New law may force companies to reveal trade secrets

As new regulations on the use of toxic chemicals are implemented in California, companies may need to re-evaluate their strategies to protect their intellectual property.

The largest market in the U.S., California has taken the first step to implement its Green Chemistry Initiative, a bold new environmental law to restrict toxic chemicals in consumer products. On July 18, the state’s Department of Toxic Substances Control approved the GCI’s regulations.  The regulations took effect October 1, although California’s government has rejected the trade secret provisions of the GCI, finding that they lack sufficient clarity.

Thus far, approximately 1,200 chemicals have been branded as “chemicals of concern.” Manufacturers of consumer products produced or sold in California will need to audit and disclose the use of these chemicals. Eventually, California may ban certain chemicals, limit their use, or require alternatives.

Currently, companies seeking to protect their products and processes can do so in two primary ways. They can file for a patent, which provides a 20-year period of protection in exchange for the public disclosure of the ingredients. Or they can keep them as trade secrets, which can stay secret forever but lose their legal protection once leaked.

Under the new requirements of the GCI, the chemical composition of certain products—which previously could be kept as a trade secret—may have to be disclosed. That disclosure opens companies up to new risks, since proprietary information could now be available to the public, including competitors, if state regulators do not deem the information worthy of trade secret status.

To protect IP, companies doing business in California should take a fresh look at their IP portfolios and consider applying for patent protection for key products and processes put at risk by the GCI, says Cary Miller, a partner in Morrison & Foerster’s San Diego office focused on life sciences. Under one interpretation of recent changes to U.S. patent law, obtaining new patents on existing trade secret methods and products may be easier. Another route, if feasible, would be to develop improvements to existing products and processes and apply for patent protection on those improvements. Says Miller, “It’s still unclear whether companies will be able to go back and obtain patent protection on their old products and methods. But companies can file new patent applications to protect updated products and methods.”

It may be challenging to keep trade secrets out of the public eye under the GCI regulations, Miller adds, and companies may have to jump through multiple hoops to do so.

California isn’t the only state pursuing green chemistry regulation. Washington, Minnesota, and Maine require the identification of “priority chemicals” in children’s products, and a handful of other states are considering similar action.  But even if other states don’t act, the size of California’s economy ensures that the GCI will have a widespread impact.