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As readers of this blog may know, a party prevailing in a trade secret misappropriation case may be entitled to reasonable attorney’s fees if that party can show either that the claim was brought by the plaintiff in bad faith or that the defendant was guilty of willful and malicious misappropriation. The award of attorney’s fees in such cases can sometimes be significant, even exceeding the amount of damages awarded for the actual misappropriation.

In a recent decision, Altavion, Inc. v. Konica Minolta Systems Laboratory, Inc., 2014 Cal.App. LEXIS 409, a California appellate court addressed the issue as to what local community rates would apply in awarding attorney’s fees to the prevailing party.  Altavion, was the inventor of technology that would allow for the self-authentication of digital and paper documents.  It later entered into negotiations with the defendant, a subsidiary of a parent company that, among other thing, manufactures scanners and printers.  After the negotiations failed, plaintiff learned that the defendant had patented technology that seemed to be based on the technology that plaintiff had developed and discussed with defendant during their negotiations.  Plaintiff brought a claim for, among other things, trade secret misappropriation.  Plaintiff won and was awarded $1 million in damages and $3.2 million in attorney’s fees.  The case was venued in San Mateo County, but the plaintiff’s attorneys were  from Sacramento.  In making its attorney’s fee award, the trial court awarded plaintiff its “reasonable attorney’s fees” based on hourly rates that were reasonable in the local San Mateo community – not Sacramento.  On appeal, the defendant argued that the Court should have used the “reasonable hourly rates for the Sacramento attorneys where plaintiff’s attorneys were based,” which would be somewhat lower.

The appellate court rejected this argument.  It found that “the reasonable hourly rate is that prevailing in the community for similar work” and that for purposes of this analysis, “the relevant `community’ is that where the Court is located.”  Because an award of attorney’s fees is “committed to the discretion of the trial court”, the appellate court held that the trial court did not err in awarding attorney’s fees based on the local community rate (i.e., San Mateo) as opposed to the lower Sacramento rate.

The Altavion decision is a reminder that the cost of litigating a trade secret claim can be quite high, especially when the risk of an award of attorney’s fees is factored in.  It also raises the implication that a party who hires attorneys from a big city to litigate these claims in a smaller jurisdiction may find its attorney’s fee award capped by that community’s lower local rates.

By: Intellectual Property Group

On April 22, 2014 the United States Supreme Court heard oral arguments in the case of American Broadcasting Company (“ABC”) v. Aereo.  Although this case has been overshadowed by other matters on the Court’s docket and has received very little media attention, the Court’s decision will potentially have an impact on copyright law that is as significant as the vindication of the VCR in Sony v. Universal.

Aereo’s technology enables thousands of viewers to watch television online.  Aereo accomplishes this by assigning a tiny television antenna to each of its subscribers.  This tiny antenna is then connected to a private digital video recorder (“DVR”) located in a facility maintained by Aereo.  Aereo’s subscribers can access their private DVRs over the Internet to retrieve the content recorded through the use of their personal antenna.  Aereo’s technology has created an uproar from the television industry more raucous than Lars Ulrich’s response to Napster.  Fox Broadcasting even indicated that, should Aereo be permitted to remain in business, Fox may seriously consider getting out of the broadcast business entirely.

At issue is a dispute over the interpretation of a portion of copyright law centered on what activities amount to a “public performance” of copyrighted work.  Under United States Copyright law, performance of a copyrighted work may include “transmitting . . . the work . . . to the public, by means of any device or process.”  ABC, Fox and the other broadcasters claim that Aereo’s services amount to copyright infringement because Aereo’s services amount to “public performances” of copyrighted works.  In its defense, Aereo makes an interesting argument.  Aereo claims that it is not transmitting to the public at large, rather it is transmitting each of the copyrighted works thousands of times, directly to individual subscribers.  According to Aereo such a transmission is therefore not made “to the public.”  Aereo also argues that each of these “private” transmissions simply provides the Aereo subscriber with content that already was broadcast to the public without charge over public airwaves.  Aereo therefore asserts that it is merely allowing its subscribers to receive freely broadcast television content, store it in a private space at Aereo’s facilities, and later rebroadcast it to the subscriber through a secure internet connection at the time of the subscriber’s choosing.  Therefore, according to Aereo, its services are much more like “time shifting,” a practice that the Supreme Court approved when it decided the Sony v. Universal case in 1984.

The broadcasters claim Aereo’s activities act more like a cable company.  Cable companies receive freely broadcast content, then retransmit that content to cable subscribers.  Cable companies pay a license fee for the right to do this and, not surprisingly, broadcasters feel that Aereo should be required to pay this fee.  Aereo believes its model is distinguishable from a cable TV system.  Aereo claims it is only a replacement for the antennas that its users would otherwise put on their own rooftops.  They are not transmitting or retransmitting anything to the “public,” they are simply rebroadcasting private content recorded on a private DVR after being captured on a private antenna.

Obviously the outcome of this case could have a far-reaching impact on the types of services that are offered using the internet, or at the very least will have a significant impact on the cost of such services.  For now, we will keep watching and waiting for the Court’s ruling. Stay tuned.

Congress has been listening. Under a new program enacted as part of the America Invents Act (“AIA”), business method patents can be challenged in a specific procedure in the PTO. The program is called the “Transitional Program for Covered Business Method Patents” and is referred to as CBM Review. It went into effect in September 2012 and has a sunset provision of September 2020.

Under CBM Review, a defendant accused of infringement of a patent covering a business method may challenge the validity of the patent. CBM Review is conducted before a new administrative law board, the Patent Trial and Appeal Board (“PTAB”).

The AIA defines a covered business method as a method or apparatus directed to data processing or other financial products or services. The statute excludes patents covering “technological inventions,” which is defined as inventions that solve a technical problem using a technical solution.

The purpose of CBM Review is to provide a quick and less costly alternative to federal court litigation for determining the validity of business methods patents. In CBM Review, a patent may be challenged as invalid on any number of grounds, including that the claims are directed to unpatentable subject matter under 35 U.S.C. section 101, in particular, abstract ideas. Business method patents can also be challenged on the basis or prior art.

Unlike other previous methods for challenging patents in the PTO, CBM Review is intended to be quick. The process begins when a petition is filed in the PTO by a party threatened with or sued for patent infringement. The petition must show that at least one claim in the patent is “more likely than not” unpatentable. The patent owner has three months to file a response. Within six months of the petition’s filing, a panel of patent administrative law judges decides whether to grant the petition. If the petition is granted, CBM Review is instituted. The process, called a trial, is adversarial and involves both the patent owner and the challenger, and includes discovery, motions, and an oral hearing. The patent owner may seek to amend the claims and the challenger may oppose the amendment. The process must be completed by the PTAB with a final decision within one year of its institution, although it can be extended 6 months for good cause.

CBM Review should only be undertaken after a careful consideration of strategy because estoppel applies to subsequent action by the petitioner. The petitioner may not assert a grounds for invalidity in a subsequent PTO proceeding that was raised or reasonably could have been raised in the CBM Review, nor may the petitioner assert in a subsequent district court patent infringement case a grounds that was raised in the CBM Review. Thus, the petitioner should be sure that CBM Review is the best process and forum for its challenge.

So far, the PTAB has moved expeditiously in administering CBM Review. The first petition for CBM Review, filed on September 16, 2012, was granted in January 2013 and the PTAB issued its written decision in June 2013. In its decision, the PTAB invalidated all of the challenged claims as unpatentable abstract ideas.

As of January 30, 2014, 113 petitions for CBM Review had been filed. The majority of the petitions that have been filed are in the electrical and computer fields. Up to the present, the PTAB has instituted CBM Review in about 85% of the petitions filed. Of those, several cases have been settled, the PTAB has invalidated several patents, and many cases are still ongoing.

By: Labor and Employment

The Bay Area Commuter Benefits Program (“CBP”) is a pilot program that affects any public, private, or non-profit entity for which an average of 50 or more full-time employees per week perform work for monetary compensation within the geographic boundaries of the Bay Area Air Quality Management District (“BAAQMD”). (Seasonal/temporary employees are excluded.)

Employers that become subject to this rule at any time after the CBP goes into effect must select at least one of four commuter benefit options, notify employees of how to take advantage of the benefits, and register online with the BAAQMD’s Air Pollution Control Officer (“APCO”) or that Officer’s designee, no later than six months after becoming subject to the CBP

The four commuter benefit options are:

Pre-tax option: Allow employees to exclude commuting costs (i.e. transit passes) from their taxable wages.

Employer-paid benefit: Offer employees a subsidy equal to the monthly cost of commuting via public transit or vanpool, or $75, whichever is lower. Employers may also choose to provide a subsidy for bicycle commuting costs.

Employer-provided transit: Furnish to employees at no cost, or low costs as determined by the APCO, a vanpool, bus or similar multi-passenger vehicle operated by or for the employer.

Alternative commuter benefit: Provide a pre-approved alternative employer-provided benefit that is as effective in reducing single occupant vehicles as Options 1-3.

An employee who performed an average of at least 2 hours of work per week within the previously calendar month within the geographic boundaries of the District, excluding a season/temporary employee is covered by the pilot program. While covered employees are required to offer at least one commuter benefit (or an approved alternative benefit), an employee is not required to participate in the program.

Under the WIPO Internet Treaties, member states are required to recognize in their national laws  the exclusive right of  authors of works to ‘‘make [the works] available’’ and ‘‘communicate [the works] to the public’’, including through interactive platforms, such as the Internet. The United States implemented the WIPO Internet Treaties through the Digital Millennium Copyright Act (‘‘DMCA’’) in 1998.  Based on advice received from the Copyright Office and others, Congress did not amend U.S. law to include explicit references to ‘‘making available’’ and ‘‘communication to the public,’’ concluding that the distribution right under the Copyright Act already covers those rights.  However, because of  the absence of express “making available” language in the Copyright Act, courts in file-sharing litigation have reached somewhat different conclusions as to whether the distribution right requires proof of actual dissemination.

Commentators on the subject have opined that the “making available” right is subsumed within the distribution rights set forth in Section 106 of the Copyright Act and that most courts have correctly interpreted the Act as such.  These courts have found that a defendant infringes the distribution right by making the work available without having proof that the work was actually accessed by others.  For example, in  A&M Records, Inc. v. Napster, the 9th Circuit held that “Napster users who upload file names to the search index for others to copy violate plaintiffs’ distribution rights”.  Also in UMG Recordings, Inc. v. Alburger, the United States District Court for the Eastern District of Pennsylvania held that “There is no requirement that plaintiffs show that the files were actually downloaded by other users from Defendant, only that files were available for downloading.”

However, it appears that some courts have concluded that an infringement of the distribution right under the Act does not occur in the absence of actual dissemination. For example, in Atlantic Recording Corp. v. Howell, the District Court of Arizona  held that “[the distribution right] is not violated unless the defendant has actually distributed an unauthorized copy of the work to a member of the public.” 

As a result, Congress asked the Copyright Office to assess the state of U.S. law recognizing and protecting ‘‘making available’’ and ‘‘communication to the public’’ rights for copyright holders.   The study resulted in numerous comments reflecting a vast array of interests. Among those who submitted comments are The Motion Picture Association of America, Inc., and the Recording Industry Association, Public Knowledge and the Electronic Frontier Foundation, and ASCAP, BMI, SGA, SESAC and NMPA, with each reflecting a different point of view.

The MPAA and the RIAA are of the opinion that existing U.S. laws “fully implement the making available and public communication rights within the framework of the reproduction, distribution, performance and display rights of Section 106 of the Copyright Act.”  These organizations note that although there have been some anomalies, “courts generally have interpreted U.S. copyright laws to afford copyright owners the rights of making available and communication to the public, consistent with Congressional intent and in conformity with U.S. obligations.”

ASCAP, BMI, et al have expressed a slightly different opinion.  These organizations believe that the current Copyright Act could “in theory” protect the ‘‘making available’’ and ‘‘communication to the public’’ rights for copyright holders, however, divergent court opinions demonstrate the downside of such a solution.  They claim that the “range and dissonance of these judicial opinions show that the ‘umbrella approach’ to implementing WIPO’s terms has failed to reliably bring U.S. copyright law into compliance with international obligations and norms.”  These organizations fully support Congress amending the Copyright Act to “clearly, plainly, and explicitly state the ‘making available’ right under Section 106 [of the Act]” and note that “the fix can potentially be as simple as incorporating the words ‘including by making available the works to the public’ in that section.”

Public Knowledge and EFF take a somewhat different view of the subject.  Like the MPAA and the RIAA, Public Knowledge and the EFF believe that the Copyright Act currently protects “making available’’ and ‘‘communication to the public’’ rights for copyright holders.  However unlike the RIAA/MPAA, they do not state a position on whether those courts that have held that the distribution right is not violated unless the defendant has actually distributed an unauthorized copy of the work to a member of the public are outliers.  Quite to the contrary, they state that even if the courts “ultimately determine that in some instances, merely offering to upload a file does not implicate an exclusive right, WIPO obligations will still be fulfilled.”  Public Knowledge and the EFF reason that “the making available act turns not on whether a work has been posted or listed, but on whether members of the public have the ability to access [it] from a place and at a time individually chosen by them and that one might reasonably conclude that the right has only been implicated when at least one member of the public has indeed accessed the work.”

Public Knowledge and the EFF go further and state that the creation of a new “making available” right would risk outlawing presently legal and desirable activities and could impede the use of important efficiency enhancing technologies.  They also argue that such a law could put internet users at risk of copyright liability for hyperlinking to content.

One might say that the differing viewpoints from this small sample of comments to the study (27 comments in all) are mostly driven by economic or social agendas.  This may be a fair statement.  However, these differing viewpoints clearly exemplify the complex nature of Copyright law and show that copyright lawyers will continue to stay busy as content focused technology continues to develop.

By The Labor and Employment Group

As you will recall from previous posts, a large high tech antitrust class action is being waged in California that has major implications for employer non-solicitation agreements.  Questions regarding agreements between employers that impact employee mobility are being addressed in this lawsuit against the backdrop of antitrust allegations.

High-Tech Employee Mobility Antitrust Class Action: Background Developments

On October 24, 2013, U.S. District Court Judge Lucy H. Koh granted plaintiffs’ motion for certification in a class action alleging that Adobe, Apple, Google, Intel, and other large tech companies worked together from approximately 2005 to 2009 to negatively impact the pay of valuable employees by, among other things, agreeing not to actively recruit each other’s employees. The complaint seeks lost compensation and treble damages for the alleged antitrust violative employment practices of Adobe, Apple, Google, Intel Corporation, Intuit, Lucasfilm, and Pixar. The complaint states the tech companies formed agreements to (1) not recruit each other’s employees; (2) provide notification when making an offer to another’s employee (without the knowledge or consent of that employee); and (3) cap pay packages offered to prospective employees at the initial offer.  The allegations are an interesting twist on previous employee mobility cases.

On January 14, 2014, the U.S. Court of Appeals for the Ninth Circuit denied defendants’ petition to appeal the district court’s order granting class certification.  Now past the certification process, the individual plaintiffs that filed the antitrust lawsuit can now represent all class members in claims that Adobe, Apple, Google, Intel and other tech companies violated federal antitrust laws.

Trial of the class action is set to begin on May 27, 2014.

Latest Pre-Trial Developments: Documents Show Not Everyone Joined 

As the parties prepare for trial next month, documents show that the companies that are accused of creating a system to prevent employee mobility were unable to pull another tech giant into the group.  Facebook declined the other companies’ friend request.  Facebook would not agree to not poach other’s employees, share salary information or agree to cap technical workers pay.

Today, these companies vigorously compete for talent.  However, pretrial documents seem to show that in the 2000s, executives of various tech companies frequently had conversations with one another before recruiting each others’ technical workers or making strategic moves in hiring and setting of salaries.

The failed effort to bring Facebook into the group was revealed in recently released pretrial documents, which include emails and depositions filed with the court.  In a March 28 ruling allowing the case to go to trial, U.S. District Judge Lucy Koh stated that an executive from one of the Defendant Companies “unsuccessfully sought to expand Google’s anti-solicitation agreements to Facebook.”

Waiting for Trial

If this matter proceeds to trial, it has the potential to captivate the world like no other trial since the Lindberg Baby Trial.  Tech’s glitterati will parade through the courtroom with court reporters and the press hanging on every word.  If the reports are correct, a potential mediated settlement may deny us the opportunity to see this spectacle.  More importantly for other companies, we will not get an answer to the vexing question of what mobility agreements can companies agree to between themselves when they potentially have an impact on employees.

We will continue to monitor this case here at the blog.  In the meantime, if you are currently considering employee mobility questions, please contact your Weintraub Tobin attorney to discuss.

Under California law, a plaintiff must bring a claim for trade secret misappropriation within three years of discovering the misappropriation or, by the exercise of reasonable diligence, should have discovered the alleged misappropriation.  Often times, discovery of alleged trade secret misappropriation is rather straightforward, i.e., a company discovers that its former employee has downloaded information from a computer and has started soliciting customers to do business with a competitor.  However, there are times when discovery is less straightforward, especially in product development where it can take years for a product to hit the market.  One potential source of information that may give rise to the discovery of trade secret misappropriation that employers must be aware of are patent filings.  The U.S. District Court in the Northern District of California recently used evidence of a patent filing to grant summary judgment in favor of a defendant accused of trade secret misappropriation in the case: Wang v. Palo Alto Networks, Inc. (Case No. 12-05579).

Mr. Wang was a design engineer specializing in the field of network security.  He spent approximately a decade trying to commercialize his firewall technology that included  “fast signature scan” technology.  In 2004, he filed a patent application on his technology.  His patent eventually issued in November 2008.

For years prior to the issuance of his patent, he tried to interest venture capitalists in his product.  In 2005, Mr. Wang met defendant Fengmin Gong at a seminar.  Mr. Gong was a chief scientist at McAfee, Inc. at the time.  Mr. Wang gave Mr. Gong a brief overview of the technology he was developing and later had Mr. Gong sign a nondisclosure agreement.   Over the next year, Mr. Wang discussed his alleged trade secrets with Mr. Gong and even gave him a copy of his patent application that contained trade secret information.  Mr. Gong was supposedly the only person to whom Mr. Wang disclosed his trade secret information.

The nondisclosure agreement was for a period of three years and required Mr. Gong to return all trade secret information back to Mr. Wang at the end.  When the agreement expired by its terms, however, Mr. Wang never demanded that Mr. Gong return the information to him nor did Mr. Gong return the information.

In June 2005, defendant Nir Zuk formed Palo Alto Networks, Inc., which intended to develop its own next generation firewalls.  Shortly thereafter, Mr. Wang and Mr. Gong met with Mr. Zuk to discuss a possible joint development of their firewall products.  Mr. Wang understood Mr. Zuk to state during that meeting that he did not care whether or not he infringed on any patents.  Later that year, Mr. Gong joined Palo Alto Networks as its chief scientist and was introduced as one of its “founders”.  Mr. Wang learned at that time that Mr. Gong joined Palo Alto Networks.

During the following year, there were discussions about possibly licensing Mr. Wang’s technology by Palo Alto Networks.  However, these discussions were not fruitful and Palo Alto Networks decided not to bring Mr. Wang on board.

During that same time, Mr. Wang sought other investors to develop his product.  In preparing his summary for potential investors, Mr. Wang identified Palo Alto Networks as a potential competitor.  In June 2006, Zuk, Gong and two others filed a patent application for their firewall technology.  One year later Palo Alto Networks announced on its website the sale of its first commercial product, a next generation firewall.  Mr. Gong left Palo Alto Networks shortly thereafter.

In December 2007, the patent application submitted by defendants was published.  The patent was in the same field as Mr. Wang’s, i.e., firewall technology and would later form the basis of Mr. Wang’s claim that his trade secrets had been misappropriated by defendants and used in the filing of their patent application.

After defendants’ patent application was published, there were numerous press releases and articles over the next couple of years describing Palo Alto Networks’ technology.  In December 2011, Juniper Networks, Mr. Zuk’s former employer, filed a patent-infringement lawsuit against Palo Alto Networks.  Eight months later, in August 2012, Mr. Wang read a brief from that case and “allegedly learned about the [defendants] patent.”  During that same summer, Palo Alto Networks held a successful initial public offering at which time Mr. Wang claimed that he became aware for the first time that Palo Alto Networks was not a “conventional” firewall company.  In October 2012, Mr. Wang filed a lawsuit against defendants claiming patent infringement and trade secret misappropriation.

Defendants moved for summary judgment as to Mr. Wang’s trade secret misappropriation claim on the ground that it was not filed within three years of Mr. Wang discovering or should have discovered the alleged acts of misappropriation.  The Court noted that a plaintiff in a trade secret misappropriation case is “required to conduct a reasonable investigation after becoming aware of an injury and [is] charged with knowledge of the information that would have been revealed by such an investigation.”  Thus, the statute of limitations on a claim for trade secret misappropriation will begin to run when there is “actual or constructive notice of a claim.”  The U.S. Supreme Court had previously held that the issuance of a patent and its recording with the patent trade office constitutes “notice to the world of their existence.”

The Court examined the facts and concluded that the defendants had filed their patent application in June 2006 containing the alleged trade secrets and that it was published 18 months later in December 2007.  Shortly thereafter in April 2008, the nondisclosure agreement between Mr. Gong and Mr. Wang was technically violated because Mr. Gong had not returned the documents disclosing Mr. Wang’s alleged trade secrets.  Despite this, Mr. Wang did not file this action until more than four years later in October 2012.

In granting summary judgment, the Court held that “an inventor actively practicing in the field and prosecuting his own patent application must be deemed to be on constructive notice of published patent applications in the same field.”  Because Mr. Wang was prosecuting his own patent, the Court concluded that he either knew, or should have known, of the existence of defendants’ patent since it was in the same field.  In fact, Mr. Wang testified that at some point he had reviewed Palo Alto Networks’ patent application and saw that “pretty much everything in the patent application is already covered by my trading [sic] secret.”

The Court found it further significant that Mr. Wang did not take any action upon Mr. Gong’s breach of the nondisclosure agreement by failing to return the documents in April 2008.  This issue was compounded by the fact that Mr. Wang knew that Mr. Gong had gone to work with Palo Alto Networks, which was engaged in the same product field.

When there is evidence that a plaintiff knew or should have known that an alleged misappropriation has taken place, the law shifts the burden to the plaintiff to establish facts as to why he or she did not or could not have discovered the alleged misappropriation and/or filed the lawsuit sooner.  Essentially, the burden is on the plaintiff to show why the statute of limitations period should be “tolled” as to his or her claim. The Court found it significant that Mr. Wang could not offer any credible evidence suggesting that the statute of limitations period should have been tolled.

Mr. Wang’s trade secret misappropriation claim was dismissed because he did not diligently prosecute it after he learned of, or should have learned of, the facts constituting the alleged misappropriation.  The Wang case is a reminder that product developers should examine patent filings in their field to determine whether or not a competitor is misappropriating their trade secret information.  Failure to do so, or if having done so, failing to diligently prosecute such trade secret misappropriation claims, could result in a developer losing the right to sue for trade secret misappropriation.

Employers may begin to see an increase in whistleblower litigation.

Effective January 1, 2014, the Legislature, through Senate Bill 496, amended Section 1102.5, California’s “whistleblower protection” statute. We covered this in our “year in review” seminar, but given the scope of the changes in the law, we wanted to make sure to get the word out to those of you who may have missed it.

First, the revised statute now expands the statute’s protections to employees who report suspected violations of the law internally to “a person with authority over the employee” or to another employee with the authority to “investigate discover, or correct” the reported violation. This means, to trigger whistleblower protection, the employee does not have to report the alleged violation to any entity, agency, or person outside the company.

Second, whistleblower protection now extends to external reports to any “public body conducting an investigation, hearing, or inquiry.”

Third, it is now unlawful for any employer to have any rule, regulation, or policy that prevents the disclosure of reasonably-believed violations of local (in addition to state and federal) laws, rules, or regulations. Previously, the statute had been interpreted to exclude violations of local laws (see Edgerly v. City of Oakland (2012) 211 Cal.App.4th 1191).

Fourth, the revised statute also newly imposes liability where any person acting on the employer’s behalf (i.e., a manager) retaliates against an employee who either does engage in protected whistleblowing activity or who the employer believes has disclosed or may disclose the information externally or internally. This so-called “anticipatory retaliation” is particularly troubling, because the employee alleging retaliation may not have disclosed or even planned to disclose anything.

Fifth, the protection of whistleblowers applies even if disclosing illegal activity is part of the employee’s job duties. For example, a publicly traded company’s compliance officer is now protected for disclosing alleged illegal activity even though her job requires her to report such activity, externally or internally. This change was in reaction to previous California court decisions, which had previously interpreted this section not to provide protection to an employee whose duties include disclosure of legal compliance information.

Although the change in law creates new sources of liability for California employers – with penalties of up to $10,000 per violation – the law at least clarifies a prior split of authority. California and federal law are now harmonized regarding whether an employee must first report an alleged violation of securities laws to the SEC to receive protection against retaliation under the Dodd-Frank Act. A California employee is protected under state and federal law, regardless of whether he or she first reports violations of securities laws to a government or law enforcement agency, to a specified public body, or via an employer’s internal reporting procedure.

In light of the expanded protection for whistleblowers who report unlawful conduct to or about their employers, employers should update their anti-retaliation policies to reflect these new provisions and request that employees acknowledge receipt of this update. Employers should train managers and supervisors regarding their compliance obligations and anti-retaliation laws. Employers must be even more diligent in investigating employee reports promptly, impartially (i.e., a supervisor who is accused should not be the one to investigate), and take appropriate corrective action. Employers should always carefully document the legitimate business reasons for adverse employment decisions such as discipline and terminations, but the expansion of whistleblower protections to difficult-to-disprove “internal complaints” and perceived planned complaints makes this even more important. And, if at all possible, persons accused of alleged violations should not be permitted to make unilateral decisions adverse to the complaining employee.

Patent law is a complicated area of law governed by a confusing set of statutes and regulations that are interpreted by the United States Patent and Trademark Office (PTO) and the federal courts.  Patents themselves are sometimes almost unintelligible and, if intelligible, may require many hours of reading to understand.  It is no wonder that there are a lot of misconceptions or myths about patents.

This is the first of two columns in which I will discuss a few of the most common aspects of patent law that are misunderstood.

1. Ideas Are Not Patentable.

Clients often want to patent an idea.  Ideas are not patentable – inventions are patentable.

To be patentable, an invention must fall within one of four categories, referred to as statutory subject matter.  Those categories are:  processes (also referred to as methods), machines, articles of manufacture, and compositions of matter.

Process patents include patents for methods of doing just about anything, including some computer software and some methods of doing business (although business method patents are now under increasing scrutiny both in the PTO and in the courts).  Machine or apparatus patents include traditional types of machines as well as computer systems.  Articles of manufacture are devices such as tools or just about any non-machine.  Compositions of matter include chemical compositions, genes, and genetically engineered (non-natural) living organisms, including bacteria, plants, and animals.

The above four categories are the categories of inventions for which a utility patent can be obtained.  There are two additional types of patents:  design patents and plant patents.

Design patents protect ornamental designs for articles of manufacture, such as chairs, dishes, and glassware.  A design patent protects only the appearance of the article, not any aspect of its functionality.  An article may be the subject of both a design patent and a utility patent, however, if it has both ornamental design and function.

Plant patents protect distinct, new varieties of asexually reproducible plants (i.e., plants that can be reproduced without seeds, such as by budding or grafting). They include such plants as certain types of roses, nuts, flowering plants, and fruit trees.

There are several things that are specifically not patentable.  They are:  abstract ideas and mental processes, laws of nature, natural phenomena, and mathematical algorithms.

Even if a client’s idea fits within one of the four categories of statutory subject matter, it still is not patentable if it is in its infancy.  The idea must be an invention.  The inventor need not have actually made the invention (reduced it to practice), but must have a complete and operative understanding of the invention.  The patent application must contain a detailed written description of the invention and must describe how to make and use the invention without undue experimentation.  Thus, an idea that is not fully fleshed out, even if it is patentable subject matter, is not ready to patent.  The inventor must be able to describe what the invention actually is.

2. The Inventor Cannot Withhold Details of the Invention to Prevent the Public from Copying.

In addition to a detailed description of how to make and use the invention, a patent application must also include the “best mode” of carrying out the invention.  The best mode is the best way of using the invention known to the inventor at the time the application is filed.

This requirement prevents the inventor from keeping the best way of using the invention a secret.  A patent is a trade-off:  in exchange for the Government giving the inventor the rights to exclude others from making, using, selling, or offering to sell the invention, the inventor must fully disclose the invention to the public in the patent.  This is so that the public may practice the invention after the patent expires.

If an invention is easy to reverse-engineer, trade secret protection is essentially useless and patent protection is the better choice.  This is because patents, unlike a trade secret, protect against reverse engineering.  On the other hand, if an invention is difficult to reverse-engineer, trade secret protection may be preferable to obtaining a patent because, unlike a patent, a trade secret does not expire.

3. You Cannot Tell What a Patent Protects by Looking Only at the Text or the Drawings.

A utility patent contains several parts:  a specification or disclosure, a drawing if necessary, and at least one claim.  The specification is a detailed description of the invention that tells a person of ordinary skill in the art how to make and use the invention and describes the best mode of carrying out the invention.  The drawings (which may include flow charts) must illustrate all essential elements of the invention.  Drawings are typically necessary for inventions that fall within the subject matter categories of machines, articles of manufacture, and processes; drawings are usually not necessary for compositions of matter.

The specification and drawings describe the different versions (embodiments) of the invention or examples of the invention.  They do not define what the patent owner may enforce with the patent.  This is determined by the claims.

The claims must contain the patentable elements of the invention.  It is the claims that are used to determine whether there is infringement.  The claims must be read in light of the specification and the drawings, but the claims define what the patent protects.  Sometimes, the claims are broader than what is described in the specification and the drawings, so one must read and interpret the claims to know what the patent protects.

4. A Provisional Patent Application is Not a Quicker, Cheaper Way of Getting a Patent.

A provisional patent application cannot become a patent.  Despite its name, a provisional patent application is not really a patent application at all because it cannot mature into a patent.  Rather, a provisional patent application acts as a placeholder for a utility application – it is a mechanism for allowing an inventor to obtain an earlier filing date for a utility application.

A provisional patent application requires a specification and a drawing if necessary, and should contain at least one claim.  It must satisfy the same requirements as a utility application (written description, enablement, and best mode).  A provisional application is not ever examined by the PTO and no patent ever issues directly from it.  An inventor has one year from the filing date of the provisional application in which to file a non-provisional utility patent application for the same invention, claiming the benefit of the filing date of the provisional application.    Because a provisional application requires the same level of detail as a utility application, it is typically not much quicker or less costly than a utility application.

If a client has limited time or funds, however, filing a provisional application may be better than filing no patent application.  For example, a provisional application may be advantageous if the inventor needs to disclose the invention on short notice and does not have enough time to have a utility application prepared.  In that situation, the provisional application may provide the inventor with an earlier filing date than might otherwise be obtained, as long as what is later claimed in the utility application was disclosed in the provisional application.

Last week’s column was the first of two columns discussing some of the most common misconceptions or myths about patents.  Here is the second part, starting with number five on my list.

5. A Patent Does Not Give the Patent Owner the Right to Practice the Invention.Inventors and patent owners often assume that a patent gives them rights to practice the patented invention, i.e., freedom from infringement.  Not true.

A patent is a grant to its owner of the right to exclude others from making, using, offering to sell, and selling the patented invention in the United States, or importing the invention into the United States.  These rights are called exclusionary rights.  A patent does not provide its owner with the rights to do these things.  An invention may be patentable but still infringe another person’s patent.  In such a case, the patent owner may have a patent on the invention but cannot make or use the invention unless they obtain a license from the owner of the patent that is infringed.

6. Patents Do Not Infringe Other Patents.

A patent cannot infringe another patent.  Only a machine, article of manufacture, composition of matter, or process can infringe a patent.

As stated above, a patent gives its owner the right to exclude others from making, using, offering to sell, selling, or importing the patented invention.  The patent is infringed if any of these acts are committed in the United States without the patent owner’s permission.  Thus, there is no infringement unless someone makes, uses, offers to sell, or sells the invention in the United States, or imports the invention into the United States.  An invention described in a patent may infringe another patent, but only if it is made, used, offered for sale, sold, or imported in the United States.  The patent itself is not an act of infringement.

7. Patentability and Patent Infringement are Not the Same Thing.

Inventors often think that if their invention is patentable, then it cannot infringe other patents.  Not so.  Patentability and patent infringement are two different things.  An invention may be both patentable and infringe an existing patent.  In both cases, the starting point of the analysis is the claims.

To determine if an invention is patentable, the invention, as it is claimed, is compared to what is known in the field (the prior art).  In general, prior art includes written documents (such as other patents, published articles, catalogs, and websites), as well as actions by the inventor and third parties, that exist before the patent application is filed.

The first requirement of patentability is that the claims must be novel (new or different) over the prior art.  The test for novelty is performed by looking at each element of the invention as claimed. If all of the elements of the claimed invention are present in a single prior art reference, then the invention is not novel and is said to be anticipated by the prior art.  The invention is not patentable.

The second requirement of patentability is that the claims must be nonobvious over the prior art.  The invention is obvious if the differences between the invention and the prior art are such that the invention, as a whole, would have been obvious at the time it was made to a person with ordinary skill in the art.  Unlike the test for novelty, the test for obviousness is not limited to a single prior art reference – any number of references can be combined to render an invention obvious.  For obviousness to be found, every element of the claimed invention must be present or suggested in the prior art, although not necessarily in the same reference.

To determine if an invention infringes an existing, in force (not expired) patent, the claims of the patent in question are compared to the invention (in a patent infringement action, the district court first interprets or construes the claims to determine their meaning and scope).  If each element of a claim is present in the invention (literally, or in some cases, by an equivalent), that claim is infringed.  Only one claim need be infringed for the patent to be infringed.

Thus, although it sounds counter-intuitive, an invention can be patentable over a prior art patent and, at the same time, infringe the same patent.