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Patent Process

Patent vs Trade Secret

By October 8, 2020
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Patents and trade secrets are both types of intellectual property. Understanding the differences between these intellectual property rights is very important as you consider the best protections for yourself and your business ideas. 

Patent vs Trade Secret

Wondering if you should obtain patent vs trade secret protection for your product or technology? Both intellectual property rights have strengths and weaknesses.  Which option is better for you will come down to different considerations based on the type of property you want to protect.Top secret stamp

Patent Protection

First, let’s look at what a patent protects.  A patent gives the patent holder the right to exclude others from making, using, selling, or importing whatever is within the scope of the patent. 

Essentially, Patent Protection grants the holder exclusive control over the product or technology, i.e., the underlying invention. This means if you have a patent you can shut others out of the market and have a monopoly over your product or technology. 

Patents typically last 20 years for utility patents and 15 years for design patents. They require that you file a patent application with the United States Patent and Trademark Office, which can be an extensive process. This application must explain in detail the product or technology you are trying to get property rights over. 

Trade Secret Protection

Under the Uniform Trade Secrets Act, a trade secret is defined as “information, including a formula, pattern, compilation, program, device, method, technique, or process that derives independent economic value” by remaining unknown. 

Thus, for something to be considered a trade secret under the Uniform Trade Secrets Act, it must meet the following three elements: 

  • It is information that has either actual or potential independent economic value by virtue of not being generally known,
  • It has value to others who cannot legitimately obtain the information, and
  • It is subject to reasonable efforts to maintain its secrecy. 

Key examples of a trade secret are the Coca Cola recipe, Google’s search algorithm, and the recipe for KFC’s fried chicken. This information derives its main value from the fact that it is kept secret and is not known in the marketplace.

You do not need to file anything to secure the intellectual property rights for your trade secret. Trade secrets are protected under both state and federal laws from disclosure by improper means. This means you can bring a private civil lawsuit against anyone who has misappropriated your trade secret, and you can do so in state or federal court. If you win, you can receive damages and potentially an injunction, which would prohibit the person or entity from continuing to use your trade secret. 

The Advantages of Trade Secrets  

There are some strong advantages to trade secret protection over your information rather than pursuing the sometimes difficult road of patent protection. 

When Secrecy is Important

If keeping the underlying information a secret is paramount to you, then trade secret protection is probably the better option for you. Trade secrets by their very nature derive their value from the fact that others do not know the information. 

Conversely, when you apply for a patent you must disclose all of the subject information at length and in such detail that the invention can be recreated. 

Think about if Coca Cola sought a patent for their soda formulation. The company would have needed to disclose the soda formula in the patent application. Once the patent expired, everyone would know the formula and would be free to use it. Because the company considers the secrecy of this formula so important, it had chosen not to protect the formula by a patent but rather simply by trade secret law. Lawyer advising a client regarding patent vs trade secret

This was a critical decision, in that if they had patented their formula back in 1886, their formula would have been in the public domain since around the year 1900! Instead, the formula has remained a secret to this day and is one of the reasons that Coca Cola is one of the most successful companies in the world.

It’s important to note that in order to qualify for protection under trade secret law, you must vigilantly protect your trade secret. This means it’s a good idea to minimize exposure to the trade secret and protect any exposure by creating secure measures including the use of non-disclosure agreements. 

When Your Idea is Not Patentable

Trade secrets’ legal protection is advantageous when the information you are looking to protect would not qualify for a patent. Some trade secrets would not qualify for a patent because they are not sufficiently inventive or are not the correct subject matter for a patent.

To be patentable, an invention must be:

  1. Novel;
  2. Non-obvious; and
  3. Useful.

If the information you are looking to protect does not fit within these requirements, trade secret protection may be a better fit for you. 

When Cost is Important

Another key aspect of trade secret protection is that it is usually significantly cheaper than patent protection

Patent application costs can run high as the applications are typically complicated and can take a substantial back and forth with the Patent Office before a patent is granted. You can expect patent filing fees, patent search fees, and attorney’s fees to obtain a patent. These can add up over time, especially if your invention is particularly complicated. 

No filings are required to qualify for trade secret protection.  A trade secret is protected by law so long as the holder of the trade secret takes enough precautions to ensure the trade secret stays a secret. 

Keep in mind, however, that both trade secret and patent legal protections would need to be enforced in court. These types of disputes can often lead to costly litigation, especially depending on your adversary. 

When Longevity is Important

If longevity is important, trade secrets are a better fit. Trade secrets never expire. Trade secret protection grants an indefinite period of protection so long as you continue to keep your trade secret under wraps and unexposed to the public. 

Patents, on the other hand, typically expire after 20 years. Once this term of 20 years is up, others are free to use your exact invention and market and sell it. If you are looking for legal protection for a longer period of time, pursuing trade secret protection may make more sense. Instrument measuring coins

The Advantages of Patents

Even though they can be a lot of work to draft and obtain, patents have numerous advantages as well. While they typically last for 20 years, that period of 20 years can provide you with a substantial piece of the market even once the patent expires.

When Reverse-Engineering is Likely

If reverse engineering of your invention is likely, it is wise to obtain a parent. Trade secret intellectual property rights only cover the misappropriation of the trade secret information, i.e., if the information was wrongfully obtained. 

Trade secret law does not stop a competitor from reverse engineering a product and figuring out a way on their own to create a competing product.

If the ability to reverse engineer your invention is likely to occur, you may want to pursue patent protection. This will protect the idea, regardless of how your competitor learned of it.  This means that even if a competitor is able to reverse-engineer and come up with your product without relying on the wrongfully acquired information, you will still be able to pursue legal action against them and stop them from making a competing product. 

When a Monopoly is Important

Another reason patents rights are advantageous is they essentially grant the holder an exclusive monopoly over the product or technology for the patent’s lifetime. This means you as the patent holder have exclusive control over who can license your invention and under what parameters. 

You can choose to command the entire market with your single product or earn money from any competing ones. 

When You Want to Send a Message

Patents can also be advantageous for sending a message to competitors. By seeking and obtaining a patent, this can provide a clear signal to competitors of establishing your place in the applicable field. Having a patent under your belt can also be a strong business advantage. 

Investors and potential business partners are typically very impressed with patent protection and will more readily enter into business relationships with you. 

Conclusion

Patent and trade secret laws both provide important protection over your intellectual property rights.  It is important to weigh the factors according to your specific circumstances to know what the best decision for you is. 

It can also be a good idea to consult an experienced intellectual property attorney about your idea to learn which property rights may be the best option for you. 

If you've never patented anything before, watch these 6 short intro videos to learn exactly what you need to know about the patent process to protect your valuable idea.

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