Business Law Newsletter
The Benefits of Trade Secret Protection Versus Patents
When an individual or an entity spends time and money to develop a new invention, process or other aid to a business, it seems only natural that they should want to benefit from it financially. In fact, the profit motive has historically been a major incentive for research and development. U.S. law provides several ways to protect the right to profit from one’s innovations.
Patent vs. Trade Secret Protection
One method of protection is through the patent process. The power to grant a patent for a new invention or process was included in the U.S. Constitution. To qualify, the inventor must apply through the U.S. Patent and Trademark Office (USPTO). If the invention or process proves sufficiently novel, useful, non-obvious and meets other requirements, a patent may be granted. The patent basically allows the holder a limited monopoly to commercially exploit the invention for a set period of time (currently 20 years).
State law also provides a method of safeguarding innovations by protecting “trade secrets.” Trade secret protection can be much broader and protects a wider range of information, much of which could not be patented. As such, there are certain situations for which relying on trade secret protection may be more beneficial, even where patent protection might be available as well.
In many ways, patent protection is incompatible with trade secret protection. The patent system reflects a trade off between the right of the inventor to exploit the invention and the right of the public to access current developments. In return for the limited monopoly, the inventor is required to disclose to the public the technology and best methods of manufacturing the invention. The patent application may remain non-public for a time, but eventually is open to the public. One of the requirements for trade secret protection, however, is that the information be actively concealed from the public by the owners, because public disclosure of the information will result in a loss of protection.
Relative Advantages of Trade Secret Protection
Almost all states now have laws that protect trade secrets. There is a Uniform Trade Secrets Act (the Act) that has been adopted by most states. The Act defines “trade secrets” to include “a formula, pattern, compilation, program, device, method, technique, or process” that derives economic value from not being known or readily ascertainable by “proper” means and is the subject of efforts that are reasonable under the circumstances to maintain secrecy.
The advantages of relying on trade secret protection instead of a patent may include:
- Trade secret protection can extend to things that are not patentable due to their nature, such as client lists, employee data, and sales data, or because they do not conform to all USPTO requirements, e.g., they were publicly used or sold more than one year before, or the improvement to an existing product is too slight.
- Trade secret protection can last as long as the secrecy is maintained. An oft-cited example is the formula for Coca-Cola®, which has remained a trade secret for more than 100 years. Had it been patented, presuming it could have been, the protection would have been lost long ago.
- There are no official costs associated with trade secrets, such as those for a patent. Trade secret protection may be less expensive, although costs may be incurred to safeguard the secrets.
- With trade secret protection, new technology may be used immediately, before becoming obsolete, whereas the patent process can take years.
Relative Advantages of Patents
Notwithstanding the foregoing, there are still times when obtaining a patent makes more sense. The advantages of a patent over trade secret protection may include:
- When the product can be “reverse engineered.” By starting with a legitimately purchased product, it may be possible to work backwards and uncover the methods and technology by which the product was developed. This is perfectly legal for a trade secret, but violates a patent and is actionable.
- Trade secret protection can be lost if the information becomes public through various, legitimate means. Public disclosure does not affect patent rights, as the information has already been disclosed publicly in the patent application..
- One who licenses patented technology may be willing to pay more for it, as the rights may be perceived as better defined and more secure.
- Proving patent infringement can be much easier than trade secret misappropriation, as the trade secret holder may have to prove that the information was “wrongfully” taken, was owned by it and not publicly known, and was kept secret and protected by reasonable means.
Deciding whether to rely on patent or trade secret protection for information, technology or an invention obviously can be a business decision requiring careful consideration of the relative advantages and disadvantages, as well as viable options. Sometimes, one form or the other is not an available alternative. The virtues and drawbacks discussed above are not intended to be exhaustive.
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