Using a trade secret may eliminate any possibility of ever being able to patent an invention. On the other hand, the publication of a patent destroys any trade secrets that it discloses. Sometimes, the choice between patenting or maintaining a trade secret is clear. But often the decision requires balancing various commercial, business, and legal factors.
Patents are legally recognized monopolies that the government grants in exchange for disclosure of how to make and use inventions. The owner of a trade secret takes steps to maintain its secrecy and the business advantage of the trade secret depends on it not being generally known. Because of the disclosure requirements of patents and the secrecy requirements of trade secrets, the two forms of intellectual property usually cannot be maintained for any one particular technology. A choice must be made: either to patent or to maintain as a trade secret.
Although U.S. patent applications are kept in confidence, all information in a patent becomes available to the public when that patent is published. Then the trade secret status of any information disclosed in the patent is lost. Conversely, according to U.S. law, the public use or sale of an invention for more than one year abolishes its patentability. Selling a product produced by a secret process is considered to be public use of the process.
In deciding whether to proceed with a patent or keep a trade secret, you must consider many factors. Several factors weigh strongly in favor of patenting. Others weigh strongly in favor of maintaining a trade secret. Other considerations are less clear in favor of one alternative or the other and require a balancing of several factors. To help with the decision process, this article discusses some advantages of patents and trade secrets. Keep in mind that no one answer will be correct for every situation. Your decision must be based on the particular facts and circumstances regarding your technology and the circumstances of your business enterprise.
Advantage of Patents
In at least two situations, patents are the clear choice over trade secrets. A trade secret is of no use to protect a product that can be reverse engineered. In such cases, patents are the only option. Similarly, trade secrets are generally of little use when dealing with inventions that are likely to be independently invented by others. In fact, the second inventor could file for and obtain a patent on the invention, thus preventing the owner of the trade secret from practicing the invention at all. Filing a patent application would be the clear choice in such a case.
Several other factors favor patents but may or may not be applicable to a particular situation.
- Patents have a set duration. For all applications filed after 7 June 1995, the patents will remain in force until 20 years from the application filing date, or from the filing date of any parent application from which the patent application is based. The duration of a trade secret is uncertain. Trade secret protection can be lost overnight if the secret is publicly disclosed, even if the disclosure is unintentional.
- Once a patent application is filed the information in that application can be freely disclosed without loss of proprietary rights. Obviously, trade secrets cannot be freely disclosed and still maintained as secrets. Therefore, if the information must be publicly disclosed for any reason, patents are the obvious choice.
- For technology that is to be licensed out, potential licensees may be more willing to pay for patented technologies. Licensees may worry that their rights are less clearly defined by trade secrets and that the value may be abruptly lost if licensors fail to maintain the secrets.
- The decision to file a patent application is not irrevocable. Filing a patent application does not immediately result in a loss of trade secret rights. In the United States, patent applications are kept confidential. Only on issuance of a patent is the information contained in the application publicly disclosed, and only then is trade secret status lost for any information that the patent contains. Therefore, if a patent is not granted on an application, or if the application is abandoned, trade secrets disclosed in the application will not be published and can be maintained.
Of course, if a trade secret is disclosed after a patent application is filed, that trade secret will be lost regardless of whether the patents issued. Foreign patent applications are generally published 18 months after the initial filing date of their applications. If the secrecy of information contained in such foreign patent applications is to be maintained, they must be withdrawn in time to prevent their publication.
One effective strategy may be to file a patent application while continuing to maintain the trade secret during the pendency of that application. The substantial delay will allow time to decide whether to abandon trade secret status in favor of a patent.
Advantages of Trade Secrets
In at least two situations, the decision is clearly in favor of trade secrets. Trade secrets are the only option when the secret covers something that is not patentable; customer lists, business methods, or sources of supply, for example. That would also include otherwise patentable inventions that have been for sale or used for more than one year. Of course, a trade secret cannot be patented if it involves something that is known. For example, if several different methods are known to make a product, and a company uses one particular method to its advantage, the undisclosed use of that method can be a trade secret, but it is clearly not patentable.
A second clear case in favor of trade secrets is when the advantage of owning the technology is of very short duration. If the major competitive advantage is in being first to market, or if the technology will be obsolete in less time than it would take for a patent to issue, then a patent is of little or no use.
Trade secrets can potentially last forever. A classic example is the formula for Coca-Cola, which cannot be reverse engineered. If the formula had been patented when it was first used in 1886, the formula would have been in the public domain a long time ago and would now be free to be copied by anyone. However, by maintaining the formula as a trade secret for over a hundred years, The Coca-Cola Company has continued to dominate the worldwide soft drink industry. Therefore, trade secrets may be preferred over patents for technologies that preserve a competitive advantage for longer than the term of a patent.
A further advantage of trade secrets over patents is that there are no official prosecution costs or maintenance fees necessary to establish a trade secret or to keep in force. Patenting costs may range from $15,000 to $30,000 or more. Those costs are avoided if an invention is maintained as a trade secret. But that does not mean that trade secrets are free. A trade secret can be expensive to maintain. High costs can be associated with physically preventing the public from learning a secret: plant construction to restrict access to the grounds and buildings, checking on repair and service people, restricting information to those who need to know it, fragmenting information so no single individual has access to the complete trade secret, and labeling gauges and containers so that process variables and ingredients are not shown. Contracts may be necessary to clarify the existence of trade secrets and the duty of those associated with them not to disclose them. Such contracts may have to be signed by suppliers, licensors, customers, consultants, and others with whom the company does business, such as those considering a joint venture with the company.
An often frustrating and costly part of maintaining a trade secret involves a company's employees. Generally, when employees leave a company they have a right to take with them the skill, experience and ideas they acquired during the period of their employment. Many companies have entrance and exit interviews with employees who are exposed to trade secret information and require them to sign nondisclosure and noncompetition agreements. Such agreements, however, are often difficult to enforce.
It is also difficult to maintain a trade secret when submitting documents to the government. Because of the Freedom of Information Act, information contained in those documents can be discovered by competitors or litigants.
The costs and difficulties that may be incurred in maintaining something as a trade secret can be considerable. Sometimes that consideration is enough in itself to swing the balance in favor of patenting, despite the fact that other considerations might favor trade secrets.
Weighing the Choices
Whether to seek patent protection or to maintain an invention as a trade secret is a decision that must be considered in each case by examining the relevant facts. Sometimes the decision is obvious. If an invention can be reverse engineered or independently developed, if there is a need to disseminate information about it, or if a licensee will pay for the technology only if it is patented, then the choice is clearly in favor of patents. On the other hand, if the secret is not patentable, if it provides an advantage that is of shorter duration than the time it would take to obtain a patent, or if it will be valuable for a very long time and can be maintained as a trade secret during that time, then the choice is clearly in favor of trade secrets. In most cases, however, the choice is not so clear, and various business, commercial, and legal considerations must be balanced to arrive at the decision.