Source: http://www.ipwatchdog.com/2012/03/11/prior-user-rights-rewarding-those-who-dont-contribute/id=22742/
Timestamp: 2015-05-26 13:39:13
Document Index: 308948446

Matched Legal Cases: ['§ 273', '§ 273', '§ 11', '§ 273', '§ 154', '§ 271', '§ 271', '§ 273', '§ 273']

Prior User Rights: Rewarding Those Who Don’t Contribute - IPWatchdog.com | Patents & Patent Law
Prior User Rights: Rewarding Those Who Don’t Contribute By Nicholas R. Mattingly on March 11, 2012	twitter
Monsanto is a company that developed a system for weed control that employs genetically modified crops that resist glyphosphate herbicide (better known as Roundup). Upon planting such crops, farmers can spray Roundup over their fields to kill weeds while sparing the resistant crops, a technique that allows for much more efficient weed control than is possible with unmodified plants. See Monsanto Co. v. McFarling, 488 F.3d 973, 976 (2007). One of the patents embodying such genetically modified seeds is U.S. Patent No. 5,352,605. The ‘605 patent claims relate to a plant cell containing a genetic promoter sequence that facilitates a plant’s production of a modified enzyme. Further, the parent application discloses methods used to infect plant cells, which were genetically transformed, causing them to become resistant to an antibiotic (kanamycin) at concentrations which are toxic to untransformed plant cells. Monsanto obtained patents to protect it’s methods for creating genetically modified seeds which are then licensed to farmers for a one time use.
Monsanto’s seeds aided soybean farmers in producing higher crop yields, which has greatly increased agricultural productivity. See Guanming Shi, Pricing of Herbicide-Tolerant Soybean Seeds: A Market-Structure Approach, 12 J. Agrobiotechnology Mgmt. & Tech. 8 (2009). The public benefits as well from efficient farming and agriculture innovation. Additionally, the agricultural sector has acknowledged the spur in innovation fostered by the U.S. patent system. Lead by the extension in the 1980’s of utility patents covering plants and animals (See Diamond v. Chakrabarty, 44 U.S. 1028 (1980); Ex parte Allen, 2 U.S.P.Q.2d 1425 (1984); Ex parte Hibberd, 227 USPQ 443 (1987)), Guanming Shi correctly concludes that patent protection provided incentives for private research and development investments in the U.S. seed industry.
However, consider the affect prior user rights would have on the agriculture sector if a company like Monsanto chose instead to keep their methods and processes for generating resistant crops as trade secrets while relying on § 273 for protection from a subsequent patentee. Monsanto could still license their seeds to farmers; however, the agriculture industry would not benefit from the disclosure.
Evidently, it seems Monsanto may choose to do just that. In response to a notice of public hearing and request for comments on patent prior user rights for the purposes of preparing a “Report on Prior User Rights” Thomas Kelley, consulting patent counsel of Monsanto, expressed his views in favor of prior user rights and applauded Congress for providing expanded prior user rights. Although this example may be extreme, it is a plausible consequence of the options that § 273 provides. Will other companies opt for keeping their internal methods, manufacturing and processes secret from the public’s benefit thus hindering innovation?
Trade Secret Law and the Patent System are Independent Systems for Protecting of Intellectual Property
Companies small and large rely on state trade secret law to protect information such as customer lists, ways of keeping accounting records, techniques for inventory control, software, plant design, and biotechnology processes. Unlike patents, trade secrets may be composed of any type of subject matter as long as it “(1) derives economic value … from not being generally known to … other persons who can obtain economic value from its disclosure or use; and (2) [i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Md. Code Ann., Comm. Law § 11-1201(e) (2002). (Maryland adopted the Uniform Trade Secrets Act). Additionally, remedy from misappropriation of a trade secret may include damages and injunctive relive.
Protection afforded within the measured realm of trade secret law is available and operates independently of patent law to ensure protection without prior user rights. In Kewannee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974), the United States Supreme Court explained that state trade secret law is not preempted by federal patent law, stating: “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.”
Upon conception and reduction to practice of a patentable idea, an inventor faces a decision. The inventor may choose to seek patent protection, keep it as a trade secret or abandon the idea. Judge Learned Hand explained it like this: “[I]t is a condition upon the inventor’s right to a patent that he shall not exploit his discovery competitively after it is ready for patenting; he must content himself with either secrecy or legal monopoly.” Metallizing Engineering Co. v. Kenyon Bearing & Auto Parts Co., 153 F. 2d 516, 520 (2d. Cir.), cert. denied, 328 U.S. 840 (1946).
If an inventor chooses to keep their invention as a trade secret, that may be a wise choice depending on the circumstances. However, such an inventor runs the risk that they may be liable to a subsequent, independent inventor that asserts their patent against them. Placing trade secret law within patent law injects an incentive for secrecy into the U.S. patent system that has previously never been present, thereby tipping the balance to favor secrecy, which is unnecessary. In this regard, § 273 should not come to the rescue to those who decide to protect their invention with trade secret law instead of patent law.
Additionally, the addition of “placing trade secret law in patent law” disrupts the balance. The Kewanee Court itself acknowledged,
[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.”
Further, one scholar has challenged the views of the proponents of the prior user defense, who dismiss the notion that the defense will tilt a company’s choice of intellectual property strategy toward trade secret protection. He wrote:
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.
See James R. Barney, The Prior User Defense: A Reprieve for Trade Secret Owners or a Disaster for the Patent Law, 82 J. Pat. & Trademark Off. Soc’y 261, 266 (2000).
With respect to constitutionality concerns, I find the above points persuasive. However, those who spoke during the USPTO’s hearing on October 25, 2011, including Alan Kasper, former president of AIPLA and Gary Griswold, consultant and chair emeritus of the Coalition for 21st Century Patent Reform, simply commented that Kewanee Oil “addressed the compatibility of trade secret and patent laws” and concluded there are no constitutional issues and swiftly moved on to the next topic. See Transcript. Prior User Rights Weaken Patents
A patent grants to the patentee the “right to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States.” 35 U.S.C. § 154. Additionally, 35 U.S.C. § 271(a) provides: “whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefore, infringes the patent.” Accordingly, a patentee may enforce his right to exclude on infringers to seek damages suffered by the infringement.
Prior user rights, however, undermine this exclusivity principle. With prior user rights, the patentee may no longer enjoy the limited monopoly afforded to him as a result of obtaining a patent of his invention. Prior user rights allow for the secret use of the subject matter without a license and free from liability to the patentee. The patentee looses his right to exclude guaranteed by § 271 at no cost to the prior user. Therefore, the prior user weakens the rights afforded to the patentee, which violates the coveted reward for disclosure.
As one scholar states: “it is inequitable to penalize the patent owner, who went to the expense and effort of seeking a patent and in the process informed the public of the invention, in favor of a secret user who conferred no such public benefit.” See David H. Hollander, The First Inventor Defense: A Limited Prior User Right Finds Its Way Into US Patent Law, 30 AIPLA Q.J. 37, 59 (2002). Perhaps the most compelling consequence of implementing a patent system which provides prior user rights is a patentee in a given market would, in effect, be unable to sue it’s competitor for infringing their patent.
Prior user rights also implicate free rider problems with respect to a subsequent patent that an inventor obtains covering the subject matter of the secret prior user. At the point of publication the prior user no longer maintains a trade secret. At the point of issuance, the patentee and the prior user relatively co-exist with each other in the market. The patentee excludes others from the market except for the prior user. The prior user then enjoys the benefits and advantages associated with the patentee excluding others from operating in the market, while being free from liability to the patentee. In this regard, the prior user enjoys the period of time operating the technology in secret in addition to 20 years of excluding others provided by the competitor. Accordingly, prior user rights trample the coveted exclusivity granted by a patent.
Congressman James Sensenbrenner (R-WI) was exactly right when he said that prior user rights “reward those who don’t contribute to the progress of science.” See 157 Cong. Rec. 4,492 (2011).
For more on this topic please see Prior User Rights.
Nicholas R. Mattingly Tags:aia, america invents act, Authors, Congressman Sensenbrenner, Kewannee Oil v. Bircron, Metallizing Engineering, Monsanto, Nick Mattingly, patent, patents, prior user rights, trade secret, Trade Secrets	Posted In:America Invents Act, Authors, IP News, IPWatchdog.com Articles, Patents
Mark Nowotarski March 11, 2012 5:39 pm
Thanks for spurring me to read § 273 more carefully. I didn’t realize that it only covers method claims.
Anon March 11, 2012 6:02 pm
Do you realize that the America Invents Act broadened § 273 to include machine, manufacture and compositions of matter in addition to processes? You might want to read the new act.
Mark Nowotarski March 11, 2012 7:04 pm
Thanks. My mistake. Apparently the USPTO has not updates it’s documents yet. I looked up the AIA directly and you are right. The new 273 is much more serious and discouraging for the reasons mentioned above.
EG March 12, 2012 8:59 am
Please also note that universities are exempt (there is one odd and limited exception to this exemption) from PUD under the AIA.
Baltazar Gomez March 12, 2012 12:52 pm
If the trade secret is a secret, how is one to know whether a patent is infringed? Also, an inventor freely chooses to pursue patent protection. So if it really correct to say that “it is inequitable to penalize the patent owner, who went to the expense and effort of seeking a patent and in the process informed the public of the invention, in favor of a secret user who conferred no such public benefit.” Would it be inequitable to penalize the prior user who did not even know if someone in the future was going to patent the prior user’s product or process? My point is that there is more to discuss on this issue that just looking at it from the patentee’s perspective.
Paul F. Morgan March 12, 2012 12:54 pm
As noted before, the encouragment of maintaining trade secrecy* versus patenting is not just from the AIA scope of expansion of the existing unused prior commercial users statute. It includes the AIA elimination of any practical way to enforce disclosures of the “best mode” in patents, plus the alleged [disputed] AIA elimination of the Metallizing Engineering forfeture doctine heretofore preventing getting patent AND trade secrecy protection. *for the relatively limited number of inventions which are not detectable or back engineerable from their commercial products and can be truely kept secret. [Otherwise they will immediately become unpatentable prior art under the AIA,.]
DaveR March 12, 2012 12:57 pm
Some practitioners have asserted that the new AIA tilts the patent / trade secret balance highly in favor of trade
secrets. I am of a contrary view, that the new law finally introduces a better balance between patents and trade secrets in the niche realm of manufacturing processes and items used in those manufacturing processes that couldn’t be practically protected if patented.
[I unabashedly support the grant of grant of prior user rights. My experiences at multiple Fortune 500 and larger
multinational coroporations and involvement in patent and trade secrets litigation in multiple countries have only
reinforced my support of trade secrets and prior user rights. I believe that the owner/practitioner of a trade
secret also confers on the public something of value. Does anyone propose that we destroy all the Stradivarious violins because he made them using trade secrets that he took to his grave? Did Listerine kill any less germs because its forumula was long a trade secret? Did not the customers of those refurbished crankshafts in Metallizing v. Kenyon benefit?]
My view of the overarching issues surrounding the debate and tension between patent rights and prior user rights of prior inventor trade secret holders begins with asking the following types of questions.
1) What are prior user rights? They need to be defined before they can be discussed, criticized, etc. It is
important to note they are still limited in scope in the new USA law.
2) What is a trade secret? That needs to be defined, too.
3) Is a trade secret a property right? (I think the answer is unequivocally “yes.”)
4) Is a trade secret a property right subject to the US Constitution? (Clearly the answer is “yes” according to
the Kewanee v. Bicron case et al.) Those who favor patent rights trumping trade secret rights appear to me to favor US federal laws trumping state laws and individual property rights that have existed prior to existence of our country and its Constitution. 5) If ‘yes’ is the response to questions 3) and 4), how does one reconcile the constitutional authority to
promulgate laws to encourage inventors [through grant of patent rights] with the prohibition in the Fitfh Amendment that private property cannot be taken without just compensation?
6) Is promulgation of a patent statute that elevates the rights of a [later in time] inventor who obtains a patent above those of another [earlier in time] inventor who chooses to keep his property as a trade secret effectively a
defeasance of the rights of the trade secret owner?
7) Is that defeasance a taking not for a public use but rather for private use of another party (the later in time
inventor who obtains a patent)? 8) Is such taking or destruction of the private property rights of an inventor trade secret holder/practitioner an
unconstitutional denial of equal protection? (Or turned about, is the denial of an effective prior user right an
unconstitutional denial of equal protection of that person’s property rights?)
Also, I think some prior articles overstate the scope of discovery and its costs. As Gene Quinn noted in an
earlier article (I think correctly), the defendant trade secret holder is highly unlikely to come forward to
assert prior user rights unless his commercial activities are discovered and challenged by the patent holder. And the patent holder is unlikely to come forward if he is not confident of his case. [I lived in such a industrial standoff; neither party challenged the other and both continued commercial production of their respective competing products. I’ve also experienced where the patent holder challenged the trade secret holder and lost. I’ve also experienced where the patent was allowed to remain in existence to save face, but the commercial settlement favored the trade secret holder who continued to make and sell products.] But if and when that happens, full discovery will occur, and at the end of the litigation, if the defendant [trade secret holder] loses, he must stop [or take a license if that is offered], and if the defendant ends up establishing that his trade secret was not in fact secret, the patent may be declared invalid. I see nothing wrong with that process or outcome. In my litigation experience, most of the same history is going to be subject to discovery in any patent infringement/patent invalidity litigation, whether under the new AIA or the prior statute. If there existed other “solutions”, e.g. the USPTO to conducting a competent and timely substantive examination and reporting the same to the applicant before any publication (now automatic at 18 months after filing date), I believe there would be far less concern over prior user rights and secret prior art.
Gene Quinn March 12, 2012 2:48 pm
You ask: “Would it be inequitable to penalize the prior user who did not even know if someone in the future was going to patent the prior user’s product or process?”
The answer is, of course, that it is completely fair to penalize the prior user who hid the innovation from the public. Nick is 100% correct to say that anything else is inequitable. For 220+ years the laws have sided with the party who discloses because the Constitutional objective is to disseminate information to the public. Prior user rights quite clearly disturb that Constitutional purpose. As for more to consider than from the patentee’s perspective… you are completely incorrect. You might not like what the U.S. Constitution says and how it has always been interpreted, but your protestations don’t change reality. The patentee’s perspective is the only proper perspective to look at this issue from because the patentee is the one forwarding the Constitutional objective, not the party who preferred secrecy.
Baltazar Gomez March 13, 2012 9:01 am
Thanks for your comments. But I disagree with you that prior users have no rights to their property because they chose not to patent. I believe that the discussion of prior user rights and patents goes through some sort of myopic analysis. A more balance treatment would be more helpful. I am no Constitutional expert, and I do not disagree with the Constitution (I am not sure where you got that impression), but I would think that the Constitution does protect property, including trade secrets. Unless you are saying trade secret is not a property. Am I wrong? You think that trade secerts confer no value to society. I can’t argue with you on this because I do not have emperical evidence. But it seems conceptually wrong to say that trade secrets confer no value. Clearly, patents do confer plenty of value to society. If both patents and trade secrets are property, and both protected by the Constitution, explain to me why a patentee should have all the rights (outside of the public disclosure element)? It seems that prior user rights have some important position (exactly what is for discussion) in the economy, just as patents and copyrights have.
Blind Dogma March 13, 2012 11:18 am
You are correct in one important point.
Once you realize what the Constitution at Article 1 Section 8 says, means and importantly, does not include, then you will be in a position to make informed comments.
Prior to that, your comments are quite meaningless. I don’t mean to be harsh, but you are tryiing to hold a conversation in a language you know nothing about. It’s like a blind man in an open field learning that he can run, and then doing so in china shops and big city traffic. Dangerous for everyone, but especially for you.
Gene Quinn March 13, 2012 7:18 pm
You can disagree all you want, but that doesn’t make you correct. It is completely correct for me to say that the Constitution is intended to foster dissemination of information to the public. If you were familiar with the US Constitution and patent law you would know that to be true. The US Supreme Court has routinely made this point and routinely explained that trade secrets are subservient to patent rights. Those that keep secrets enjoy no rights over a patent because they choose to subvert the Constitutional intent. You say the Constitution protects trade secrets? It is hard to take anything you say seriously now. The Constitution most certainly does not protect trade secrets. Please do your research and become informed before you comment. Trade secrets are governed by State, not federal, law. The US Supreme Court has said trade secrets are allowed to exist. The Constitution does not in any way protect trade secrets, and I’d love for you to point to a clause in the document that you rely on.
Anon March 14, 2012 9:31 am
I was invigorated by your post to explore Kewanee v. Bicron. While there can be no doubt as to the advantages that trade secrets may provide, I find Kewanee to be of doubtful help. On a first casual reading, so much of the underpinning has been removed so as to make me doubt that the opinion, if written today, would resemble that case much at all.
I will post again after a more detailed read.
Mike March 15, 2012 1:59 pm
My position is this: you’re still not an inventor vis-a-vis a prior user. Why should you have recourse against the earlier inventor?
Also, Monsanto would likely have few if any of the remedies it currently exercises in the agricultural space merely by keeping stuff a trade secret. The genetic modifications will almost certainly be resolved shortly after the first planting. And restrictions on subsequent generations of seeds would be limited to contractual damages.
I have yet to see one reason why prior user rights, generally, are anything but a good thing.
Blind Dogma March 15, 2012 3:09 pm
“My position is this: you’re still not an inventor vis-a-vis a prior user. Why should you have recourse against the earlier inventor?”
Gene Quinn March 16, 2012 9:15 am
It is impossible to believe you read this article or any of the other articles on IPWatchdog about prior user rights if you say you have yet to see why prior user rights are anything but good. They are awful. Is it good to contradict the Constitutional purpose of a patent system? I suppose you have to say yes since prior user rights do just that and you think they are good.
As far as a prior user being an inventor, one who keeps something secret has never been and still isn’t considered an inventor under the patent laws. A secret prior user will not defeat the right to a patent. The prior user is not considered an inventor at all. If the prior user were an inventor no patent could be obtained.
The point you seem to so obviously miss is that the prior user is a concealer. No one benefits when technology is concealed except the entity who suppressed. Until now there has never been a reward under US patent laws for suppression. It is undeniably clear that the existence of prior user rights will suppress technological advancement. Any argument to the contrary is simply wrong.
Suppression of technological advancement is not good.