The Tension Between Trade Secrets and Patents

For a company protecting and enforcing its intellectual property, patents and trade secrets are two very common and important forms of protection. However, these two types of IP can create tension with each other. In a recent case before the Federal Circuit regarding penile implant technology, the hearing – and potentially the outcome of the case – focused on whether the designs protected by trade secrets were actually disclosed in the company's patent applications. If they were, the trade secret protection is lost because the information has been published in a public document, i.e., a patent. Thus, before a company pursues a trade secret case, it should identify what its trade secrets are and whether they have been disclosed in the company's patents. If there is subject matter overlap, the company needs to carefully identify what aspects of the trade secrets have not been disclosed in the patents and determine whether the defendant has taken that secret aspect. The other consideration is timing. A company can maintain trade secret protection for the time before the patent is published, and thus, if the theft of the trade secrets occurred before the patent was published, that could still give rise to a trade secret misappropriation case, albeit potentially with limited damages.

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A Federal Circuit panel on Thursday grilled both sides in a trade secret dispute over penile implants that resulted in an $18.3 million judgment against defendants, repeatedly questioning attorneys about whether existing patents doomed the trade secrets claimed by International Medical Devices and its founder, Dr. James Elist.

The judges zeroed in on the defendants' arguments that the plaintiffs' penile implants, called "Penuma," had elements that were either well known or disclosed in prior patents. That would destroy their secrecy and require a reversal of the California jury verdict against Dr. Robert Cornell, his collaborators and investor Richard Finger, the defendants argued.

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