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2020 ACC SoCal In House Counsel Conference #IHCC201
Presented By:
Rebecca Edelson, Partner, Sheppard Mullin
Steven Hollman, Partner, Sheppard Mullin
Seong Kim, Partner, Sheppard Mullin
Moderator: Harrison Perla, Esq. - CEVA, Inc.
ACC SOUTHERN CALIFORNIA IN
HOUSE COUNSEL CONFERENCE
CHOOSING BETWEEN PATENT AND TRADE
SECRET PROTECTION:
WHEN, WHY AND HOW?_________________________________________________January 23, 2020 Sponsored By:
Universal Hilton
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Steve has lectured on IP trial practice and on patent, trademark, trade secret,
copyright, ITC and advertising issues in the U.S., China, Japan and Hong Kong and
has taught Trademark Enforcement for the D.C. Bar for over 15 years. He is a past
member of the Board of the Federal Bar Association for Maryland and a past
President of the Court of Federal Claims Bar Association.
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Defend Trade Secrets Act Supplement
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▪ Valuable assets. E.g. a patent portfolio can be: (i) used to deter bad
behavior (threat of litigation); (ii) licensed (for valuable consideration);
or (iii) leveraged in business or settlement negotiations.
▪ The law protects owners of valuable assets so they can sue and
obtain monetary or other relief against individuals or entities that
wrongfully use the valuable assets without consent.
– A patent covers an invention, and the federal government
provides a remedy to the owner if others attempt to make/use
the invention.
– A trade secret is a valuable secret that the owner must
continually try to keep secret, and states and the federal
government allow the owner to recover when others try to steal
the secret.
IP Generally
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▪ First inventor to file gets protection
▪ New and non-obvious
‒ Different from anything published by you* or anyone else
worldwide.
‒ * The U.S. provides a one-year grace period for your own activity,
but the uncontrollable activity of others can destroy your grace
period.
‒ Cannot be a common sense application of existing tools
▪ Disclosure
‒ Automatically published at 18 months if pursuing international
rights
‒ Automatically published on patent grant
▪ Patentable subject matter
‒ Needs a technical point of novelty, where “technical” means “not
an abstract idea, law of nature, or natural phenomenon” and the
“point of novelty” is an “inventive concept”
1. Patents: What are the basic requirements?
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To be patent eligible, the claim must check all of the boxes:
▪ Facially directed to a process, an article of manufacture, a machine, or a
composition of matter (Nuijten)
▪ Claim must either be:
(a) directed to a technical point of novelty, or
(b) if not directed to the technical point of novelty, somewhere in the
claim recite a technical point of novelty (i.e., an inventive concept
that is left over after abstract ideas, laws of nature, and natural
phenomena are removed from the claim). (Alice and Mayo)
▪ The claim cannot wholly preempt any abstract idea, law of nature, or
natural phenomenon (Alice and Mayo)
▪ The technical point of novelty must be described at a lower level of detail
in the specification (Vehicle Intelligence)
Patentable Subject Matter
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▪ Short-term, strong and exclusive protection – confers exclusive right to
prevent others from making/using/selling.
▪ Tangible form of ownership and protection granted by the USPTO.
Can show and market to third parties, such as investors and
licensees.
▪ If uncertain as to how an idea should be protected, can file a provision
patent application.
Benefits of Patent Protection
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Patents have a minimum cost associated with attorneys’ fees and patent
office fees for obtaining and maintaining a patent.
Hypothetical
You manage a patent portfolio of 10,000 U.S. patent applications, and
you are deciding which patent applications to file this year, which
attorneys should prepare the patent applications, and which claims to
pursue in those applications. At any given time, up to 50 patent
applications (0.5%) in your portfolio likely serve as an 80% likely deterrent
to $1 billion dollar patent litigation that is otherwise likely to occur with a
competitor. Assume that is your only use case for the patents.
Assume allowance rates of 80% and an average cost of $40K to obtain &
maintain.
The expected value, absent costs, of an unfiled patent application is
$64K.
The expected value including costs is $24K.
Patent Cost-Benefit Hypothetical
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▪ 35 U.S.C. § 100(f) defines “inventor” as “the individual . . . who
invented or discovered the subject matter of the invention.”
▪ On December 20, 2019, the European Patent Office (EPO) rejected
two patent applications where the inventions at issue were created by
artificial intelligence, ruling that an inventor must be a human being.
▪ EPO noted that machines do not have a legal personality, cannot own
property, cannot have a family and given names, and cannot own
rights to an invention or transfer such rights.
▪ What about patent protection to owner of artificial intelligence?
▪ Should degree of human involvement in invention matter?
Can Artificial Intelligence Obtain Patent Protection?
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▪ The USPTO recently solicited public comments about
whether it should consider artificial intelligence to be an
inventor on patents. In November 2019, several industry
groups responded that the USPTO should not grant such
protection.
▪ The American Intellectual Property Law Association
(AIPLA) has argued that allowing artificial intelligence to
obtain patent protection would change U.S. patent law and
regulations.▪ U.S. law requires inventors to submit a declaration that they
believe themselves to be the original inventor.▪ Potential litigation pitfall—impossible to depose inventor about
contributions to invention.
Can Artificial Intelligence Obtain Patent Protection?
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▪ Information (formula, pattern, compilation, program device, method,
technique, or process), technical or otherwise
▪ Derives independent economic value (actual or potential) from not
being known or readily ascertainable, and
▪ Is subject to efforts reasonable under the circumstances to maintain
secrecy.
2. Trade Secrets: What are the basicrequirements?
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▪ The extent to which the information is known outside the business.
▪ The extent to which the information is known by employees and others
involved in the business.
▪ The extent of measures taken to guard/protect the information.
▪ The value of the information to the company and its competitors.
▪ The time, effort and money expended in developing the information.
▪ The ease or difficulty of acquisition or duplication by others.
Factors Relevant to Constitute a “Trade Secret”
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▪ No inherent limitation on the duration of trade secret protection.
▪ Value is in secrecy. Maintaining secrecy is realistic and can be cost-
effective.
▪ Provides protection against misappropriation (i.e., obtaining the
information by improper means, such as theft, bribery,
misrepresentation, breach of a duty to maintain secrecy, espionage,
inducement) and against disclosure without consent.
▪ Significant risk that the patent (or material part) will not be granted.
▪ Patent litigation is prohibitively expensive or risky.
▪ Concern foreign jurisdictions won’t enforce your patent rights.
Benefits of Trade Secret Protection
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▪ A formula, spice blend or recipe.
▪ Source code, object code, architecture for computer software.
▪ Production-related information, such as product schedules, roadmaps,
capabilities of future releases of technology, capabilities of other
products that the owner is developing.
▪ Information about how certain technology was developed; engineering
solutions employed by the owner to solve problems.
▪ Information about confidential, third-party cooperative relationships.
▪ Information about how certain technology compares with competing
products.
▪ Sales and marketing information, including the identity of customers.
▪ Financial information such as budgets, margins, profits.
▪ Strategic business plans, including either technical information or
strategic/financial/marketing information.
▪ Combinations of generally known information.
Trade Secret Examples
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▪ Contracts
▪ Non-Disclosure Agreements for customers, prospective customers
and employees.
▪ Employee Compliance Certificates and Confidentiality Agreements
▪ Computer Passwords
▪ Encrypted E-mails
▪ Protected Web Sites/Firewalls
Example Efforts To Maintain Secrecy
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▪ Restricted Information Flow (e.g., provided on a “need to know” basis).
▪ Monitoring of Offices – Monitored or Locked Entrances, Badges and
Escorts for Visitors
▪ Marked as “Confidential”
▪ Shredding Documents
▪ Education – Information Protection Guidelines
▪ Letters to Departing Employees/New Employers
Example Efforts To Maintain Secrecy (con’t)
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▪ If it is potentially valuable and secret for a very long time, consider
trade secret protection.
▪ Formula for “Coca-Cola”:
‒ Invented by Pemberton, a morphine addict.
‒ Created Coca-Cola by mixing coca-leaf and African kola nuts
which contain caffeine.
‒ Initially sold as Pemberton’s French Wine Coca by adding cocaine
to low-grade red wine.
‒ Changed name to “Coca-Cola” and sold it as a temperance drink
during the prohibition in 1886.
▪ Formula for “Pepsi Cola”:
‒ Invented in 1893 by a medical school dropout.
‒ Created Pepsi Cola as a drink to cure dyspepsia (stomach pains).
‒ Recipe contains pepsin (digestive enzyme from a pig’s stomach).
‒ Initially sold as Pepsin Cola and later as Pepsi Cola.
Illustration: Coca-Cola v. Pepsi
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The Coke recipe, aka “Merchandise 7x”: Coca-Cola has a company policy
that only two company officials will be allowed to know the soft drink recipe
at any given time, and their identifies are never to be disclosed for any
reason. No one could view the formula without written permission from the
Board, and then only in the presence of the President, Chairman, or
Corporate Secretary.
Coca-Cola
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Unlike Coca-Cola’s famous security measures, Pepsi apparently does not
talk about its security measures for its existing formula. Its 2018 Annual
Report says: “We protect our [IP] rights globally through … trade secret
laws, …[NDAs] and monitoring of … misuses of our [IP].”
Pepsi, however, is famous for alerting competitor Coca-Cola to a former
Coca-Cola’s executive’s plot to sell Coca-Cola’ secret formula to Pepsi.
Pepsi
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3. What is the difference between a patentand a trade secret?
PATENT TRADE SECRET
Invention, including that implemented by
code or algorithms
Information, including code or algorithms
Disclosure required Secrecy required
Monopoly without inherent right to use No monopoly, but also difficult for others
to detect use
Limited duration No time limit
Requirements: New, non-obvious,
patentable subject matter
Requirements: Derives economic value
from its secrecy and is the subject of
reasonable efforts to maintain its secrecy
Registration required with the US Patent
Office. First to file has priority and filing
must occur before publication in many
countries/circumstances
No registration process and thus no race
to apply for protection
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3. What is the difference between a patentand a trade secret?
PATENT TRADE SECRET
• Easily reverse engineered. • Potentially longer life than patent
term.
• Outsourcing (access not as
confined).
• In-house development/use
(access confined).
• Cost of obtaining patent have
a high floor in the tens of
thousands of dollars
• Cost of reasonable efforts to
protect secrecy of information
dependent on the efficiency of
internal policies in different
circumstances
• Modifications patentable. • Modifications may not be
patentable.
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▪ Does the invention meet the legal requirements for patentability (new,
not obvious, useful and patentable subject matter)?
▪ Will the invention be useful beyond 20 years?
▪ Is the invention detectable and embedded in the product itself, or is
the outcome of an internal manufacturing process?
▪ Is it likely the invention will be discovered independently in the short
term? Is it reverse engineerable?
▪ Is the product readily observed in public settings?
▪ Will your company use contract manufacturers and contract research
organizations?
▪ Do you want to license the technology (inherently placing at risk
secrecy of a trade secret)?
▪ Is it possible to use a combination of trade secrets and patents to
maximize protection?
▪ Do you want to be able to wave around to a jury a U.S. Government-
issued patent?
Questions to Consider
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▪ Copyrighto Protects original expression, and the federal government provides a remedy to the
owner if others copy without consent.
o To copyright something, three elements are required: (1) fixation, (2) originality, and
(3) expression.
o Not indefinite—95 years from first publication of 120 years from creation, whichever
is shorter.
▪ Trademarko A recognizable sign, design, or expression which identifies for consumers the
source of products or services.
o Must show “actual use” and must be “distinctive.”
o No set term—can last indefinitely if actual use shown.
▪ Trade Dresso Characteristics of the visual appearance of a product or its packaging that signify
the source of the product to consumers.
o For trade dress to be considered inherently distinctive, courts have generally
required that it must be unusual and memorable, conceptually separable from the
product, and likely to serve primarily as a designator of origin of the product.
Other Types of IP Protection
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Questions?
www.acc.com/chapters-networks/chapters/southern-california
January 23, 2020
17th ANNUAL
IN HOUSE COUNSEL CONFERENCE
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