As part of the Leahy-Smith America Invents Act (AIA) signed into law on September 16, 2011, Congress expanded the Prior User Rights defense to patent infringement. Initially only available for business method patents, the AIA expanded Prior User Rights to all classes of inventions, with the goal of harmonizing the US patent system with IP rights in the rest of the world. Prior User Rights are defined in the Patent Act under 35 USC 273 and provide an affirmative defense to patent infringement. In order to prevail on the defense, the accused party must prove that they were practicing commercial use of the invention at least one year before the patentee’s effective filing date. Thus, Prior User Rights are not something that a company can apply for like a patent, but rather they are a defense available to parties who present evidence of prior use in a patent infringement suit. The defense is generally unnecessary for parties that non-secretively practice an invention, since they may present their prior use as a form of prior art under 35 USC 102 to invalidate the patent. However, parties that use an invention in secret (e.g., a “trade secreted” process) may not present their use as prior art, but rather under Prior User Rights may present evidence of prior use as an affirmative defense to infringement, thereby making Prior User Rights part of a combined IP strategy with trade secret protection.
Many companies in industries and technologies where trade secret protection is a viable strategy must weigh the pros and cons of trade secret versus patent protection. Patent protection offers the right to exclude others from making, using, and selling a patented invention for twenty years. The potential to secure a legal monopoly for a valuable technology is naturally very attractive for many companies. However, securing patent protection is costly and may result in narrow or no protection in crowded technological fields where there is a lot of prior art. Just as importantly, patents require a detailed disclosure that teaches others how to make and use the invention. For technologies where detecting patent infringement by competitors is difficult, enforcing a patent will also be difficult. This lowers the value of the patent and makes the disclosure requirement highly undesirable. Similarly, trade secrets come with their own set of pros and cons. They have the advantage of being low-cost. And their exclusivity will last as long as the technology is kept secret and is not reverse-engineered or independently developed, thereby giving potential exclusivity for longer than the twenty year patent term. Also, trade secrets do not require disclosure (in fact they require the opposite: secrecy). But trade secrets also come with the risk that the exclusivity will be lost if the proper protections are not followed or if the technology is reverse-engineered or independently developed. And worse yet, the technology could be patented by another company resulting in a company being boxed out of its own technology. This is where Prior User Rights change the equation. With Prior User Rights, instead of being boxed out, the trade secret holder can continue to practice the invention based on a Prior User Rights theory.
Before a company decides to rely on Prior User Rights, it should fully understand the limitations of Prior User Rights and the risks associated with relying on them. First of all, Prior User Rights are a defense to patent infringement. As such, companies will need to provide evidence of the prior use that meets legal evidentiary standards. This requires companies to keep detailed records of the prior use, a process that presents difficult administrative challenges for any company. Also, because the law is so new, there is a lack of clarity on limitations such as the ability of the prior user to expand the capacity of the use, the ability to implement improvements, the requirements of continuousness of the use, and what constitutes a “commercial use” as required by the statute. These are questions that will not be answered until a body of case law is built around this new area of law.
So how much do Prior User Rights really affect the considerations for a company’s forward-looking approach to pursuing patent versus trade secret protection? In reality, in most technical fields Prior User Rights do not change the equation enough to make a difference. But for companies and technologies where the strategic advantages of trade secret protection and patent protection were previously balanced, Prior User Rights may be enough to tip the scales in favor of trade secret protection. Companies concerned about the cost of patent protection may choose trade secret protection and be satisfied to compete with a later patent-filer as long as they can continue to practice their invention. Other companies concerned with the difficulty of detecting infringement, such as for a trade secreted manufacturing process, may also be swayed towards trade secret protection.