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Trade secrets and the AIA: Prior user rights and the clear and convincing evidence standard.

Byline: Thomas J. Leach, Emily M. Wessels

The America Invents Act (AIA) ushered in a new era in intellectual property law, creating new opportunities for patent holders as well as potential pitfalls to the unwary. In addition to implementing a first-to-file system and creating new ways to challenge patents through inter partes review, the AIA also brought significant changes to the prior user rights doctrine. More than three years after the enactment of the AIA, the expanded doctrine of prior user rights remains largely undeveloped, but its existence nonetheless should remain a consideration for businesses as they implement strategy to protect intellectual property rights and trade secrets in particular.

Prior user rights shield an entity from patent infringement liability for certain internal commercial uses of an invention that predate another's patent filing. Theoretically, the expansion of this doctrine should encourage the use of trade secrecy protection by insulating against the risk that a later independent inventor will obtain patent rights that can be used to exclude the trade secret owner from practicing the invention. Practically, however, the true value of expanded prior user rights is only as good as an entity's ability to prove those rights with clear and convincing evidence -- a standard many underestimate.


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Prior user rights represent a relatively recent development in patent law. They first found their way into the Patent Act in 1999 after the Federal Circuit held in State Street Bank & Trust Co. v. Signature Financial Group that business methods were patentable. In response to concerns that this decision threatened companies' ability to practice business methods that they had previously thought were only protectable via trade secrecy, Congress enacted 35 U.S.C. [sec] 273. This provision created a defense to patent infringement for "prior users" of business methods, provided that the method was reduced to practice and used commercially at least one year prior to the effective filing date of the patent. The statute further required that this defense be established by clear and convincing evidence.

Under the changes implemented by the AIA, the prior user defense is no longer limited to business methods. Instead, [sec] 273 now provides a defense for the prior commercial use of any process or machine, manufacture, or composition of matter used in a manufacturing or other commercial process. The threshold criteria for invoking a prior user defense include establishing that the invention was used commercially in the United States in connection with either an internal commercial use or an arm's length transfer or sale of the useful end result of such commercial use. This commercial use must occur at least one year before the earlier of either the effective filing date of the claimed invention or a qualifying public disclosure of the claimed invention under [sec] 102(b). Abandoned commercial activities do not qualify for purposes of establishing a prior use. The alleged infringer must also have used the invention in good faith and cannot assert the defense if it derived the invention from the patentee. Importantly, the statute provides that the failure to demonstrate a reasonable basis for asserting the defense shall result in the award of attorney fees.

There are, however, several exceptions to the general prior user defense. Protection from infringement liability only extends to the specific subject matter corresponding to the qualifying use and is not a general license under the patent. The statute further limits prior user rights to a personal defense; only the entity that actually performed or directed the use -- or that controls, is controlled by, or is under common control of such an entity -- may assert the defense. Prior user rights also cannot be licensed, assigned, or transferred to an entity other than the patent owner unless part of the good-faith transfer of a going concern. Even then, the defense only applies to activities at sites where the invention was used before the later of the transfer or the effective filing date of the patent.

While the scope of subject matter eligible for protection for prior users has changed, the requirement that the defense's elements be established by clear and convincing evidence has not. Clear and convincing evidence technically represents a median burden of proof; it is more difficult to establish than the preponderance of evidence standard applied in most civil cases, but is a lesser standard than demanding proof beyond a reasonable doubt.

Exactly what constitutes clear and convincing evidence, however, can be difficult to quantify. Citing Supreme Court precedent, one Federal Circuit panel has described the clear and convincing standard as requiring "evidence which produces in the mind of the trier of fact an abiding conviction that the truth of a factual contention is Cyhighly probable.'" Unfortunately, this and other similar definitions only provide an ambiguous notion of exactly what level of evidence is necessary to evoke this conviction in the mind of a typical juror. Generally, the clear and convincing evidence standard requires more than mere testimonial evidence; it requires corroborating documentary evidence. The issue of sufficient evidence is further complicated in the specific context of prior user rights by the lack of successful assertions of the defense under the pre-AIA version of [sec] 273. A review of decisions issued since the AIA was enacted similarly indicates no significant activity regarding prior user rights since the statute was amended.

The uncertainty surrounding the evidence necessary to satisfy the burden of proof should give pause to companies relying on the prior user defense to tip the scales in favor of pursuing trade secrecy over a patent. Successfully accumulating and keeping up-to-date clear and convincing evidence likely entails significant documentation responsibilities and a potentially increased discovery burden if litigation were to ensue. Additionally, evidence of a prior use that fails the clear and convincing standard may nonetheless satisfy the preponderance of evidence threshold for establishing patent infringement against the trade secret owner. Still, because a prior user has the burden of proving its own conduct, it can prospectively evaluate the risks and take affirmative action to increase its chances of satisfying the clear and convincing burden of proof.
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Publication:Inside Counsel Breaking News
Date:Jul 16, 2015
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