Tag: patent

  • Trade Secret Protections for Small Businesses

    Trade Secret Protections for Small Businesses

    Business owners seeking to protect their proprietary information or invention have many different options. The most common method that people think of is patent protection. Depending on the complexity of the subject matter, patents can be expensive to draft, prosecute, and defend. Additionally, not all information that a business may find valuable will fall under the umbrella of patentable subject matter. Where can a business turn to protect their valuable information that is not protected by a patent?

    The simple answer is to turn to trade secret for protection. The same protections that have protected the iconic taste of Coca-Cola, Google’s proprietary search algorithm, McDonald’s Big Mac special sauce recipe, as well as WD-40’s secret formula can be put to use by your business to efficiently and effectively protect your business’ information.

    What is a Trade Secret?

    A trade secret can take several forms. For instance, a trade secret could be a formula, pattern, compilation of data, computer program, or device. Practically, with trade secret protections you can protect any information that is valuable to your business that you keep secret. In order to receive common law legal protections for a trade secret, the information must meet a few requirements.

    Trade Secret Requirements

    First, the information must actually be economically valuable. That is, what you are seeking to protect must convey some kind of economic benefit to the holder. For example, a curated client list satisfies this requirement because the list is valuable to a competitor in the field. Think of this as the secret sauce.

    Second, the information must be secret. This requirement is a bit confusing because secret here means not widely known by the public. You do not need to keep the information you wish to protect as a trade secret absolutely secret. Your business’ managers and employees are free to possess and use the secret knowledge for the benefit of the business. The secrecy requirement is closely tied to the economically valuable requirement. If your competitors and the public are generally unaware of the information then it is likely valuable to your business.

    Third, the holder of the information must have taken some kind of precautions to keep the information secret. You can satisfy this requirement, for example, through non-disclosure or confidentiality agreements that prevent employees from sharing your valuable, secret information.

    What is Trade Secret Misappropriation?

    Trade secret misappropriation is legalese that simply means that some bad actor stole your business’ valuable information and either used it or disclosed it in a way that harmed your business. There are a few requirements to meet in order to assert a claim of trade secret misappropriation in state court.

    Information is a Trade Secret

    First, the holder of the trade secret must prove that the information met the requirements for a trade secret. Business-owners often overlook this initial step. You or your business’ conduct prior to the trade secret theft could potentially be detrimental to your ability to recover for the trade secret theft. For example, if your business does not have a confidentiality agreement in place with your employees, vendors, or potential business partners then the courts may find that your business did not do enough to protect your trade secret.

    Trade Secret Acquired Through Confidential Relationship

    Second, trade secret misappropriation requires that the bad actor acquired the trade secret information as a result of a confidential relationship with the holder of the trade secret. For example, if you hired an employee who signed a non-disclosure agreement and then upon leaving your business that employee spread confidential information protected by the non-disclosure agreement, you or your business could potentially pursue that employee for trade secret misappropriation. However, if you disclose the information outside of that confidential relationship, it is likely not actionable (think of an inventor or entrepreneur’s elevator pitch).

    Here, it is important to note what trade secret misappropriation does not cover reverse engineering. Reverse engineering of a trade secret is not trade secret misappropriation. This is the big trade-off associated with trade secret protection. Unlike patent protection, trade secret protection does not prevent use of the secret information. Instead, trade secret protection only prevents a bad actor bound by some kind of agreement from violating that agreement. Trade secret provides another cause of action to help to protect the internal workings of your business that set you apart from your competitors.

    Unauthorized Use or Disclosure

    Third, trade secret misappropriation requires that the bad actor has either made unauthorized use of the trade secret information or has disclosed the secret information. For example, this requirement would be satisfied if a disgruntled ex-employee of Coca-Cola who signed a non-disclosure agreement shared Coca-Cola’s secret formula on the internet.

    Potential Remedies for Trade Secret Misappropriation?

    Remedies for trade secret misappropriation fall generally into the two buckets. First, pursuing trade secret misappropriation as a cause of action allows the court to enter injunctive relief. If a disgruntled ex-employee is sharing your company’s secrets online on social media, a court can order that ex-employee to stop spreading your business’ trade secrets. A judge can enter this order early in litigation before any arguments on the merits of the case have begun. This is a time and cost-effective way to protect your business’ trade secrets.

    Second, juries have been extremely sympathetic to businesses harmed by trade secret misappropriation. Juries have awarded huge awards in the past. For example, in a case recently heard in a Texas state court involving a Quicken Loans company allegedly stealing the trade secrets of a Silicon Valley real estate start-up, a jury awarded the start-up over $706 million dollars to compensate the start-up for the theft of its trade secrets.

    Trade secret protection is a valuable option for businesses seeking to protect the inner workings of their businesses.

    For more information, or to speak with an attorney about protecting your business, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

     

  • Can inventors lose their patent rights via crowdfunding platforms?

    Can inventors lose their patent rights via crowdfunding platforms?

    Every day new startup companies come up with great ideas they hope will be the next big thing. With the advent of internet based crowdfunding, startup companies and inventors can easily use internet crowdfunding platforms such as gofundme.com, kickstarter.com and many others to market and finance new inventions. As of January, over 14 million people have helped fund $3.5 billion to almost 140,000 Kickstarter projects.

    While these platforms have revolutionized the way startups and inventors finance and market their business plans and goals, entrepreneurs using these platforms can jeopardize their ability to protect those new ideas by disclosing an invention before filing for patent protection. But with proper planning, startups seeking funding can avoid losing valuable patent rights.

    A common scenario is a startup company needs to raise funds and signs up with a crowd-source funding program like Kickstarter. The startup discloses its new ideas through an internet platform and raises funds by soliciting money from the public for a small reward in return. These startups do not offer equity or revenue sharing; they offer promotional items like limited editions or copies of the creative work being produced.

    Once the project is funded and starts to gain traction, the startup entrepreneurs first think about patent protection and learn that it is too late to protect the patentable property. This common tale of woe shows how a startup seeking crowdfunding can lose its patent rights: disclosure and offer of sale.

    How exactly are patent rights lost through disclosure?

    Fundraising platforms enable startups and inventors to acquire financing and exposure but, at the same time, may require inventors or startups to disclose their inventions to the public. Under federal law, an inventor must file a patent application within one year after disclosing their invention.

    Disclosure can be a publication or a public use of the invention. If a patent application is not filed within a year of the disclosure, it is considered a novelty defeating event and the invention is no longer patentable.

    However, not all disclosures are significant enough to trigger the filing requirement. To be a sufficient disclosure, there must be enough information disclosed to enable a person having ordinary skill in the art to make and use the invention.

    It should be noted that losing patent rights is not exclusive to fundraising platforms. The same legal repercussions, such as novelty defeating events, can result by simply publishing an invention anywhere on the internet or actual use in a public place.

    Another problem with disclosure is the risk of another entity filing a patent application based on the disclosure. The United States and most other industrialized countries have a first to file patent system. If another entity wins the race to the patent office, all rights to the invention are lost.

    What is a novelty defeating event?

    Novelty defeating events render the invention no longer new or novel. An invention is no longer considered novel or new when it is considered known to the public. What does this mean exactly? An invention is considered known to the public when there are pre-existing inventions or references that already describe the components of the disclosed invention. Even if it was the inventor who disclosed the invention, it is considered a novelty defeating event.

    Offer of sale as novelty defeating event

    Disclosing your invention on a fundraising platform is not the only potential way to lose your patent rights. Even if you do not disclose enough information to enable a person having ordinary skill in the art, you can still lose your patent rights through an on-sale bar. On-sale bars occur when the invention is sold or offered for sale one year before the filing of the patent. The on-sale bar requires that the invention is ready for patenting, which means either some tangible model of the invention is produced or the inventor has enough information to create the invention.

    So even without a sufficient public disclosure to enable someone with skill in the art to make the invention, patent rights can still be lost when the invention is ready for patenting and offered for sale.

    But is there really a sale?

    The question of whether an invention is the subject of a commercial offer of sale is analyzed under the generally understood law of contracts. The Federal Circuit Courts have held that a sale occurs when there is a contract between parties to pass rights of property for consideration which the buyer pays the seller for the thing bought or sold. Whether a sale occurs will vary with each case.

    The Federal Circuit has also established a framework for determining whether or not there is an offer for sale, and identified several factors for consideration in the analysis. In doing so, it stated that such a sale must bear the hallmarks of a sale pursuant to the Uniform Commercial Code.

    The commercial code defines a sale as the transfer of title. A transfer of title suggests that the inventor has given up some or all of its interest and control over the product.

    Postings on crowdfunding platforms in and of themselves do not appear to constitute a sale. Rather, it is the language of the post, and the description of the project, that can make or break an inventor. Here is where the tension arises. In order to obtain funding, an inventor must generate attention and excitement for their project. The inventor must provide sufficient detail as an enticement for prospective funders to feel comfortable sending money.

    A general search of crowdfunding sites reveals that while you cannot immediately buy the products, if you donate a certain amount, you receive a product or prototype when production begins. It could be argued that such an exchange of money for a prototype or finished product (regardless of the timing) would constitute a sale sufficient to start the clock running.That is not to say that you cannot raise money on these platforms without harming your rights. On the contrary, it all depends on the phrasing of the post and what you are offering the contributors. And of course the timing of the patent filing.

    Measures and safeguards to protect patent rights

    Generally, once patent rights are lost, there is no way to reclaim them. Thus, it is imperative that inventors and startups take the proper steps and precautions to ensure that novelty defeating events do not occur. However, it may be impossible to keep information pertinent to the invention strictly confidential while asking for funds through crowdsourcing. Therefore, the pivotal step in retaining any potential patent rights would be to file a patent application before any disclosure or offer of sale.

    Registered patent attorneyVincent LoTempiois a partner at Kloss Stenger & LoTempio: vglotempio@klosslaw.com.Justin Klossis an associate attorney at the firm who focuses on litigation: jdkloss@kloss.com. Law clerk Anthony Vu contributed to this article.

    This Column also appears in Buffalo Business First.