Recent U.S. Supreme Court decisions have imperiled the patentability of life science and biotech intellectual property (IP), making trade secret protection increasingly important for those industries.
The U.S. Supreme Court recently articulated significant exceptions to patentability. See, e.g., Cedars-Sinai Med. v. Quest Diagnostics Inc., 2018 WL 2558388, at *6 (C.D. Cal. 2018) (citing Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347, 2350 (2014) (quoting Mayo Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66, 89 (2012))).
While the boundaries of the[se] judicial exceptions remain subject to further development, . . . the Supreme Court “set forth a framework for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts.”
Id. (citations omitted).
The first step is to ask “whether the claims at issue are directed to one of those patent-ineligible concepts.” If not, the claims . . . are patent-eligible. If the claims are directed to one of the exceptions, the next step is to search for an “inventive concept” that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the natural law itself.” In doing so, a court must “consider the elements of each claim both individually and ‘as an ordered combination’ to determine whether the additional elements ‘transform the nature of the claim’ into a patent-eligible application.”
Id. at *7 (citations omitted).
The issue in this context is whether the IP “add[s] more than ‘well-understood, routine, conventional activity already engaged in by the scientific community’” to the law of nature. Even a discovery that is “groundbreaking, innovative, or even brilliant” can still “not by itself satisfy the . . . inquiry.” Id. (citing Ass’n for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. 576, 577, 133 S. Ct. 2017 (2013)).
For example, “naturally isolated proteins” may no longer be patentable because “the protein itself resembles a naturally occurring product of nature.” Nicholas Ulen, “Is DNA Really a Natural Product? It’s Time to Separate Fact from (Legal) Fiction: An Examination of DNA Patentability as a Biological Algorithm in the Post-Myriad Era,” 94 Chicago-Kent L. Re. 205, 223 (2019). However, if an inventor did more than “simply isolate[] a naturally occurring protein, but actually synthesized and purified it through a non-conventional method, it could be patentable . . . as a unique alteration of a naturally” occurring phenomenon. Id. “Even a protein translated by artificial chimeric DNA with a function identical to a natural protein would necessarily depend on what steps the inventor did to ‘modify’ the DNA . . . that produces that natural protein.” Id. at 224. Therefore, the patentability of synthetically created proteins “necessarily depend[s] on how uniquely they were created, as well as their ultimate structural differences.” Id. As the U.S. Supreme Court in Myriad explained, synthetic DNA, known as “cDNA,” “does not present the same obstacles to patentability as naturally occurring, isolated DNA segments” because although
cDNA retains the naturally occurring exons of DNA, … it is distinct from the DNA from which it was derived. As a result, cDNA is not a “product of nature” and is patent eligible … except insofar as very short series of DNA may have no intervening introns to remove when creating cDNA. In that situation, a short strand of cDNA may be indistinguishable from natural DNA.
Myriad, at 2119. Indeed, a “DNA structure with a function similar to that found in nature can only be patent eligible as a composition of matter if it has a unique structure, different from anything found in nature.” In re BRCA1- & BRCA2-Based Hereditary Cancer Test Patent Litig., 774 F.3d 755, 761 (Fed. Cir. 2014).
Thus, gene-based diagnostic method patents require a similar analysis because “the inventor must rely on the natural expression of DNA, including the information in those genes, in order for his method to have any real value.” Ulen, “Is DNA Really a Natural Product?,” supra, at 223. For example, an “assay for detecting an anti-vinculin antibody” to diagnose irritable bowel syndrome (IBS) was found unpatentable because the efficacy of that assay “is dependent on the correlation between IBS and anti-vinculin antibody” which, in turn, is dependent on “a core law of nature.” Cedars-Sinai Med. v. Quest Diagnostics Inc., 2019 WL 8884101, at *5 (C.D. Cal. 2019).
The patentability of stem cell research, “consist[ing] of embryonic stem cells (ES), or induced pluripotent stem cells (iPS),” was also narrowed. Id. “ES cells are obtained by in vitro fertilization, which essentially replicates natural fertilization under laboratory conditions. iPS cells are obtained essentially by reprogramming other cells to act like embryonic cells.” Id. ES cells may be unpatentable because they “are essentially derived from natural processes.” Id. However, iPS cell patents “go beyond what already exists by repurposing the genetic information in natural somatic cells to act like another natural cell.” Id. at 225.
A patent is not secret. By patenting IP, the patent holder tells the world about the patented invention in specific terms, typically filing with the U.S. Patent Office a precise description of the IP, including drawings where appropriate. Patent infringement can be stopped, and the infringer may be liable to the patent holder for damages or a royalty arising from the infringement, as well as being subject to an injunction barring the infringer from using the patent, even if the infringement occurs without bad faith. However, patents expire and a no-longer-patented product—which was already disclosed to the world via the patent—may be made and sold by a competitor after patent expiration.
In striking contrast, a trade secret remains secret and does not expire. A party who misappropriates a trade secret may be subject to damages, royalties, and injunctive relief. However, an innocent party who improperly acquired that IP will not be liable to the owner of the IP or subject to injunctive relief.
For years, states had their own trade secret laws, which varied in substance and enforcement. Those disparities led to the Uniform Trade Secret Act (UTSA), which “created a model statutory cause of action for misappropriation of trade secrets” (Blue Earth Biofuels, LLC v. Haw. Elec. Co., Inc., 235 P.3d 310, 313–14 (Haw. 2010)), which has been adopted in every state except New York. Reed Constr. Data Inc. v. McGraw Hill Cos., Inc., 49 F. Supp. 3d 385, 427 (S.D.N.Y. 2014).
Despite the best intentions of the designers of the UTSA to create a “uniform” trade secret law, UTSA-based statutes “vary in a number of ways and contain built-in limitations that make them not wholly effective in a national and global economy.” Farmers Edge v. Farmobile, LLC, 2018 WL 3747833, at *6 (D. Neb. 2018). Therefore, in 2016 Congress enacted the Defend Trade Secrets Act (DTSA), which created a federal private cause of action if a misappropriated trade secret is “related to a product or service used in, or intended for use in, interstate or foreign commerce.” 18 U.S.C. § 1836.
Both the DTSA and UTSA generally define a trade secret as information that derives economic value from not being generally known to or readily ascertainable through proper means by another person, and that is subject to reasonable efforts to maintain its secrecy.
Beach 2 Bay Aerial Billboard Advert., LLC v. Florida Beach Advert., LLC, 2017 WL 9510592, at *1 (M.D. Fla. 2017).
New York law is similar. USI Ins. Servs. LLC v. Minor, 801 F. Supp. 2d 175, 195 (S.D.N.Y. 2011).
“Familiar examples of trade secrets” range from “the formula for Coca-Cola” to “the process of extracting conjugated estrogens from the urine of pregnant mares for use in the drug Premarin.” Steven R. Daniels & Sharae’ L. Williams, “So You Want to Take a Trade Secret to a Patent Fight?,” 11 Landslide, no. 6, July/Aug. 2019, at 8. “[S]cientific, technical, . . . or engineering information, including . . . formulas, designs, prototypes, methods, techniques, processes, . . . whether tangible or intangible, . . .” may also be subject to trade secret protection. Keystone Transp. Sols., LLC v. Nw. Hardwoods, Inc., 2019 WL 1756293, at *4 (W.D. Va. 2019).
The UTSA, DTSA, and New York common law define “misappropriation” as essentially the “‘acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means;’ or the ‘disclosure or use’ of a trade secret without the consent of the owner.” Teva Pharm. USA, Inc. v. Sandhu, 291 F. Supp. 3d 659, 674 (E.D. Pa. 2018); Keystone Transportation, 2019 WL 1756293, at *5; Six Dimensions, Inc. v. Perficient, Inc., 2017 WL 10676897, at *8 (S.D.N.Y. 2018). Victims of trade secret theft may obtain injunctive relief, royalties, and other damages. See, e.g., 18 U.S.C. § 1836(b)(3). The DTSA also allows, in extraordinary circumstances, an ex parte seizure of the misappropriated trade secret. 18 U.S.C. § 1836(b)(2)(A). The DTSA further amended the Racketeer Influenced and Corrupt Organizations Act (RICO) to include misappropriation of trade secrets as a “predicate act” to establishing a RICO violation. Paul M. Mersino, “What We Know and What Is to Come. The Defend Trade Secrets Act Turns One Year Old,” 59 DRI For Def., no. 7, 2017, at 52.
Life sciences and biotech, such as nano-solubilization, pellets-sustained released technology, heat melt extrusion, and liposome formulation (Austar Int’l Ltd. v. Rong Liu, 2019 WL 6339848, at *4 (D.N.J. 2019)), among a vast array of other examples, are well suited for trade secret protection. See, e.g., BioD, LLC v. Amnio Tech., LLC, 2014 WL 268644, at *7 (D. Ariz. 2014) (plaintiff’s complaint stated a claim for misappropriation of trade-secret-protected means and methods behind the development of “production runs and protocol, process and batch record development for patch and liquid product”; “a resorbable adhesion barrier allograft from human amniotic membrane”; “a cryopreserved injectable allograft derived from human placental tissues”; as well as a “Safety profile of products/lot release testing,” “manufacturing protocols” for the “development of internal Standard Operating Procedures,” and “means and methods” for completing product validation and testing, for “recover[ing] human birth tissue material,” and to “manufacture,” “package,” “store,” and “distribute” plaintiff’s products); Brigham Young Univ. v. Pfizer, Inc., 2012 WL 1029289 (D. Utah 2012) (“mouse COX-l DNA and amino acid sequences,” a “restriction map for that mouse COX-l DNA sequence,” and a “mouse COX-l cDNA clone” were enforceable trade secrets).
Uncertain patent eligibility reduces investment and “innovation downstream,” which “works against progress in disease prevention and curative discoveries.” Nicole Tudhope, “Misunderstanding Biotechnology: Separating Laws of Nature from Underlying Technological Developments,” 54 Willamette L. Rev. 587, 605 (Summer 2018).
Even where patents and trade secrets are “mutually exclusive” (see Daniels & Williams, supra), companies “in the increasingly competitive landscape” of life sciences and biotech “frequently develop trade secret protections prior to seeking patent protection.” Gladstone et al., 1 Patent Law Fundamentals § 4:25 (2d ed. May 2020 update). Trade-secreting IP can also “promote alliances between biotechnology and pharmaceutical companies.” Levine & Sichelman, “Why Do Startups Use Trade Secrets?,” 94 Notre Dame L. Rev. 751, 785 (Dec. 2018).
Trade secret protection can fill the gap in IP protection created by the Supreme Court’s law-of-nature exception and thereby benefit life science and biotech businesses as well as the public, who benefit from innovation and investment in those industries. Therefore, life science and biotech companies should carefully evaluate whether, when, and how to use trade secret protection.
