The Ohio Supreme Court has ruled that a company’s confidential customer list is a protected trade secret even if a former employee retains the information purely from memory.

This doesn’t change the law, a trade secret is a trade secret regardless of whether it is memorized or in a more tangible form, just clarifies that even the Amazing Kreskin will still have to abide by trade secret laws. Al Minor & Assoc., Inc. v. Martin,  Slip Opinion No. 2008-Ohio-292.

The court was asked to opine on the question: “Whether customer lists compiled by former employees strictly from memory can be the basis for a statutory trade secret violation.”  Unfortunately, the better question was: “Whether customer lists compiled by former employees from publicly available sources nullify a statutory trade secret violation for the same information held in memory.” 

In the unanimous decision, the court ruled that:

1. Information that constitutes a trade secret pursuant to R.C. 1333.61(D) does not lose its character as a trade secret if it has been memorized.
2. The Uniform Trade Secrets Act does not apply to the use of memorized information that is not a trade secret pursuant to R.C. 1333.61(D).

Robert Martin worked as a pension analysts at Al Minor & Associates, Inc. (AMA), an actuarial firm that designs and administers retirement plans and had approximately 500 clients. AMA hired Martin but did not require him to sign either an employment contract or noncompete agreement. (Practice tip: If you are going to be hiring specialized employees with access to sensitive information, put in place a proper employment contract with confidentiality and noncompete clauses)

It probably didn’t help Martin’s case that he started his own company, Martin Consultants, L.L.C., while still employed at AMA. In 2003, he resigned from AMA and, without taking any documents containing confidential client information, successfully solicited 15 AMA clients with information from his memory.

Spurned, AMA filed suit claiming that he had violated Ohio’s Trade Secrets Act by using confidential client information to solicit those clients. The trial court sided with AMA to the tune of $25,973, specifically noting that the fact that Martin had solicited AMA’s clients from memory did not prevent the finding of a trade secret violation.

The Franklin County Court of Appeals affirmed the trial court stating that because “a client list such as the one at issue fits the statutory definition of a trade secret under R.C. 1333.61(D), AMA’s memorized client list warrants trade secret status.”

Being tenacious, if nothing else, Martin filed a discretionary appeal with the Ohio Supreme Court.

The issue here was whether the use of a memorized client list can be the basis of a trade secret violation pursuant to Ohio’s Uniform Trade Secrets Act (UTSA), which defines trade secret to mean:

[I]nformation, including the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, pattern, compilation, program, device, method, technique, or improvement, or any business information or plans, financial information, or listing of names, addresses, or telephone numbers, that satisfies both of the following:

(1) It derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.

(2) It is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Martin argued that a client list memorized by a former employee cannot be the basis of a trade secret violation and that the appellate court’s decision in this case overly restricts his right to compete in business against AMA. He also argues that AMA should not have the right to control the use of his memory and that AMA had the opportunity to protect its confidential information by way of an employment contract, which it did not do.

(It’s worth noting that Martin also briefed a second proposition of law asserting that AMA’s client list does not satisfy the definition of a trade secret because it contained information that is available to the public via the internet. However, because Martin never raised this issue in his memorandum in support of jurisdiction, the court didn’t consider it. We’re left to wonder how that would have effected the outcome.)

The court noted that Ohio’s protection of trade secrets arose at common law:

In one of the earliest appellate decisions concerning trade secrets, an Ohio circuit court defined a trade secret as “a plan or process, tool, mechanism, or compound, known only to its owner and those of his employees to whom it is necessary to confide it, in order to apply it to the uses for which it is intended.

Furthermore, in Plain Dealer, the court established a six-factor test for determining whether information constitutes a trade secret pursuant to R.C. 1333.61(D):

1. The extent to which the information is known outside the business;
2. the extent to which it is known to those inside the business, i.e., by the employees;
3. the precautions taken by the holder of the trade secret to guard the secrecy of the information;
4. the savings effected and the value to the holder in having the information as against competitors;
5. the amount of effort or money expended in obtaining and developing the information; and
6. the amount of time and expense it would take for others to acquire and duplicate the information.

The court held that neither R.C. 1333.61(D) nor any other provision of the UTSA suggests that, for purposes of trade secret protection, the General Assembly intended to distinguish between information that has been reduced to some tangible form and information that has been memorized:

R.C. 1333.61(D) refers only to “information,” including “any business information or plans, financial information, or listing of names, addresses, or telephone numbers,” and the statute makes no mention of writings or other physical forms that such information might take. Furthermore, nothing in our six-factor test adopted in Plain Dealer, 80 Ohio St.3d at 524-525, 687 N.E.2d 661, indicates that the determination of whether a client list constitutes a trade secret depends on whether it was capable of being memorized or had been memorized.

In addition, more than 40 other states have adopted the Uniform Trade Secrets Act in substantially similar form, and the majority position is that memorized information can be the basis for a trade secret violation. There are, however, some outliers in some states that have decided to exclude memorized information.

Treatises on the subject of trade secrets also support the position that the determination of whether a client list is a protected trade secret does not depend on whether a former employee has memorized it. For example, in 2 Louis Altman, Callmann on Unfair Competition, Trademarks and Monopolies (5th Ed.2005) 14-192-14-195, Section 14.25, the text states that, “[a]s to customer lists, the older rule in some jurisdictions permits taking by memorization. In principle, however, the distinction between written and memorized information should not be encouraged. The form of the information and the manner in which it is obtained are unimportant; the nature of the relationship and the defendant’s conduct should be the determinative factors. The distinction places a premium upon good memory and a penalty upon forgetfulness, and it cannot be justified either from a logical or pragmatic point of view.”

Summing up, the court concluded that:

We recognize that the protection of trade secrets involves a balancing of public policies, and as stated in E.I. duPont de Nemours & Co. v. Am. Potash & Chem. Corp. (1964), 41 Del.Ch. 533, 548, 200 A.2d 428, “Among the substantial and conflicting policies at play * * * are the protection of employers’ rights in their trade secrets * * * versus the right of the individual to exploit his talents.” However, by adopting the Uniform Trade Secrets Act, with the express purpose “to make uniform the law with respect to their subject among states,” the General Assembly has determined that public policy in Ohio, as in the majority of other jurisdictions, favors the protection of trade secrets, whether memorized or reduced to some tangible form. And, as we stated in Johnson v. Microsoft Corp., 106 Ohio St.3d 278, 2005-Ohio-4985, 834 N.E.2d 791, “The Ohio General Assembly, and not this court, is the proper body to resolve public policy issues.” Id. at 14, citing State v. Smorgala (1990), 50 Ohio St.3d 222, 223, 553 N.E.2d 672 (”the General Assembly should be the final arbiter of public policy”).

The court concluded that information that constitutes a trade secret pursuant to R.C. 1333.61(D) does not lose its character as a trade secret if it has been memorized. It is the information that is protected by the UTSA, regardless of the manner, mode, or form in which it is stored - whether on paper, in a computer, in one’s memory, or in any other medium.

This ruling does not, however, remove unprotected information from the public domain:

Every employee will of course have memories casually retained from the ordinary course of employment. The Uniform Trade Secrets Act does not apply to the use of memorized information that is not a trade secret pursuant to R.C. 1333.61(D).

Left unsaid is what would happen if Martin had just searched the internet for the information and came up with the same results? Employees cannot be asked — absent some type of enforceable noncompete agreement — to erase their knowledge about their previous employer, like names of clients.

So, could Martin have looked up the information in a directory and been free to use the information or would his very knowledge of some client names nullify any attempt at independent creation?

This case seems to have raised more questions than it answered.

Posted February 14th, 2008 by Stephen Albainy-Jenei in Trade Secrets, IP Laws
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Every now and then I have an application that is subject to a secrecy order by the government that restricts disclosure of the invention and prevents the publishing or granting of a patent. I noticed that a current application being held up really doesn’t seem to contain sensitive information but the application may have triggered the order itself by making a reference in the description that one of its many uses could be by the military. It would be analogous to an invention for an improved water bottle that you might describe as being beneficial to the military (a group that often needs bottled water in far away places) but that really is ordinary, everyday technology.

If you don’t know, the Invention Secrecy Act of 1951 requires the government to impose secrecy orders on certain patent applications that contain sensitive information, thereby restricting disclosure of the invention and withholding the grant of a patent. This requirement can be imposed even when the application is wholly created and owned by a private individual or company without government sponsorship or support.

There are several types of secrecy orders which range in severity from simple prohibitions on export (but allowing other disclosure for legitimate business purposes) up to classification, requiring secure storage of the application and prohibition of all disclosure. A secrecy order withholds the grant of a patent, orders that the invention be kept in secrecy and restricts filing of foreign patent applications.

It seemed to me that the number of secrecy orders has been on the rise. It turns out, I’m not the only one that thinks the government is keeping more secrets since 9/11. At the end of fiscal year 2006, there were 4942 secrecy orders in effect, some of which have been in effect since the 1930s. Even the NSA had nine of its patent applications blocked in the fiscal year to March 2005 against five in 2004, and none in each of the three years up to 2003.

This week, I received a note from a reader about information on secrecy orders posted by the Federation of American Scientists (FAS), a group formed in 1945 by atomic scientists from the Manhattan Project who felt that scientists, engineers and other innovators had an ethical obligation to bring their knowledge and experience to bear on critical national decisions, especially pertaining to the technology they unleashed, i.e., the Atomic Bomb. Endorsed by 67 Nobel Laureates in chemistry, economics, medicine and physics, FAS addresses a broad spectrum of issues in carrying out its mission to promote humanitarian uses of science and technology.

Secrecy orders provide a security procedure to prevent technical data contained in a patent application from being disclosed in a manner that would be detrimental to the national security. Secrecy orders are imposed by the PTO upon specific recommendation by defense agencies, including the Army, Navy, Air Force, National Security Agency, Department of Energy and National Aeronautics and Space Administration.

The PTO conducts an initial security screening of all patent applications. Government-owned applications are not reviewed by the PTO for technical content. It is the responsibility of the cognizant defense agencies to review their own applications and recommend a secrecy order to the PTO where appropriate.

Applications in which there is no apparent government property interest are made available by the PTO to defense agencies for their inspection when, in the opinion of the Commissioner of Patents, disclosure might be detrimental to the national security. If, upon inspection, a defense agency determines that disclosure “would be detrimental” to the national security, it may recommend that the Commissioner of Patents place a secrecy order on the application.

When the Secrecy Order issues, the law specifies that the subject matter or any material information relevant to the application, including unpublished details of the invention, shall not be published or disclosed to any person not aware of the invention prior to the date of the Order, including any employee of the principals except as permitted by the Secrecy Order. The law also requires that all information material to the subject matter of the application be kept in confidence, unless written permission to disclose is first obtained from the Commissioner of Patents and Trademarks except as provided by the Secrecy Order. Therefore, the subject matter under Secrecy Order is to be safeguarded under adequate protection to prevent access by unauthorized persons.

I suppose we should not get too worked up about this given the lengthy history. Concerns about invention secrecy and national security date back to the First World War. In an effort to address the government’s concerns, Congress passed the act of October 6, 1917. The Invention Secrecy Act of 1951 created 35 U.S.C. sections 181 through 188, entitled Secrecy of Certain Inventions and Filing Application in Foreign Countries. Section 181 deals with the conditions set forth by a secrecy order, namely that the order shall last one year, or in the event of war, for the duration of the hostilities plus one year, on in the time of a national emergency (as declared by the president), for the duration of the emergency plus six months, all orders being renewable.

Section 181 also sets out that the applicant may appeal the issuance of a secrecy order to the Secretary of Commerce. Section 182 provides that in the event of an unauthorized disclosure of the contents of a secret patent, the inventor forfeits all rights to a patent to which he might have otherwise been entitled. Section 183 outlines the conditions for an inventor’s right to compensation, which is valid for six years from the date of issue on the patent, and includes compensation for government use, and for damages caused by the secrecy order. Section 184 states that any applicant must not file in a foreign country for six months after filing in the United States, to allow proper review of the invention for its relevance to national security. Section 185 applies the same penalties for foreign filing as for an unauthorized disclosure (as outlined in section 182). Section 186 describes the penalties for any violation of the secrecy order, which are up to $10,000 or two years in prison, or both. Section 187 exempts officers and agents of the United States from these prohibitions. Section 188 lists the persons who may wield secrecy orders, which include the Atomic Energy Commission, Secretary of Defense, Secretary of Commerce, and the heads of any government agencies the President designates.

More on secrecy orders on patents here.

Overview of all types of secrecy orders here.

35 U.S.C. §181. Secrecy of certain inventions and withholding of patent.

Posted December 6th, 2006 by Stephen Albainy-Jenei in Trade Secrets, Current Affairs
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Conducting a thorough IP due diligence review is a critical aspect of successful tech deals - especially in the bioscience industry. The intellectual property at issue can make or break a deal. It is imperative that you know what you have (or are getting) is the real deal.

When undertaking a due diligence review during a company merger or acquisition, negotiating a license or joint venture agreement, purchasing patent other intellectual property rights, there are some basic steps to go through in order to cover the important issues of the transaction.

Some of the steps in due diligence procedures designed to flush out the needed information include:

What IP Rights?

The identification of all intellectual property rights is very useful in predicting future value of a business. The best approach, then, is to simply list (with a detailed description) all intellectual property rights. In addition to exploring the right-to-use, it is also important to determine what intellectual property assets are held by the business itself. For example, while it is not always guaranteed that a holder of a patent has the right to make, use or sell its own patented product or service, it is important to develop a position of strength for its products and services.

The procurement of a set of intellectual property rights may not guarantee immunity from a competitor’s pressure but a business which is active in procurement of rights is often much more aware of other’s rights. It also may be able to bargain (i.e., cross-license) with a competitor over certain rights to avoid a costly settlement or to be blocked in the marketplace all together.

Prioritize Your Rights

Not all intellectual property rights may be of significant value to a business. Therefore, it is necessary to review all aspects of the company and assign priorities to the rights according to their value. The more important the rights are to the future vitality of a business, the more due diligence that will be necessary. Mature products and services often are the most important source of the current financial state of a business. However, a changing market demands that much more due diligence be performed in order to understand any future product changes or improvements that are being implemented or planned.

While some businesses may choose to compete in the market without obtaining patents or aggressively protecting trademark rights, a competitor in a market may be working toward reducing the competitive advantage of a business by securing substantial patents, trademarks or other intellectual property rights. It is quite common for at least one player in a multi-firm market to follow such a strategy in an attempt to force competitors to either take licenses or stop making or using the proprietary technology. Such tactics are frequently successful in securing a superior competitive position.

Can You Use It?

It is one thing to own IP rights; it is another thing to be able to conduct a business without infringing third party IP rights. Thus, the fact that a company has a patent for a product does not give it the right to make the product. The unfettered right to use, make or sell certain technology, or to use trademarks or material subject to copyrights, is often crucial to the health of any business. If a competitor holds patents, trademarks, copyrights or other related rights that dominate a successful product or service of a business, the profitability of a business, and even the ability to survive, may be at stake.

In addition, if patent, trademark, and trade secret rights, for example, have been licensed in from another company, it will be important to look to the license agreement to determine whether the scope of the license is sufficient in relation to the company’s business activities. One should not stop at the license agreement, however, because it is also possible that the licensor company obtained additional IP, such as patents, not in the license agreement, that may affect freedom to operate.

Thus it is often important to conduct independent IP searches in areas of relevance to the company’s business to identify third party patents, trademarks, or copyrights that may be of importance. Additionally, it is important to scrutinize any demand letters, litigation history, and other relationships with competitors to identify potential third party IP risks. Preferably, a company will periodically monitor the intellectual property rights held by competitors.

Check Under the Hood

Title to recordable IP rights (e.g., patents, trademarks and copyrights) should be verified by doing the appropriate searches. Any licenses, assignments, government rights, and liens (secured or unsecured) also should be verified by searches. In addition, any new intellectual property interests arising from an investment, acquisition or sale should be recorded in appropriate state and federal offices. Ownership interests in foreign countries require separate title searches, as well as separate assignments or other legal instruments for perfecting rights in those foreign countries.

For intellectual property rights not identifiable as an issued patent, a registered trademark or a registered copyright, detailed listings and explanations also should be provided. Such rights may include trade secrets, know-how, common law trade names, trade dress (unique appearance), trademarks and unregistered copyrights. For each of these, the inventors, authors and uses of the rights should be identified and the dates of first use recorded. In some businesses, these rights can be at the heart of a business and never should be ignored. Often, the dates of creation of first use are critical in protecting and preserving the rights. For example, dates and evidence of use of common law trademarks are important to preserve superior rights over a later user.

Posted November 27th, 2006 by Stephen Albainy-Jenei in Trade Secrets, Due Diligence
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The University of Alabama in Huntsville (UAH) announced the settlement of their suit against Nektar Therapeutics and Dr. Milton Harris, the founder of Nektar Alabama and a former employee of UAH, in exchange for a total cash payment of $25 million.

Under the terms of the agreement, Nektar and Dr. Harris have jointly made an upfront payment totaling $15 million to UAH. In addition, Nektar will pay UAH the sum of $1 million per year for ten years. UAH currently plans to apply the funds towards its endowment and to fund scholarships for the entire campus, including chemistry and biology programs. In exchange, UAH has agreed to dismiss all claims related to the Nektar PEGylation patent portfolio and Nektar has agreed to dismiss all counterclaims.

UAH had sued Nektar Therapeutics AL and Nektar Therapeutics in United States District Court for patent infringement, breach of contract license, violation of the Alabama Trade Secrets Act and unjust enrichment. Harris and another researcher developed a PEGylation technology, which was patented by UAH. PEGylation technology is based on the use of non-toxic polyethylene glycol (PEG) polymers, which can be attached to most major drug classes, including proteins, peptides, antibody fragments, small molecules, and other drugs and is used in eight approved products in the U.S. and/or Europe today.

With PEGylation technology, polyethylene glycol (PEG) polymer chains are attached to a drug, which sustain bioavailability by protecting the drug molecules from immune responses and other clearance mechanisms. In an aqueous medium, the long, chain-like PEG molecule is heavily hydrated and in rapid motion. This motion causes the PEG to prevent the interference of other molecules.

The university entered a royalty agreement with Harris for products developed out of the discovery, and Harris created Shearwater Polymers, a company bought by Nektar in 2001 for $197 million in cash and stock, to pursue manufacturing of PEG-related products. UAH claimed that Harris, without UAH’s knowledge, made a number of other discoveries related to the PEG technology in the following years and patented 28 of them and that Harris was required to notify UAH of any discovery related to the original PEG patent, and the lawsuit contends that the patents are “obvious derivatives” of and “equivalent” to the original PEG patent.

Posted July 10th, 2006 by Stephen Albainy-Jenei in Trade Secrets, IP Litigation
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A former University of Alabama professor is being sued by the University of Alabama System claiming that it owns his patents worth $197 million. The complaint was filed by The Board of Trustees of the University of Alabama against Nektar Therapeutics AL, Corporation, and Nektar Therapeutics in the United States District Court for the Northern District of Alabama alleges patent infringement, breach of contract license, violation of the Alabama Trade Secrets Act and unjust enrichment.

Dr. Milton Harris formed Nektar Therapeutics and developed a new inhalable insulin system. The U.S. Food and Drug Administration (FDA) has approved the inhalable formulation of recombinant human insulin [rDNA origin] powder for the treatment of adult patients with type 1 and type 2 diabetes mellitus, and conivaptan injection for the treatment of euvolemic hyponatremia in hospitalized patients. The insulin inhaler is not part of the suit.

The suit contends that because Harris was on the UA faculty from 1973 to 2000, and was covered by the university’s patent policy, his patents are owned by UA. The policy says it will be a university-owned patent if the discovery was made by UA employees and graduate students, through research paid for by the university, within an employee’s field or involving UA facilities.

Harris and another researcher developed a PEGylation technology, which was patented by UA. With PEGylation technology, polyethylene glycol (PEG) polymer chains are attached to a drug, which sustain bioavailability by protecting the drug molecules from immune responses and other clearance mechanisms. In an aqueous medium, the long, chain-like PEG molecule is heavily hydrated and in rapid motion. This motion causes the PEG to prevent the interference of other molecules. The university entered a royalty agreement with Harris for products developed out of the discovery, and Harris created Shearwater Polymers, a company bought by Nektar in 2001 for $197 million in cash and stock, to pursue manufacturing of PEG-related products.

The UA System claims that Harris, without UA’s knowledge, made a number of other discoveries related to the PEG technology in the following years and patented 28 of them. Harris was required to notify UA of any discovery related to the original PEG patent, and the lawsuit contends that the patents are “obvious derivatives” of and “equivalent” to the original PEG patent.

The lawsuit came about after Nektar informed UA last spring that it would no longer pay royalties from sales of the drug Neulasta, when Nektar informed the university that the PEG compound for Neulasta does not involve anything owned by UA

It may be necessary for the UA System to prove both ownership of the patents in question and that the products sold are covered by the patents in question.

Posted February 9th, 2006 by Stephen Albainy-Jenei in Trade Secrets, IP Litigation
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A new (to me) blog I noticed recently is the IP Counsel Blog by Todd Mayover. It’s labeled as “discussing issues that concern the practice of in-house intellectual property attorneys.” Mayover is an in-house intellectual property attorney for a medical device manufacturing company in Fort Lauderdale, Florida. The site is well-done and has some good tips for practitioners. I recommend you check it out.

He recently had an interesting post on how intellectual property rights are often intertwined with the regulatory clearance process by the Food and Drug Administration (FDA) before they are brought to market — a lengthy and complicated application process.

Mayover makes an excellent point that intellectual property attorneys should be called upon to identify proprietary information embedded within filings that may be disclosed to the FDA. This is not just for ensuring proper submission of key invention details to the USPTO for patent purposes but equally so that documents containing proprietary information may be reviewed by IP attorneys in order to have an opportunity to redact proprietary information, such as trade secrets, trademarks and information described in unpublished patent applications, before the FDA makes the materials available to the public.

See more here.

Posted August 5th, 2005 by Stephen Albainy-Jenei in Trade Secrets, Current Affairs
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Legal Times published an article detailing the prevalence in the business of corporate espionage using the Freedom of Information Act (FOIA) to gain competitive information. Companies are increasingly turning to teams of hired lawyers and analysts who request all data involving a competitor. Targets have included Boeing, MCI WorldCom Inc., McDonnell Douglas, and the General Electric Co. At stake are potential trade secrets including detailed line item pricing schemes and labor rate data - sometimes more than 10,000 pages of detailed cost breakdowns.

The Freedom of Information Act is traditionally thought of as an instrument used by reporters and the public to obtain information on how the federal government operates and how tax money is spent. But during the past 20 years, a whole industry has sprouted that uses the FOIA to gain intelligence on companies doing business with the government and then sells the info to competing contractors. Typically, the FOIA request is not made by an intermediary so that the real party of interest remains private.

Meanwhile, targets try to do all they can to prevent such disclosures and, if they cannot persuade the government to keep the information confidential, they’ll go to the courts and file what is known as a reverse FOIA action. However, government agencies will agree to release detailed pricing data since that increases competition among contractors in order to secure better deals for the government.

The Court of Appeals for the District of Columbia Circuit has defined a “reverse” FOIA action as one in which the “submitter of information — usually a corporation or other business entity” that has supplied an agency with “data on its policies, operations or products — seeks to prevent the agency that collected the information from revealing it to a third party in response to the latter’s FOIA request.” CNA Fin. Corp. v. Donovan, 830 F.2d 1132, 1133 n.1 (D.C. Cir. 1987). Typically, the submitter contends that the requested information falls within an Exemption of the FOIA, [5 U.S.C. § 552]

Update. See the Ten Excemptions: Download file

In a “reverse” FOIA suit “the party seeking to prevent a disclosure the government itself is otherwise willing to make” assumes the “burden of justifying nondisclosure.” A challenge to an agency’s disclosure decision is reviewed in light of the “basic policy” of the FOIA to “‘open agency action to the light of public scrutiny’” and in accordance with the “narrow construction” afforded to the FOIA’s exemptions.

The seminal case in the reverse FOIA area is Chrysler Corp. v. Brown, in which the Supreme Court held that jurisdiction for a reverse FOIA action cannot be based on the FOIA itself “because Congress did not design the FOIA exemptions to be mandatory bars to disclosure” and, as a result, the FOIA “does not afford” a submitter “any right to enjoin agency disclosure.”

Federal trial and appellate courts across the country are split on whether certain pricing information should be released. In one recent case, a federal appellate judge in the District pointed out that the Justice Department has never litigated the fundamental question of whether prices charged to the government for specific goods could be confidential commercial information or trade secrets under FOIA or the Trade Secrets Act. Most cases turn on whether the company whose data is at stake can show that releasing the information would cause substantial harm.

More alarming is one court’s holding that, “[t]he harm from disclosure is a matter of speculation, and when a reviewing court finds that an agency has supplied an equally reasonable and thorough prognosis, it is for the agency to choose between the contesting party’s prognosis and its own.” McDonnell Douglas, 215 F. Supp. 2d at 205; accord CNA, 830 F.2d at 1155).

However, the U.S. Court of Appeals for the D.C. Circuit has twice ruled that detailed price information should stay confidential. In one opinion from 1999, Judge Laurence Silberman wrote that the government failed to claim any legal authority for releasing line item pricing information involved in McDonnell Douglas’ contract with NASA: “If commercial or financial information is likely to cause substantial harm to the person who supplied it, that is the end of the matter, for the disclosure would violate the Trade Secrets Act.”

Inventors should be aware of the implications of FOIA since an invention is not patentable in the US if it has been described in a printed publication more than 1 year prior to filing a U.S. patent application and foreign filing rights are lost immediately. A grant is considered published when it is considered accessible, that is, after the grant was allowed and it had been indexed and a copy of the proposal could be obtained through a request under FOIA

It would therefore be possible for a research scientist, with a long-term federal (or state) grant, to propose a course of research and speculate on findings. Then, when the studies are concluded, this same scientist could find that the technology developed during the course of the research is barred from patent protection by the researcher’s own proposal. To prevent a bar, and to fall within the exceptions of the FOIA, each individual page should be marked “Confidential” and a legend affixed to the front page that states:

“Confidential. This document, or portions of it, contains confidential information that is, or may become, the subject of a United States patent application and is important to future commercial efforts based on such confidential information. Accordingly, this document and the confidential information contained herein are exempt from disclosure under the Freedom
of Information Act, Sections 552(b)(3) and (b)(4) of Title 5 of the United States Code and corresponding regulations of United States government agencies.”

In addition, a cover letter should accompany each grant proposal submitted to an agency of the state and federal government providing a rationale for keeping the proposal confidential and request that the applicant is notified of all requests the agency receives for copies of the proposal under the FOIA.

Specific details concerning individual granting agencies are available from each agency. In addition, some changes in the language used in the proposal could help future patentability. If possible, avoid direct and definite predictions concerning the results of the research. Statements in a proposal that “the research should lead to outcomes such as …” or “I believe that the research will result in …” may constitute a public disclosure of a potential invention.

Posted March 16th, 2005 by Stephen Albainy-Jenei in Trade Secrets, Current Affairs
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A U.S. District Court ordered Nobel Prize winner and former Yale University professor John Fenn, 87, to pay Yale $545,000 in royalties and penalties, and pay their legal bills of almost $500,000. While at Yale in the late 1980s, Fenn developed a method for mass spectrometric analysis of chemical compounds in solution concerned with determining the mass or molecular weight of large fragile solute species with greater speed, convenience and accuracy as well as new compositions of matter comprising populations of ions having a multiplicity of charges.

The court called Fenn’s actions “fraud” and “civil theft” when he licensed the rights to U.S. Patent No. 5,130,538 to a company he partly owned, which has generated more than $5 million in royalties and could make several times that by the time the patent expires. While Fenn claimed he believed that he had a right to the patent, the court felt that he had no good-faith basis to believe so and acted to conceal the facts from Yale.

More on the Fenn case here.
Read the rest of this entry »

Posted February 14th, 2005 by Stephen Albainy-Jenei in Trade Secrets, IP Litigation
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