Chapter 18

Patents and Trade Secrets: Powerful Partners

For some, the words copyrights, patents, and trademarks are loosely interchangeable. To them, every creation, be it a word, a book, or an invention is a “copyright.” Others speak about “patenting” a movie, or “trademarking” a new clothespin. For us, the distinguishing features of copyrights and trademarks are now better understood. With certain exceptions, the focus of content rights is not the patent law; nevertheless, patent law cannot be ignored by creative professionals who want to identify and protect their interests.

For example, take the first 15 years of Microsoft's existence. Bill Gates and his colleagues focused on copyright and trademark laws as the basis for legal protections. Then, suddenly, they realized that many software competitors were exploiting patent laws in ways that gave them legal advantages. In the early 1990s, patent litigation or even threats of patent litigation affected software development and exploitation. Microsoft went on a filing spree, applying for patent protection for many of its newly copyrighted software programs. Why this interest in patent protection? The answer lies in the power of the patent.

Short Course on Patents

Like copyrights, a patent is a government-granted right, also rooted in the Constitution and covering entitlement for a limited time. Unlike a copyright, however, a patent does not ensure that a patent holder can exploit the invention; rather, a patent enables the inventor to exclude others from making, using, offering, or selling the invention in the United States. Like trademarks, patents are issued by the PTO after a detailed review of an application.

A patent application consists of two elements:

1. A written description of the invention. Usually this includes drawings and enough detail to explain in everyday terms how to make and use the invention. A model of the invention is not required but may be requested by the PTO.
2. A series of claims. The claims describe how the invention works. Clearly the claims are crucial because they define the scope of protection.

Patents can be issued for machines, manufactured items, new ways of doing things (processes), compositions of matter (such as drugs, proteins, viruses), living organisms (plants and animals that have been genetically engineered), computer programs, and business methods. Improvements on an existing invention can be patented as well. In such cases, if the term of the original patent has not expired, then the new patentee may need permission from the original creator in order to exploit that invention.

Among these categories, computer programs and business method patents are particularly important for digital content. Business methods are sometimes controversial, because the PTO has granted patents to what appear to be common practices, such as web advertising, mutual fund financial analysis, one-click Internet shopping payment procedures, and menu options using a telephone keypad.

If the invention is new, then the application will be granted and the right to prevent others from exploiting the claims assured for a limited period of years. New has special legal meaning in the case of patents, including not known or used by others in the United States, not patented abroad, or not described in a printed publication more than 1 year prior to filing.

If a prior invention contains the same claims, then the PTO will deny the request. Also, the relevant literature of the industry is searched for clues to establishing whether the claims have been made public prior to the filing of the application. If so, a patent will not be issued. Patentees have 1 year from the time they first reveal the nature of their invention to make a filing. Failure to file within the 1-year period can result in a loss of entitlement.

In 1995 the patent term was changed to 20 years from the date of filing or 17 years from the date of grant, whichever is longer. When more than one person works on a patent, the rights are shared. When a patent is created on the job, either the employer or employee may own it; however, employers usually have a “shop right,” that is, the right to exploit the patent in the company's business, even if the company does not own it.

Because patent applications take several years to process and denials can be tied up in appeals for several more years, a clever company attaches the phrase patent pending to many new products. Such a notice has no legal effect, but, like TM or TM, may discourage competitors from their new invention. Once registered, the law requires the inventor to mark the goods with the word patent. Failure to do so prevents entitlement to damages, unless the infringer was properly notified.

While a patent application receives careful scrutiny by a team of professionals at the PTO, sometimes the expert agency makes a mistake. Such errors may be so prominent that they cannot escape the wrath of editorial writers. In the early 1990s, well after the start of the digital revolution, the PTO made such an error. Compton's Encyclopedia applied for and was granted a patent for the technology involved in making CD-ROMs. Even though CD-ROMs were already a staple of the computer industry, the PTO failed to determine accurately when the technology became public knowledge. In an unusual move, the Tribune Company, venerable publisher of the Chicago Tribune and owner of several broadcast stations and the legendary Chicago Cubs baseball team, purchased Compton's and announced it would soon charge all exploiters of the technology a license fee per disk. The pennies-per-CD charge could convert the patent acquisition into a multimillion dollar bonanza for Tribune and more than justify its foray into patent ownership. All seemed headed in the right direction for Tribune's new venture when a cry arose from CD publishers around the nation. This technology was already in vogue before the application was filed, they assured the PTO, so granting the patent was a major mistake. While such challenges are normally heard in court in the course of a patent infringement lawsuit, the objections were so forcefully presented that the Patent Office, on its own initiative, conducted a review of the grant. In an embarrassing but utterly necessary action, the technology-savvy agency reversed its ruling, pulling the patent from Tribune and dashing the company's plans for a major licensing fortune.

A much happier fate was in store for the patent holder of the telephone pushbutton menu. In the early 1980s, a prescient inventor registered a claim to the process of using the telephone keypad to create menu options. We all know the drill when calling the airlines; for example, press 1 for arrivals and departures, 2 for reservations, 3 for security information, and so forth. The process of moving into different menu options using a telephone keypad was this person's “invention.” Irrespective of whether the patent holder actually exploited the grant, the patent enabled the owner to prevent others from using the technology without consent. Despite the outraged objections of many large companies, like airlines, hotel chains, and AT&T, the inventor was able to secure millions in license fees, for in the end, the users felt in this case that risking a patent infringement suit was simply was not worth it. The lesson is learned: Creative professionals should not ignore patent rights.

Trade Secret: A Patent Alternative

A trade secret may be a company or individual's most prized asset. Unlike patents, which require the filing of an application and, when granted, the disclosure of the patent for all the world to see, a trade secret is something that, first and foremost, is kept confidential. In fact, if one does not hold the details private, it may be lost forever.

How one goes about protecting the privacy of the information is essential to the nature of the protection that the law will afford it. A secret formula, a business plan and projections, or a treatment for a new movie are all things that are covered by copyright law. Yet, the way in which the work is handled can transform it and the protections the law can provide.

A company or individual must do two practical things to create and maintain a trade secret. First, it must make sure that only the people that need to know the secret are exposed to it. The more widely a secret is shared, the harder it is to maintain as a secret. Second, it must require that anyone who has access to the secret agree not to reveal it. This simple order is the one most often overlooked. A good practice is to have the recipient of the secret sign a nondisclosure agreement. An NDA, as it is commonly called, obligates the recipient to maintain responsible controls over the use of the secret, and, if the confidential information is maintained, the agreement is complete. If the recipient violates the NDA, severe penalties can attach.

Generally, trade secret law is governed by states. The Uniform Trade Secret Act (UTSA) serves as a model code for states, providing guidance for national uniformity to trade secret standards. Under the UTSA, the key elements for a trade secret include

1. That it is not generally known or readily ascertainable through legal means. This requires that one cannot go to public or commonly accessible information resources and discover the secret. It has to be truly private information.
2. That the information has independent economic value based on its secrecy. To be a trade secret protected by the UTSA, the secret has to be valuable in a way that can translate into something of real economic value.
3. That the holder of the secret take reasonable steps under the circumstances to protect the secret. If one fails to take such steps, including limiting who has access to the information and making sure that those who do have access respect its value and secrecy, then the protections afforded secret information can be lost.

Trade secrets are particularly important for software development, as engineering secrets can be embedded in computer codes. Many software developers keep the underlying code a secret even though it is also copyrighted. However, if a company tries to obtain a patent on its software, it loses trade secret status and protection, since patents, once granted, become public. Recognizing that the patent term lasts only for 20 years and the useful life of certain products never reaches two decades, software developers often eschew the patent track in favor of trade secret and copyright protection. Copyright applies as soon as the code is written. If one wants to register the copyrighted code with the Copyright Office (or must register as a necessary step in litigation), there is a special procedure for protecting software secrets. Rather than filing the entire work with the Copyright Office, as the law requires, in the case of confidential or secret information, the applicant is permitted to submit only the first 25 and last 25 pages of the code (which may consist of hundreds of pages of computer-readable text). Moreover, to add an extra layer of protection, the registration process allows the copyright owner to black out the majority of the information on the 50 attached pages, establishing only that there is a writing on the page, but making the content totally undecipherable. If this procedure is followed, not only can a copyrighted work be registered with the Copyright Office, the trade secret status can be maintained.