For companies that need to protect their valuable intellectual property, the choice between trade secret and patent protection can be a difficult one. There are benefits to either approach. Patents can provide a limited monopoly in exchange for a public disclosure while trade secrets offer the potential for perpetual propriety, provided that appropriate protective measures are taken and no competitor independently develops the same technology. But regardless of the choice, companies must appreciate that industries often advance with great speed, and there’s always the possibility that a competitor will independently develop the same technology, and then seek patent protection for it. When faced with that situation and a threat of infringement from a competitor that has patented an original developer’s trade secret (or other prior use, even if not a trade secret), there’s a potent but little used remedy available under 35 U.S.C. § 273 – a defense to patent infringement based on a prior commercial use. 

Originally created in 1999 and expanded by the AIA, the current law provides a prior-use defense for defendants who can demonstrate that they “commercially used” a claimed “process” or “machine, manufacture, or composition of matter used in a manufacturing or other commercial process” at least 1 year before the earlier of the effective filing date of the claimed invention, or a previous public disclosure by the patentee. This defense is available not only to the person who performed the prior commercial use, but also any entity who conducted or directed that performance as well as agents, contractors, vendors, parent and subsidiary companies, and may be transferred to a purchasing company if the right to the prior user defense is a subpart of a good faith purchase of the underlying company. The one caveat is that the defense is unavailable where the asserted patent has been or is subject to an obligation of assignment to either an institution of higher education or a technology transfer organization whose primary purpose is to facilitate the commercialization of technologies developed by one or more such institutions of higher education.

At the time of the AIA’s passage, the new prior use defense received much fanfare with many commentators expressing great excitement over this potential “secret weapon” and potent new defense to patent infringement. Many pontificated that this newly updated section 273 would allow accused infringers to not only avoid infringement liability but continue to maintain the status quo, so long as they could demonstrate a prior commercial use more than a year before the effective filing date of the claimed invention. Yet, notwithstanding the fervor over the expansion of this prior use defense and numerous potential applications, we are aware of no reported cases in which this defense was dispositive. And in the more than ten years since its adoption, we have observed only one case in which the prior use defense defeated a motion for a preliminary injunction in 2021, but was not dispositive at trial (the asserted patents were found invalid mooting the issue of infringement^[1]). Perhaps this should not be surprising, as the previous version of the prior use defense which was limited to covered business method patents, was raised only once, in a district court case where the defense was ultimately determined to be untimely and was not considered by the court. See https://www.uspto.gov/sites/default/files/aia_implementation/20120113-pur_report.pdf. 

Indeed, since the passage of the AIA it appears that section 273 has gone from being a new and shiny defense to an underutilized tool. One possible explanation is that this defense may not have been ripe for use until post-AIA patents issued and there was sufficient known commercial usage of the patent by a prior user to allege infringement. Because the defense essentially requires an accused infringer to have a prior use – that is unknown to patent owners – more than a year prior to the filing of the asserted patent, it’s easy to see why a trade secret might fly under the radar, as secrecy of that use would need to be maintained. Moreover, the patent owner may appreciate the possibility of an accused process being determined to be invalidating prior art wherever it had been used publicly by a defendant more than one year before the patent’s filing date. Finally, in the case of a developing or fast-moving field with opportunities for protecting IP as trade secrets, it is possible that a previously used process or method could be technologically antiquated and insufficient for the purposes of meeting the asserted claims more than a year before the patent’s effective filing date. These and other factors combined may have simply obviated the factual and legal predicate necessary for a decision on the merits of the § 273 defense. But we may soon see the dust blown off as the opportunities to raise a prior use defense grow.

Especially with the proliferation of artificial intelligence, machine learning and bioinformatics, and the opportunities to choose between trade secrecy and patents as a means of IP protection, there should be more opportunities for defendants to raise a Section 273 defense because the underlying algorithms are often kept and maintained confidentially as trade secrets, which by its nature requires well-documented efforts. For instance, process patents that need to rely on a defendant’s previously confidential activities in order to satisfy a limitation and prove infringement may provide an amenable environment for the assertion of a prior use defense. In that situation, the prior use defense could be dispositive to a claim of patent infringement, and it should be evaluated and considered whenever applicable. 

Finally, a section 273 defense may be more or less feasible depending on the industry and availability of corroborative evidence. Since this defense requires clear and convincing evidence, proper documentation that would be admissible in court to demonstrate a prior commercial use must be available. Companies like those engaged in life sciences likely have standard operating procedures for keeping lab notebooks and stringent record keeping because of FDA requirements, and thus may already have procedures to access evidence of prior use. By comparison, companies in other fast-moving fields may not apply the same level of rigor when it comes to record keeping. Regardless of the industry, best practices dictate that any confidential aspects of a commercial product or process be evaluated for eventually raising a prior use defense, particularly where one or more competitors are working in the same space. We will continue to monitor and report on new developments with this (still) potentially promising defense to patent infringement.

[1] A new trial was granted in that case in January of 2023, and the parties subsequently reached a confidential settlement in April of 2023. See Pavemetrics Sys., Inc. v. Tetra Tech, Inc., No. 2:21-cv-1289, 2023 U.S. Dist. LEXIS 23310 (C.D. Cal., Jan. 23, 2023).