ACC SOUTHERN CALIFORNIA IN HOUSE COUNSEL CONFERENCE · 1/23/2020 · 1 1 #IHCC20 2020 ACC SoCal In House Counsel Conference Presented By: Rebecca Edelson, Partner, Sheppard Mullin

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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

http://itunes.apple.com/us/app/twitter/id333903271?mt=8

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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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