Patents and trade secrets are different animals. Both are vital to the biotech industry, and companies routinely use both to further their goals. Yet, they protect different facets of a technology in different ways for different durations with different outcomes.
Federal law and state law govern trade secret protection. As such, there is no one universally applied definition of this term. Generally, though, a trade secret is understood to be information—whether scientific, technical, financial, or business—that satisfies two criteria. First, the information must derive economic value from not being known to, and not being readily ascertainable through proper means by, others who could obtain value from its disclosure and use. Second, it must be the subject of reasonable efforts to maintain its secrecy. Virtually any kind of information can be a trade secret, as long as it satisfies these two criteria.
A patentable invention can be a trade secret. That is, instead of seeking patent protection for an invention, an invention’s owner can instead keep it as a trade secret indefinitely. Or, its owner can briefly preserve its trade-secret status while taking the first steps to patent it. A nonpatentable invention can also be a trade secret, as can an invention for which patent protection would be difficult to obtain or of dubious value.
Know-how merely relating to a patented invention can also be a trade secret. However, the patent owner must be careful that omitting this know-how from the patent does not compromise the patent’s validity by violating the enablement requirement (discussed in chapter 4).
Reasonable efforts to maintain secrecy take many forms. These include, for instance, educating employees on confidentiality and having them sign confidentiality agreements (covered in chapter 18), internally screening proposed public presentations and papers beforehand for inadvertent disclosures of company secrets, codifying secret reagents and procedures, marking confidential documents as such, and physically controlling access to secret information by employees and outsiders.
Unlike a patent, a trade secret has no set term and does not expire. Once a trade secret becomes public, though, it is no longer secret, and its value is lost. This is true when a third party independently conceives it, reverse engineers it, or divulges it via an act of computer hacking. It is also true when the trade secret is misappropriated, such as by a disgruntled employee, even if the trade secret’s owner may be entitled to damages from the party who misappropriated it.
EXAMPLE 13.1
Company X, a U.S. company, makes DNA microarrays and sells them internationally. Each microarray contains a plastic chip having thousands of twenty-five-mer DNA oligonucleotides (oligos) bound to the chip at specific locations.
Ten years ago, scientists at Company X developed the method that the company uses to affix oligos to the chip. This method permits Company X to make its chips with greater precision than it could by using known methods. Moreover, the method cannot be determined—that is, reverse engineered—by studying the finished DNA microarray.
Shortly after the method’s invention, Company X’s patent counsel opined that if the company were to try to patent the method in the United States, the Patent Office would likely deem it obvious over the prior art. She also opined that even if allowance were ultimately possible in the United States or internationally, obtaining a patent with sufficiently broad claims would likely take years. In the meantime, Company X’s attempt to patent the method internationally—even if successful—would at least require making the method public via the publication of a PCT application. This, of course, would disclose the method to competitors. These competitors would then be free to practice it in any country until a patent is granted in that country, if ever.
As a practical matter, Company X would have great difficulty enforcing the patent, since a competitor would not likely advertise its use of the method, and this use would not otherwise be evident from inspecting the competitor’s DNA microarray.
On the advice of counsel, Company X opted to keep its manufacturing method a trade secret. Toward that end, Company X has taken reasonable steps to maintain the method’s secrecy. These steps include keeping all reagents and equipment under lock and key, password-protecting all protocols, and informing employees about the method only in confidence and on a need-to-know basis.
Given these facts, Company X’s method constitutes a trade secret. That is, it is information deriving economic value from not being known to, and not being readily ascertainable through proper means by, competitors who could obtain value from its disclosure and use. It is also the subject of reasonable efforts to maintain its secrecy.
EXAMPLE 13.2
Assume the same facts as in example 13.1. That is, Company X makes DNA microarrays and sells them internationally. The company makes the microarrays using a method that it has kept as a trade secret since its invention ten years ago.
Here, though, Company X’s trade secret relates to another invention that the company has already patented (albeit problematically, as will be discussed). Specifically, ten years ago when scientists at Company X invented the now trade secret–protected method, they concurrently invented the resulting DNA microarray. Owing to the precision with which it is made, the microarray itself has physical properties that make it superior to other microarrays.
Shortly after the DNA microarray’s invention, Company X filed a U.S. patent application claiming the microarray. The claims recite the microarray’s superior physical features. The application eventually issued as a U.S. patent. Importantly, given Company X’s decision to keep as a trade secret its method for making the patented microarray, the patent does not disclose this method, nor does it disclose any other method for making the microarray.
Company X’s omission from the patent of its trade secret–protected method jeopardizes the patent’s validity. That is, as of the patent application’s filing date, and without knowing Company X’s method, one skilled in the field of making DNA microarrays would not have been able to make the claimed microarray absent undue experimentation. Thus, the patent’s microarray claims are not enabled. If Company X were to sue a competitor for infringing its patent, the competitor could defend itself by showing, among other things, that the claims are invalid for lack of enablement (a defense covered in chapter 10).
Despite all of this, Company X’s method still constitutes a trade secret. It derives economic value from its secrecy. It cannot be reverse engineered. And, it is the subject of reasonable efforts to maintain its secrecy. The existence of Company X’s patent, however defective, does not change this fact.
It is axiomatic that one cannot patent a technology while at the same time keeping it a trade secret. One must decide between the two. So, to protect a given technology, should one patent it or keep it as a trade secret? Which approach would yield the greatest economic benefit? Which would best accomplish a company’s tactical goals? In short, which is the better approach?
There is no all-purpose answer to this question. The answer is always fact specific and depends on a host of factors.
For example, is the technology patentable? If not, keeping it as a trade secret may be the only option. If so, there is then a decision to be made between patent and trade-secret protection depending on other factors, which we will discuss. If the technology is patentable, would the patent claims be broad enough to be commercially meaningful? At the very least, would the claims be broad enough to justify the cost of pursuing patent protection in the first place?
What is the technology’s expected commercial life? Is it twenty years and thus long enough to reap the benefits of patent protection (assuming it is in fact patentable)? Or, is it one or two years, making the technology obsolete by the time a patent could even be granted?
Is the technology reverse engineerable? That is, would a competitor be able to understand the technology by analyzing a publicly available product that embodies it? If so, trade-secret protection would be inappropriate. If not, trade-secret protection might be appropriate, as might patent protection, depending on other factors.
One such factor is whether the technology—even though not reverse engineerable—would otherwise be difficult to keep secret. Is the technology simple? Is it easy to relay orally? Must many people in a company know of the technology? Will those in possession of the technology likely join competing companies later on, where pressure exists to divulge it? An answer of yes to any of these questions may render trade-secret protection unrealistic for a technology, even if it cannot be reverse engineered.
Patenting a technology requires prosecuting patent applications in multiple countries for years at a cost routinely exceeding $100,000. Trade secret protection does not. It does not require preparing or filing an application or other document with a government agency. A trade secret need not be registered. And maintaining a technology as a trade secret requires no fee, annuity, or surcharge.
EXAMPLE 13.3
Scientists at Pharma X invented a modified tripeptide compound (TPX). Preliminary in vivo studies showed that TPX kills methicillin-resistant Staphylococcus aureus (MRSA). Pharma X is interested in developing TPX as an oral anti-MRSA drug.
If Pharma X successfully develops TPX and the FDA approves it, the drug would have an expected product life of at least thirty years. The expected profits from an approved TPX product over the course of its commercial life exceed $1 billion. TPX is reverse engineerable. And, regardless, its chemical structure would become public in connection with its regulatory approval and marketing.
Patent protection would be appropriate for TPX, as it would be for any drug (a topic discussed further in chapter 14).
First, TPX is a non–naturally occurring compound and hence patent eligible. Assuming that it is also new, useful and nonobvious, TPX is also patentable. (Note: As a general matter and independent of a therapeutic context, a compound’s patentability makes such protection at least a viable choice, although, by itself, it does not remove trade-secret protection from consideration.)
Second, and as mentioned, the compound’s structure would become public through both reverse engineering and structural disclosure. This fact alone rules out the viability of trade-secret protection.
Third, with therapeutic patents, a narrow species claim encompassing only the drug itself, without more, is often the most commercially valuable. What is more, a claim to a modified tripeptide genus that includes TPX can also be of value. This is especially true, for example, if the genus claim encompasses a TPX analog that Pharma X may later decide to develop and market instead of TPX.
Finally, TPX’s expected profitability would vastly outweigh any patenting costs.
For at least these reasons, patenting TPX would be appropriate, whereas relying on trade-secret protection would not.
EXAMPLE 13.4
Scientists at Pharma X invented a cell-based assay (Assay X) for rapidly screening compound libraries for compounds that kill MRSA.
Pharma X intends to use Assay X in house to screen its own existing libraries and those it plans to license in the coming months. The company has no intention of disclosing Assay X to any third party such as a contract research organization. And the company will perform the Assay X–based library screening at minimal cost, without generating revenue from Assay X per se.
Pharma X plans to use Assay X for about eighteen months. Ideally, by using Assay X, Pharma X will identify one or more compounds that it can develop as anti-MRSA drugs. Regardless of whether this effort succeeds, Pharma X does not plan to use Assay X beyond this time frame.
For each anti-MRSA drug candidate identified using Assay X, Pharma X plans to patent the compound itself if new, or at least methods of using the compound to treat MRSA infections. Moreover, for any anti-MRSA drug developed, competitors would be unable to reverse engineer Assay X by studying the drug.
Trade-secret protection would be appropriate for Assay X.
First, the eighteen-month duration of Pharma X’s planned Assay X use makes patent protection virtually pointless. Obtaining a patent typically takes years, and Pharma X would have no use for a patent claiming a method that would be obsolete by the time the patent is issued.
Second, Pharma X’s in-house Assay X use (presumably the subject of reasonable secrecy efforts) and the assay’s lack of reverse engineerability favor trade-secret protection. Likewise, the absence of expected income from Assay X per se supports keeping it as a trade secret.
These factors alone—and especially the brevity of the planned Assay X use—rule out patent protection for Assay X as a viable option. This renders the question of Assay X’s patentability a moot point. (Note: When patentability is not a moot point, an important consideration is the ease with which the patent holder can identify and stop infringing conduct. When the patented invention is an assay for in-house use, and the resulting products are not reverse engineerable, identifying and pursuing infringers is difficult, if not impossible.)
For at least these reasons, keeping Assay X as a trade secret would be appropriate, whereas pursuing patent protection would not.
As we learned in chapter 3, it is difficult to patent certain technologies in the United States. In Mayo v. Prometheus, the Supreme Court made patenting diagnostic methods harder than it had been previously. And, in Alice Corp. v. CLS Bank and AMP v. Myriad, the court did likewise with patenting software and isolated naturally occurring molecules (e.g., DNA), respectively. A company based on technology that is difficult to patent might rely more heavily on trade-secret protection to maintain its competitive edge. Similarly, a company facing the imminent expiration of commercially important patents might employ trade-secret protection to help compensate for that loss.
Myriad Genetics embraced this approach by relying on trade-secret protection for its BRACAnalysis program. Its strategy inspired the following example.
EXAMPLE 13.5
Biotech X provides a DNA-based prognostic test for breast cancer. Its test determines the presence or absence of certain mutations in the BRCA1 and BRCA2 genes.
If Biotech X’s test does not detect any mutation known to correlate with an increased risk of breast cancer, the patient is notified of this fortunate result. If it does detect such mutations, the patient is notified and can then decide what steps she should take. Depending on the mutations and their associated risks, next steps can be anything from vigilant cancer screening to a preemptive double mastectomy. For obvious reasons, test accuracy is vital.
In most cases, Biotech X’s test can readily determine the presence or absence of harmful mutations. This in turn gives the patient either the relief of knowing that she is not predisposed to developing breast cancer or, at worst, the clear knowledge that she is predisposed and must take appropriate action. Either way, this test yields a definitive answer in most cases.
In some cases, it does not. In those cases, the test identifies at least one variant the significance of which is unknown regarding predisposition to developing breast cancer. This variant is referred to as a variant of unknown significance (VUS). Understanding the role of VUSs and ascribing to each one a prognostic role is the focus of intense ongoing research by Biotech X and others in the diagnostic industry.
In that regard, it is important that understanding the role of a VUS removes its VUS status and renders it a mutation having a known role that is either harmless or harmful. As a corollary, a variant in the hands of a company that understands its role is not a VUS, even though it is a VUS in the hands of a company that does not.
Biotech X has built a large portfolio of patents to protect its test. However, some of those patents have expired, while others were adversely affected by the Supreme Court’s AMP v. Myriad decision.
Earlier, while relying on patent protection for its test, Biotech X collected data on VUSs identified in the course of performing its test. It also analyzed these VUSs to understand their significance and developed complex algorithms and other methods toward that end. This information, including a database of former VUSs having significance now known only to Biotech X, is proprietary to Biotech X. That is, Biotech X relies on trade-secret protection for its VUS database and related information (while concurrently relying on its waning patent protection for other aspects of its test).
In performing its test, interpreting the results, and advising patients accordingly, Biotech X relies on its own trade secrets, as well as publicly available BRCA1- and BRCA2-related information. Biotech X therefore has an advantage over competitors that lack these trade secrets and must rely to a greater degree on publicly available information.