Maryland Bar Bulletin
Publications : Bar Bulletin : March 2013

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“The cost associated with establishing and maintaining a trade secret are minimal. Trade secrets are neither disclosed to the general public nor registered with government agencies.”

Technology companies largely derive commercial value from innovative compositions, methods, and machines when they can exclude their competitors from making use of the same. Trade secrets and patents are means by which these companies may protect their inventions and exclude competitors. 

A trade secret includes economically advantageous information that is not in the public domain and cannot be readily reverse-engineered. Trade secrets may include research and development methods and materials, formulations, manufacturing methods and materials, and analytical methods and materials. One example of a manufacturing trade secret that is being used to exclude competitors from the market is Luitpold Pharmaceuticals, Inc.’s (“Luitpold”) method for manufacturing Venofer, an iron sucrose injectable formulation. Stating that the pharmacological activity of iron sucrose in Venofer is highly dependent on the manufacturing process, Luitpold filed a Citizen’s Petition on March 3, 2005 with the FDA requesting, among other things, that generic applicants demonstrate that their method for manufacturing iron sucrose is identical to that used to manufacture Venofer. Because Venofer’s manufacturing method is not patented or otherwise known to the public, it is difficult for a generic applicant to make such a comparison. If the FDA approves Luitpold’s request and makes such a comparison a regulatory requirement, fewer applications for generic iron sucrose will likely be filed and approved.

Another example of a manufacturing trade secret includes the specific conditions used to culture biological molecules. The activity of certain types of biological molecules (e.g., enzymes and antibodies) is heavily influenced by the number and types of carbohydrate moieties that are covalently attached to the biological molecule. And because the number and types of carbohydrate moieties that are attached to biological molecules are often species, tissue, and cell culture medium specific, a valuable trade secret is one that optimizes all of these parameters to produce a biological molecule with exceptional activity. Examples of analytical trade secrets include assays used to characterize embryonic and neuronal stem cells, according to Fierce Biotech’sarticle “Industry Voices: Biosimilars and Trade Secrets”. Probably the most famous example of a formulation trade secret is the recipe for CocaCola. Other more recent examples of formulation trade secrets include the compositions of some motor oils and fuels.

How does one decide whether to keep an invention a trade secret or obtain patent protection? For some, cost may be a major factor. The cost associated with establishing and maintaining a trade secret are minimal. Trade secrets are neither disclosed to the general public nor registered with government agencies. Accordingly, no application forms or fees are required to protect trade secrets. Because a trade secret’s commercial life ends when the innovative information either becomes publically available or loses commercial value, prudent companies generally include a non-disclosure clause in employee contracts to ensure that trade secrets remain undisclosed. In theory, a carefully guarded trade secret has a limitless lifespan. When trade secrets are misappropriated, plaintiffs may obtain remedies available under state contract and trade secret law. Accordingly, remedies for misappropriated trade secrets may vary from state to state.

As discussed above, patents may be used to exclude competitors from making and using innovative compositions, methods, and machines. The patent system requires purported inventions to disclose patent eligible subject matter that is novel, non-obvious, useful, and is adequately described and enabled. Patent claims in the biotechnology and chemical arts typically are directed to small molecule compounds, biological molecules, methods for synthesizing, producing and  purifying such compounds, formulations comprising small molecule or biological compounds, methods for packaging and administering formulations, methods for treating certain indications, and prophylactic methods. 

In contrast to trade secrets, the vast majority of patents are limited to an exclusivity period of 20 years. The U.S. government bestows this exclusivity period in exchange for disclosing inventions to the public. The costs associated with patent applications can be significant.  According to the United States Patent And Trademark Office Fee Schedule (effective October 5, 2012, to March 18, 2013; last revised on January 18, 2013), the basic patent application filing fee for small business entities is $195; the fees associated with the search and examination of a patent application is $435; the patent issuance fee is $885; and patent maintenance fees total $4,430 over the term of the patent. These fees do not include the costs associated with preparing and prosecuting a patent application, patent trials, appeals, or petitions. Additionally, the fees do not include extraneous costs associated with patent applications having more than 100 pages and/or more than 20 claims. 

When patents are infringed, federal patent law controls what remedies are available to plaintiffs. Accordingly, the relief provided to plaintiffs is more predictable and consistent in patent suits as compared to trade secret suits. Additionally, patent holders secure a presumption of patent validity because patents are issued after rigorous examination at the USPTO.   

In conclusion, statutory requirements, lifespan, the possibility of reverse-engineering, costs, the value of a solid patent portfolio, and legal remedies are typically considered when deciding whether to maintain an invention as a trade secret or pursue a patent.

Gaby L. Longsworth is a director with the law firm of Sterne, Kessler, Goldstein & Fox P.L.L.C. Mythili Nadella is an associate with the same firm.

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Publications : Bar Bulletin : March 2013

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