Navigating the Intellectual Property Maze

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In transforming biomass to power, biofuels or other chemicals, equipment is used to carry out a process to provide a product. Innovation as to the equipment, the process or the product may cause a company to seek patent protection. Depending on the nature of the product and the company's business plan, patent protection may not be the only choice, or the best choice. In certain settings, a company may be able to choose the most advantageous form of protection, and trade secret protection may be the better choice when compared with seeking patent protection. However, in certain other settings, even though trade secret protection may be possible as to the equipment or the process, the decision to pursue patent protection on the product may determine if trade secret protection is really an option.

To begin, patent rights may be used to secure new and non-obvious processes, machines, manufactures and compositions of matter. In the first instance, the federal government (in the form of the U.S. Patent and Trademark Office) must decide whether an innovation is sufficiently novel and nonobvious to merit protection. In the second instance, the federal courts will review the determination of the Patent Office if the patent must be enforced to prevent infringement of those rights.

The costs of obtaining a patent can easily run upwards of $10,000, and the time from the filing of the application to the issuance of the patent can be on the order of two to four years. Additionally, as a quid pro quo for patent protection, the patentee must disclose to the public his or her best mode of making and using the innovation. Patent rights are generally limited to 20 years from the filing date of the application for protection on the innovation. Once the 20-year term has run, the innovation will be available to the public.

In the alternative, innovations may be protected as trade secrets. Trade secret law may be used to protect formulae, patterns, compilations, programs, devices, methods, techniques or processes that are not generally known or reasonably ascertainable, and that are the subject of reasonable, ongoing measures to keep the information confidential. Trade secrets are not reviewed by the government until the holder has to enforce his or her rights in court.

Trade secret protection can be far less expensive than patent protection, at least in terms of legal fees, as the daily maintenance of the protection involves the company, rather than its attorney. Unlike patent protection, trade secret protection requires that the company prevent disclosure of the innovation. As soon as the innovation is publicly disclosed, protection may be lost. Also unlike patent protection, trade secret protection does not have a definite expiration date, but may extend as long as secrecy is preserved, which may be well after the 20 years afforded under patent law.

At some point, one must decide whether to disclose and seek patent protection or to limit disclosure and seek trade secret protection. Fortunately, the nature of the product and the company's business plan may provide guidance as to whether patent or trade secret protection is a better choice. The decision matrix is illustrated below.

Consider first the scenario where it is not possible to determine from the product how the biomass has been converted into the product (i.e., the product is generic). For example, the company may be converting biomass into ethanol. Because the equipment or process is not derivable from the product, the company does not have to be concerned with a third party determining the details of the equipment or the process through reverse engineering of the product (i.e., working out the trade secret from the publicly available material). Consequently, trade secret protection is an option on the process or the equipment, although so too may be patent protection.

One business plan would be for the company to sell the equipment to a large number of third parties, or to permit a large number of third parties to use the process for a fee (see cell A). Even if this activity is accompanied by suitable contracts or agreements to preserve the confidentiality of the information (the details of the equipment or the process), the large number of parties involved militates against reliance on trade secret protection. The probability of dissemination to the public is too high with a large number of parties involved. Under such a set of circumstances, patent protection may be a more secure option, and would free the company from having to pursue contractual limitations on each disclosure.

A second business plan would call for the company to use the equipment or process internally and then sell the product, or to confine the permission to use the equipment or the process to a limited number of third parties (see cell B). In keeping with such a business plan, the control would appear far more certain. Consequently, while patent protection may be considered, trade secret protection may be a better option because the chances for loss of the trade secret are minimized. The advantages would be a longer period of protection, immediate availability of protection, and potentially reduced costs for obtaining the protection.

There is the possibility of independent discovery, whereby the same innovation is arrived at by a third party without access to the trade secret, in which case trade secret protection may be lost. However, the more complex or unusual the equipment or process, the less likely this is to be a consideration. Even with a relatively simple improvement, where the product is generic and the access is limited (see cell B), trade secret protection for the equipment or process appears a strong alternative to patent protection.

Consider now the scenario where the product also is new and potentially nonobvious, such as where the biofuel is chemically altered by the innovative process, and the alteration improves its stability or its combustibility. In such a setting, patent protection could be sought on the product. Where the business plan includes involving numerous third parties, the recommendation would be to seek patent protection on the equipment or process as well (see cell C), in keeping with the discussion above. But what if the business plan did not initially include widespread sale of the equipment or licensing the use of the process (see cell D)? Could the product be patented while the equipment and process are kept as a trade secret?

Even though secrecy as to the equipment or process may be achievable by limiting the number of parties having access to the equipment or process, to apply for patent protection on the product, it is necessary to disclose the best mode of making or using the product. Thus, it may be necessary to disclose the equipment or process in the application. Therefore, if patent protection is sought on the product, the company may have no choice but to seek patent protection on the equipment or process because it will be necessary to disclose the details of the equipment or process in seeking patent protection on the product. On the other hand, if the company foregoes patent protection on the product, the equipment and process may still be maintained as a trade secret (assuming that the equipment or process is not derivable from the product).

In the end, sometimes foregoing patent protection is the right decision to make, because there are other forms of legal protection that may more closely align with a company's goals and the realities of the marketplace. Considering the nature of the product and a company's business plan, trade secret protection may be a better choice than patent protection in certain circumstances. BIO

Paul Craane is a partner at Marshall, Gerstein & Borun LLP. Reach him at [email protected] or (312) 474-6623.