While 2016 saw several significant IP developments regarding the USPTO claim construction standard and the standard of review of USPTO decisions, the following three developments may have the greatest impact on how in-house counsel and their advisors manage IP.

Enhanced Damages for Willful Infringement

In a decision that may impact the value of opinions,¹ proving willful patent infringement has become easier after the Supreme Court rejected the two-part Seagate test requiring clear and convincing evidence of willfulness.  A more flexible standard now allows a patentee to recover enhanced damages where a preponderance of the evidence shows that the infringer engaged in “egregious” activity “beyond typical infringement.”  That determination will be made at the time of the infringement, not at the time of litigation.

This new easier standard of proof may enhance the value of obtaining an opinion of counsel at the time of commercialization to avoid a finding of willful infringement and possible treble damages.  Infringement defendants aware of competitive patents can no longer rely solely on reasonable litigation-inspired defenses or opinions.

Federal Trade Secrets Act

At long last, there is a federal civil cause of action for trade secret misappropriation, under the Defend Trade Secrets Act (DTSA) enacted in 2016.²  The DTSA complements state law remedies (which are not preempted), potentially enhancing the value of trade secret protection.  The DTSA is largely similar to the Uniform Trade Secret Act, some form of which has been adopted in every state but New York and Massachusetts.  The DTSA provides some potentially significant new remedies enforceable in federal courts, however, including powerful ex parte recovery mechanisms for seizing and recovering property to prevent the dissemination of a trade secret.  It also allows a plaintiff to recover enhanced damages and attorney’s fees.

The DTSA, however, makes a plaintiff’s ability to recover enhanced damages and attorney’s fees against employees contingent upon providing notice to employees (and contractors and consultants) of immunities provided the DTSA for disclosing trade secrets in “whistleblower” actions.  This notice must be provided in any agreements that deal with trade secrets (e.g., employment agreements and consulting agreements).  Accordingly, companies and other entities should consider revising their trade secret procedures and agreements to include such notice.

On-Sale Bar for Contractor and Supplier Activities

The Federal Circuit addressed the potential for contract manufacturing to create an “on sale” bar to patentability in a decision that could affect how supplier relationships are managed.^3,4 Where a contractor or supplier provides manufacturing services during development of an invention without transferring title, the transaction is generally not considered to be a sale that could trigger the on-sale bar prohibiting a patent for a product or device.  Evaluating whether a sale occurred requires one to evaluate the transaction in a commercial sense, for example, looking to the Uniform Commercial Code to assess whether parties have a contract to transfer title for consideration.  A notable exception is for method and process claims, where despite no transfer of title occurring, the transaction may still be considered a sale.

Any agreements between parties should be carefully drafted to avoid transferring title or using market prices per unit.  Beware that there is no “supplier exception,” so if a supplier or contractor holds or transfers property rights/title during development of an invention, it may be deemed a sale that starts the clock necessitating filing a patent application within a year.  Of course, the safest strategy may be to file a patent application prior to working with any outside party, including suppliers or contractors.

 

[1] 35 U.S.C. § 284; Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S. Ct. 1923 (2016); WBIP, LLC v. Kohler Co., 829 F.3d 1317 (Fed. Cir. 2016).

[2] Defend Trade Secrets Act of 2016 (“DTSA”); 18 U.S.C. 1831§ et seq., Public Law No. 114-153 (May 11, 2016).

[3] The Meds. Co. v. Hospira, Inc., 827 F.3d 1363 (Fed. Cir. 2016); pre-AIA 35 U.S.C. § 102(b).

[4] While this case pertains to interpretation of pre-AIA 102, the law remains unsettled as to whether the pre-AIA on-sale bar case law applies post-AIA. A conservative approach assumes that pre-AIA case law regarding on sale bar activities will apply post-AIA. See e.g., Helsinn v. Teva (pending before the Fed. Cir. as Appeal No. 2016-1284 from D. N. J. 2016) considering whether the bar against secret commercialization from pre-AIA case law applies post-AIA.