Using Trade Secret and Patent Protection in Tandem for Comprehensive IP Coverage

“Conventional wisdom holds that patent protections and trade secrets operate like a playground teeter-totter—when patents are strong, trade secrets are weakened and vice-versa. But in some instances, they can work together.”

https://depositphotos.com/3687400/stock-illustration-knights-agreement.htmlYour company (or your client) creates an innovative idea that is going to blow the market away. While still safeguarding your invention as a trade secret, you file a patent application with the United States Patent and Trademark Office (USPTO) and get the product ready for launch. After product development, a key designer leaves the company for a competitor. Not long after you issue a press release on your innovative product, that competitor launches a copycat product. Do you have to wait for the patent to (hopefully) issue prior to filing suit against the competitor? Or can you take immediate action on trade secret misappropriation grounds?

Ultimately, it depends on where you file suit. In at least some federal courts, you can pursue immediate relief for trade secret misappropriation even if your patent application is still in prosecution because the subsequent disclosure of a trade secret, such as the publication of a patent application (typically 18 months after the earliest filing date claimed), does not extinguish the misappropriation claim or the right to injunctive relief where misappropriation of the trade secret occurred prior to its publication.

Typically, the remedy for trade secret misappropriation is a preliminary injunction preventing the competitor from using the work in question until the courts can reach a more permanent determination. An injunction may be a viable defense even after a patent application has been published.

Claiming Trade Secret Misappropriation with a Pending Patent Application

To state a claim for trade secret misappropriation, a plaintiff must establish the following:

  1. The existence of a trade secret;
  2. The trade secret was acquired by an unauthorized outside party through breach of an agreement, a confidential relationship, or by improper means, or was disclosed by one who used improper means to acquire it;
  3. The defendant used the trade secret without authorization; and
  4. The plaintiff suffered damages.

The federal Defend Trade Secrets Act (“DTSA”) of 2016 gives IP holders a valuable tool for defending their trade secrets. The DTSA allows trade secret holders to sue for infringement in federal courts. Previously, they had to pursue legal remedies for trade secret loss exclusively at the state level, with laws varying greatly from state to state. Under the DTSA, a “Trade Secret” is defined as:

“[A]ll forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if—

(A) the owner thereof has taken reasonable measures to keep such information secret; and

(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.” 18 U.S.C. § 1839.

Simply sharing a trade secret—such as in a patent application that typically remains unpublished for 18 months—does not negate the holder’s ability to bring a trade secret misappropriation claim. According to a 2014 federal court decision, the holder of a trade secret may disclose it to others “to further the holder’s economic interests” without destroying its status as a trade secret. Bianco v. Globus Med., Inc., No. 2:12-CV-00147-WCB, 2014 WL 5462388, at *11 (E.D. Tex. 2014). The key lies in whether or not that trade secret was misappropriated and used without the holder’s permission in a way that causes damages to the holder.

Trade Secrets and Patent Applications in Case Law

Black-letter law in Texas holds that subsequent disclosure of a trade secret, such as in a published patent application, does not extinguish a misappropriation claim or right to injunctive relief when the misappropriation occurred prior to publication of the trade secret. Garth v. Staktek Corp., 876 S.W.2d 545, 549 (Tex. App.—Austin 1994, writ dism’d w.o.j.). Specifically, in Luccous v. J. C. Kinley Co., 376 S.W.2d 336, 340 (Tex. 1964), the Texas Supreme Court acknowledged its precedent in Hyde Corp. v. Huffines, 158 Tex. 566 (1958) and K & G Oil Tool & Serv. Co. v. G & G Fishing Tool Serv., 158 Tex. 594 (1958) that the right to injunctive relief as a remedy for misappropriation survives the subsequent publication of a trade secret in a patent or patent application. The Luccous opinion stated that in Hyde, the defendant gained knowledge of the plaintiff’s invention prior to its being patented, while it was still a trade secret, and improperly used the information gained. “Under these circumstances, this court held the plaintiff’s right to injunctive relief for the defendants’ wrongful appropriation of trade secrets survived the disclosure of the secret in a subsequent patent.” Luccous, 376 S.W.2d at 339. Likewise, when describing the holding in K & G Oil, the Luccous Court found the “defendant had gained knowledge of the plaintiff’s invention prior to its being patented” and the plaintiff was not deprived of his cause of action “simply because some of plaintiff’s secrets were later disclosed by the issuance of a patent.” Id.

The U.S. District Court for the Eastern District of Louisiana reached a similar result in a 2019 energy industry dispute. Cajun Servs. Unlimited, LLC v. Benton Energy Serv. Co., No. 17-0491 (R. Doc. 241). Cajun developed and patented an elevator roller system used in oil drilling operations. Benton leased the technology from Cajun and reversed engineered it. Cajun’s patent application was filed after this alleged misappropriation, and Cajun subsequently sued Benton for both trade secret misappropriation and patent infringement. Benton moved for summary judgement to dispose of the trade secret misappropriation claims, arguing that the trade secrets were disclosed in the patent application. But the court sided with Cajun, stating, “publication of the ’862 Patent application does not deprive Plaintiffs of a cause of action for misappropriation of trade secrets before the patent application was published.”

More recently, in an appeal from a judgment of the U.S. District Court for the District of New Jersey, the Federal Circuit applied the same reasoning to conclude that the jury reasonably could find liability for misappropriation of an idea under New Jersey law where there was “ample record evidence . . . that defendants made use of [the secret idea], and that they did so before the publication of plaintiffs’ patent application.” Nite Glow Indus. Inc. v. Cent. Garden & Pet Co., Nos. 2020-1897, 2020-1983, 2021 WL 2945556, at *6 (Fed. Cir. July 14, 2021) (looking to trade secret misappropriation law for guidance). The Federal Circuit remanded the case for a new trial on damages for the “head start” period, i.e. “the period in which information is entitled to protection as a novel idea, plus the additional period, if any, in which a misappropriator retains an unfair advantage over good faith competitors because of misappropriation.” Id. at *7 (recognizing also that an injunction can extend beyond the trade secret period “when necessary to deprive the defendant of a head start or other unjust advantage that is attributable to the appropriation” (quoting Restatement (Third) of Unfair Competition § 44 cmt. f (1995))).

Have Your Cake and Eat It

Conventional wisdom holds that patent protections and trade secrets operate like a playground teeter-totter—when patents are strong, trade secrets are weakened and vice-versa. But in some instances, they can work together, giving IP holders a comprehensive approach to safeguarding their most critical intellectual property. Standards may vary from jurisdiction to jurisdiction, but do not automatically assume that filing a patent application means you have forfeited all rights to claim trade secret misappropriation. You may be able to have your cake and eat it too.

Image Source: Deposit Photos
Author: izakowski
Image ID: 3687400 

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