Choose wisely.

That’s the lesson for just about any aspect of life, but a Pennsylvania federal court reminds us it applies when deciding whether to patent an invention or to protect it as a trade secret.

Frederick Foster believed he’d created a sure-fire way to reduce, or even eliminate, the amount of fraud that occurs on the Internet. His concept, known as a Virtual Post Office Box/Internet Passport (“VPOBIP”), allowed individuals and businesses to present identification documents to their local post office. Once their identify was verified by the Post Office, these individuals and businesses would receive a virtual Post Office Box, and their email messages would contain a VPOBIP badge. This, in theory, would make the individuals and businesses more trustworthy to others online.

In May, 2007, Foster contends he presented his idea to the United States Postal System, which was receptive to it and even, according to Foster, forecast that profits would exceed $10 million. The Postal System allegedly approved a pilot program. Quite some time later, the Postal Regulatory Commission suggested that Foster contact someone in Pitney Bowes’ postal relations department about VPOBIP, as Pitney Bowes, according to the complaint, served as a stakeholder in the Postal System or in some other advisory role. Foster contends he did so and that he explained the product in such communications.

Foster alleged that Pitney Bowes later launched “Volly.com,” which was a direct copy of VPOBIP. Foster filed suit against Pitney Bowes and the Postal System for misappropriation of trade secrets, claiming he:

provided to the defendants . . . trade secrets regarding the VPOBIP System and that the defendants knew these trade secrets were confidential in nature and that they were not to wrongfully misappropriate these trade secrets from plaintiff, only to use them to their own benefit.

The problem for Foster, though, was that he had hoped to patent VPOBIP. A patent, after all, would preclude all others from using this invention without his approval. Shortly after presenting the idea to the Postal System in 2007, he submitted his application to the United States Patent and Trademark Office. Pursuant to federal law, the Patent and Trademark Office published the application, making it available for public review.

The application’s publication, a normal part of any patent process, was fatal to Foster’s trade secret claim.

In order for any information to constitute a trade secret, its value must come from not being generally known or readily ascertainable. If, as the court pointed out, it can be found in trade journals, referenced books, or published materials, it cannot be a trade secret. As we have written, trade secret owners must take steps to protect the secrets, and publishing the “secret” to others can preclude protection.

That’s what happened to Foster. The court said:

Here, Plaintiff chose to forgo secrecy in an effort to obtain a patent on his invention. When he filed an application with the USPTO and made no effort to prevent publication of his application, he failed to take reasonable steps to maintain the secrecy of VPOBIP. When the USPTO published his application as required by law, it became readily ascertainable by proper means. VPOBIP, therefore, cannot be a trade secret.
Nor could Foster proceed with a fraud claim. Foster contended the defendants had promised to keep VPOBIP confidential, but the court said Foster could not rely on that promise given that Foster himself permitted publication of the information by the Patent and Trademark Office. No harm, no foul, in other words. Finally, Foster claimed the defendants were unjustly enriched at his expense, but the court ruled there was no injust enrichment, given that the defendants could easily have obtained the same information from the published application.

So, why not just pursue a patent infringement claim? Foster’s application was rejected, and therein lies the real danger. With the hope of achieving national, and even worldwide, protection for his product, Foster placed the information in the public domain. That destroyed the trade secret, but it might have been worth it if the patent were issued. Sadly for Foster, the patent was not. He was then left with no patent protection and no trade secret protection.

That’s why individuals and businesses with inventions need to choose wisely which protection they want.

Of course, filing for a patent will not always deprive someone of his or her trade secrets. Patents often describe inventions, their goals, and processes in broad terms, but the “know-how” required to make something work best may not be included. The information contained in the patent, generally the “idea” or concept, would not be a trade secret, but the “know-how” required to make it work best could still be one. Individuals and businesses hoping to obtain patents while still retaining trade secrets better be able to show that their trade secrets were not described in their patents.

Otherwise, in addition to winding up like Foster, one may wind up like a local vendor that received a patent for a freight-weighing process at truck terminals. The patent was challenged and became subject to a reexamination, which meant the vendor could only assert a trade secret claim when a potential customer designed a system that achieved similar results.

The federal court dismissed the claim, noting that the vendor was wholly unable to describe what its trade secret was. The court pointed out that the vendor’s chief executive officer described the trade secret as being:

‘everything in the patent.’ In fact, throughout his deposition, [the CEO] relies on the patent when describing the basis for the trade secret. To the extent the ‘secret’ is the concept embodied in the patent application, it cannot be the subject of a trade secret claim.
The transcribed ruling from that decision can be found here.

Patents and trade secrets are very different things. For anyone seeking to protect an invention or secret process, great consideration must be given to whether to pursue a patent, to keep something a trade secret, or to maintain some portfolio of both. It’s best that these choices are made wisely, not lightly.

Josh Durham, an attorney no longer with Poyner Spruill, was the original author of this article.

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