SCOTUS Patent Scorecard Update

On May 22, 2017, the Supreme Court issued TC Heartland LLC v. Kraft Foods Group Brands LLC. Then, on May 30, 2017, the Supreme Court issued Impression Products, Inc. v. Lexmark International, Inc.

Briefly stated, TC Heartland clarifies where a patent suit can be filed and, as such, is patent neutral. Impression Products concludes “that a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale[,]” and, as such, is not pro-patent.

Pundits who believe TC Heartland is not pro-patent, or is anti-patent, seemingly are disappointed that a single U.S. district court (Eastern District of Texas) might no longer serve as the trial court equivalent of the U.S. Court of Appeals for the Federal Circuit. Well, easy come, easy go. Indeed, a pronounced concentration of patent cases (read: power) in a single U.S. district court conjures up monarchical concern, regardless of any actual or perceived certainty or efficiency.

In the past 12 years, the Supreme Court has issued 31 patent decisions.

The tally: 18 decisions are not pro-patent; 7 decisions are pro-patent; and 6 decisions are patent neutral.

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The DTSA: Happy Birthday, Data Data Everywhere, But Where’s The Common Sense?

The Defend Trade Secrets Act (DTSA) just celebrated its first birthday. Many of you know that because just about everybody is using 365 days as a reason to write about the DTSA.

Whether armed with a birthday or anniversary or some other real or perceived data point, pundits repeatedly are trying to explain the DTSA, if not the legal system, with data. That is a superficially appealing idea, especially for people who accept data as a purely objective measuring stick.  But, think about this: in a baseball game, who is the better hitter? The player who hits three frozen ropes that are caught and is 0-3, or the player who hits a dribbler, a bloop and a swinging bunt and ends up 3-3?  The same rationale applies to law; if you think you can glean what really happened when a statute was enacted and since merely because of numerical compilations of actions or outcomes, you do so at your own risk. You are looking at snapshots, texts and Tweets and not the full motion picture.   

With that, let’s look at what can be, what is and what is not when it comes to trade secrets and the DTSA. 

Trade secrets can be competitively valuable information (CVI). Let me repeat, can be. Not are. That is not lawyer-speak. That is reality – meaning, trade secrets can be CVI if they are properly identified and protected. And that means now. Not when or after you believe that someone has misappropriated them and not when or after a new statute (e.g., the DTSA) is enacted.   

The DTSA did not wave a magic wand over assets and make them viable trade secrets to be asserted in federal courts. The DTSA is a tool to protect trade secrets, a tool that facilitates access to federal courts and a tool that allows attorneys to work in an arena with which they are familiar, i.e., an arena where the Federal Rules of Civil Procedure and Federal Rules of Evidence apply.

Where on the “Goldilocks and the Three Bears” scale the DTSA falls misses the real point. Whether the number of DTSA cases has been too many, too few or just right, and whether certain relief (e.g., ex parte seizures and injunctions) has been sought or granted, is not what an owner of potential trade secrets ought to be concerned with. The real point is this: as an owner of potential trade secrets, what have you done about your potential CVI in the last year?

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SCOTUS Patent Scorecard Update

On Mar. 21, 2017, the Supreme Court issued SCA Hygiene Products v. First Quality Baby Products, LLC. SCA eliminates laches as a defense against damages where the patent infringement occurred within the 6-year period set forth in 35 U.S.C. § 286. So, score one for plain statutory language, stream-lined patent litigation (as to at least one defense) and patent owners.

In the past 12 years, the Supreme Court has issued 29 patent decisions.

The tally: 17 decisions are not Pro-Patent; 7 decisions are Pro-Patent; and 5 decisions are Patent Neutral.

The trend: Intellectual property (IP) rights continue to be front and center. The Supreme Court has averaged more than 2 patent opinions/year for the past 12 years. In 2016, Congress passed, and the President signed, the Defend Trade Secrets Act.

The takeaway: As to SCA, time periods and dates matter. So, when an IP right is born, do you have a plan, a time-line or a life-cycle in mind for that asset? Don’t shelve the asset; keep on top of it.

Please e-mail me to receive a complete copy of the SCOTUS Patent Scorecard.

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Don’t Leave Common Sense at the Office or Secrets in Your Car

Last week, a Secret Service laptop and other materials (e.g., a personal identity verification (PIV) card with access codes) were stolen from an agent’s vehicle parked in front of a New York residence.  (www.foxnews.com/politics/2017/03/17/secret-service-laptop-stolen-in-new-york.html.)  There are several valuable takeaways – literally and figuratively – from that incident.       

Let’s focus on one takeaway: common sense as a fundamental protective measure (PM) for trade secrets.

Sophisticated and organized PMs often are important for certain agencies or companies and their assets.  But, those PMs can be unduly stressed or to some extent rendered irrelevant if common sense is lacking.  

All of that bring us to the laptop, which reportedly has in place security features designed to prevent access to the laptop’s confidential contents. 

For any company whose employees travel — locally, domestically or internationally — consider these periodic, common-sense reminders to employees: (1) have possession or control of all devices that contain confidential information or trade secrets, (2) take on any trip only those devices necessary to the task at hand and (3) include on those devices only the confidential information or trade secrets necessary to the task at hand.  

Perfection is not realistic or required.  But, many agencies and companies can and should travel lighter.  

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SCOTUS Patent Scorecard Update

On Feb. 22, 2017, the Supreme Court issued Life Technologies Corp. v. Promega Corp. Briefly stated, Life Technologies limits patent infringement liability.
In the past 12 years, the Supreme Court has issued 28 patent decisions.
The tally: 17 decisions are not Pro-Patent; 6 decisions are Pro-Patent; and 5 decisions are Patent Neutral.
The trend: patent rights pruning continues.
The takeaway: companies that believe intellectual property (IP) rights are assets should consider whether their IP portfolio mix and operations account for that trend and then adjust accordingly.
Please e-mail me to receive a complete copy of the SCOTUS Patent Scorecard.

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SCOTUS Patent Scorecard Update: One Pro-Patent Decision, One Pro-Patent Quality Decision

On June 13 and 20, 2016, the Supreme Court added to its patent jurisprudence. One decision was pro-patent and one was anti-patent or, more optimistically, pro-patent quality.

Pro-Patent: In Halo Elecs., Inc. v. Pulse Elecs., Inc., the Court addressed the proper test for awarding enhanced damages under 35 U.S.C. § 284. The Court overruled the Federal Circuit’s two-part Seagate test, held that enhanced damages can be awarded at the district court’s discretion, noted that such damages “should generally be reserved for egregious cases typified by willful misconduct,” rejected the clear and convincing evidence standard in an enhanced damages inquiry, reiterated that the proper standard is preponderance of the evidence and rejected the Federal Circuit’s tripartite framework for appellate review.

Pro-Patent Quality: In Cuozzo Speed Techs., LLC v. Lee, the Court addressed whether the Patent Office’s determination to institute an inter partes review on grounds not specifically mentioned in the third party’s review request can be considered by a court. A court may not review a “mine-run claim” involving the Patent Office’s decision to institute inter partes review; however, a court may be able to review a constitutional question relating to that decision. The Court also addressed whether the Patent Office’s inter partes review regulation to construe a patent claim according to its broadest reasonable construction in light of the patent specification is proper. It is.

The snapshot takeaways are that plain statutory language matters, quality IP assets matter and consistency (within an agency) matters. Those takeaways should guide any company’s IP asset management program – which should include patents and trade secrets.

If anyone is interested in a complete copy of the U.S. Supreme Court Patent Scorecard from 2005-2016, then please e-mail me at dpelletier@pelletier-ip.com.

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Theranos and Its Requests to Redact Trade Secrets

“Today, how prepared are you to substantiate that your assets are trade secrets?” That question originally was posed on February 7, 2016. Recent events involving Theranos, Inc. again illustrate how important that question is.

Theranos currently is dealing with some heavily publicized legal and regulatory problems involving its laboratories.

An article in today’s Wall Street Journal reports that: “CMS [Centers for Medicare and Medicaid Services] officials usually release sanctions letters to the public soon after sending them to lab owners. With Theranos, the agency has held off because the company requested redactions that it said are necessary to protect its trade secrets, according to people familiar with the matter. The agency hasn’t decided whether to grant the redaction requests, the people said.” (John Carreyrou and Christopher Weaver, “Regulators Propose Banning Theranos Founder Elizabeth Holmes for at Least Two Years,” April 14, 2016 Wall Street Journal, A1, A6.)

That excerpt prompts five trade secret-related questions.

First, has Theranos merely claimed trade secret status for information assets?

Second, are mere claims of trade secret status the cause of CMS’s non-decision regarding Theranos’ redaction requests?

Third, does CMS require substantiation, or has it requested substantiation or additional substantiation, for any claim of trade secret status?

Fourth, if Theranos has not yet shown that each asset can meet the applicable definition of “trade secret,” can it do so?

Fifth, will mere claims of trade secret status or a lack of substantiation for those claims result in CMS denying Theranos’ redaction requests?

These questions are intended to provoke thought within companies with information assets and potential trade secret assets. So, yes, just about every company.

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Saying “I’ve got a trade secret” Isn’t Enough

Who decides whether you have a trade secret?

To begin with, you are the first decision-maker. But, simply saying or believing that an asset is a trade secret is a hollow decision if it is not backed up by actions. In particular, you need to properly identify and protect your trade secret. Importantly, the time to do that is now – before there is a potential or actual opportunity or dispute.

In a transactional setting, another decision-maker might be a potential business partner who is conducting due diligence on your intellectual property portfolio. The potential partner will — or should — be investigating whether, in its opinion, the asset meets the legal requirements for a trade secret, including that you employed sufficient measures to protect the asset.

In litigation, another decision-maker and, as some might say, the ultimate decision-maker is the court, meaning the judge, jury or both. Based on the evidence presented, the court will decide whether your asset meets the legal requirements for and, as such, is a trade secret.

So, how might this transactional and litigation decision-making play out? It can play out in any number of different ways. Because of that uncertainty, the main focus for an asset owner should be: be ready for that decision-making.

A pending criminal case – actually, a murder case – illustrates that point. In fact, the case illustrates that you should be ready for that decision-making even if your assets are not front and center in the opportunity or dispute.

In the murder case, a Pennsylvania court rejected the defense’s attempt to gain access to the source code for software that was used in connection with the investigation that led to the murder charge. (Palazzolo, Joe, “Court Bars Review Of DNA Software,” Wall Street Journal, Feb. 6-7, 2016, A3.) The court ruled that the defense “failed to show that ‘production of the source code is a linchpin to undermining the Commonwealth’s case’ as it pertains to the DNA evidence.” (Id.) It further explained that production of the source code “could ‘have the potential to cause great harm’ to [Cybergenetics] by exposing its trade secrets.” (Id.)

With respect to Cybergenetics’ assets, two things are not clear: (1) the type of inquiry, if any, that was conducted to determine if Cybergenetics’ assets are trade secrets and (2) the support, if any, that Cybergenetics offered to show that its assets are trade secrets.

Suppose that the court alternatively (1) had ruled that “‘production of the source code is a linchpin to undermining the Commonwealth’s case’ as it pertains to the DNA evidence” (Id.), (2) was looking to craft an appropriate protective order and (3) ordered Cybergenetics to substantiate the need for a protective order or certain provisions or conditions in a protective order – i.e., substantiate that its assets are trade secrets. How prepared would Cybergenetics have been to promptly substantiate that its assets are trade secrets? The answer to that question is unknown.

So, let’s ask a better question. Today, how prepared are you to substantiate that your assets are trade secrets?

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A Trade Secret Compensation Compass for MLB and Other Industries

A criminal fine won’t bring your trade secret back or compensate you for your loss.

A jail sentence won’t bring your trade secret back or compensate you for your loss.

So, should the Houston Astros be satisfied with the St. Louis Cardinals’ former scouting director, Chris Correa, pleading guilty to unauthorized access to computer information and potentially being fined, sentenced to prison or both? (“Ex-Cardinals Official Pleads Guilty to Hack,” January 9-10, 2016 Wall Street Journal, A2.) Probably not.

Baseball teams’ collection, analysis and use of data have been and are cutting edge. Platforms, data inputs, algorithms and resulting outputs – all competitively valuable information (CVI) and all potential trade secrets – fuel, for example, the all-important roster building process, which includes drafts, trades and free agent signings.

Here, Mr. Correa wrongfully accessed one or more of the Astros’ CVI assets. For purposes of this discussion, I assume that Mr. Correa’s wrongful access went beyond merely glancing at the CVI assets and included wrongful acquisition, e.g., downloading or copying, of one or more of those assets. Perhaps Mr. Correa then wrongfully disclosed or used one or more of those assets within the Cardinals’ organization or otherwise.

Importantly, trade secret misappropriation comes in three flavors: unauthorized acquisition, disclosure or use. I emphasize the “or.” Far too often, litigants mistakenly assert and courts mistakenly conclude that a wrongdoer must use a stolen trade secret in order to be liable. That is simply not true.

Unauthorized acquisition, by itself, can be the basis for establishing trade secret misappropriation. Unauthorized acquisition is a serious offense because the trade secret owner has lost control, to some extent and for some period of time, over one or more of its assets. Moreover, regaining complete or even sufficient control over the assets can be a dubious proposition; would you reasonably believe that the thief (necessarily, a dishonest person) has told you everything that he did with, has identified every place he stored and has identified everyone to whom he disclosed the assets? (While injunctive relief can be obtained in civil trade secret litigation, the focus of this article is compensation for past wrongdoing, not controlling future conduct.)

Back to the diamond.

Neither the Astros, nor any other MLB franchise, reasonably should be satisfied with fines and jail sentences for the theft and loss of CVI. Instead, if you’re a baseball owner, you should want Major League Baseball (MLB) to award meaningful compensation for a CVI-related offense. Otherwise, what is the point of developing and leveraging CVI?

Meaningful compensation is compensation that corresponds to what was stolen and what was done. As to the latter, wrongful disclosure and use can and should increase any compensation awarded.

So, should money be the primary form of compensation where one MLB franchise steals the roster-building CVI of another MLB franchise? (For purposes of this discussion, I assume the Cardinals’ culpability; whether the Cardinals are or ultimately will be responsible for Mr. Correa’s or anyone else’s acts is unknown at this point.)

Here, the character and magnitude of the stolen assets — remember, these are roster-building assets –seemingly demand a transfer of a draft pick or picks from the Cardinals to the Astros. Draft picks are incredibly valuable currency in MLB (and in most professional sports) and they seemingly directly correspond to the character and magnitude of the stolen assets.

What about financial compensation? Perhaps that also should be part of the compensation from the Cardinals to the Astros. In a CVI or trade secret incident that does not involve professional sports franchises, financial compensation should almost always be in play, no pun intended. Typically, the only real questions are the type and amount of that financial compensation.

In sum, where CVI, such as a trade secret, is stolen, legal principles and common sense should be the compensation compass. In other words, the appropriate compensation should depend on what was stolen, what was done and the currency or currencies used in the affected market.

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Gold Seals and Red Ribbons or Grey Matter?

What would you, as in-house intellectual property (IP) counsel or a strategy officer, rather have: patents, with the attendant gold seals and red ribbons, or the employees who develop the company’s technology?

A popular answer is patents.

For example, when a company is about to be sold or go public, its patents often are and should be valued. But, key employees, while perhaps retained or noted, are not (at least typically are not) assigned a monetary value as part of the transaction. Having said that, certain contracts with those employees, such as covenants not to compete or confidentiality agreements, may be assigned a monetary value.

As another example, some companies feel more secure knowing that they own patents that they believe cover their products or processes. Those companies see a patent as providing the elusive legal monopoly in a certain market. Of course, there is much more to successfully making a product, or successfully using a process, than simply practicing a patent. As the saying goes, a patent is not and is not intended to be a product or manufacturing specification.

With those examples in mind, the point is that simply elevating patents, or even patents and applicable contracts, above the “brains behind the operation” is myopic and indicative of missed opportunities.

Here is the reality. Only a very small percentage of U.S. patents are commercially viable, meaning practiced by their owners, licensees or even infringers.

Of course, there is another side to the patent coin. Some people believe that patents can serve as a shield; as in, we have patents, so if you sue us, then we’ll sue you. An IP portfolio that includes shielding or defensive patents may elevate the importance (and value) of the portfolio, but those patents often do so in a risk averse, “we hope we never have to find out how good these patents actually are” sort of way.

On the other hand, consider this: a company’s technology often is further developed, in key ways, after a patent application is filed and even after a patent is granted. Certainly, patent applications relating to at least some of those developments may be filed and, in some cases, corresponding patents may be granted. But, it is the rare, and probably non-existent, case where all key developments (e.g., all inputs, QC/QA specifications and specific engineering principles incorporated into the mix) are patentable or patented.

More compelling is this: it is almost certain that not all of those developments are properly “harvested” or inventoried by the company. This is where real opportunities exist. Real trade secret opportunities.

Savvy IP companies will account for those developments and secure appropriate IP protection (trade secret or perhaps even patent protection). In the process, the company can enhance its competitive position and overall value. Those enhancements result from reducing the risk that those developments will leak into public domain, be “lost” in the employees’ grey matter or freely passed onto a competitor when that employee takes a new job.

Matt Ridley, a member of the British House of Lords, recently wrote:

Even the most explicit paper or patent application fails to reveal nearly enough to help another to retrace the steps through the maze of possible experiments. One study of lasers found that blueprints and written reports were quite inadequate to help others copy a laser design: You had to go and talk to the people who had done it. So a patent often does not achieve the openness that it is supposed to but instead hinders progress.

(Matt Ridley, The Myth of Basic Science, Wall Street Journal, Oct. 24-25, 2015, C1-C2.)

Putting aside (1) whether a patent application that Mr. Ridley describes would pass muster under U.S. law (it might not) and (2) whether patents hinder progress (I do not believe they do), his pragmatic observation about the people involved in the development process bolsters the point being made here: employees’ key, post-patent application and post-patent developments should be inventoried and protected and trade secret protection often is the way to go.

For IP professionals who are football fans, think of it this way: patents may well allow a company to effectively move the ball between the 20’s. But, if you want to be efficient in the red zone and score touchdowns and not settle for field goals, inventory and take care of those subsequent, commercially viable developments. Those often are prime trade secrets.

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