Docs at BIO: Session on Prior User Rights as a New IP Option

by McDonnell Boehnen Hulbert & Berghoff LLP

       [author: James DeGiulio]

BIO International ConventionThe Leahy-Smith America Invents Act changed the law on prior user rights ("PUR") in the United States, providing protection for inventors' trade secrets and protection against infringement liability from a later granted patent.  This change in the law brings the U.S. closer to harmonization with many other countries with these rights, including Canada and Japan.  The strengthening of prior user rights under the AIA requires a reconsideration of trade secret protection and PUR as an alternative to patent protection, which is what occurred in Tuesday's session entitled "A new IP option to secure FTO for internally-used technology in biotechnology."  Moderators Thomas Kelly (Monsanto) and R. Mark Halligan (Nixon Peabody) introduced the session and the panel, which comprised Dr. Andrew Torrance (University of Kansas and MIT), Mary Ann Dillahunty (Oncolytics), Brian Barrett (Eli Lilly), and Jason Duncan (EMD Serono).

PUR under the statute requires, among other factors, secret commercial use for more than one year, thus establishing trade secret as a key component of PUR.  Mr. Duncan began by presenting the challenges of trade secrets in the pharmaceutical industry, which were echoed by the other panelists throughout the session.  Protection over trade secret information is fragile by nature, as it flows from keeping its secrecy, and particularity and specificity must be shown in litigation to avoid forfeiture of rights.  In the internet age, this secrecy is most threatened by data mobility and employee mobility.  Since the pharmaceutical industry has one of the highest levels of employee mobility of any industry, maintaining trade secrets under any circumstances is particularly difficult.  Pharmaceutical firms also typically rely heavily on outside vendors, presenting even more chances for data disclosure.

PUR protection depends on trade secrets, thus making PUR fragile as well, and perhaps even more so since establishing PUR requires the additional standard of clear and convincing evidence.  Dr. Torrance discussed this point and the other additional requirements for establishing PUR as a defense to patent infringement under the AIA, and compared PUR and patent protection as two alternative options.  Indeed, despite the additional evidentiary requirements, PUR presents certain advantages to patent protection.  By filing a patent application, the invention will be published and therefore disclosed, yet protection is not guaranteed, as the patent may never be granted.  For PUR, since a record of prior secret use is all that is needed to avoid infringement, there is no publication and definitive protection.  While patents and PUR are certainly not "true" alternatives, in light of these advantages, the panelists hypothesized that, at minimum, the amount of defensive patent filings may decrease in favor of reliance on PUR, and firms may not feel as obligated to file patents over, for example, minor changes in a process.

The positives and negatives of PUR from the perspective of small and big pharmaceutical firms were discussed by Ms. Dillahunty and Mr. Barrett, respectively.  Both panelists recognized the policy goals of stronger PUR, such as harmonization with other countries, encouraging U.S. manufacturing, reducing defensive patent filings, and the public benefit of the products' commercial use.  And both panelists recognized the difficulty with trade secret protection in the pharmaceutical industry, as discussed earlier.

One major drawback presented by both sides was the potential disruption of the patent portfolio valuation processes.  First, PUR and trade secret protections are difficult for investors to evaluate, and how these alternative protections will fit into company valuations is unknown.  This is of particular importance to startups, where the company's patent portfolio value can be a critical factor in a partner or acquiror's decision to pursue the company further.  Also of concern for both large and small firms is that PUR will devaluate patents overall.  In typically competitive markets, it will be uncertain whether potential infringers have secret and therefore unknowable PUR, which would lead to the weakening of patent protection.  This type of protection, by its secret nature, would be nearly impossible to address by opinions of counsel as well.

In terms of preference, larger pharmaceutical companies currently will choose patent protection due to the availability of injunctions, money damages, and other remedies.  For smaller or startup firms, PUR do not appear to be a viable patent alternative at all, particularly due to the requirement of secret commercial use for more than one year.  Many startups never intend to commercialize their product, as they are just looking to be acquired by a larger pharmaceutical company that will commercialize the product.  Also, since PUR are personal, it is unclear whether they can be transferred in such a situation.

While the session explored many possibilities, it is still unclear whether the change in the law will actually change behavior of patentees or potential infringers.  There is no model and very few cases to follow, even in other countries with more established PUR laws.  Further, PUR usage may prove to be technology dependent.  For technology that moves quickly, PUR may be irrelevant, but PUR may be very important for technology that moves slowly.  Fortunately, if desired, inventors can delay making the decision on whether to rely on PUR or patent protection by using a "patent insurance" strategy as presented at the session.  This is achieved by first filing a provisional application, then filing a non-provisional application with a non-publication request within 1 year.  This can buy the inventor additional time to both establish the 1-year commercial use required to establish PUR, as well as more time to monitor published applications and evaluate which protection to pursue.  The patent could then be fully prosecuted, or should PUR prove to be the better option, the patent application could be abandoned without trade secret-destroying publication or disclosure.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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