Patent or Trade Secret

There are a host of considerations that apply in making such a decision. Perhaps the most fundamental consideration is simply cost. No matter what the size of an organization, its intellectual-property program will be constrained by a budget. It is virtually always the case that the cost of maintaining some information as a trade secret will be less costly than obtaining a patent for it—the process of applying for a patent requires the payment of government filing costs and attorney's fees, which can be significant. The inventive productivity of an organization, particularly of the typical nanotechnology organization, routinely generates so many inventions that they cannot all be protected by patents. The reality is that organizations who are addressing their intellectual property in a serious way are not faced with the question of whether to keep trade secrets, but must decide which of the various inventions should be patented and which should be kept secret.

Making such a decision should take into consideration the relative ease of reverse-engineering the technology. If it is relatively easy to reverse-engineer, the technology is a better candidate for patent protection than for trade-secret protection. This is because even the most stringent of efforts to avoid direct disclosure of the information will not prevent a competitor from simply purchasing a product and analyzing it to uncover the "secret." Because of this, fabrication processes are often good candidates for trade-secret protection because it may be impossible to tell from the final product what particular processes were used in creating it.

The converse of this is accounting for the likelihood of independent discovery. If the technology is the result of a pattern of research that is likely to be duplicated by others, it is again not a good candidate for trade-secret protection. While the patent laws provide protection against independent discovery, giving the superior rights to those who first make an invention, there is no such protection for trade secrets.

Another factor that may play a role in the decision are whether there is any realistic likelihood that protection will be needed longer than the twenty-year term of a patent. In the case of nanotechnology, it is not clear what the answer to this might be. Technology that has biological applications might well endure for more than twenty years, but nonbiological applications are likely to have a shorter lifetime. It is also useful to evaluate whether there might be any prior art or other issues that would cause difficulties in obtaining a patent. The most clear-cut example of this is where the information embraces something that is simply not legally patentable, leaving trade secrets as providing the only viable form of intellectual-property protection.

A final consideration that should sometimes be made is to account for the ultimate disposition of the intellectual property. Many start-up companies, for example, are created with the expectation that they will be sold within a certain, relatively short, period of time. Under such a business scenario, a more aggressive patent position is usually advantageous, making the company more attractive to potential purchasers. In a similar way, any technology that has the potential to generate significant licensing revenue as part of a licensing program may be better protected with a patent. Licensing of technology with patents is relatively well defined while attempting to do something similar with trade secrets is fraught with a variety of pitfalls.

3. Remedies

If all the requirements have been met to establish some piece of information with the status of a trade secret, its improper disclosure has the potential to be addressed in either a civil action or a criminal action. While nanotechnology companies will mostly be concerned with civil actions since they provide a mechanism for them to recover if their trade secrets are disclosed, those who have access to nanotechnology trade secrets would be well advised to be aware of the potential for criminal liability. Nanotechnology is one of those technologies that is sensitive enough to implicate the criminal statutes under certain circumstances.

The kinds of remedies that the civil statutes identify are those that are rather typical of civil statutes—generally damages, injunctions, and attorney's fees. Essentially what this means is that someone who improperly discloses a trade secret can be required to pay an amount of money that represents the loss suffered by the owner of the trade secret. In many statutes, these monetary damages may be augmented in the case of "willful or malicious" misappropriation of the trade secret, with the Uniform Trade Secrets Act providing for as much as treble damages in such circumstances. It is also possible for a court to order that some action be taken in the form of an injunction, usually in the form of an order to stop any ongoing disclosure that might be taking place of the trade secret—for instance, removing the information from a Web site where it is disclosed.

In the United States, criminal penalties for trade-secret misappropriation are provided by the Economic Espionage Act, which was enacted in October

1996. The penalties that exist under the act are entirely punitive. They are the most severe punishments available for violation of an intellectual-property right. A person who improperly discloses a trade secret under this act can face up to ten years imprisonment and be fined up to $500,000. If the offense is committed knowingly to benefit a foreign power, the term of imprisonment can be as lengthy as fifteen years. If the violation is committed by a corporation, it can be fined up to $5 million, with that ceiling being increased to $10 million when it is done to benefit a foreign power.

The severity of these punishments is a reflection of the value that trade secrets can have and of the importance with which they are now viewed. Before the passage of the Economic Espionage Act, it was difficult to formulate a criminal theory under which someone could be prosecuted for theft of a trade secret. And it was essentially unheard of for someone to be imprisoned for such theft. But since then, a number of prosecutions have taken place under the act and people have been incarcerated as a result of those prosecutions. The first case in which a conviction was achieved under the act occurred in December 2006 when Fei Ye and Ming Zhong pleaded guilty to two counts of economic espionage in the U.S. District Court for the Northern District of California.

In an action that seems to be more the stuff of cinematic fiction, the pair was arrested at San Francisco International Airport with stolen trade secrets— blueprints and computer-aided design scripts—stuffed in their luggage. They had plans to develop a microprocessor for their company, Supervision, Inc., and had stolen trade secrets from Sun Microsystems, Inc., and Transmeta Corp. that they were planning to use in their technical development. An arrangement with the Chinese government for funding of Supervision would have resulted in their sharing profits from the resulting chip sales with the City of Hangzhou and the Province of Zhejiang in China—an episode of economic espionage that implicated parts of a foreign government.

Nanotechnology is an area that is ripe for trade-secret litigation. It is a technology that is developing quickly and in which there is significant movement of researchers among different organizations. This provides an environment in which a variety of different people have access to trade-secret information and in which there is a strong incentive to attempt to gain an advantage over competitors. This combination results in an atmosphere where the temptation to make improper use of trade secrets is strong.

Indeed, despite the relative infancy of nanotechnology, there have already been a number of trade-secret actions that have received media attention. Perhaps the most instructive of these concerns Dr. Donald Montgomery, who was employed as a senior research scientist by Nanogen, Inc., between May 1994 and August 1995. Nanogen is a nanotechnology company that develops and markets microarrays used in DNA analyses. In 1996, Montgomery founded CombiMatrix Corp., a nanotechnology company that developed biochips. In January 1998 and September, 1999, Montgomery filed patent applications directed to certain aspects of this biochip technology and assigned those applications to his company.54

Nanogen sued. In November 2000, it filed a lawsuit alleging that Montgomery had misappropriated the technology described in those patent applications, that is, that he had stolen and disclosed trade secrets owned by Nanogen. After the lawsuit progressed for some time, the parties settled. The terms of the settlement included a payment to Nanogen of $1 million and 17.5 percent of the CombiMatrix stock (which by this point had become acquired as a unit of Acacia Research Corp.). The total value of this settlement was estimated to be about $11 million.55

Whether the allegations against Montgomery were accurate and whether he had any legitimate defenses are not relevant to the discussion here. Instead, what is significant is the fact that the circumstances under which these allegations took place are common in nanotechnology. As a relatively nascent industry, there are strong incentives for scientists and engineers to wish to form their own start-up companies to explore and develop their own ideas fully. And it is often difficult to delineate when that development merely exploits the skills that the individuals have acquired in their past employment and when it crosses the line into misappropriation of a trade secret.

These difficulties are, of course, exacerbated because the different parties inevitably have very different views of what has happened. When an employee leaves a company to form a competitive start-up, she is likely to be viewed by her former employer as a defector—a person who was mercenary in acquiring knowledge and skill from her employer only in preparation for a betrayal. The employee is instead likely to view herself as an industrious employee who contributed diligently to her employer but is now ready to take the next step in her development. The former employer does not want the skills his employee learned from him to be used against him, and the employee thinks she cannot remain indentured to her employer forever.

There is no question that these are difficult issues, both for scientists who work in nanotechnology companies and for those who employ them. All parties are well advised to be cautious in how they treat trade-secret information. The stakes are high. And in many ways this form of intellectual property provides the greatest opportunities for costly missteps.

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