Sunday, April 28, 2013

Protecting Space Technology Through Trade Secret Law

          by Melissa K. Force

Last October (as outlined in the October 21st, 2012 Wired article "Elon Musk's Mission to Mars"), Elon Musk stated in an interview that SpaceX uses essentially no patents because disclosure of its unique processes would just provide competitors with a “recipe book.
Elon Musk. Photo c/o Wikipedia.

As an example he described the process employed by Boeing and Lockheed to machine a rocket’s airframe, resulting in a “buy to fly” ratio of 10 to 20, which SpaceX reduced to 1.1 to 1.2 by using a stir welding technique that produces a stiffer, lighter structure. Displaying perhaps warranted hubris, he explained, “The reason I can talk about it is that nobody else knows how to build a rocket this way.”

Passing up an opportunity to monopolize space technology by obtaining a patent seems counter-intuitive to most people, especially when (in Mr. Musk’s case) expense is not an issue. But Space-X and other new commercial space ventures may be in a better position to protect their technology by keeping them as trade secrets rather than patents.

Patents represent a bargain between inventors and the government: The inventor gives up all the details of his invention by allowing the government to publish them in exchange for the right to exclude others from using the new invention for twenty years. The inventor gets a head start on commercializing the product or process and the public benefits by being able to build on the knowledge gained from the patent.

The SpaceX Falcon-9 rocket. Photo c/o Wikipedia.
But patents are not absolute protection. It is true that once a patent issues, an inventor has control over the invention; competitors must license or buy from him the right to produce, use, distribute or sell it. The downside is that, once the technical details of how the invention works are published, third parties may design around the patent or someone in another country may steal it. Also, when the patent protection expires in twenty years (a short time in the space milieu, where rockets based on fifty year old technology are still used), anyone can use it without permission.

In addition, there is no such thing as an international patent. Patent protection is only valid in the country that granted the patent. For example, if a patent is granted in the US, the invention is not protected in China, so anyone in China can copy it unless the owner obtains a patent from the Chinese government. Even if an “international application” is filed under the Patent Cooperation Treaty, a separate application must be filed any country where protection is sought.

Even then, it’s up to the owner to police the competition and initiate lawsuits to prove he was the first to invent the technology and that someone is infringing it. Well-funded defendants in patent litigation often request a reexamination on the patent and use that threat as leverage to intimidate patent-holders into settling out of court. Finally, litigating in a foreign country is an unpredictable, protracted and expensive process.

A trade secret on the other hand, is also protected in the law. It is a formula, practice, process, design, instrument or compilation of information that gives its possessor a competitive trade advantage as long as it is kept secret. The right to sue in court for infringement of a trade secret is predicated on proof that the “confidential” information confers an economic benefit (which derives from the fact that it is unknown) and was protected by special procedures (e.g., locked doors and file cabinets; passwords for computers), as well as legal security measures such as non-disclosure (confidentiality) agreements and non-compete clauses.

The law of trade secrets effectively allows a perpetual monopoly in secret information for as long as it is kept confidential - it does not expire, as would a patent. But the risk is that a stranger may independently duplicate and use the information once discovered. Companies often try to discover one another’s trade secrets through lawful methods of reverse engineering or employee poaching, and unlawful methods such as industrial espionage. An owner can sue for damages if he proves his trade secret was acquired by improper means (misappropriated).

For space technology, such as that developed by SpaceX and others, protection as a trade secret may make more sense than obtaining a patent:
  • Trade secret rights arise immediately and no filing or approval is required, whereas a patented rights to exclude the competition commence only when patent issues, following two or three years of communications between the patent attorney and the examiner.
  • Patent protection lasts only twenty years, while trade secrets can last indefinitely as long as adequate steps are taken to maintain their secrecy (e.g., the Coca Cola formula).
  • The cost to prepare and file a patent application can be significant, while there is no cost to obtain a trade secret other than the cost of implementing and policing the confidentiality restrictions. While this consideration is not necessarily important to SpaceX, it could be important to newer, leaner startups.
  • If the secret components can be easily determined or reverse engineered once the product is on the market, then trade secret protection will be short-lived. But in the case of SpaceX, assuming appropriate controls are in place, it is unlikely a competitor could even get its hands on the product, much less reverse engineer it.
  • A trade secret can also be lost through independent discovery, accidental disclosure or leaks. If the cost of maintaining the secret is higher than its value, it doesn’t make sense to protect it as a trade secret. If multiple employees need access, there is a high turnover rate in the company or if the information will be used outside the business, secrecy will be more difficult and costly to maintain. For smaller companies (in comparison to behemoths like Boeing and Lockheed), this is much easier to achieve.
Melissa K. Force.
Unless a company is marketing off the shelf space technology that can be reverse engineered, protecting its intellectual property through trade secret law may well be more beneficial in the long run than obtaining a patent.

Melissa K. Force is an adjunct professor at Loyola Law School and Webster University teaching air and space law and a legal consultant and Principal of MK Force Consulting in Los Angeles who advises commercial entities, government agencies and international organizations on legal, regulatory and policy issues concerning space activities. She has a B.S. in Chemical Engineering, a J.D. degree and an LLM in Air and Space Law.

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