Wednesday, October 22, 2025
Executive Summary
Goodwin Procter partners Robert Frederickson III and Olivia Uitto examined the competing roles of patent protection and trade secret law in early-stage life sciences companies, concluding that the prolonged FDA approval timeline and the erosion of certain patent categories — particularly for antibodies, AI-driven tools, and cell and gene therapies — have elevated trade secrets from a secondary option to a primary and often superior vehicle for protecting high-value life sciences innovations.
Instructor(s)
Robert Frederickson III, Goodwin
Olivia Uitto, PhD, Goodwin
Keywords
Hatch-Waxman Act (Drug Price Competition and Patent Term Restoration Act of 1984) — generic entry and patent cliff litigation • trade secret protection for life sciences — Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836 • patent cliff strategy — staggered patent filings for antibody drugs, formulation patents, dosing patents • trade secret misappropriation — access plus substantial similarity standard • patent eligibility of antibody, AI, and machine learning inventions under 35 U.S.C. § 101 • reverse engineering and trade secret protection — when patent is the required alternative • FDA regulatory delay and commercialization timelines for life sciences products • reasonable measures to protect trade secrets — NDAs, employment agreements, access controls • how do life science startups protect their IP during investor and partner due diligence? • when should a biotech company choose trade secrets over patents? • independent development defense to trade secret misappropriation
Legal Analysis
The Patent Path in Life Sciences: FDA Delay, the Twenty-Year Term, and Staggered Filing Strategy to Delay the Patent Cliff
In the life sciences industry, the patent system interacts with the FDA regulatory process in ways that compress the effective commercial life of a patent to a fraction of its nominal twenty-year term. Uitto described a representative scenario: a company developing an antibody drug may spend four to eight years in research and development, one to two years in preclinical experiments, and then four to seven years in clinical trials before the product can be commercialized — a total pre-market timeline that can consume the majority of a composition-of-matter patent’s term before a single dollar of revenue is earned. The result, she explained, is a “patent cliff” — the precipitous drop in sales that occurs when foundational patent protection expires and generic or biosimilar competitors enter the market.
The strategic response to the patent cliff is a layered, staggered filing approach in which successive patent applications are timed so that their twenty-year terms expire at intervals rather than simultaneously. Uitto illustrated the strategy concretely: a composition-of-matter patent covering the antibody itself might expire in 2044, while a separately filed patent covering the formulation of the drug expires in 2046 and a patent covering the dosing regimen expires in 2050. By staggering these filings, the company “push[es] out that patent cliff, preserve[s] those total sales for a longer period, and really provide[s] patent exclusivity for the company.” This strategy is particularly consequential in a regulatory environment in which the Hatch-Waxman Act, formally the Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585 (codified at 21 U.S.C. § 355 and 35 U.S.C. §§ 156, 271(e)), structures the timing and litigation of generic entry around the brand company’s patent portfolio.
Frederickson characterized the Hatch-Waxman Act as “a grand piece of legislation that reflects a compromise between two fundamentally competing viewpoints” — the need of innovator companies to recoup enormous development investments through robust patent protection, and the public interest in access to affordable generic medicines. The Act accomplishes this balance through several mechanisms: it permits brand companies to obtain extensions of the patent term for the period consumed by FDA review; it authorizes generic companies to file abbreviated new drug applications and challenge brand patents before launching competing products; and it creates financial incentives for generics to identify and attack patents they perceive as weak. Frederickson noted that the Act’s most distinctive feature is that it “allows these patent issues, these disputes about infringement and validity, to all play out before there’s any launch of a generic competing product” — a design that is particularly significant given the magnitude of the market disruption that generic entry produces. Today, Frederickson observed, “roughly 200 to 300 lawsuits are filed every year” in which generic and branded pharmaceutical companies are litigating over the timing and terms of generic market entry.
Trade Secret Law as a Primary IP Vehicle: The Defend Trade Secrets Act, Reasonable Measures, and the Erosion of Patent Protection for AI and Biologics
While patents have historically been the dominant form of IP protection for life sciences products, Frederickson identified two structural forces that have elevated trade secret law to a co-equal and sometimes superior alternative. The first is that “there has been some erosion . . . in certain types of patent protection that impacts the life sciences industry,” specifically changes in the law governing the patentability of antibodies, cell therapies, and gene therapies under 35 U.S.C. § 101. The second is the convergence of the technology and life sciences industries driven by artificial intelligence and machine learning: software companies have traditionally been “less willing to fully embrace patent protection” for algorithms and source code, whereas life sciences companies have relied heavily on patents, and as AI becomes integral to drug discovery, diagnostic tools, and clinical trial design, the boundaries of patent eligibility in this converging space have become increasingly uncertain.
The Defend Trade Secrets Act of 2016, 18 U.S.C. § 1836 et seq., is the primary federal vehicle through which misappropriation claims are now litigated, supplemented by state law analogs. Frederickson described the statute’s substantive definition: a trade secret encompasses “any type of financial, business, scientific, technical, economic or engineering information,” provided it satisfies two criteria: (a) the owner has taken reasonable measures to maintain its secrecy, and (b) the information derives independent economic value from not being generally known or readily ascertainable through proper means. Trade secrets offer several structural advantages over patents: they can be “protected eternally, so long as the trade secret remains secret” (Frederickson cited the Coca-Cola formula as the paradigm case); they provide access to emergency injunctive relief to stop actual or threatened misappropriation; the federal statute can reach extraterritorial conduct when a misappropriated product will ultimately enter the US market; and willful and malicious misappropriation can give rise to exemplary damages, attorneys’ fees, and criminal prosecution by the Department of Justice.
The threshold question of whether a process or formulation qualifies for trade secret protection turns in significant part on whether it is reverse engineerable. Frederickson was direct: “if an invention is reverse engineerable . . . then you’re not entitled to trade secret protection.” A known chemical composition that can be analytically characterized and replicated is therefore a candidate for patent protection rather than trade secret protection. Conversely, manufacturing techniques, relative concentrations in a formulation, in-process controls, or the architecture of a machine learning training data set may resist reverse engineering and are thus well-suited for trade secret status. The reasonable-measures requirement is assessed along three axes that courts have consistently examined: how the company manages employee access to confidential information (confidentiality and non-disclosure agreements, exit procedures, reminders of post-employment obligations); what physical and informational-security measures are in place (badge access, IT restrictions, locked storage); and how the company handles necessary disclosures to third parties (investors, contract manufacturing organizations, clinical research organizations, and potential acquirers), which Frederickson described as “particularly relevant for the life sciences industry” because emerging biotechs must share their most sensitive science to attract funding.
Trade Secret Misappropriation in Life Sciences: Access Plus Substantial Similarity, the Independent Development Defense, and Practical Risk Mitigation
Trade secret litigation in the life sciences context almost always begins not with direct evidence of theft but with what Frederickson described as “circumstantial evidence” that gives rise to a reasonable suspicion of misappropriation. The operative framework that structures early case assessment involves two questions: first, did the accused company or individual have access to the trade secrets at issue; and second, has that company developed, published, or commercialized something that is substantially similar to what the trade secret holder believes to be its proprietary information? Frederickson identified three archetypal access scenarios in the life sciences industry: a former employee who held confidential information at Company A joins Company B and pursues similar scientific work; a former business partner — a contract manufacturing organization, a drug development collaborator, or a clinical research organization — that received trade secret information as a condition of doing business; and a prospective partner in a deal process who was given access to confidential information during diligence and did not ultimately consummate the transaction.
Against a misappropriation claim, independent development is the principal affirmative defense, and Frederickson emphasized that “documentation matters.” Companies that can demonstrate, through contemporaneous lab notebooks, development logs, internal communications, and dated experimental records, that they arrived at the accused product or process through their own legitimate efforts can defeat a claim even where access to the plaintiff’s trade secrets is established. Frederickson urged: “have robust documentation in place that evidences and memorializes the important work and inflection points that took place along the way, so you can demonstrate later on that your work was, in fact, independently developed.” Startups receiving confidential information from potential partners should also ensure that the governing nondisclosure agreement specifically identifies what constitutes trade secret information and includes limitations — such as restrictions on oral disclosures or caps on the period during which memory-based retention can be actionable — to prevent overly expansive misappropriation claims.
The broader takeaway that Frederickson offered is that trade secret law has become not merely a defensive tool but an affirmative and strategically significant component of the life sciences IP portfolio. The combination of strong statutory remedies under the DTSA, extraterritorial reach, eternal duration, and criminal enforcement capability makes trade secrets particularly well-suited for protecting the categories of information — proprietary manufacturing processes, AI training data sets, in-process analytical methods, and formulation parameters — that are simultaneously most valuable to a life sciences company and most likely to be acquired by employees, partners, or competitors through the ordinary course of doing business. Uitto cautioned that for a company commercializing an antibody drug subject to FDA review, the decision between patent and trade secret protection is not binary: the commercial antibody itself, whose chemical composition is ascertainable through analysis, will require patent protection, while the manufacturing know-how and process analytics may be best held as trade secrets. The strategic integration of both regimes, calibrated to the nature of each piece of proprietary information and the company’s commercialization timeline, is, as both speakers underscored, the hallmark of a mature life sciences IP strategy.
Generated by AI based on the Interview/Transcript below.
Key Takeaways
- Hatch-Waxman structures the life sciences patent battlefield. The Drug Price Competition and Patent Term Restoration Act of 1984 simultaneously extends brand patent terms to compensate for FDA regulatory delay and incentivizes generic companies to challenge weak patents before any product launches, producing Frederickson’s observation that “roughly 200 to 300 lawsuits are filed every year” as generic and brand companies litigate the timing of market entry.
- Stagger patent filings to delay the patent cliff. Uitto demonstrated that sequencing composition-of-matter, formulation, and dosing patent filings so that their twenty-year terms expire at different dates can extend effective market exclusivity well beyond any single patent’s term, preserving revenue and deterring generic entry for years longer than a single-patent strategy would allow.
- Trade secret erosion of antibody and AI patent protection. Frederickson identified “some erosion . . . in certain types of patent protection” for antibodies, cell therapies, gene therapies, and AI/ML inventions under 35 U.S.C. § 101 as a structural driver causing life sciences companies to rely more heavily on the Defend Trade Secrets Act of 2016, 18 U.S.C. § 1836.
- Reverse engineerability determines the patent-or-secret choice. Frederickson was clear that if a product or process is reverse engineerable, trade secret protection is unavailable, making patent protection the required alternative; manufacturing techniques and formulation parameters that resist analytical characterization are, by contrast, strong candidates for indefinite trade secret protection.
- Trade secrets can last forever; patents cannot. Unlike a patent term that expires after twenty years, trade secrets can be protected “eternally, so long as the trade secret remains secret,” Frederickson noted, citing the Coca-Cola formula as the paradigm — a commercially valuable example of indefinite protection through secrecy maintenance.
- Access plus substantial similarity initiates most trade secret cases. Frederickson identified the two-prong framework — did the accused company have access to the trade secret, and has it produced something substantially similar — as the operative gateway through which the vast majority of life sciences trade secret cases are filed, typically on circumstantial rather than direct evidence.
- Independent development documentation is the primary defense. Frederickson urged companies to maintain “robust documentation . . . that evidences and memorializes the important work and inflection points that took place along the way,” because contemporaneous records of independent development are the most effective defense against a misappropriation claim even where access to the plaintiff’s trade secrets is conceded.
- NDAs are essential during investor and partner disclosure. Frederickson identified third-party disclosure — to investors, contract manufacturers, collaborators, and potential acquirers — as the scenario “particularly relevant for the life sciences industry,” where emerging biotechs must share sensitive science to attract funding, making well-drafted nondisclosure agreements a non-negotiable precondition to any such exchange.
- DTSA reaches extraterritorial misconduct; patent law does not. Unlike patent rights, which are strictly jurisdiction-specific and require separate filings in each country, the federal trade secret statute can reach conduct that occurs outside the United States provided the misappropriated information will ultimately make its way into a US-connected product or market.
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Interview/Transcript
This transcript was session four of an eight-part BCLT-Oregon Start Up Series. On October 22, 2025 Goodwin experts Robert Frederickson III and Olivia Uitto, PhD discussed Early-Stage Life Sciences Companies – IP and Trade Secret Strategies.
Allison Schmitt 00:30
Hi everyone, and welcome to today’s Startup Signature Series program. We’ve got two expert lawyers here today from Goodwin Procter to talk with us about early stage life sciences companies and the key IP and trade secret strategies that you should be thinking about. So I want to I’m going to give them a quick introduction, and then I’m going to turn things over to them to walk you through today’s presentation. So first up is Robert Fredrickson III who is a partner in Goodwin’s IP litigation practice. He’s also co-chair of Goodwin’s Life Sciences dispute sector. He has a wide range of clients across the life sciences, technology and financial service company areas. He represents them in intellectual property litigation and complex commercial disputes. He’s an experienced IP trial lawyer, and he’s tried numerous cases to both juries and judges across the country. Has Won hundreds of millions of dollars in jury verdicts and patent and trade secret cases, and I think very notably, as argued, the first appellate case involving the patentability of inventions in the fields of machine learning and artificial intelligence. With him is Olivia Uitto, the partner in Goodwin’s nationally recognized IO Life Sciences and Technology groups. So her practice focuses on developing and managing complex worldwide patent estates and market exclusivity strategies for life sciences companies. So her clients are quite varied. She works with both public and private companies of all sizes and stages of development, including startups and entities that are invested in pharmaceutical and life science companies and technologies. And so with that, I’m going to go ahead and turn things over to our speakers to walk you through.
Olivia Uitto 02:09
Excellent thank you so much. Allison, so the title of our talk today is early stage life science companies, and we’re going to focus on some key IP and trade secret strategies. All right. And with you today as Allison has already introduced us, we have Robert Fredrickson from Goodwin and myself, Olivia Uitto from Goodwin as well. And just as a disclaimer to start things off, because we are attorneys, everything in this edge, everything in this video is for educational purposes only. It is not legal advice. If you have some fact specific or substantial legal questions, please feel free to reach out to an attorney. All right, and with that, before we jump into some very complicated IP and trade secret and trade secret strategies. Let’s first understand the uniqueness of the life science industry itself. Okay, so life science, biotech, and pharma all have substantial overlap. Some companies will identify as a biotech, and then some will also identify as a life science company. So, there can be overlap between these industries, and they’re kind of used interchangeably as well. But at its core, the life science industry is really focused on improving the lives of organisms. So it’s a really broad industry. It can encompass companies that are working in the space of improving the lives of humans and animals, and it can also encompass companies that are working on an oncology drug, or a company that is using AI to improve speech therapy. So there are niches within this niche industry. And there could be companies that are commercializing DNA sequencing technologies; companies that are commercializing a therapeutic modality, such as a small molecule drug or a gene therapy; or it could be a company that is commercializing a device modality, such as an inhaler, an injectable, or a device implant. But the value drivers in the life science industry are the products to be commercialized. So whether it’s an antibody drug, a bispecific antibody drug, gene therapy, an oligonucleotide, a plant based meat product that may be made from mushrooms, a drug discovery assay, or a molecular database, it is these value drivers or products that we develop IP strategies around to protect a company’s market share and their profits. So not only are the products in life sciences unique, but the commercialization timelines can also be very unique. Now this is because a life science company is developing an antibody drug to be sold in the US, it must first be approved by the Food and Drug Administration or the FDA. Now this regulatory process can cause substantial commercialization delay a life science company that is developing an AI tool to assist in speech therapy can have a pretty normal commercialization timeline: a period of research and development, and then manufacturing or launch, and then the product is on the market in a few years. But a life science company developing an antibody drug, it could spend four to eight years in research and development, one to two years in pre-clinical experiments, and then another four to seven years in clinical trials before the drug can even be commercialized. And when that regulated product hits the market, the goal is to develop strong IP strategies to protect the product for as long as possible. So let’s look at some IP tools that can be leveraged to protect commercialized products in the life science industry. Okay, so first intellectual property, broadly, are legal rights protecting creations of the mind. You find you protect your IP by excluding others from practicing, making, selling, or importing your IP. In the US, there are four major IP categories: There are patents, there are copyrights, trademarks, and then, of course, trade secrets. But when it comes to protecting life science, inventions or products, there are really only two types of IP protection that can be leveraged: patents and trade secrets. Now copyrights, they protect original works from unauthorized use. You can think of books and poems and paintings, sculptures and musical compositions. Trademarks are words, phrases, symbols, and designs that really identify and then distinguish goods and services. But when it comes to protecting inventions or products, copyrights and trademarks don’t actually protect the invention. So for example, for an antibody drug, the trademark protects the name of the drug. The copyright may protect marketing materials and protocols for using the drug, but the actual antibody, those chains of amino acids, the drug that you actually administer to a patient that can be protected by patents, trade secrets, or a combination of the two. So let’s take a look at the patent path. Now, a patent gives you the right to exclude others from making, using, and selling your inventions. And by excluding others, it sort of gives you a right to exclusively practice in invention—kind of. We’re not going to go into freedom to operate, but just realize that this could be a complicated issue. But at its core, a patent is a social contract between the government and an inventor. In a patent application, the inventor describes the invention, and this patent application is then published to the public. Now, in exchange for describing and publishing the inventions to the public, the government grants you a limited monopoly about 20 years. But this is a key difference between patents and trade secrets, the fact that patents are published. Your competitors can learn all about your inventions and your products just from the patent applications that you file. So let’s consider an example. Let’s say that you invented a new assay that allows for investigation and interrogation of a new drug target. Now, this invention, this assay, could be protected by patents or trade secrets. If you patent it, your assay will be published, and competitors will know how to make and use your assay. But if you decide to keep it as a trade secret, then it’s kept secret. No one knows about your assay, and you can also still maintain a competitive advantage. Patents are also limited by geography or by country. If you have a patent granted in the United States, you can’t enforce it in Canada or any other country. If you want to have patents in other countries, you have to pay for them, which is another key difference between patents and trade secrets. Getting and maintaining patents are expensive. For example, filing a patent application usually requires engaging a patent attorney who will then draft and then prepare and then file that patent application, and then going through a patent prosecution process, which can also incur attorney time. Lastly, patents are not self-enforcing. There is no patent police. If someone is infringing your patent, if they’re making using and selling your invention, you have to go after them and sue them in a court of law. Once you have drafted and then filed your patent application, and it’s published to the world, to actually get a patent to grant the subject matter the claims within a patent, they must meet certain statutory requirements. Your invention must have utility, meaning it must be useful. It must have novelty, meaning it must be new. It also has to be nonobvious. And that patent application that you prepare and file at the United States Patent and Trademark Office, it has to describe the invention, and it must be an adequate description. Now, if these statutory requirements are met, you could be granted a patent. But to show the patent office that your invention meets these requirements, you have to go through, usually, several rounds of patent prosecution. It’s sort of like a negotiation with the patent office. The examiner will say, “Your claims are completely obvious,” and then you usually, through your patent attorney, would counter those arguments and provide reasons and arguments of why the claims are actually nonobvious. Once you go through this negotiation process, and you get to the point where the examiner at the USPTO agrees that your claims comply with all the statutory requirement, you could be granted a patent.
Olivia Uitto 12:28
So some think of this process as a very linear process. You devise an IP strategy, you draft your patent application, which is published. It goes through examination at the patent office, it issues as a patent, and then if someone is infringing it, you sue them in court. But the process actually looks like this. There is a huge hurdle to get over at the patent office to make sure your patent meets those statutory requirements. Then if you do sue someone in court, they can challenge your patent by arguing that even though the patent office issued your patent, your patent doesn’t actually, does not actually comply with the statutory requirements. So, you could lose your patent. So if you go down the patent path, you have to file at the you you have to file at the USPTO, your protection is limited to 20 years. Your invention is published for the world to see, and you have to comply with those statutory requirements. And patents are expensive to get and to maintain, especially if you want to file in other countries. But patents do prevent others from making, using, and selling your inventions, your products. So let’s look at how patents can protect life science products by adopting a patent strategy. Here is a timeline for a life science product, such as an antibody, that has to be approved by the FDA. So this is where that delayed commercialization really comes into play. So after preclinical experiments and clinical trials, the FDA approves the antibody for marketing, and the drug can now be commercialized in the United States. Now, sales start to climb, and a patent application has been granted as a US patent that has claims that cover the antibody, and that 20 year term for that patent expires in 2044. So until 2044, that patent is excluding everyone else from making, using, and selling that antibody based drug. But when that patent expires, competitors can make and sell the drug, and a drop in sales is really felt by the company. But if we adopt a patent filing strategy that delays additional patent filing so that those 20 year terms are kind of staggered, and they start later, then you can actually kind of push out this patent cliff. So even though the composition of matter patent expires in 2044 a patent that covers the formulation expires in 2046 and a patent that covers the dosing expires in 2050 so these additional patent filings can push out that patent cliff, preserve those total sales for a longer period, and really provide patent exclusivity for the company.
Robert Frederickson III 15:55
Thanks, Olivia, and that’s an excellent transition into a brief discussion about patent litigation, and how does this play out in the pharmaceutical and life sciences industry. As Olivia just mentioned, there’s a tremendous amount of value to be had by securing patent coverage for innovative pharmaceutical products, and there’s a significant implication for when that patent coverage ends, whether through expiration, or, more normally, through litigation and settlements. And if we can go to the next slide please, in 1984 Congress passed the Drug Price Competition and Patent Term Restoration Act. It’s also known commonly as the Hatch-Waxman Act, and in reference to the two senators who really champion the legislation, it is truly a grand piece of legislation that reflects a compromise between two fundamentally competing viewpoints when it comes to patent protection in the life sciences and pharmaceutical space. On the one hand, you have innovator or brand drug companies that, as Olivia alluded to, spends a tremendous amount of time, money and effort to bring a drug candidate through the clinical, preclinical, clinical, and then regulatory process to get to market. Those innovator companies need to have a mechanism by which it’s economically rational to go through that long process. And so, having strong patent laws and strong patent protections allow companies to recoup the investment that they’ve gained, and also to provide an incentive for other companies to try to develop drugs to treat difficult to treat diseases, etc. On the other hand, and this is no surprise to anyone listening to this presentation, drug prices can be quite expensive, and there is a competing need and competing industry for there to be widespread, easily affordable, low cost, generic medicines available to patients. And so how did Congress address and tackle these two competing interests, ensuring sufficiently robust patent protection to allow the brand and innovator companies to recoup their investment and have an incentive to pursue this very important scientific work, but also to provide a mechanism to allow lower cost generic drugs to get to market and get to patients quickly. Well, that was the Hatch-Waxman Act of 1984. And today, roughly 200 to 300 lawsuits are filed every year in which generic and branded pharmaceutical companies are navigating: When is the right time for the generic market to begin? And what the Hatch-Waxman Act did was recognize these competing interests and give both incentives to brand and to generic manufacturers to pursue their respective businesses. On the brand and innovator side, the Hatch-Waxman Act allows brand and innovator drugs to get extensions of that patent term, push out that patent cliff for a period of years depending on what drug was filed and what else was known about it. On the other hand, the Hatch-Waxman Act also allows generic pharmaceutical companies to start their research and development efforts earlier than they otherwise would have been able to. It creates certain incentives for generics to look at the brand patent portfolio, and if they perceive there to be weakness, whether they’re invalidity issues or potentially design around and non-infringement challenges to be had, for generic companies to have a financial and market based incentive to challenge what they perceive to be weak patents. And finally, one of the most unusual things. Things about the Hatch-WaxmanAact is it allows these patent issues, these disputes about infringement and validity, to all play out before there’s any launch of a generic competing product. Because, as Olivia’s patent cliff chart showed, when a generic enters the market, there is the potential for there to be a significant impact in the market, and so the Hatch-Waxman Act allows for these patent issues to get sorted out well before any competition occurs. Now, the other major vehicle for patent protection, or protection in IP in the life sciences space, is trade secret law. We can go to the next side. Let’s start with the basics of what is a trade secret. Unlike the patents and the patent office, there is no trade secret office. One does not apply for a trade secret, and no one issues a trade secret. Rather, a trade secret is defined very broadly in this long paragraph in the top to be any type of financial, business, scientific, technical, economic or engineering, engineering information, so long as it meets two criteria which are referenced in paragraphs A and paragraphs B. The first is that the owner of the trade secret must have taken reasonable measures to keep such information secret. And as you can see, this is a huge difference between a patent which is published and publicly available and known to the world, versus a trade secret, which, as the name suggests, must be kept a secret. The second requirement for trade secret protection is that this information derives independent economic value from either not being generally known to or not being readily ascertainable through proper means. We’ll talk a little bit about what that means, but again, it speaks to the secrecy of the information and the difficulty with which a competitor would have to come up with it. So we’ve prepared a couple of examples of trade secrets that would be of interest to companies, both in the life sciences industry and beyond. Whether it’s the formulation for a particular therapeutic, the recipe, the manufacturing processes or techniques, different types of assays and a testing that can be done to determine whether your process, whether in process controls or intermediates in the manufacturing process, are meeting certain specifications. In the world of artificial intelligence and machine learning, which is disrupting and impacting every industry, including the life sciences industry, things like source code, software algorithm, data sets, methods of training machine learning models, are all different types of trade secrets. The important thing to take away from this slide and the previous slide is that a trade secret isn’t limited to Google search algorithm or the recipe for Pepsi. Rather, trade secrets can cover any type of information, provided that it’s secret and provided that it has some competitive value. We go to the next slide, please. So what does it mean to have a trade secret? What do you get practically? Well, trade secret has tremendously powerful remedies and protections in place, both through statute, including the Federal statute that was passed in 2016 and corresponding state law. For example, unlike patents, which only last for a 20 year term subject to certain exceptions, trade secrets can be protected eternally, so long as the trade secret remains secret. The formula for Coke has been being used for longer than 20 years, and that’s because the Coca Cola Company has taken incredible measures to keep that information secret.
Robert Frederickson III 24:28
Trade secret law also gives parties the ability to run to court quickly and get emergency injunctive relief to stop actual or threatened misappropriation. Another big difference between trade secret law and patent law is that trade secret, particularly the Federal Trade Secret statute, can reach conduct that occurs outside of the United States. Unlike patents, where there must be patent protection in place and issued. In each of the jurisdictions you want to enforce, the federal trade secret law in the United States allows companies to reach conduct that has occurred outside of the United States, provided that there is some product that will ultimately make its way into the United States. And then finally, the power and trade secret law comes with some of the damages that can be available, both in unjust enrichment that is disgorging, for lack of a better word, some of the advantages that a misappropriator may have obtained through misappropriation, as well as actual damages, harm to your company that you’ve incurred as a result of someone else misappropriating your trade secrets, and then the potential for both punitive damages and attorneys fees for willful and malicious misappropriation. And finally, unlike patent law, there is a criminal component to trade secret law that allows the United States Department of Justice to bring criminal action in certain cases involving trade secret misappropriation. So why are we talking about trade secret misappropriation? Well, if we turn to the next slide, you’ll see that these cases are really grabbing headlines, and there’s a variety of reasons for that. We have seen in the last 10 years several very large verdicts and damages award in trade secret cases. From retailers such as WalMart, medical device companies such as Insulin, biotech and pharma companies like AbbVie filing trade secret misappropriation lawsuits, car companies like Lamborghini involved in trade secret misappropriation cases. There are a number of reasons why we see these trade secret cases grabbing headlines more and more. There has been some erosion, for example, in certain types of patent protection that impacts the life sciences industry, changes in law involving things like the patentability of antibody or cell and gene therapies have made trade secrets a more attractive and potentially appealing option for some of those inventions. In addition with, as I mentioned before, the rapid adoption of artificial intelligence and machine learning is creating a convergence of industries. The technology industry is converging with the life sciences industry. Generally speaking, technology industries and software companies have been less willing to fully embrace patent protection for purposes of their to protect their intellectual property rights and algorithms and source codes, whereas the life sciences industry has very much relied on patent protection, and we’re seeing a convergence of these two industries, and there’s a tremendous amount of uncertainty about how much and how far patents can protect when it comes to things like machine learning and artificial intelligence. So I mentioned the two requirements for trade secret protection. The first is whether and to what extent that another person would be able to either know or ascertain that information through proper means. We can go to the next slide, please. What are proper means to obtain a trade secret? Well, unlike patents, again, this is another important difference. If an invention is reverse engineerable, which is the process of developing or manufacturing a known product by working backwards from its final form— you take it apart, you look at it, you use analytical methods to characterize what it is—well, then you’re not entitled to trade secret protection. Instead, the most common way intellectual property, way companies use to protect information that is reverse engineerable is patents. For example, the chemical composition of a particular molecule can be determined and analyzed and very easily replicated, whereas certain manufacturing techniques that may not be known or certain formulations, relative concentrations of different ingredients may not be known through analytical techniques. Well, then those types of innovations and inventions might be better suited for trade secret protection. But if a third party can reverse engineer the known product to figure out the secret and where the value is, then there’s nothing wrong with that under trade secret law, and there’s no trade secret misappropriation. The second primary criteria for trade secret protection is actual protection of the trade secrets. We can turn to the next slide, please. And so what does it mean to employ reasonable measures to protect the secrecy of a trade secret? Well, when we think about reasonable measures, we generally think about three pillars to evaluate: How does a company interact with their own employees? What type of security measures, whether it’s physical or informational technology, are been put in place? And then how does a company interact with third parties? And so when it comes to the reasonable measures with which a company protects its trade secrets, courts will look to things like confidentiality agreements and employment agreements, for example, whether there’s separation procedures and good hygiene around employee mobility, reminding employees to that they have these confidentiality obligations upon termination, making sure their process is in place in order to make sure that the departing employee does not leave with any information that the company owns. Security measures can be put in place, whether it’s informational technology type restrictions, physical measures that require employees to have badge access to certain locations, or even simply locking a file cabinet. And then finally, and particularly relevant for the life sciences industry, is how do companies handle the necessary circumstance of exchanging confidential information with one another. A large number of Life Sciences and Biotechnology companies, particularly emerging biotechnology companies, will have intellectual property, they’ll have ideas, they’ll have science, but they need money, and in order to get the money, they need to tell people about their intellectual property, their science, their innovation and the value that they have, and whether that is through investors or potential partners or collaborators or big pharmaceutical acquirers, even. There is a need to exchange what a company may view as confidential information and potentially trade secret information. And so to bring the money, the funding and the investment together with the science having nondisclosure agreements in place that allow those companies to do the necessary business and have the necessary communications that they need to have when they’re also protecting the confidentiality of their information. So then your company has some confidential information that has value. It has a trade secret. How and under what circumstances do trade secrets get enforced, and when are trade secret cases brought? We can turn to the next slide, please. In the vast majority of cases, a trade secret lawsuit starts with suspicion. There is often no smoking gun evidence of an employee running out the door with a box of highly confidential documents, but rather, the typical formulation of a trade secret case begins with what lawyers call circumstantial evidence. It is not direct evidence that there has been an act of misappropriation, but it is evidence that it gives some specific some suspicion that there could have been an act of misappropriation. And so often trade secret cases start by asking two questions: First, did the company that may have misappropriated trade secrets actually have access to those trade secrets? And second, has that company developed some product or some technique or publish some paper that is substantially similar to what the trade secret holder believes. And it’s through those two pillars of access, plus substantial similarity, that many trade secret cases get filed. So what does it mean to have access to someone else’s trade secret? What type of scenarios would that occur in? We go to the next slide, please.
Robert Frederickson III 34:31
There are three very common scenarios when it comes to life sciences and biotechnology companies. The first is a former employee moves from Company A to Company B and engages in the same type of general scientific endeavor. There is a situation where that employee during his or her employment had access to confidential and trade secret information of their former employer. Another common example is a former partner, someone with whom you’ve had a relationship, whether it’s a contract manufacturing organization, or a drug development collaborator, or even a clinical research organization that you’ve worked with in order to develop a protocol for a clinical trial design. Those former partners by virtue of their need to do their business, had maybe gotten access to some of your trade secrets. And then there’s the prospective partner, the company you want to invest, the company who you want to enter into a manufacturing relationship with, the company you want to perform your clinical trials or do your preclinical testing and assaying. There is often situations in which confidential and trade secret information are exchanged between and among those entities. And so the question then becomes, what happens if you’re in one of these categories, what happens if you have access to someone else’s confidential and trade secret information? If we go to the next slide, please? Well, there’s certain information and things that you can do to insulate yourselves and your companies against the claim of trade secret misappropriation. I will say, consistent with the caveat and disclaimer that Olivia gave at the beginning of this presentation, this is not legal advice, and you should check all relevant agreements, which often will control what happens and what you need to do vis-à-vis someone else’s confidential information. But the big picture takeaway is that people companies are understood and expected that they are going to move back and forth, and there’s a general preference and presumption to permit individuals to pursue the employment and careers that they want to pursue. And so trade secret law will not prevent employees from taking their general knowledge, skill and experience with them, but the dividing line between what is that general knowledge and what is your former employees’ or your former partners’ secret sauce is not often clear. So there are some several things that you can do to make sure that you are well prepared and mitigate any risk of an accusation of trade secret misappropriation. Of course, like I just said, the first thing is check your employment agreements or your nondisclosure agreements, and make sure that you are complying with them when a relationship ends, that you have not kept or retained any materials that you are not otherwise permitted to keep or retain. Then to the extent practical, and we recognize that this may not always be practical for small startup biotech and life sciences companies, but try to restrict access of who gets certain confidential information. Oftentimes, larger corporations and larger companies in the field will have separate teams that are responsible for business development activities from those who do the research and development work. Now we recognize that that’s not always practical to simply hire another team of people to diligence a potential deal or to review someone’s confidential information. And so what else can companies do to make sure that they’re insulated for potential claims of trade secret misappropriation? Well, documentation matters. To the extent that you are independently developing or reverse engineering or investing in your own legitimate development efforts, have robust documentation in place that evidences and memorializes the important work and inflection points that took place along the way, so you can demonstrate later on that your work was, in factm independently developed. And a strong independent development evidence is a defense to a claim for trade secret misappropriation. And then finally, if you are going to be a net receiver of someone else’s confidential information, make sure that the agreements under which you are operating are very clear as to what that confidential information is, whether it includes any trade secret information. And there are limitations that can be put in place that prevent companies from creating claims of trade secret misappropriation based on oral conversations or perhaps what someone remembers years and years after a particular disclosure occurs. Again, those types of issues and questions are going to depend on the specific circumstances that you find yourself in, and you should, in all instances, consult an intellectual property attorney before entering into any sort of nondisclosure agreement or agreement for that any agreement for that matter, in order to make sure that your interests are suitably prepared. In short, trade secret law has become a very interesting and exciting area in the life sciences industry, and more and more companies are using trade secrets to both protect their intellectual property but also enforce their rights when they suspect misappropriation by others. That brings us to the end of our discussion.
Allison Schmitt 40:47
Thank you both for such a helpful presentation. This is a wonderful way to really be kicking off the startup series and to be helping our listeners really start to engage with these complex issues that can be figured out. Thank you both so much for your time and your expertise. I really encourage you as the audience. If you have questions that have arisen from all of this, please feel free to reach out to our speakers. Do you guys prefer to receive communication for email or LinkedIn? How would you like people to reach out to you if they have questions?
Robert Frederickson III 41:19
Email is certainly fine for me.
Olivia Uitto 41:21
Yeah, exactly. Email or LinkedIn, I’m on both.
Allison Schmitt 41:25
Wonderful. Thank you so much, and have a great rest of your day everyone, and we’re looking forward to you joining for our next startup series program.