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Patents or Trade Secrets? Yes, Please.

14 June 2017

Most energy companies implement Intellectual Property (“IP”) strategies to protect and exploit company IP (offense) and navigate third-party rights (defense). Traditionally, these policies emphasize patents. But today’s IP-savvy energy companies strategically manage both patent and trade secret portfolios throughout a company’s particular energy sector focus.

The ascendance of trade secrets reflects recent strengthening of U.S. trade secret law, particularly on a national level. In the Defend Trade Secrets Act (“DTSA”) of 2016 (encoded at 18 U.S.C. § 1836, et seq.), Congress created a federal civil cause of action for trade secret misappropriation. Prior to the DTSA, civil trade secret causes of action were governed by a patchwork of various state laws, which increasingly but not exclusively meant the Uniform Trade Secrets Act (“UTSA”).

The ascendance of trade secrets also reflects recent changes in patent law. Through the Leahy-Smith America Invents Act of 2011 (“AIA”), Congress reformed third-party challenges to issued patents (now called Inter Partes Reviews, or IPRs) and created other post-grant proceedings, including a transitional program for evaluating the validity of covered business method (CBM) patents. In Alice Corp. v. CLS Bank International, 573 U.S. __, 134 S. Ct. 2347 (2014), the United States Supreme Court revised the test for invalidating a patent as an abstract idea. Collectively, these changes have resulted in numerous issued patents being invalidated. In addition, the AIA created a limited defense to patent infringement based on prior commercial use (at 35 U.S.C. § 273). Thus, the maintenance of trade secrets, at least for certain subject matter, may be more attractive than the pursuit of patents.

To protect and exploit trade secrets (offense), today’s IP-savvy energy companies have repurposed traditional patent-focused models—including invention disclosures, invention disclosure review boards, IP steering committees, awards to inventors for filed and issued patents—to incorporate trade secrets. For example, a repurposed invention disclosure review board may determine to keep an invention as a trade secret and document its development and commercial use, rather than to seek patent protection. In general, trade secrets may offer the best protection for relatively short-lived technologies (with life cycles shorter than typical 3-year patent prosecution time framework) or extremely-long-lived technologies (with life cycles longer than the typical 20-year patent term).

Nonetheless, patent protection remains extremely important to IP-savvy energy companies, because patents and trade secrets represent fundamentally different types of protection. Patents involve filing and prosecution before the United States Patent & Trademark Office; accordingly, patents have a presumption of validity in court proceedings. Unlike trade secret protection, independent invention is not a defense to patent infringement (except to the AIA narrow exception for prior commercial use). In general, patents offer the strongest protection for truly pioneering inventions and also inventions that can be reversed-engineered.

In addition to strategies to protect and exploit company IP, today’s IP-savvy energy companies have policies to navigate third-party rights (defense). Traditionally, third party patent rights are identified through, e.g., patent landscape and freedom-to-operate opinions. Given the ascendance of trade secrets, however, incoming employees may now be required to attend confidentiality training immediately upon joining a company and also to represent in writing that they are not in possession of trade secrets or other proprietary information from their prior employment. 

Energy disputes today involve patent infringement as well as trade secret misappropriation, sometimes in the same litigation. Accordingly, today’s IP-savvy energy companies implement policies for strategic portfolio planning, as well as litigation strategies, which include both patents and trade secrets.

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