Intellectual property is a very valuable asset to inventors and businesses. Having intellectual property can:

  • provide a competitive edge
  • quantify innovation
  • help secure investor funding

Although patent law is the primary source of protection for inventors, in certain situations inventors may choose to rely on trade secret law instead. This article explains what protection of trade secrets is, how it differs from patent protection, and why you might choose one over the other.

 

What is a Trade Secret?

In general terms, any confidential business information that provides a competitive edge may be considered a trade secret. Some examples of trade secrets include:

  • sales methods
  • distribution methods
  • consumer profiles
  • client lists
  • manufacturing processes

To qualify for protection under trade secret law, the trade secret must:

  1. derive independent economic value from not being generally known or readily ascertainable by proper means, and
  2. be the subject of “reasonable efforts” to protect the secrecy of the  information.

Trade secret protection is designed to protect companies’ investments in research and development, even if that research does not lead to a patentable invention.

Since trade secrets are, by definition, kept secret, there is no formal filing or fee required to claim a trade secret. However, the informality of trade secrets makes them more difficult to enforce. To claim misappropriation of trade secrets, the party must show that the information was acquired from them improperly. To prove trade secret misappropriation the plaintiff has to show that the defendant had access to the trade secret and that the defendant’s product is substantially similar. Trade secrets do not expire, and can last indefinitely, as long as secrecy is maintained. However, trade secrets do not protect your invention from being reverse-engineered by a competitor or independently discovered by someone else.

 

How are Patents Different?

Patents create the right to exclude others from using the invention claimed in the patent. Obtaining a patent takes significant time and money. However, patent protection is more enforceable because there is documentation to show the specific elements of the invention, and patents are presumed valid. Patent protection in the U.S. expires 20 years from the earliest filing date of the patent application. While patent protection eventually ends, it offers broader protection because independent invention is not a defense to patent infringement and patent protection does not depend on your ability to keep the trade secret protected.

 

Trade Secret or Patent?

In situations where the businesses information is not patentable – such as customer lists – trade secrets are the clear choice. The decision between patenting and relying on trade secrets becomes more difficult when the invention could be patentable or is on the border of patentability. The inventor must consider the details of the invention as well as heavily weigh the company’s business aims.

The main factors to look at when deciding between patents and trade secrets are:

  1. whether the invention can be patented
  2. how difficult will it be to maintain the secrecy

If obtaining a patent is not a strong possibility, it may be wise to try to rely on trade secret protection. Even if the invention is borderline patentable, it may be worth trying to obtain patent protection if a competitor could reverse-engineer your product quickly or easily. If the inventor is considering licensing their invention to others, it makes sense to seek patent protection, so the licensee can clearly see value for their money. Additionally, seeking patent protection allows you to then discuss your invention with investors without requiring the investor to sign a non-disclosure agreement… something many investors are reluctant to do before knowing anything about the product. Inventors should also consider the deterrent effect a patent provides against competitors who might otherwise be tempted to make and sell a similar product.

Intellectual property, whether patent or trade secrets, can be a key asset for businesses. By carefully considering the invention as well as business concerns, you can make the right choice in deciding between patent protection and trade secret protection.