By Kevin Heinl
Small businesses frequently need to work with consultants, prototype makers and pilot production manufacturers to develop new products or manufacturing processes. The failure to take appropriate precautions to protect intellectual property in those developments may prevent a business from protecting valuable innovations later.
All persons involved in developing a new product, including company employees and outside vendors, should be required to sign a non-disclosure agreement. Non-disclosure agreements protect valuable trade secret rights and also prevent premature disclosures of an invention from blocking patents.
Trade Secrets and the Defend Trade Secrets Act (DTSA)
New products, chemical compositions, software-based systems or manufacturing processes that may not be patentable may be protected as trade secrets under state law or under the federal Defend Trade Secrets Act that became effective in 2016. Trade secrets protect developments that can be kept secret but are lost if the information to be protected is disclosed to another without an obligation to keep the information secret.
One important step to safeguard the confidentiality of trade secret information is to adopt a strict policy requiring employees, contractors and others with access to confidential information to execute non-disclosure agreements.
The DTSA provides jurisdiction in Federal Courts for actions alleging theft or misappropriation of trade secrets. The law also provides additional remedies including double damages and recovery of attorney’s fees. Agreements with employees, consultants and contractors containing confidentiality or non-disclosure terms must include a written notice of immunity from prosecution for whistle blowers or for disclosure in a court proceeding in connection with a lawsuit alleging retaliation by an employer. The notice is required to obtain the enhanced remedies under the law.
Alternatively, the DTSA allows a company to post a company policy explaining the immunities from prosecution. Existing non-disclosure agreements should be reviewed and replaced with agreements that include the required notice to maximize protection of your valuable trade secrets.
Patent Protection
Many innovations begin as trade secrets, but as they are commercialized, the secret information cannot be kept secret. Businesses may take advantage of patent protection to continue protecting innovations after the loss of trade secret protection. Patent protection may be barred if the invention is sold, offered for sale, disclosed in a publication, in public use or otherwise made available to the public more than one year prior to the date a patent application is filed that discloses the idea.
Many ideas require more than a year to develop and may require disclosure to a vendor or consultant. Recent cases have ruled that even one sale of a product, such as a prototype sale to an inventor, may block an inventor from patenting the invention. A confidential disclosure agreement may be effective to prevent a sale or public use from creating a statutory bar because the disclosure is not “public.”
Another way to prevent an outsourcing contract from being construed as a public sale or use is to structure the agreement as a “custom manufacturing agreement” in which the vendor of prototyping services is paid for manufacturing services—not for the sale of the prototype.
The custom manufacturing agreement should acknowledge that the title to the product and any intellectual property belongs to the company requesting the services. The contracted manufacturer should be required to agree that they have no rights in the invention and that they may not sell any products that incorporate the invention.
U.S. patent law now provides that the first inventor to file a patent application has priority over anyone subsequently filing a patent application on the same invention. A provisional patent application may be filed at a lower initial cost to obtain an earlier filing date, but the provisional application must provide a written disclosure of the idea including drawings, if necessary, that would enable others to make and use the invention.
If insufficient information is disclosed, the early priority date may be lost. A nonprovisional utility application must be filed within one year after the provisional application filing date to retain the right to claim priority to the provisional application filing date.
Utility patent applications are normally published 18 months after their priority date. Publication of the patent application results in the public disclosure of whatever is disclosed in the patent application and terminates the availability of trade secret protection. However, a request to not publish a patent application can be filed as long as no foreign patent applications are to be filed based upon the invention disclosed in the application.
The patent application can be prosecuted in the U.S. Patent and Trademark Office in confidence until the patent issues, so the invention can be protected as a trade secret until patent protection is secured.
Conclusion: Take Steps Now to Protect Your Intellectual Property
Protection of intellectual property rights may be vital to the success of a new product, new method of manufacture or new composition of matter. Competitors may be discouraged from entering the market for the invention and substantial profit margins may be maintained that would not be available if the invention is sold as a commodity product without intellectual property protection.
Small businesses should take steps necessary to protect their ability to assert trade secret and patent protection over their valuable innovations.
Kevin Heinl is a partner in the law firm of Brooks Kushman P.C. specializing in intellectual property matters. His practice focuses on protecting inventions and trademarks for small businesses.