Technology Transfer Tactics

TM

The monthly advisor on best practices in technology transfer

As patents become harder to protect, trade

secrets emerge as viable option
Recent legislative and legal changes to patent
protection paired with enhancements to trade secret
protection have many technology transfer executives
wondering if foregoing the high cost of patenting in
favor of trade secret protection might be a better
move in some cases. But while trade secrets may
have a legitimate place in a TTOs overall IP tool
chest, keep in mind that keeping knowledge under
wraps runs directly counter to a universitys educational mission, and favoring trade secret protection
over patents can stymie licensing efforts, which
remain a mainstay of TTO activity and revenue.
The patent environment clearly is changing and
policy makers are looking to change it even more.
Theres an apparent misplaced view in Congress
and maybe at some of the higher courts that patent
protection is not good and trade secret protection
is, comments Charles R. Macedo, Esq., a partner
at Amster Rothstein & Ebenstein LLP, New York.
Thats resulting in a cloak over innovation and
development. Its precluding the world from knowing whats been developed.
One major factor in a growing negative view of
patents is the recent Supreme Court ruling in Alice
Corp. v CLS Bank International, in which the justices
determined that certain claims about a computerimplemented electronic escrow service involved
abstract ideas that were ineligible for patent protection. In Alice, Macedo notes, the Court decision has
been read by some to say that some types of patents
were too broad, too extreme, and wouldnt it be better
if we didnt have them. It resulted in putting more
than 100,000 patents at risk of invalidation, he adds.
Concurrently, theres movement in Congress to
craft a national trade secret protection bill. According
to Peter J. Toren, a partner at Weisbrod Mattels &
Copley PLLC, Washington DC, if enacted the bill
would unify the state trade secret laws and elevate

trade secret protection to the federal level. Almost all

states have adopted the Uniform Trade Secrets Act,
he explains, but there are still differences as to
requirements, plus a few critical states including
New York and Massachusetts havent adopted the
UTSA. A unified law would remove the patchwork
quality. In addition, he says, such a measure would,
from an image standpoint, recognize trade secrets on
a par with copyrights, trademarks and patents and
would provide a key to the federal courts. Right
now, unless theres another basis to get into federal
court-- jurisdictional diversity, for example -- the
case will be in state court, where many lawyers
would prefer not to practice.
Notes John Strand, a shareholder at Wolf
Greenfield & Sacks PC, Boston, if Congress adopts
a law that looks like the UTSA, but on a national
scale, it could bring complete uniformity to the
laws. Such uniformity would be good, as it would
add more predictability to applying the law.
On top of the legislative happenings, a recent
lawsuit has also served to bolster the validity of
trade secrets. In Altavion Inc. v Konica Minolta
Systems Laboratory, a California appellate court
broadened the definition of what information can
qualify as a trade secret.

Compare and contrast

These dovetailing developments have some
tech transfer executives wondering how the two
options compare and contrast, and which to use for
optimal IP protection.
The general definition of a trade secret is something that is not generally known to the public, provides some benefit to the holder of the secret as a
result of it not being known, and that the holder exercises reasonable care to prevent from being generally

Reprinted with permission from Technology Transfer Tactics, Vol. 9, No. 2 February 2015, Published by
2Market Information, Inc. Copyright 2015. For subscription information, visit www.TechTransferCentral.com

known, notes Jim Baker, PhD, executive director of

innovation and industry engagement at Michigan
Technological University, Houghton. Practical issues
include maintaining the information in a secure location and limiting access to the information to only
people who need to know it and are subject to appropriate non-disclosure obligations.
Adds Wes Blakeslee, head of Blakeslee LLC, a
new legal and consulting firm formed by the former
head of the Johns Hopkins TTO, to protect a trade
secret, you must treat it as a trade secret. You must
take measures to avoid widespread disclosure and
your employees must be made aware, usually
through confidentiality agreements, that your internally protected information is to be kept secret. The
Coca-Cola formula may be one of the most famous
trade secrets.
Trade secrets and patents are somewhat mutually exclusive, Toren points out, because if you go
the patent route, once the information is published
in a patent application you lose trade secret protection. Because patent apps are published 18 months
after the date of filing, he adds, when you pursue
a patent, for the first 18 months, the information is
also a trade secret. But once its published, you lose
that protection. Still, even if you file certain things
in the app, the other parts that arent disclosed [can]
remain a trade secret.
The two types of protection are not, Baker
emphasizes, truly mutually exclusive, and which
is better or worse depends on the specific circumstances of a particular situation. If the discovery
can be reverse engineered, he explains, trade secret
protection is not available, so a patent is the only
option for protection. Otherwise, he advises,
consider factors such as publication interests and
whether the discovery can be parsed into disclosable and secret components and how best to
achieve maximum public benefit from the discovery
by leveraging all available tools for proprietary protection. Unlike most intellectual property, Strand
adds, there is no way to ascertain before litigation
that you have a trade secret. There is no means by
which one can register a trade secret with the government, such as with a patent or copyright, he
says. One just has to make sure to maintain the
information as secret to preserve the trade secret.
He adds: Several factors should be evaluated
when deciding between patenting or maintaining a
trade secret, including the cost of patenting versus
the costs of maintaining the secrecy of the technolo-

gy; the risk of the trade secret being disclosed even

with the best protection plan (the Internet and ease
of data transfer has made the disclosure of trade
secrets more likely than ever); and the licensing
potential of the technology (if the technology will
be licensed to many parties, increasing the risk of a
disclosure, it is better to patent the technology).
Here are some additional considerations:
Is your invention one of the types that are the
best candidates for trade secret protection?
According to Strand, these include any invention
or information that is difficult or impossible to
reverse engineer to arrive at the trade secret, including software inventions if the source code is adequately protected and inventions related to chemical manufacturing where it is impossible to determine how the final chemical was manufactured.
How do you establish liability for trade secret
theft and determine the actual loss? Thats tough,
Blakeslee warns, but it can be done. Often there is
a paper trail via an employee who leaves and takes,
for example, the secret customer list, he explains.
Rarely is there espionage; typically, trade secrets
walk out with a departing employee. Normally,
trade secret theft is discovered when the competitor
suddenly demonstrates knowledge of the secret. If
you have enough to file suit, discovery can often
demonstrate that the competitor did not possess the
knowledge until your former employee arrived.
Strand adds that the courts are strict in their evaluation of trade secret misappropriation cases, placing
the burden on the alleged trade secret holder to
specifically identify the misappropriated trade
secret and show how the trade secret was well-protected and how the alleged thief misused the trade
secret. Usually, he points out, the last element can
only be determined through discovery in litigation.
As for calculating damages, he continues, it can
be difficult. The measure of damages can differ
depending on the case, but a common form of damages is lost profits, where the trade secret owner
shows that if the other side didnt have the trade
secret, it would not have made the sales and the
trade secret owner would have made the sales
instead. Its a factually intensive inquiry, however,
and is difficult to prove.
How do you determine what constitutes negative know-how, and how do you make sure it carries trade secret protection? The concept simply refers
to the idea that knowing that a particular method or
idea does not work can be just as valuable as know-

Reprinted with permission from Technology Transfer Tactics, Vol. 9, No. 2 February 2015, Published by
2Market Information, Inc. Copyright 2015. For subscription information, visit www.TechTransferCentral.com

ing how something works, Strand comments. But

its a tricky doctrine rarely used by courts, he adds.
Although it is recognized by the UTSA, he says,
such a trade secret is so amorphous that its difficult
to specifically identify. Courts look for specificity
when evaluating trade secret claims, so many times
such claims wont hold up. Even if the negative
know-how can be specifically identified, its difficult
to show the accused party did not do something
because of it. If you really want to protect negative
know-how, he counsels, well document all development efforts, including everything that didnt
work. Then make sure all of that documentation is
kept as confidential as any information about how
something did actually work.

Consider your mission

Theres one additional consideration, and it
may be the most difficult for tech transfer offices to
reconcile. The existence of a trade secret in a
license must be approached cautiously, since a trade
secret is contrary to the education and public service mission of the university, stresses David J.
Aston, a partner at Peters Verny LLP, Palo Alto, CA.
A protectable trade secret in a university would be
the exception, not the rule, Aston says. Most universities, to my knowledge, do not have provisions
in their intellectual policy addressing trade secrets.
Most would require a secrecy agreement to allow
a company to see unpublished information detailing
a potential invention to be licensed, he adds, and in
the language of a university license document, one
might see terms such as proprietary information or
technical information -- both of which may well
denote trade secrets. Universities customarily treat
computer software and biological materials as trade
secrets in this sense, he says. The licenses may characterize the property being licensed as tangible or
copyrighted, but apart from these categories, I think
that a pure trade secret license would be quite rare in
a university setting.
Strand agrees. I think most TTOs at universities prefer patents, he says. The primary goal of
such offices is to transfer usable ideas from the university to companies that can use the technology
and benefit society. Trade secrets are antithetical to
spreading knowledge for the public good and
increasing research visibility.
Blakeslee adds: I doubt that universities will
actively encourage keeping otherwise publishable

information secret, and the nature of a university is

such that any research secrets are hard to keep. You
dont have students or faculty sign confidentiality
agreements, and sharing how things are done is
part of the instruction process.
Thats exactly the situation at the University of
California at San Diego. We do not claim or license
trade secrets, since it would be impossible to police in
an academic setting, reports David Gibbons, PE,
MBA, assistant director of physical sciences licensing
in the TTO there. Many licensees ask for it, but there
is no way we could assure compliance by the labs, so
wed be opening the UC up for major liability.
There are operational roadblocks, too, notes
Christopher F. Wright, a partner at McCausland
Keen & Buckman, Radnor, PA. In most instances,
faculty, staff and students are not bound by written
confidentiality obligations, he points out. Is this
lack of a written confidentiality undertaking reasonable under the circumstances to give rise to a
potential trade secret? If there is no trade secret status but the information remains confidential -- for
example, its still only in the mind of the principal
investigator -- is it appropriate for the university to
transfer or license the confidential information on
an exclusive basis to a commercial entity and thus
limit the further dissemination of the knowledge?
He continues: When I am representing a commercial company that is seeking an exclusive license
from a university to technical information that is or
may become a trade secret, I counsel my client to seek
written NDAs from each person who has access to
the information and to directly discuss in advance
with all researchers the limits on their publication
rights that they are voluntarily undertaking by signing the NDAs. Thus, even if the technical information
may only be confidential information in the hands of
the university, it may still become a trade secret for
my client after the license is signed.

A middle ground?
With that in mind, he notes, there is, in most
license agreements and sponsored research contracts, a publications clause that says basically that
there will be a hiatus for publication to make sure
nothing thats confidential gets published by accident. Thats also an opportunity to get a provisional patent application on file. Thats different from
saying, You cant publish, he emphasizes. The
company its licensed to may choose to take the

Reprinted with permission from Technology Transfer Tactics, Vol. 9, No. 2 February 2015, Published by
2Market Information, Inc. Copyright 2015. For subscription information, visit www.TechTransferCentral.com

information and continue to mold it and turn it into

a trade secret later. The researcher gets to publish,
the university gets to license, and the company gets
to keep trade secrets secret.
Of course, any approach to trade secrets should
start with a conversation with a lawyer. TTOs should
really work with the attorneys in their general counsels office or with outside attorneys who have
knowledge about this area on how to proceed from a
business perspective and a legal perspective, Toren
says. In addition, Wright advises, youve got to look
at state law. Sit down and take a look at your states
version of the UTSA and the statutes and case law in
your state to define how its been interpreted.
Trade secrets are worth finding out about, and
may be a useful option for TTOs in select cases. I
wouldnt say that we necessarily plan to treat IP as
a trade secret more in the future than we have in
the past, Baker comments, but it is certainly

more prevalent on our list of options as we look at

commercialization strategies and proprietary protection plans.
Aston adds, patents are still the basic coin of
the realm in the world of university licensing; however, hybrid patent-technology licenses are well
known to most sophisticated tech transfer offices.
Given recent court decisions eroding patent protection, I would venture to say that trade secret licensing in university licenses is on the upswing.
Contact Macedo at 212-336-8000 or
[email protected]; Toren at 202-499-7912 or
[email protected]; Strand via MSL Groups Caitlin
Mahler at [email protected]; Baker at 906487-2228 or [email protected]; Blakeslee at 410-259-5529
or at [email protected]; Aston at 650-324-1677 or
[email protected]; Gibbons at 858-534-0175 or
at [email protected]; and Wright via Crystal Garcia at
610-341-1072 or at [email protected]. 

Reprinted with permission from Technology Transfer Tactics, Vol. 9, No. 2 February 2015, Published by
2Market Information, Inc. Copyright 2015. For subscription information, visit www.TechTransferCentral.com