Expired patents, trade secrets, and stymied competition.

Author:Price, W. Nicholson, II
Position:Negotiating IP's Boundaries in an Evolving World
 
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Patents and trade secrecy have long been considered substitute incentives for innovation. When inventors create a new invention, they traditionally must choose between the two. And if inventors choose to patent their invention, society provides strong legal protection in exchange for disclosure, with the understanding that the protection has a limit: it expires twenty years from the date of filing. At that time, the invention is opened to the public and exposed to competition.

This story is incomplete. Patent disclosure is weak and focuses on one technical piece of an invention--but that piece is often only a part of the market-relevant innovation. Patent-holding innovators use various tactics to distort the patent bargain and prolong effective monopolies beyond the patent !s expiration dale. These tactics include using patented inventions to generate secret information, relying on the timing difference between patent filing and product marketing to make disclosure nearly irrelevant, and tying secret components to patented frameworks.

While these phenomena have been noted before, this Article joins them together as examples of ways that innovators avoid the competition-promoting function of patent expiration, ultimately limiting the benefit the public receives from patented inventions. It also suggests that the most problematic cases likely involve markets where additional factors, such as regulation or other market irregularities, require that goods be intei changeable. Finally, it proposes the concept of economic enablement: patentees may have a responsibility to enable not just the bare technical invention disclosed in a patent, but rather the minimum information necessary to exploit commercially the patented invention. Against the background of the newly enacted Federal Defend Trade Secrets Act, courts and scholars alike should examine the boundaries between trade secrets and patents to ensure that the overlap does not distort the policy goal of incentivizing and promoting both innovation and competition.

INTRODUCTION

The patent system reflects a bargain between an inventor and society. The inventor invents and discloses the invention, and in return society grants her rights in the invention for a limited period of time. (1) This bargain is carefully crafted; Congress and the courts consistently tinker with the system with the aim of reaching the right balance of incentives and costs. This tinkering also sets the boundaries between the patent system and the incentives provided by the nominally complementary trade secret system.

Underlying these intellectual property mechanisms, and others, is the recognition that the competitive benefits conferred upon inventors are limited, and that when those limits are reached, we expect that broader competition, with its attendant public benefits, becomes possible. Patents expire after twenty years, and trade secrets can be reverse-engineered. (2) These limits function as safety valves to ensure that competition can eventually take place, and doctrines have been created specifically to enable that robust competition once the limits are reached. (3)

But inventors and lawyers are clever. In multiple important types of innovation, firms use the interlocking effects of patents and difficult-to-reverse-engineer trade secrets to maintain monopolies long past patent expiration. (4) These post-expiration monopolies are strongest in markets for interchangeable goods--that is, markets, like those for drugs, weapons, and some medical tests, where competing products must perform the same and be interchangeable. (5) Post-expiration monopolies can be protected in several ways. Information generated about the patented invention itself necessary for economic exploitation but generated after filing may be kept secret, and may thus hinder competition. (6) Relatedly, trade secrecy may be used to protect required economic complements of a patented invention, in a form of innovation bundling, such that neither the invention nor the complements can be reasonably developed without access to the trade secrets. (7) Finally, information generated by the patent-protected technology, and required for market success, may also be kept secret. (8) Through these various mechanisms, patentees can double-dip, obtaining the benefits of the patent system for a limited term but then using trade secrecy to block competition in the patented product after that term expires. This double-dipping is contrary to the goal of the intellectual property system that innovation be driven by limited monopolies. The limits on monopolies are important because the public receives benefits from competition in the form of lower prices and increased access. (9)

How might these distortions be undone, and the patent bargain improved, at least in this respect? The enablement doctrine provides a potential blueprint. Under the enablement doctrine, a patentee must provide enough information that an ordinarily skilled artisan can "make and use" the claimed invention. (10) But as described in detail below, mere technical enablement will often fall short of holding up the patentee's end of the patent bargain in terms of social welfare, innovation, and competition. (11) If competitors cannot meaningfully make and use the invention after patent expiration, the patentee hasn't disclosed enough. One could imagine a separate enablement requirement--embedded in patent law or somewhere else--that focuses 011 economic enablement. Under such a requirement, the patentee would need to provide sufficient information that an ordinarily skilled and similarly equipped market participant would be able to compete reasonably--even if not ultimately successfully--in the market upon expiration of the patent term.

This Article proceeds in four Parts. Part I describes the patent bargain and the relationship between patents and trade secrecy, including the longstanding view that they are substitute inventions and the growing recognition that they may function as complements in some situations. Part II discusses the patent system's express policy of competition after patent expiration. Part III addresses three cases where secrecy is used to distort the bargain contrary to this policy and to limit competition: secret later-generated information about the invention necessary for its economic use, secret economic complements, and secret information generated by patented inventions. Part IV presents a very preliminary framework for limiting these distortions of the patent bargain by creating a requirement parallel to the technical enablement requirement of the patent system: an economic enablement requirement.

  1. PATENTS AND TRADE SECRECY

    Patents and trade secrets have a complex relationship. (12) Both cover technological or industrial innovation. (13) Both systems have as their goal the development and deployment of such innovation. (14) But they aim to reach these goals through markedly distinct mechanisms. (15) Patents reflect a considered bargain: inventors are rewarded with a limited-term monopoly (16) over the patented invention in exchange for developing and disclosing the invention. An essential part of this bargain is its limit: patents expire, and after patent expiration, the invention is expected to enter free public use. (17) Trade secrets are different; they lack a set expiration date, but have their own limit: competitors can lawfully reverse-engineer or independently invent the trade secret, and protection is then lost. (18) This Part briefly describes the two regimes, and then discusses how the two can interact, whether as substitutes under a traditional view, or as complements.

    A. Patents

    Patents trade disclosure for a term-limited, legally enforced right to exclude. (19) Under the terms of the patent bargain, an inventor shares the knowledge of her invention with the public through the disclosure of the patent document itself, and receives in exchange (and arguably in exchange for the invention itself) a limited period of time--twenty years from the date of patent filing, with some modifications--during which she may legally prevent others from making, using, selling, or importing the invention. (20) This right of exclusion (theoretically) enables the inventor to capture a greater portion of the social welfare gain from the invention than if other competitors could immediately free-ride on the invention by marketing their own versions of the invention without having had to invest the funds necessary to create it in the first place. (21) At the end of the patent term, the right to exclude terminates, and competitors may practice and sell the previously patented invention, leading to competition and expected price decreases for the public.

    B. Trade Secrets

    Trade secrecy works differently. Trade secrecy also allows an inventor to appropriate the social welfare gain from his invention through exclusivity, but that exclusivity is primarily based on secrecy; if competitors do not know the necessary information about the innovation, they cannot free-ride. (22) Trade secrecy as a body of law supports the role of actual secrecy, including confidentiality requirements, by providing legal mechanisms to prevent and punish the appropriation of information reasonably kept secret. (23) Trade secrecy was until 2016 a creature largely of state law, (24) but in 2016 Congress passed the Defend Trade Secrets Act, creating a federal civil cause of action for misappropriation of trade secrets. (25) Now state and federal trade secret law exist in parallel. Trade secrets, unlike patents, can persist indefinitely; some last for many decades. (26) They also require no registration or government vetting process, unlike patents. (27) But trade secrets have a strong safety valve that patents lack: independent invention and reverse-engineering are not forbidden by trade secret law. (28) That is, if an invention is valuable enough, competitors can...

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