law. See generally Reagan, supra, at 2-4. The First Amendment doctrine applies to records or proceedings which historically have been, and logically should be, open to the public, for instance criminal trials but not grand jury proceedings. E.g., McVeigh, 119 F.3d at 811; cf. Globe Newspaper Co. v. Superior Court for Norfolk Cty., 457 U.S. 596, 604 (1982) (stating that public access is a First Amendment right but acknowledging that “this right of access to criminal trials is not explicitly mentioned in terms in the First Amendment”). The constitutional test for determining whether a record may be sealed and thereby closed off from public access is whether sealing serves a compelling confidentiality interest and whether the sealing of the record is narrowly tailored to serve that interest. Trade secrets are not frequently analyzed under the constitutional test, but when they are, courts do not protect confidential business information unless its disclosure would materially harm the competitive position of the owner of the information. See e.g., Level 3 Commc’ns, 611 F. Supp. 2d at 590-91 (denying motion to seal trial exhibits because the documents were merely sensitive business information, not trade secrets).

        The common law right of public access applies primarily to evidence offered in support of the resolution of the case, such as evidence submitted with dispositive motions and trial exhibits. See e.g., Nixon, 435 U.S. at 597; see also Reagan, supra, at 12. Where the common law right of access applies, the test for determining whether a court record may be sealed varies from circuit to circuit. In the Ninth Circuit, the test is practically identical to the First Amendment test: the “strong presumption in favor of access to court records” is only overridden by “sufficiently compelling reasons for doing so.” Foltz v. State Farm Mut. Auto. Ins. Co., 331 F.3d 1122, 1135 (9th Cir. 2003). For court records unrelated to dispositive motions or trial, the standard for evading public access is the “good cause” standard of Rule 26(c). Some circuits have stated that the constitutional test imposes a higher bar than the common law, but, practically speaking, as applied to dispositive motions and trial exhibits, the common law test for denying public access is not distinguishable. Reagan, supra, at 4.

        Many federal district courts permit parties to file documents under seal in the court record, at their choosing, once a protective order is entered in the case. Although a party may feel secure because the document is filed under seal, the feeling is misleading because no determination has been made as to whether the document is properly sealed. See San Jose Mercury News, Inc. v. U.S. Dist. Court--N. Dist. (San Jose), 187 F.3d 1096, 1103 (9th Cir. 1999) (“Such blanket orders are inherently subject to challenge and modification, as the party resisting disclosure generally has not made a particularized showing of good cause with respect to any individual document.”). An inquiring journalist, litigant, or any third party may require such a determination by making a motion or by intervening in the case for the purpose of opening court records to public view. Absent a showing of a compelling interest and a narrowly tailored proposal to redact or seal valuable secrets, the records will be unsealed. This is true even for a non-party to the litigation, whose records were subpoenaed, that relies on a stipulated protective order to keep its documents confidential. See, e.g., Kamakana v. City & Cty. of Honolulu, 447 F.3d 1172, 1183 (9th Cir. 2006) (noting that “[t]he position of the United States illustrates the hazard of stipulated protective orders” and ordering the federal records unsealed).

        The litigants in Apple v. Samsung Electronics Co., 727 F.3d 1214 (Fed. Cir. 2013), spent considerable effort to maintain the secrecy of their sensitive business and technical information. During discovery and pre-trial, both parties filed sensitive financial documents under seal in the court record. In preparation for trial, the parties agreed to argue damages at trial using less sensitive, partially redacted financial records. Media representatives and public interest groups moved to disclose the records, and the district court ordered that the more sensitive financial documents in the court record be unsealed, even though those documents would not be used at trial. The parties appealed to Federal Circuit, which allowed the interlocutory appeal under the collateral order doctrine, and reversed the disclosure order. Critical to the Federal Circuit’s willingness to protect the parties’ confidential information was the fact that the parties had explained in detail for each document how disclosure of the financial information in the document would cause them competitive harm. Id. at 1223-25. The court also noted that the parties sought narrowly tailored protection. They did not seek to seal the documents in their entirety but rather they sought to redact limited portions of the documents containing detailed product-specific financial information, including costs, sales, profits, and profit margins. Id.

        1. In Open Court

          1. Defeating the Right to Access

            Requests to close the courtroom are scrutinized under the same legal doctrine of the public’s right of access as outlined above for sealing court records. “Where, as in the present case, the State attempts to deny the right of access in order to inhibit the disclosure of sensitive information, it must be shown that the denial is necessitated by a compelling governmental interest, and is narrowly tailored to serve that interest.” Globe Newspaper, 457 U.S. at 606-07 (holding that state law requiring closure of courtroom to the public during testimony of under-18 victims of sexual abuse was unconstitutional). In general, the federal courts willingly recognize trade secrets as providing a compelling reason that overrides the public’s interest in open judicial proceedings, provided that the party demonstrates to the court in camera what the trade secrets are. E.g., In re Iowa Freedom of Info. Council, 724 F.2d 658, 662 (8th Cir. 1983) (“[I]t makes no sense to say that a determination whether trade secrets are involved should be made in open court, with the hearing to be later closed only if the determination is that they are involved.”). The court in Iowa Freedom further explained: “If [the court] determines that secrets are involved, it should then return to the courtroom, announce this determination, and state that the remainder of the proceeding will be conducted in camera. If it determines that secrets are not involved, it should of course return to the courtroom and conclude the case in open court.” Id.

            The next element of the public-access analysis, narrowly tailored secrecy measures, requires that the courtroom be closed only when evidence of trade secret information is being presented. Id. at 664 (affirming trial court’s decision to close the courtroom during certain portions of the trial and to keep 62 pages of the 649-page trial transcript under seal); see also Woven Elecs. Corp. v. Advance Grp., Inc., 930 F.2d 913 (table), 1991 WL 54118, at *6 (4th Cir. 1991) (unpublished) (“[A]n order closing the courtroom during the times when trade secrets were to be exposed would have been proper.”). A request to close the courtroom should be made early, along with other pre-trial motions. Failure to make a timely request could result in waiving the opportunity to request closure and could put the party in the difficult position of choosing whether to withhold important evidence or to present the evidence in an open courtroom.

          2. Inadvertent Disclosure and the Media

            In the event that confidential information is inadvertently disclosed in open court or in a court filing, the general rule is that so long as the party takes adequate measures to recover the information, it is possible to maintain trade secret status. See Hoechst Diafoil Co. v. Nan Ya Plastics Corp., 174 F.3d 411, 418 (4th Cir. 1999). The key is to contain the secret before someone publicizes the secret. If one or more journalists are present in the courtroom, secrecy is lost unless they agree (or the court agrees on the spot to issue a temporary restraining order) to preserve secrecy.

            In general, once a journalist or other form of news reporter has access to trade secret information, disclosure of those secrets through media outlets may be impossible to stop. Numerous courts have held that to enjoin a public disclosure of a trade secret is a prior restraint on speech. CBS Inc. v. Davis, 510 U.S. 1315, 1317 (1994) (“[I]t has been clearly established that any prior restraint on expression comes to this Court with a heavy presumption against its constitutional validity.” (internal quotation marks and citation omitted)). The First Amendment prevents a court from creating a prior restraint on speech unless the restraint serves a compelling state interest, and a private party’s commercial interest in a trade secret is insufficient. Ford Motor Co. v. Lane, 67 F. Supp. 2d 745, 753 (E.D. Mich. 1999) (“Ford’s commercial interest in its trade secrets and Lane’s alleged improper conduct in obtaining the trade secrets are not grounds for issuing a prior restraint.”). Similar decisions have been reached under freedom of speech rights in state constitutions. E.g., State ex rel. Sports Mgmt. News, Inc. v. Nachtigal, 921 P.2d 1304 (Or. 1996). Although trade secrets have been found a sufficient interest to override the First Amendment in the context of closing court records and courtroom proceedings, they have not been found a sufficient interest to override the journalist’s right to speak without restraint. One exception has been recognized, where there is evidence that the journalist knew or should have known that the information was secret and had been misappropriated. See, e.g., DVD Copy Control Ass’n, Inc. v. Bunner, 75 P.3d 1, 9 (Cal. 2003) (upholding preliminary injunction against blogger who posted the plaintiff’s DVD copy control decryption keys on the Internet), as modified (Oct. 15, 2003). Absent evidence of such misconduct, the general rule is the courts will not enjoin a person from disclosing a trade secret to the world.

    V. CONCLUSION

    Trade secret issues permeate the work of patent prosecutors and litigators and frequently present some very challenging issues.

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1
In Stolle Machinery Co. v. RAM Precision Industries, 605 F. App’x 473, 484 (6th Cir. 2015), the Sixth Circuit explained that the “courts are divided about whether the UTSA preemption clause should be read literally, to displace ‘only civil non-contract remedies for misappropriation of a trade secret,’ or whether it should be interpreted more broadly so as ‘to abolish all other causes of action for theft, misuse, misappropriation of any confidential or secret information.’” (Emphasis and citation omitted.) According to the Sixth Circuit, the majority of courts have taken the broader approach. The Sixth Circuit also observed that courts are split on how to analyze whether a cause of action is based on the misappropriation of trade secrets. Generally, courts have either

  • compared the elements of the state law claim to the elements of a UTSA claim, or
  • determined whether the state law claim arises out of the same core of facts that would underlie a potential UTSA claim.
The Sixth Circuit adopted the latter approach. Accord Silvaco Data Sys. v. Intel Corp., 109 Cal. Rptr. 3d 27 (Ct. App. 2010).

2 35 U.S.C. § 102(a)(1) on sale bar now reads: “in public use, on sale, or otherwise available to the public.” (Emphasis added.) This last phrase has been the subject of considerable academic debate over whether Congress intended to overrule those cases that interpreted the prior statute to encompass secret commercial activity that does not make the invention available to interested members of the public. See, e.g., Metallizing Eng’g Co. v. Kenyon Bearing & Auto Parts Co., 153 F 2d 516, 518-20 (2d Cir. 1946). The continuing relevance of Metallizing is directly at issue in a case pending before the Federal Circuit: Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., Nos. 2016-1284, 2016-1787. The United States filed an amicus curiae brief in support of the position that the AIA overruled Metallizing.

3There is a trade secret benefit to the early filing of a patent application – the ability to keep secret later developed innovations and parameters. That information can then be protected and exploited as trade secret information. While an applicant must provide upon filing a complete description of the invention including the best mode contemplated by the inventor, most patent applications will be filed before the underlying product or method is finalized or ready for market or commercial use. Even though development often continues after the patent application is filed, a patent applicant may keep any later developed information secret.

4 Before the AIA, derivation issues arose before the Board of Patent Appeals and interferences in the context of interferences. Under former 35 U.S.C. § 102(f), a person was not allowed to obtain a patent if “he did not himself invent the subject matter sought to be patented.” Under the AIA, interferences will eventually be eliminated as U.S. patent practice moves to a modified first-to-file system.

5 Although it may be possible to obtain title to a patent application through judicial process, it is practically difficult to obtain the documentary evidence of the transfer, as required to become the applicant under § 3.73, in sufficient time to prevent publication of the application. See generally Kevin M. Mason, Does a Patent Reassignment Remedy for Technology Misappropriation Leave the True Inventor Holding an Empty Bag? 66 St. John’s L. Rev. 1147 (1993).

6 For a good discussion of all of these issues see University of Virginia Patent Foundation v. General Electric Co., No. 3:14cv51 (W.D. Va. June 11, 2015). After an excellent analysis of competing authorities and considerations, the Court entered a protective order with the following provisions related to patent activities:

Persons entitled to access “CONFIDENTIAL OUTSIDE COUNSEL EYES ONLY” materials shall not provide input to, or participate in the drafting, amending, or prosecution of patent applications, including reissue patent applications, related to the “CONFIDENTIAL OUTSIDE COUNSEL EYES ONLY” material actually received or reviewed by the person for the duration of one year following completion of this case. The restrictions of the foregoing sentence explicitly do not apply to reexaminations, inter partes reviews, or post-grant reviews of the patents-in-suit filed by a party other than the patentee, so long as persons entitled to access “CONFIDENTIAL OUTSIDE COUNSEL EYES ONLY” material do not draft new claims or restructure or amend existing claims.
Persons entitled to access “CONFIDENTIAL OUTSIDE COUNSEL EYES ONLY” materials shall not, for the duration of one year following completion of this case, participate in the acquisition of patents or patent applications, or the rights to any such patents or patent applications with the right to sublicense, related to the field of U.S. Patent No. RE44,644, or related to the field of any of Defendant’s products that Plaintiff alleges infringe the ’644 Patent.

Slip op. at 11-12.

7 The potential application of a patent prosecution bar to IPR proceedings presents special problems, particularly where litigation counsel is leading both the litigation and the IPR defense. The party asserting the patents in suit may be at a severe disadvantage if its litigation counsel is not permitted to defend an IPR proceeding patents in suit may be at a severe disadvantage if its litigation counsel is not permitted to defend an IPR proceeding involving the same issues and prior art raised in litigation. District court decisions following Deutsche Bank have been liberal in allowing trial counsel to be involved in IPR proceedings, post-grant proceedings, and reexaminations. See, e.g., Endo Pharmaceuticals Inc. v. Amneal Pharms Inc., et al., No. 1:12-cv-08115-TPG-GWG, at *25 (S.D.N.Y. Aug. 13, 2014) (“Amneal’s protective order, which states that Dechert may not become ‘involved in prosecution of patent applications,’ does not bar Dechert from participating in the inter partes review proceedings.”); accord Affinity Labs of Tex., LLC v. Samsung Elecs. Co., No. 1-12-CV-557, 2013 U.S. Dist. LEXIS 188485 (E.D. Tex. Nov. 18, 2013) (similarly limiting prosecution bar to permit litigation counsel to participate in post-grant proceedings); John v. Lattice Semiconductor Corp., No. C 12-04384 PSG, at *6-7 (N.D. Cal. May 7, 2013) (permitting plaintiff’s counsel to participate in re-examination proceedings “where, as here, reexamination or review proceedings are really nothing more than an extension of the litigation in the district court…. [I]f the PTO and district court are just two fronts in the same battle, allowing a limited role for a patentee’s litigation counsel while prohibiting counsel from crafting or amending claims is reasonable.”); Grobler v. Apple Inc., No. C 12-01534, 2013 U.S. Dist. LEXIS 65048, at *5 (N.D. Cal. May 7, 2013) (“[A] limited rather than complete bar on litigation counsel’s reexamination and review activities … strikes the right balance . . . .”).

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Randolph C. Foster
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