Trade Secrets Can Be a Valuable Alternative to Patent Protection

Trade Secrets Can Be a Valuable Alternative to Patent Protection

Patents can be expensive to obtain, expensive to enforce, and the exclusive rights are limited to a relatively short time period. However, in certain situations, trade secret protection can be a valuable and, in some ways, easier alternative to obtaining patent protection. In addition, trade secrets have the added value of having no expiration date – so long as it remains a secret. However, not every concept that is protectable under patent law will qualify as a trade secret and trade secrets require ongoing diligence to maintain “secret” status.

Patent Protection

The technical definition of a patent is an intellectual property right granted by the U.S. Government to an inventor “to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States” for a limited time in exchange for public disclosure of the invention when the patent is granted. Basically, this means that if you spend the time and money to register a patent with the USPTO, you will have the exclusive right to use, market, and license the invention for a limited time – either 14 or 21 years depending on the patent type. In contrast, copyright registration currently lasts for the life of the author plus 90 years and trademark protection lasts forever – as long as the trademark is used. Of the three federally registerable types of intellectual property, patent protection is the hardest to obtain, most expensive, and lasts the least amount of time. All of these types, including patents, require the public disclosure of the invention and how it functions. Therefore, if you create a patent with lucrative uses, you can be sure that following the expiration of your patent, others will use your design.

Trade Secret Protection

Trade secrets can protect many of the same concepts as patents. A trade secret can be anything of value to your company that is unique and not known to persons outside your company.  This potentially includes inventions, processes, and formulas, but unlike patents, also includes customer and supplier lists, business processes, and other business information that gives a competitive advantage. To have and maintain trade secret protection requires 1) the secret actually be a secret and 2) you take steps to maintain the secrecy. Proper protection requires a trade secret protection plan, as explained below.

The secrecy requirement of a trade secret represents one major difference from patent law. If an invention can be reversed engineered, trade secret protection will be impossible to maintain. For instance, a new type of bicycle brake would be easy for a competitor to copy. They can disassemble it, study it, and reproduce it without your assistance. Without patent protection on the brake, there is no legal bar to such copying. For an invention like this, patent protection is the only way to go.

However, if the inventions cannot be reverse engineered, then trade secret protection may be the superior type of protection. Consider the most famous trade secret of all: the formula for Coca-Cola. The Coca-Cola formula has been a secret for over 125 years and the formula is a trade secret because no one else has been able to figure it out. Efforts to reverse-engineered it have failed and the Coca-Cola company goes to great lengths to keep it a secret. Coca-Cola even has a page on its website showing off its “Vault of the Secret Formula” http://www.worldofcoca-cola.com/exhibits/vault-of-the-secret-formula/ However, unconfirmed reports and speculation suggest that Coca-Cola actually keeps different parts of the formula in different places and that no one person knows the entire formula. The loss of the formula would likely cost Coca-Cola untold millions of dollars, or more.

Finally, trade secret protection may be desirable because it attaches automatically and does not require any government approval, formalities, and is not subject to a registration process or official costs. In contrast, patent protection can take years to complete, costs thousands of dollars, and registration could even potentially fail.

Trade Secret Protection Plan

If you have a trade secret that you want to protect, it is imperative that it be kept a secret. Trade secrets are lost once the secret becomes public knowledge. Such disclosure can be made in a variety of ways, including by employees or licensees, by theft, or even by a general failure of the company to keep secrecy measures in place. Once lost, the protection is gone forever.

The best way to protect secrecy is to implement a trade secret protection plan:

1.       Identify Your Trade Secrets: The first step is to identify your trade secrets. Ask yourself, “is this information that only my company knows that allows it a competitive advantage over competitors?” If yes, then you should treat it as a trade secret. In addition, you should treat your customer lists, supplier lists, and vendors lists as confidential as these qualify as trade secrets.

2.       Keep Trade Secrets Secret By Restricting Access: If there is physical evidence of the trade secret such as on paper or in computers, you should have physical or computer protection in place. Next, you should greatly limit who knows the trade secret. This includes employees, contractors, and any vendors or licensees you use and the trade secret should be shared only with those who “need to know.”

3.       Protect the Trade Secret Through Contractual Obligations: Every party that has access or knows your trade secret should be bound by contractual obligations. Employees and independent contractors should sign employment or independent contractors agreements or at the very least should agree to simple confidentiality agreements. Vendors and licensors privy to the information should also have signed agreements that specifically include confidentiality provision that cover trade secrets. Importantly, the terms of confidentiality should specifically stay in place beyond the term of any agreement.

4.       Maintain Secrecy By Diligently Policing: Following an initial agreement to a duty of confidentiality over trade secrets, you should regularly remind employees, contractors, vendors, or licensees of their duty to maintain the secrecy of your trade secrets. This is especially important when employees with knowledge leave the company. In addition, you should include a noticeable disclaimer on any document that has a trade secret that it is confidential.

Conclusion

Trade secrets offer a valuable alternative to patent law when the content in question can be kept secret. Furthermore, trade secret protection will last as long as it is kept secret, unlike patent protection which is limited to a maximum of 21 years. To maintain the secrecy of a trade secret it is imperative to have a plan and stick to it. If Coca-Cola can do it for 125 years, so can you!

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