It has been said many times that every patent begins its life as a trade secret. That adage has taken on even greater truth today, with the changes wrought by the enactment of the America Invents Act (AIA), which has radically altered U.S. patent law. As lawyers and courts sort out the uncertainty put in motion by the AIA’s changes, it is becoming increasingly clear that non-disclosure agreements (NDAs) and confidentiality agreements are not just for trade secrets anymore but may be critical to protecting potential patents.

Why? There are three reasons.

1. The Shift to a “First to File” System. The shift from a “first to invent” patent system to a “first to file” patent system is probably the most significant reason for making sure you have NDAs for any sensitive disclosures. Under the old system, so long as an inventor could demonstrate that he or she was the first inventor of patentable subject matter, the fact that another filed an application for a patent first was not determinative of who was entitled to the patent. In other words, if patent applicants could demonstrate they were the original inventors, they would be protected against derivation of their invention as a result.

However, under the first to file system, an inventor now has to be doubly careful because if he or she discloses that invention to someone else before the inventor files his/her application, and that party decides to promptly file a patent application first, then the inventor could face a real battle as to who is entitled to a patent. Some are concerned that the AIA is unclear on exactly how protective its provisions will be in practice, particularly in cases where an applicant modifies the another’s original invention in some way. “Since the winner of a patent will generally be the one who is first to file, not the first to invent, someone who steals your invention — then modifies it — may able to get a patent nonetheless,” Ted Sichelman, as associate professor at San Diego School of Law, noted in a post last fall in The Tech Transfer Blog.

As a result, companies may need to be even more careful to keep their secrets close, even when it comes to employees, consultants and suppliers under non-disclosure agreements. A company should insist on strong language in the NDA to ensure that any modifications or improvements of the disclosed information remain the property of the inventor. Likewise, as to employees, a company needs to make sure that there are well-drafted “ownership and assignment” provisions to make sure that a former employee does not attempt to seek patent protection for work he or she previously performed for his/her employer. For more on the importance of these provisions, see my posts on recent decisions enforcing these provisions here and here.

2. The NDA May Extend the Time for Patentability. A second reason: a confidentiality agreement preserves the potentially patentable matter not only as a trade secret, but may now effectively extend the ability to patent that subject matter at a later time if the owner loses the trade secret status or elects to seek a patent.

As Robert Latta and I wrote last month, the legislative history of one of the new AIA provisions, the newly-modified 35 U.S.C. § 102(a)(1), makes clear that the election to preserve the subject matter as a trade secret does not result in the forfeiture of the inventor’s ability to protect that invention as a patent. Prior to the AIA, if an inventor maintained his invention as a trade secret and commercially profited from that invention for more than one year, the inventor forfeited the right to patent that invention. As Justice Learned Hand wrote long ago, “it is a condition upon an inventor’s right to a patent that he shall not exploit his discovery competitively after it is ready for patenting; he must content himself with either secrecy, or legal monopoly.” Metallizing Engineering Co. v. Kenyon Bearing and Auto Parts Co., 153 F.2d 516 (2d Cir. 1946).

Simply put, the rule of Metallizing Engineering may now be gone. In an October 10, 2012 Patently O post entitled “Did the AIA Eliminate Secret Prior Art?”, Dennis Crouch says that this view has been advanced by the United States Patent and Trademark Office (USPTO) in its recent proposed guidelines. Dennis further notes that this view has also been supported by leading patent organizations such as the American Intellectual Property Law Association (AIPLA), the IP Section of the American Bar Association, and the Intellectual Property Owners Association (IPO).

What does this all mean? The use of NDAs will better preserve a potential patent applicant’s claim that there has not been a public disclosure of the invention, and therefore preserve his/her ability to seek patent protection of a trade secret at a later time.

3. Uncertainty. While there are a lot of opinions out there about the fallout from the changes under the AIA, no one can be completely certain. Prudence, therefore, dictates that a company or inventor needs to err on the side of caution and treat every disclosure very carefully. Insisting upon the execution of a NDA is an important first step.