Christopher Funk: Protecting Trade Secrets in Patent Litigation

What should a court do when attorneys involved in patent litigation get access to the other party's unpatented trade secrets, at the same time as they are also involved in amending or drafting new patents for their client? Take the facts of In re Deutsche Bank. After being sued for allegedly infringing patents on financial deposit-sweep services, the defendant Deutsche Bank had to reveal under seal significant amounts of confidential information about its allegedly infringing products, including source code and descriptions of its deposit sweep services. Yet the plaintiff, Island Intellectual Property, was simultaneously in the process of obtaining nineteen more patents covering the same general technology; and those patents were being drafted by the same patent attorneys who were viewing Deutsche Bank's secrets in the course of litigation.

 As Christopher Funk discuses in his article, The Bar Against Patenting Others' Secrets, forthcoming in the Stanford Technology Law Review, this situation creates a serious risk that attorneys who "wear two hats" in patent litigation and patent prosecution will misappropriate a competitor's trade secrets. What's more, should the patents issue, they will obtain for their client an exclusive right covering those secrets. The misappropriation-and-patenting can be unwitting as well as intentional. "With the incentive to gain a monopoly over a potential infringer's product," he writes, "an attorney or expert may find it extremely difficult to compartmentalize all he or she has learned and not use any of the information within the same subject matter as the patent-in-suit or the produced confidential technology." (39, citing Litton Indus., Inc. v. Chesapeake & Ohio Ry. Co. 129 F.R.D. 528, 531 (E.D. Wis. 1990).) So, for instance, in Deutsche Bank, after having viewed Deutsche Bank's secret source code or other aspects of its technology, the plaintiff's attorneys might be unable to help themselves, amending the pending claims of their own client's patents or adding new claims specifically to cover Deutsche Bank's technology and later capture a monopoly over the product––even as against its original creator/s. As Funk notes, prior user rights under 35 U.S.C. § 273 would potentially shield from infringement Deutsche Bank or others who were already using the technology in secret commercially for at least one year prior to the patent's filing date, but anyone who was not previously using the technology would effectively become an infringer going forward, even if they independently developed or lawfully reverse engineered it.

In Funk's view, this situation is highly detrimental to IP policy because it creates a double whammy. First, the patentees (the receiving party of the trade secrets) would misappropriate trade secrets and get a patent over technology they did not themselves invent. Second, their actions would interfere with what Mark Lemley has called the "channelling" function of trade secret law. As Lemley put it in his 2008 article, "the secrecy requirement"––that is, the fact that trade secrets can be obtained only for fully secret subject matter––"channels particular inventors to the form of IP protection that best achieves the goals of society." Normally, when a technology is highly amenable to trade secrets protection (e.g. possible to hide from the public or very difficult to reverse engineer), its creators may choose to keep it secret when it makes commercial sense to do so, rather than disclosing in exchange for an exclusive right under patent law. But if parties involved in patent litigation are put in the privileged position of covering others' secret information in pending patents, subject matter that would otherwise have remained secret and yet free for all to use, might now become the exclusive property of a patentee that did not in fact invent it.

Funk's solution is for courts to employ a broad "patent prosecution bar," preventing attorneys who obtain access to the other side's confidential technical information from prosecuting a patent on overlapping technology. Under Fed. R. Civ. P. 26(c)(1)(G), a court may "issue an order . . . requiring that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a specified way." As Funk explains in detail, in deciding whether to use Rule 26(c) to bar attorneys from patent prosecution activities, most district courts interpret the Federal Circuit's case law to require a "counsel-by-counsel" analysis, and tend to limit prosecution bars to situations where a counsel's past activities demonstrate that he or she is actually "a competitive decision maker," involved in deciding the scope of the claims in light of competitors' technologies. See, e.g., SmartSignal Corp. v. Expert Microsystems, Inc., No. 02-7682, 2006 WL 1343647, at *6 (N.D. Ill. May 12, 2006) ("[T]he Federal Circuit clearly requires an individualized factual showing of competitive decisionmaking before denying access to an attorney.") (citing U.S. Steel Corp. v. United States, 730 F.2d 1465, 1468 (Fed. Cir. 1985)).

In contrast to the Federal Circuit's seeming command to consider the issue counsel-by-counsel, Funk would instead have courts "simply bar anyone with access to the opposing party's confidential technology from performing activities that risk targeted patenting[,]" regardless of whether the parties are competitors and regardless of whether the attorney has made high-level decisions in patent prosecution in the past. Specifically, Funk thinks all of the following types of activities should be off limits for an attorney with access to an opposing party's confidential information relating to similar technologies: drafting or amending claims, both during prosecution and during post-grant proceedings; drafting or reviewing patent applications or invention disclosures; prior art searches; and advising clients on whether to patent. (That said, his proposed bar is actually narrower in scope than the Northern District of California's model bar because it would allow attorneys with access to the other side's confidential information to participate in inter partes review proceedings (IPRs), so long as those attorneys do not help in amending existing claims or adding new ones.)  

This is a a well-researched, highly engaging article full of insights and clear explanations of an area of law about which people outside patent litigation probably know little. My main critique is that Funk does not give enough credence to other solutions to this problem besides a preemptive patent prosecution bar. Some of these solutions are internal to patent law. As already mentioned, prior user rights under § 273 would likely shield the producing party from an infringement suit based on its own prior use of the secrets, so long as they were commercially using them at least one year prior to the patent's filing date. In addition, if a patentee obtains protection over an invention that he or she did not actually invent, this can be the basis for invalidity under pre-AIA § 102(g)(2) ("[B]efore such person’s invention thereof, the invention was made in this country by another inventor who had not abandoned, suppressed, or concealed it"), or, post-AIA, the patent could be invalidated in a derivation proceeding under 35 U.S.C. § 135, whose purpose is to ensure that the first person to file a patent application is actually a true inventor.

There is another solution Funk does not address: the possibility that a concerned producing party can simply sue the receiving party for misappropriation of trade secrets. If successful, this would get them an injunction barring further use or disclosure, which could include a prosecution bar or other activity injunction. Under a trade secrets analysis, the plaintiff claiming actual or threatened trade secrets misappropriation would have to show, first, that the information disclosed in litigation constitutes trade secrets (i.e. is not generally known, is protected by reasonable secrecy measures, and derives economic value from being kept secret), and, second, that the defendant––here, the patent attorney, her law firm, and/or the client who hired the attorney to draft patents incorporating the trade secrets of another––"misappropriated" those secrets by using or disclosing them (or threatening to do so) in the course of drafting a patent in breach of a duty of confidentiality. Given the circumstances of cases like In re Deutsche Bank––where the attorney has obtained access to the secrets in a highly protective litigation environment––the existence of such a duty seems clear. Proving use or disclosure of the other party's confidential information––by tracing the resulting patent claims to specific information viewed during litigation––might be difficult, though certainly not impossible if a misappropriation has truly occurred.

One could argue that a separate trade secret action might be an overly expensive and time-consuming way of policing misuse of confidential information in these unusual circumstances. But bringing and proving a trade secret misappropriation claim based on a person's mere access to another's secret information arguably should be difficult. Trade secrets law does not give an owner an exclusive right against the world; it only protects the information from wrongful use or disclosure by certain persons who have a duty to keep the information secret or improperly acquired it. The reasons for such limits are manifold: preserve public access to information and employee mobility, avoid needlessly imposing costs on consumers by placing restrictions on free competition, and force inventors into patenting and disclosing where secrecy isn't possible. It may be that when attorneys wear "two hats" in patent litigation and prosecution, the risk of misappropriation and subsequent patenting is so great that courts need to adopt the preemptive solution of a sweeping patent prosecution bar. But Funk's proposal risks going beyond the remedy that trade secret doctrine itself would provide. Indeed, a per se prosecution bar resembles the type of activity injunction that many courts in trade secret litigation avoid––for instance, where an employer seeks to prevent a departing employee from pursuing new work when the employee's only alleged wrongful act has been to obtain her former employer's' confidential information in the course of her duties. See, e.g., Clorox v. S.C. Johnson & Son, 627 F. Supp. 2d 954 (D.Ct. Wis. 2009) (denying Clorox's motion for a preliminary injunction to prevent a departing vice president of product supply from taking a new job at SCJ when the motion was "based almost entirely on [Clorox's] legal theory of inevitable disclosure."). Funk's approach, to ignore past conduct and focus only on speculative future threats, in many respects resembles a sort-of "inevitable disclosure doctrine." See, e.g., SmartSignal, 2006 WL 1343647, at * 5 (noting the perceived risk that attorneys who are both involved in patent prosecution and exposed to trade secrets "will inevitably disclose confidential information at some point.").

There is also an irony to Funk's argument. He is concerned that strategic patenting by attorneys who access others' trade secrets during patent litigation would interfere with the "channelling" function of trade secret law by pushing too much subject matter into the patenting route, and subjecting information that would otherwise be free to an exclusive right. But his proposed solution––barring attorneys from prosecuting patents when they have not necessarily threatened to use or disclose any of the producing party's trade secrets–– has the effect of strengthening trade secret protection to more closely resemble an exclusive right against the world. In other words, his solution may channel information from exceptionally strong patent protection (the frying pan) into exceptionally strong trade secret protection (the fire).

In sum, though, I truly enjoyed and learned a lot from this fascinating and deeply researched article. The fact that it raised complicated questions about the scope of a trade secret holder's right to an injunction is, if anything, a plus. I highly recommend it for anyone interested in either area of law.