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Damages Period for Patented Trade Secrets

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Nearly fifty years ago in Kewanee Oil, the Supreme Court held that federal patent law does not preempt state trade secret protections.1  The Supreme Court explained that “[t]rade secret law promotes the sharing of knowledge, and the efficient operation of industry; it permits the individual inventor to reap the rewards of his labor by contracting with a company large enough to develop and exploit it.”2  At the same time, the Supreme Court recognized that “[t]rade secret law provides far weaker protection in many respects than the patent law.”3  The Court therefore reasoned that inventors are likely to pursue patent protection for inventions that are novel, useful, and nonobvious.4  This decades-old precedent continues to raise new issues regarding the interplay of trade secret and patent protection that companies should be aware of as they protect their intellectual property. 

Kewanee Oil opened the door for companies to rely on trade secret law to protect their inventions while also pursuing patent protection.  Once a patent application is published or a patent issues, however, the invention loses its trade secret status.5  Companies may nevertheless bring suit for trade secret misappropriation that occurred prior to the publication of the trade secret.6  In these situations, courts have split on whether post-publication damages are available for pre-publication misappropriation of the trade secret. 

Under the prevailing view, a plaintiff may obtain damages during the head start that a defendant obtained over the plaintiff due to defendant’s misappropriation, even if that head start period extends past the publication of the trade secret.7  For example, in Nite Glow Industries, the Federal Circuit explained that the “head-start period is ‘the period in which information is entitled to protection’ as a novel idea, ‘plus the additional period, if any, in which a misappropriator retains an advantage over good faith competitors because of misappropriation.’”8  This view is consistent with the comments from the Uniform Trade Secrets Act (“UTSA”), which state that “a monetary recovery for trade secret misappropriation is appropriate only for the period in which information is entitled to protection as a trade secret, plus the additional period, if any, in which a misappropriator retains an advantage over good faith competitors because of misappropriation.”9

Other courts have applied a more restrictive approach to the trade secret damages period.  For example, in Liqwd, Inc. v. L’Oreal America, Inc., the court held that “[b]y definition, there can be no further trade secret damages after the date the trade secret is made public. . . . Patent infringement damages are the only damages the plaintiff can recover for its trade secrets once they are made public.”10  As another example, in Timely Products Corp. v. Arron, the Second Circuit explained that “we expressly rejected the contention . . . that because the violation of the obligation of secrecy had given a competitor a ‘head start’ before the owner’s own public disclosure, the competitor should be enjoined from the use of the secret, at least temporarily, after such disclosure.”11 Similarly, at least one state court has relied on federal preemption doctrine to hold that a defendant “who has wrongly appropriated and used a trade secret” cannot “be held liable for the damages under state law flowing from this misappropriation after a patent has issued. . . .”12  The court reasoned that “federal preemption doctrine precludes the plaintiffs’ reliance on state remedies once the operation of patent law conflicts with such claimed relief.”13

As these cases show, there are important strategic decisions that companies should consider if they rely on both trade secret law and patent law to protect their inventions.  For example, companies preparing to file a patent application on an existing trade secret should consider whether it would be beneficial to delay the public disclosure of the application using a non-publication request.14  Additionally, contract law may provide an important backstop to trade secret and patent laws.15  Properly drafted confidentiality and right to use provisions can provide companies with another layer of protection for their inventions.  At bottom, companies taking a comprehensive approach to protecting their inventions have multiple options at their disposal, including trade secret, patent, and contract law.  Companies should carefully consider the pros and cons of each area of law and how different courts will treat overlaps in protection.


1 Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 472 (1974) (“We hold that Ohio’s law of trade secrets is not preempted by the patent laws of the United States. . . .”).

2 Kewanee Oil, 416 U.S. at 493.

3 Id. at 489–90.

4 Id. at 490 (“The possibility that an inventor who believes his invention meets the standards of patentability will sit back, rely on trade secret law, and after one year of use forfeit any right to patent protection, 35 U.S.C. s 102(b), is remote indeed.”).

5 See Atl. Research Mktg. Sys., Inc. v. Troy, 659 F.3d 1345, 1357 (Fed. Cir. 2011) (“A trade secret is secret. A patent is not. That which is disclosed in a patent cannot be a trade secret.”); see also Attia v. Google LLC, 983 F.3d 420, 426 (9th Cir. 2020) (collecting cases supporting the holding that “publication of information in a patent application eliminates any trade secrecy”).

6 See 18 U.S.C. § 1839(5)(B)(ii); see also Brocade Commc’ns. Sys., Inc. v. A10 Networks, Inc., No. 10-cv-3428, 2013 WL 890126, at *2 (N.D. Cal. Jan. 23, 2013) (“The jury’s determination that A10 misappropriated Brocade’s trade secrets thus required only a finding that the trade secrets were in fact secret at the moment when they were misappropriated.”) (emphasis added); Cajun Servs. Unlimited, LLC v. Benton Energy Serv. Co., No. 17-cv-0491, 2019 WL 2410933, at *11 (E.D. La. June 7, 2019) (“[P]ublication of the [asserted patent] application does not deprive Plaintiffs of a cause of action for misappropriation of trade secrets before the patent application was published.”) (emphasis added).

7 See Fed. Express Corp. v. Accu-Sort Sys., Inc., No. 01-2503 MA/A, 2005 WL 8156707, at *17 (W.D. Tenn. Mar. 30, 2005) (explaining that “several courts have found that an act of misappropriation can cause a plaintiff to lose profits, or a defendant to receive illicit gains, after the trade secret is made public”); see also Ultimate Timing, L.L.C. v. Simms, 715 F. Supp. 2d 1195, 1207 (W.D. Wash.), on reconsideration in part, No. C08-1632-MJP, 2010 WL 2650705 (W.D. Wash. June 29, 2010) (“The publication of the patents does not, as Defendants’ suggest, limit Plaintiffs’ potential damages to those suffered before [the patent publication date]. If they prevail on their claim, Plaintiffs may be entitled to relief for an unfair ‘head start’ Defendants gained through the misappropriation.”).

8 Nite Glow Indus. Inc. v. Cent. Garden & Pet Co., 2021 WL 2945556, at *6–7 (Fed. Cir. July 14, 2021) (emphasis added) (citing Restatement (Third) of Unfair Competition § 45, cmt. h).

9 UTSA § 3, cmt (emphasis added).

10 Liqwd, Inc. v. L’Oreal America, Inc., No. 1:17-cv-00014-JFB-SRF, 2019 WL 4193771 (D. Del. Aug. 20, 2019) (emphasis added).  On appeal, the Federal Circuit noted that the “district court reduced the non-patent damages to reflect its view of when such damages had to end given when the protected information became publicly available” but reversing the district court’s denial of JMOL as to trade secret liability.  See Olaplex, Inc. v. L'Oreal USA, Inc., 855 Fed. Appx. 701, 703 (Fed. Cir. 2021).

11 Timely Prods. Corp. v. Arron, 523 F.2d 288, 304 (2d Cir. 1975); see also Conmar Prods. Corp. v. Universal Slide Fastener Co., 172 F.2d 150, 155 (2d Cir. 1949).   

12 Evans v. Gen. Motors Corp., 51 Conn. Supp. 44, 58 (Super. Ct. 2007). 

13 Id. at 66; see also id. at 56 (citing to Kewanee Oil for the proposition that “the public disclosure of a trade secret through a patent creates a cutoff date that thereafter precludes the recovery of damages under state law for the wrongful use of a trade secret”).

14 See 35 U.S.C. § 122.

15 See Luv N’ Care, Ltd. v. Groupo Rimar, 844 F.3d 442, 448 (5th Cir. 2016) (“Intellectual property law is no barrier to enforcement of a contract under state law, ‘merely because the contract relates to intellectual property which may or may not be patentable.’”) (quoting Aronson v. Quick Point Pencil Co., 440 U.S. 257, 262 (1979)); see also Caldera Pharm., Inc. v. Regents of Univ. of California, 205 Cal. App. 4th 338, 352 (2012) (“State law is not displaced merely because the contract relates to intellectual property which may or may not be patentable; the states are free to regulate the use of such intellectual property in any manner not inconsistent with federal law.”).

 

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