Authored by James R. Barney
With the signing of H.R. 3194 on November 29, 1992,1 Congress added section 273 to Title 35, entitled "defense to infringement based on earlier invention." This provision, better known as the "prior user defense," is Congress' response to State Street Bank and Trust v. Signature Financial Group,2 in which the U.S. Court of Appeals for the Federal circuit held that methods of doing business can be patented if they produce a useful, concrete and tangible result. To quell the financial industry's fear of liability, Congress seized upon the prior user defense—a well-worn provision that had already made four unsuccessful trips through Congress3—and quickly tailored it into an oddly-contrived shield against business method patents. As the legislative dust is settling, many practitioners are left wondering what the real impact of section 273 will be on the patent law. Will it aid judges in the cohesive administration of the patent law, or will it devolve, in the words of Rep. Lofgren, into "sausage making?"4
The prior user defense suffers from a number of technical and theoretical defects. Of immediate concern is the vagueness of section 273 itself, which purports to apply to "methods of conducting business" without actually defining what that term means. Even this thorny issue of statutory interpretation, however, pales in comparison to the deep theoretical rifts that section 273 introduces into the patent law. Among the troubling inconsistencies created by section 273 is Congress' apparent elevation of trade secret protection over patent protection, which undercuts one of the primary ambitions of the patent law—encouraging prompt disclosure of new inventions. Also deeply troubling is the implicit rejection of the "non-informing public use" doctrine and Congress' apparent willingness to let accused infringers escape liability without challenging the validity of overly broad business method patents. In the end, section 273 promises to create many more problems than it solves, and while the financial services industry may have scored a short-term victory, in the end the real losers will likely be the public . . . and the patent system itself.
The Ambiguous Scope of Section 273
Under Section 273(b)(1), a person accused of infringing one or more "method" claims may escape liability if, acting in good faith, he "actually reduced the subject matter to practice at least 1 year before the effective filing date of such patent, and commercially used the subject matter before the effective filing date of such patent."5 The term "method" is defined in section 273(a)(3) as "a method of doing or conducting business." In the coming months, district courts will be faced with the critical task of defining what "method of doing or conducting business" means, which, in turn, will determine the scope of the prior user defense. In conducting this task, courts are likely to use one of three interpretive approaches, ranging in scope from narrow to broad.
A narrow interpretation of section 273 would limit the prior user defense to asserted claims that explicitly recite a "pure" method of doing business—that is, without a physical or software embodiment. This interpretation, though narrow, would be in full accord with the literal language of section 273. Under this interpretation, the defense would not be available against claims for computerized methods, even those that perform traditional business functions. For example, while Amazon.com's claim for "a method of placing an order for an item"6 might be sufficiently abstract to warrant the defense, Priceline.com's claim for "a method for using a computer to facilitate a transaction between a buyer and at least one [seller]7 probably would not.
A more moderate interpretation of section 273 would allow an accused infringer to assert the prior user defense against any claim that recites a "business method," as that term was understood prior to State Street Bank. Under this interpretation, an appropriate test for determining whether a claim recites a "business method" would be whether the claim could have been patented over the "business method exception" that purportedly existed prior to State Street Bank. In other words, if a claim were sufficiently concrete to warrant patentability under In re Allapat,8 or some other benchmark predating State Street Bank, then it would not be susceptible to the prior user defense.
Of course this "retrospective" approach suffers from a kind of logical surrealism. According to State Street Bank, there never was a business method exception to patentability, at least not since the Patent Act of 1952.9 Instead, the court characterized the so-called business method exception as "ill-conceived," tantamount to a myth.10 Nonetheless, while the business method exception may have been a myth, it is abundantly clear that many people believed it existed and also believed that, prior to State Street Bank, it prevented business methods from being patented.11 The goal of the "moderate" approach, then, would be to divine the scope of the "business method exception" as it was perceived by the drafters of section 273. Admittedly, this is a bizarre test, but it approximates the bargain that was struck in Congress regarding the scope of the prior user defense; that is, it would limit the defense to the contours of State Street Bank.12
A broad interpretation of section 273 would expand the prior user defense beyond the contours of State Street Bank. This interpretation would allow an accused infringer to assert the defense against any claim relating to any method of doing business, regardless of whether the claim independently met the patentability requirements of In re Allapat or some other previous benchmark. To be sure, the legislative history of section 273 is replete with statements indicating that this was the intended scope of the prior user defense.13 On the other hand, the record contains equally clear statements regarding the limited scope of the prior user defense, asserting that it would not reach beyond State Street Bank.14 Indeed, the legislative history of section 273 is a case study in how legislators on both sides of a contested issue use the Congressional record to advertise their constituents' views for the benefit of subsequent interpreters. For this reason, courts would be wise to ignore the legislative history altogether.
Naturally, courts should also take with a grain of salt the section-by-section analysis of S. 1948, which contains the following advice:
The issue of whether an invention is a method is to be determined based on its underlying nature and not on the technicality of the form of the claims in the patent. For example, a method for doing or conducting business that has been claimed in a patent as a programmed machine, as in the State Street case, is a method for purposes of section 273 if the invention could have as easily been claimed as a method. Form should not rule substance.15
To the extent that this suggestion urges courts to characterize claims, not by the language of the claim itself, but by the "underlying nature" of the invention, it does not merit much deference. This suggestion would seem to stand fifty years of patent jurisprudence on its head. The correct measure of the scope of a claim lies in the claim itself, not in the "underlying nature" or "gist" of the patent, and nothing in the text of section 273 instructs abandonment of this time-honored rule.
Sanctioning Trade Secret Over Patent Protection
Given the vagueness of section 273 and the irreconcilable nature of the legislative history, courts need not shy from considering public policy in determining the proper scope of the prior user defense. Here, the clear weight of reason supports a narrow interpretation. The most glaring problem with section 273 is that it ignores the constitutional mandate to "promote the Progress of Sciences and the useful Arts" because it encourages secreting, rather than disclosing, of new inventions. It does this by establishing parity between trade secret and patent protection, at least for "business method" inventions.
For over thirty years, the controversy surrounding "prior user rights" has always boiled down to a debate over the respective roles of patent and trade secret protection.16 Critics claim that prior user rights elevate the status and strength of trade secret protection at the expense of patent protection.17 Proponents claim that trade secrets have been unfairly stigmatized as a "disfavored" form of intellectual property.18 They argue that certain types of technologies, such as industrial processes, are best protected as trade secrets because they are practiced behind closed doors and can thus be easily infringed without detection.19 They conclude that the law should not encourage patent protection over trade secret protection but, rather, that it should allow each company to choose the form of protection that best suits it.20 However, this argument oversteps the bounds of both logical and empirical support.
It is merely a truism to say that a company should be allowed to choose the most effective means for protecting its intellectual property assets. To wit, nothing in the patent statute prohibits a company from choosing trade secret protection nor compels it to file for patent protection. However, to argue—as some proponents of the prior user defense have21 —that the law should essentially be "agnostic" with respect to a company's choice of intellectual property protection is a much different proposition. That argument is based on the untenable notion that trade secret and patent protection are interchangeable, and that the decision to choose one form of protection over the other is merely a matter of individual preference with no bearing on public policy. This assumption ignores the major criticism of the prior user defense, namely that the law should discourage trade secret protection when patent protection is available because trade secret protection tends to discourage innovation by eliminating disclosure.
Some proponents of the prior user defense have dismissed the notion that the defense will tilt a company's choice of intellectual property strategy toward trade secret protection.22 Often, these commentators rely on dicta from Kewanee Oil v. Bicron Corp23 to provide a judicial "gloss" for their position.24 However, none of these commentators has provided a theoretical or empirical explanation as to why a company's intellectual property preference would not be altered by the existence of the prior user defense. In contrast, the opposite conclusion—that the prior user defense will spur companies to maintain more trade secrets and seek less patent protection—is readily explained through economic incentive theory. Furthermore, this conclusion finds support in existing empirical data.
In his landmark study of industrial patent behavior, Frederic Scherer found that 42% of corporations would not choose patent protection for an invention they felt reasonably certain could be kept a secret.25 In a later empirical study, Scherer reported a significant disparity between the amount of resources expended to develop internal manufacturing processes versus the percentage of patents issuing for such processes (57% of R&D resources versus 26% of patents).26 One conclusion that might be drawn from this data is that many companies choose not to seek patent protection for their internal processes, where the risk of reverse-engineering and independent discovery is small.27 Extrapolating from this, one might also predict that where the risk of being enjoined by a subsequent inventor decreases, trade secret protection becomes relatively more attractive than patent protection in marginal cases.
For anecdotal evidence supporting this conclusion, one need look no further than the testimony presented to Congress in support of the prior user defense. As one proponent explained, the prior user defense
obviates the need for a manufacturer to incur the expense of patenting every minor improvement or publishing a disclosure of every minor improvement in order to defeat the right of others to obtain a patent . . . Inventors may not feel compelled to file as many patent applications on minor inventions, such as improvements made during routine product development, as they would if a prior user right were not assured.28
While some proponents of the prior user defense thus admit that the defense will dissuade companies from filing for patent protection in marginal cases, they maintain that trade secret protection does not, in and of itself, weaken federal patent protection, nor does it necessarily discourage innovation. For support, they rely on Kewanee Oil, in which the Supreme Court held that state trade secret law does not conflict with the U.S. patent system or its goal of promoting the progress of science and the useful arts. However, with respect to the prior user defense, Kewanee Oil is simply a red herring. It cannot be relied upon to justify a broad interpretation of section 273 because the new prior user defense rebalances patent and trade secret law to an extent never envisioned by the Kewanee Oil court.
In Kawanee Oil, the Supreme Court explicitly took for granted that "[t]rade secret law provides far weaker protection in many respects than the patent law."29 To whatever extent this was true in 1974, it is certainly less true today in light of the prior user defense created by section 273. This defense significantly enhances the strength of trade secret protection by (1) drastically reducing the risk of a future injunction secured by an independent inventor and (2) ameliorating the risk of independent discovery by providing the potential for a royalty-free patent license.30 Furthermore, whereas the majority in Kewanee Oil assumed that inventors would rarely choose trade secret protection over patent protection31 (a questionable assumption even then),32 the prior user defense presupposes a willingness to choose trade secret protection in lieu of patent protection.33 Because the decision in Kewanee Oil was based on a presumption that trade secret protection was far inferior to patent protection and rarely chosen in lieu thereof, Kewanee Oil cannot be relied upon to support a broad interpretation of section 273. As the Court itself acknowledged in Kewanee Oil, "[i]f a State, through a system of protection, were to cause a substantial risk that holders of patentable inventions would not seek patents, but rather would rely on the state protection, we would be compelled to hold that such a system could not constitutionally continue to exist."34
Creating Conflict Incentives
In interpreting section 273, courts are certain to notice that the incentives created by the prior user defense are in direct conflict with incentives created elsewhere in the patent law. Many provisions of the patent statute can be viewed as attempting to encourage certain behavior that might not occur in the absence of a patent system. For instance, the on-sale bar of 35 U.S.C. § 102(b) is designed to encourage prompt disclosure of new inventions. The requirements of 35 U.S.C. § 112, first paragraph, are designed to encourage full disclosure, including the best mode of carrying out the invention. The statutory exceptions under 35 U.S.C. § 102(g) can be interpreted as discouraging inventors from suppressing or concealing their inventions. Against this backdrop, the prior user defense creates an incentive for inventors of "business methods" to conceal their inventions rather than disclose them to the public. This might leave some courts wondering whether the traditional "overarching policies" of the patent law—favoring prompt disclosure and discouraging concealment—have been replaced with a more "agnostic" approach of allowing companies to choose the form of protection that best suits them. This, in turn, may affect jurisprudence in many areas of patent law.
For instance, consider a validity challenge in which the patentee admitted to intentionally suppressing the best mode of is invention. In zealously defending his client's patent, could an attorney argue (with a straight face) that the patentee was simply taking advantage of the legitimate right created by section 273 in choosing to retain some aspects of his invention as a trade secret? Could he argue that since the best mode (perhaps a subtle process step) would have rendered the patent difficult to enforce, the patentee was entitled to keep it secret?35 While this position may constitute nothing more than a "nuisance argument," it typifies the type of assertion that section 273 makes possible by creating conflicting policy goals in the patent statute.
Eviscerating the "Non-Informing Public Use" Doctrine
The prior user defense is inextricably intertwined with section 102(g) and the theory of concealment. The critical question is whether a first inventor who has commercially exploited an invention has also concealed it under section 102(g). Since section 102(g) provides, inter alia, that an applicant is not entitled to a patent if the invention was "made in this country by another who had not abandoned, suppressed, or concealed it," the question of concealment bears directly on the validity of a second inventor's patent. The concealment question is central to the scope of the prior user defense because, depending on how it is interpreted by the courts, section 273 may have a preclusive effect in this area of law.
Concealment doctrine, particularly the thorny question of whether secret commercialization should invalidate a second inventor's patent, is a relatively unsettled area of law. Historically, two lines of cases have dominated the legal debate. In one line of cases, stemming from Gilman v. Stearn, courts have interpreted secret commercialization as a form of concealment under section 102(g) and have generally enforced second inventors' patents on the same subject matter.36 In another line of cases, stemming from Dunlop Holdings Ltd. v. Ram Golf Corp., courts have viewed secret commercialization as a "non-informing public use," rather than concealment, and have thus held second inventors' patents invalid under section 102(g).37
An important distinction has been drawn between sections 102(b) and 102(g) with respect to prior secret use of a subsequently patented invention. In W.L. Gore & Assoc. v. Garlock, Inc.,38 the Federal Circuit upheld the validity of a patent for a process of stretching Teflon tape, despite a prior user's public sale of the processed tape. The court reasoned that the prior user's sale had not informed the public of the process by which the tape was manufactured.39 Therefore, the third party's activity was not considered "public use" under section 102(b) and did not bar the second inventor from obtaining a valid patent on the process. But in Friction Division Prods. Inc. v. I.E. du Pont de Nemours & Co.,40 the Delaware district court relied on the non-informing public use doctrine of Dunlop Holdings to hold that a patent on Kevlar brake pads was invalid under section 102(g) in view of a prior inventor's secret commercialization. The court relied on the following test:
In order to avoid a finding that a prior invention was abandoned, suppressed or concealed, under 35 U.S.C. § 102(g), the prior inventor must take affirmative steps to make the invention publicly known. Making the invention publicly known requires only that the public enjoy the benefits or the use of the prior invention. Public use of the invention, without disclosing the details of it is sufficient to negate any intention to abandon, suppress or conceal.41
Courts continue to follow Friction Division Products with respect to section 102(g) activities and prior art,42 and W. L. Gore with respect to section 102(b) activities and prior art.43 Thus, the current state of the law on secret commercialization may be summarized as follows. Secret commercialization by a person other than the patentee will not raise a section 102(b) bar, as along as the public gained no knowledge of the invention.44 However, secret commercialization by a previous inventor will raise a section 102(g) bar, regardless of whether the public gained knowledge of the invention. It is important to note that courts have developed these rules largely in the absence of legislative direction.
Given the legislative "vacuum" that has surrounded the issue of secret commercialization, the impact of section 273 on this area of law should not be underestimated. Since the entire premise of the prior user defense is that prior secret users are otherwise defenseless in infringement suits brought by second inventor/patentees,45 zealous advocates for patentees are sure to argue that Congress never intended section 102(g) to be available as a defense in such situations. In other words, the adoption of a specific defense to patent infringement, based on prior secret use, tends to negate the notion that a broader defense already exists under section 102(g) that can be asserted as a validity challenge.46 Thus, one could argue that a broad interpretation of section 273 would implicitly reject the "non-informing public use" doctrine of Dunlop Holdings and Friction Division Products with respect to § 102(g) prior art. Ironically, this would actually make it harder for prior users to invalidate overly broad business method patents. Not only would a prior user have to show that he was secretly using the method before the patentee's date of invention, but also that the public gained knowledge of the process.
Discouraging Validity Challenges
From the standpoint of policing invalid patents, the prior user defense can hardly be viewed as a welcome development in the patent law. Given the remarkable breadth and questionable validity of many of the "business method" patents being issued today,47 courts should be mindful that section 273 creates disincentives for bringing validity challenges against overbroad patents.
With the adoption of the new prior user defense, the incentive for trade secret owners to challenge the validity of business method patents has been greatly diminished. Indeed, a rational prior user might actually want a second inventor to obtain a patent on his invention because the trade secret can then be kept out of the public domain for up to twenty additional years, with the first inventor enjoying the enviable position of a royalty-free licensee.48 This perverse incentive may cause trade secret owners to essentially look the other way when confronted with a second inventor's patent, even one that is clearly invalid. Obviously this disserves the public by allowing patents to exist that may have been erroneously granted.
The prior user defense is clearly in the best interests of trade secret owners. Corporate patent owners, too, may view the defense as appealing because it diminishes the looming threat of invalidity under section 102(g). However, despite this illusion of a "win-win" compromise between trade secret owners and corporate patentees, the benefits conferred by the prior user defense will come largely at the public's expense. In addition to losing the benefits of some patent disclosures, cause by a shift in the balance of incentives toward trade secret protection, the public will also lose the benefit of a "watchdog" function that was traditionally served by trade secret owners challenging the validity of patents that encroached upon their trade secrets. In a nutshell, the prior user defense allows an accused infringer to extricate himself from the grip of an overly broad business method patent while leaving the validity of the patent intact and, thus, leaving the patentee free to wield it against the rest of the world.49
The prior user defense has evoked a great deal of controversy in the past thirty years, and as is often the case with controversial issues, it has resulted in vague legislation. It is now up to the courts to interpret section 273 and decide the proper scope of the prior user defense. In doing so, courts should recognize that the prior user defense may affect more than just the fate of "business method" patents. It has the potential to disturb the patent law itself.
1 Omnibus Appropriations Bill, Pub. L. No. 106-113, 113 Stat. 1505 (1999).
2 149 F.3d 1368 (Fed. Cir. 1998), cert. denied,—U.S.—(1999).
3 See S. 1042, 90th Cong. § 274 (1967) (third party rights amendment); S. 2272, 103d Cong. § 2 (1994) (Prior User Rights Act); H.R. 2235, 104th Cong. § 2 (1995) (Prior Domestic Commercial Use Act); H.R. 400, 105th Cong. § 302 (1997) (21st Century Patent System Improvement Act).
4 145 Cong. Rec. H6942 (daily ed. Aug. 3, 1999) (remarks of Rep. Lofgren).
5 The full provision reads: "It shall be a defense to an action for infringement under section 271 of this title with respect to any subject matter that would otherwise infringe one or more claims for a method in the patent being asserted against a person, if such person had, acting in good faith, actually reduced the subject matter to practice at least 1 year before the effective filing date of such patent, and commercially used the subject matter before the effective filing date of such patent."
6 U.S. Patent No. 5,960,411, issued to Hartman, et al., Sep. 28, 1999.
7 U.S. Patent No. 5,794,207, issued to Walker, et al., Aug. 11, 1998.
8 33 F.3d 1526 (Fed. Cir. 1994) (en banc) (holding that software may be patentable subject matter, as long as it meets all other statutory requirements).
9 See 149 F.3d at 1375 ("Since the 1952 Patent Act, business methods have been, and should have been, subject to the same legal requirements for patentability as applied to any other process or method.")
11 See, e.g. House Comm. on the Judiciary, 106th Cong. 1st Sess., Report on H.R. 1907 at 45 (Aug. 3, 1999). ("The 1998 opinion by the U.S. Court of Appeals for the Federal Circuit in [State Street Bank] has added to the urgency of the issue. Thousands of "back office" processes are now being patented. In the past, many businesses that developed and used such processes thought secrecy was the only protection available.")
12 As originally proposed, the prior user defense applied to all process claims. However, this proposal drew strong opposition, particularly from the independent inventors' lobby. The night before the House vote, in what Rep. Coble described as "eleventh-hour negotiations," See 145 Cong. Rec. E1789 (daily ed. Aug. 3, 1999), the provision was amended to apply only to "methods of doing or conducting business." Later, Rep. Coble remarked that the prior user defense "is limited . . . to the State Street Bank case. There was some discussion early on that perhaps the first inventive defense should apply to processes as well as methods. But we finally concluded that we would restrict it to methods only, and that, by having done that, we were able to satisfy some folks who were opposed to the bill otherwise." 145 Cong. Rec. H6942 (daily ed. Aug. 3, 1999).
13 See, e.g., 145 Cong. Rec. H6942 (daily ed. Nov. 19, 1999) (remarks of Sen. Schumer) ("[t]he defense will be applicable against method claims, as well as acclaims involving machines or other articles the manufacturer used to practice such methods."); 145 Cong. Rec. H12805 (daily ed. Nov. 18, 1999) (remarks of Rep. Nadler) ([t]he first inventor defense is intended to protect both method claims and apparatus claims.")
14 See, e.g. 145 Cong. Rec. H6942 (daily ed. Aug. 3, 1999) (remarks of Rep. Coble) (prior use defense "is limited to the State Street Bank case."), 145 Cong. Rec. H6943 (daily ed. Aug. 3, 1999) (remarks of Rep. Rohrabacher). ("Instead of a prior user defense that applies to all inventions . . . H.R. 1907 contains a very limited prior user defense that applies only to those business methods which have only been considered patentable in the last few years, and this, of course, flows from an adverse case before the court that changed the patent law.")
15 145 Cong. Rec. S14717 (daily ed. Nov. 17, 1999).
16 See Bennett, "The Trade Secret Owner Versus the Patentee of the Same Invention: A Conflict?", 57 J. Pat. & Trademark Off. Soc'y 742, 747 (1975); Robbins, "The Rights of the First Inventor—Trade Secret User as Against Those of the Second Inventor Patentee (Part I)", 61 J. Pat. & Trademark Off. Soc'y 574 (1979); Karl F. Jorda, "The Rights of the First Inventor—Trade Secret User as Against Those of the Second Inventor Patentee (Part II)", 61 J. Pat. & Trademark Off. Soc'y 593 (1979); Lisa Brownlee, "Trade Secret Use of Patentable Inventions, Prior User Rights and Patent Law Harmonization: An Analysis and Proposal", 72 J. Pat. & Trademark Off. Soc'y 523 (1990); F. Andrew Ubel, "Who's on First?—The Trade Secret Prior User or a Subsequent Patentee", 76 J. Pat. & Trademark Off. Soc'y 401 (1994); Paul R. Morico, "Are Prior User Rights Consistent with Federal Patent Policy?: The U.S. Considers Legislation to Adopt Prior User Rights", 78 J. Pat. & Trademark Off. Soc'y 572 (1996); Kyla Harriel, "Prior User Rights in a First-to-Invent Patent System: Why Not": Idea J.L. & Tech. 543 (1996).
17 See e.g. Robert L. Rohrback, "Prior User Rights: Roses or Thorns?" 2 U Balt. Intell. Prop. L.J. 1, 10 (1993) (arguing that the first inventor defense would encourage trade secret protection to the detriment of patent disclosure and limited patent terms.)
18 See e.g. Testimony on the Prior Domestic Commercial Use Act (H.R. 2235) before the House Comm. on the Judiciary, 104th Cong., 1995 (hereinafter "Testimony on H.R. 2235") (statement of Karl F. Jorda) ("Trade secrets have been unfairly denigrated. Trade secrets, Irving Kayton, a Washington patent lawyer, is supposed to have said recently, are 'the cesspool of the patent system.' That's of course, absolute nonsense."); (statement of Gary L. Griswold) ("[S]ecret use of technology cannot be dismissed as necessarily less beneficial to society than publicly disclosed use. Many important technological achievements—notably processes—can be effectively exploited only through secret use.")
19 See, e.g. Ubel, supra note 17 at 441 (opining that "while a patent owner is given the right to exclude others from making, using or selling the patented article or process, this right may be hollow in situations where infringement is impossible to detect.")
20 See Testimony on H.R. 2235 (statement of H. Dieter Hoinkes, Senior Counsel, U.S. Patent & Trademark Office) ("[T]he Administration believes [the prior user defense] will help preserve the important balance that should exist between patent and trade secret protection in the United States . . . [I]t will permit companies to choose with confidence the most effective means for protecting their important technology."); id. (statement of Rep. Moorhead) (prior user defense "allows an inventor to choose whether or not he wishes to disclose the formula for his invention to the public by patenting it or whether to prevent disclosure by making it a trade secret"); id (statement of Gary L. Griswold) ("A U.S. manufacturer should not be expected to disclose its proprietary processes to the world, including foreign competitors, through the vehicle of hard-to-enforce patents in order to assure the continued right to use them in this country."
21 See id. See also Ubel, supra note 17 at 440 (asserting that "patent law and trade secret law both serve to encourage invention and are therefore compatible")
22 See, e.g. Hoinkes, supra note 21 (speaking for the administration and stating that "we do not believe that the availability of a prior use defense will encourage inventors to protect innovation through trade secrecy to the detriment of the patent system. That choice will continue to be dictated primarily by the characteristics, effectiveness and suitability of each form of protection vis-a-vis the invention in question."). But see Testimony on H.R. 2235 (statement of Richard Schwabb) (stating that "[m]oney spent on defensive patents could be better spent on new technology, and the current legislation makes this possible, by permitting U.S. companies to simply maintain their minor improvements as trade secrets and rely on the prior user right."
23 416 U.S. 470 (1974) (holding that state trade secret law is not preempted by federal patent law and opining that "the policy of encouraging invention is not disturbed by the existence of another form of incentive to invention. In this respect the two systems are not and never would be in conflict.")
24 See, e.g. Harriel, supra note 17 at 564 (reasserting the presumption of Kewanee Oil that "the possibility is very remote that an inventor who believes his invention meets the standards of patentability will sit back, rely on trade secret law and, after one year of use, forfeit any right to patent protection."
25 See F.M. Scherer et al., "Patents and the Corporation: A Report on Industrial Technology Under Changing Public Policy 119" (2d ed. 1959) (describing the results of a survey of 91 corporations).
26 See F.M. Scherer, "Innovation and Growth: Schumpterian Perspectives 35" (1984).
27 This was Scherer's hypothesis; however, other conclusions might be drawn from the study. For instance, it could be concluded that internal processes are more costly to develop than other technologies, thus resulting in fewer patents per R&D dollar spent.
28 Griswold, supra note 19.
29 416 U.S. at 489-90.
30 In addition to the prior user defense, other developments in law since 1974 have strengthened trade secret protection. For instance, the recent adoption of the Economic Espionage Act of 1996, codified at 18 U.S.C. §§ 831-39, provides criminal sanctions for certain types of trade secret misappropriation.
31 See 416 U.S. at—("The possibility that an inventor who believes his invention meets the standards of patentability will sit back, rely on trade secret law, and after on year of use forfeit any right to patent protection . . . is remote indeed.")
32 See id. at 493-4, (Justice Marshall concurring in the result) (Unlike the Court, I do not believe that the possibility that an inventor with a patentable invention will rely on state trade secret law rather than apply for a patent is 'remote indeed' . . . I have no doubt that the existence of trade secret protection provides in some instances a substantial disincentive to entrance into the patent system, and thus deprives society of the benefits of public disclosure . . . ")
33 See, e.g., Griswold, supra note 21.
34 416 U.S. at 489.
35 See Griswold, supra note 21.
36 Gilman v. Stearn, 114 F.2d 28, 46 USPQ 430 (2d Cir. 1940) (Judge Learned Hand declined to invalidate a second inventor's patent, reasoning that a prior secret user should not be entitled to legal status as the first true inventor because he concealed his invention.). See also Palmer v. Dudzik, 178 USPQ 608 (CCPA 1973) (suggesting that a public use that does not disclose the inventive concept may amount to concealment within 35 U.S.C. § 102(g)); Metallizing Engineering Co., Inc. v. Kenyon Bearing & Auto Parts, Inc., 62 F. Supp. 42, 48 (D. Conn. 1945) (prior secret use does not anticipate subsequent invention).
37 Dunlop Holdings Ltd. v. Ram Golf Corp., 188 USPQ 481 (7th Cir. 1975) (first inventor's trade secret commercialization constituted a "non-informing public use" of the invention, rather than concealment. Thus, the invention was deemed not to have been suppressed or concealed under 35 U.S.C. § 102(g), and the second inventor's patent was held invalid.). See also E.I. du Pont De Nemours & Co. v. Phillips Petroleum Co., 7 USPQ2d 1129, 1138 at n. 5 (Fed. Cir. 1988).
38 721 F.2d 1540, 21 USPQ2d 303 (Fed. Cir. 1983), appeal after remand, 842 F.2d 404, 21 USPQ2d 1277 (Fed. Cir. 1988).
39 Although the prior user had allowed others to view the machine without a confidentiality agreement in force, the court concluded that merely viewing the machine did not reveal the critical elements
40 658 F. Supp. 998, 3 USPQ2d 1775 (D. Del. 1987), aff'd 883 F.2d 1027, 12 USPQ2d 1575 (Fed. Cir. 1989).
41 658 F. Supp. at 1013, citing Dunlop Holdings. Accord Del Mar Engineering Labs v. United States, 524 F.2d 1178, 1185 (1975); Ralston Purina Co. v. Far-Mar-Co, Inc., 586 F. Supp. 1176, 1215, 222 USPQ 863, 893 (D. Kan. 1984).
42 See, e.g. Candela Laser Corp. v. Cynosure, Inc., 862 F. Supp. 632, 641 (D. Mass. 1994), aff'd 59 F.3d 181 (Fed. Cir. 1995) (secret commercialization negates a finding of abandonment under 35 U.S.C. § 102(g)); Pall Corp. v. Microseparations, Inc., 792 F. Supp. 1298 (D. Mass 1992), aff'd in part, 66 F.3d 1211 (Fed. Cir. 1995) (following Friction Division Products).
43 See, e.g. Woodland Trust v. Flowertree Nursery, Inc., 148 F.3d 1368, 47 USPQ2d 1363 (Fed. Cir. 1998) (third party's secret use not a S 102(b) bar to patentee); cf. Baxter Int'l, Inc. v. COBE Labs, Inc. 88 F.3d 1054, 1058-59, 39 USPQ2d 1437, 1440 (Fed. Cir. 1996) (third party's use accessible to the public is a § 102(b) bar).
44 Note that secret commercialization by the patentee will raise a § 102(b) bar if conducted more than one year before the application date, regardless of whether the public gained knowledge of the invention.
45 See, e.g. Testimony on H.R. 2235 (statement of H. Dieter Hoinkes) ("A domestic prior user of an invention kept as a trade secret has no effective defense based on prior use when facing a threat by a foreign company that obtains a U.S. patent covering that invention."); see also 140 Cong. Rec. S8399?400 (Daily ed. July 1, 1994) (statement of Sen. DeConcini). Cf. Friction Division Products (A prior secret user can prevail in an infringement suit brought by a second inventor by invalidating the second inventor's patent under § 102(g); Ubel, supra note 20 at 401 n. 109 ("one might presume that a secret public use by a prior user would also be invalidating prior art in the Dunlop court.")
46 This follows the logic of a familiar canon of construction, expressio unius, exclusius alterius--expression of one thing suggests the exclusion of others. See, e.g. O'Melveny & Myers v. FDIC, 512 U.S. 79, 86 (1994) (provisions in federal banking act, which specifically create special federal rules of decision regarding claims, negate the argument that Congress intended the entire act to be subject to federal common law.)
47 See Bradely C. Wright, "Business Methods," National Law Journal, Nov. 22, 1999 AT B9.
48 A quick review of the alternatives proves this. Once a second inventor independently discovers and patents a trade secret owner's invention, only one of two results can occur. Either the patent will be deemed invalid, in which case the invention becomes part of the public domain, or the patent will remain valid, in which case the invention stays out of the public domain for up to twenty years. Obviously the trade secret owner prefers the second option, since he will remain a royalty-free licensee during the patent term.
49 See Testimony on H.R. 2235 (statement of William D. Budinger) ("The 'prior use' concept provides a third option to the winner-take-all remedies. It acknowledges the contribution to the public welfare made by both parties (commercialization by the first party, disclosure by the second) by allowing the prior use to continue but leaving the patent intact for assertion by others.")
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