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.