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Suppose I invented some clever way to manufacture transistors and don't disclose it (keep it a trade secret). I start a company and start producing and selling transistors without telling the public how exactly I manufacture them. Every employee and contractor signs an NDA and never discloses my invention to third parties.

Then someone else independently discovers the same way to produce transistors and patents it.

Now what? Am I now in violation of their patent? How are such cases typically handled?

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Was just about to ask this myself. The answer "yes" is implied in the answer to this question. Which seems pathological. – jimmy_joyce Sep 7 '13 at 11:01
Under the news AIA patent laws you may qualify for a "prior use" exception. That would allow you to keep using the processes in the factory you were using to make the things you were making. You can't go beyond that. Before the AIA, you would flatly be infringing. You may have been first but because it was kept secret the other person had someone "new" in that it was still unknown to the world. He is teaching all of us his secret and giving it to the public after 20 years. You were trying to keep it to yourself. Society makes a trade with the disclosing inventor. – George White Sep 26 '13 at 22:51

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Trade secrets are only safe until they are not public. Like your question if someone else invents the same method and files patent application then based on novelty and inventive step they might get a grant from patent office.

Any patent issued before September 16, 2011 applicant can sue trade secret holder for infringement. outcome of such suit will depend on many factors.

Under AIA any patent issued after September 16, 2011 trade secret holder can invoke prior use and avoid infringement.

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