Patents Versus Trade Secrets

Let’s say you or your company has come up with a blockbuster innovation and you’re planning to market it. But you want legal protection so your invention won’t be stolen.

There are two primary ways to protect your potential moneymaker: A trade secret or a patent. Sometimes the choice is clear, but the decision often requires balancing various commercial, business and legal factors:


Trade Secrets

If you treat the process or product as a secret that must be protected and take steps to that end, you have legal recourse if someone exploits the secret. Trade secrets are principally a defensive weapon that can work well when:

  • The secret covers something that isn’t patentable (for example customer lists, certain business methods or innovations that would have been patentable but they’ve been on sale or publicly used for more than a year).
  • The invention cannot be reverse-engineered.
  • The major competitive advantage is being first-to-market or the technology will be obsolete in less time than it would take to get a patent.
  • The technology’s usefulness will last longer than a patent’s term of 20 years.

Trade secrets can potentially last forever. One well-known example is the formula for Coca-Cola, which cannot be reverse engineered. If the formula had been patented, the secret would have been in the public domain decades ago, available for anyone to copy.

However, protecting a trade secret can be an expensive proposition. Although trade secrets don’t involve the money that it costs to get a patent, you still must protect them, which involves setting up a security program that includes:

  • Limiting access with physical security precautions.
  • Fragmenting information so that no single individual knows the entire secret.
  • Preparing and enforcing nondisclosure and noncompete agreements.
  • Checking the backgrounds of employees and independent contractors.
  • Setting up measures against corporate espionage.

Patents

These are both offensive and defensive weapons. The benefits of patents include:

  • You have the right to prevent others from making, using, or selling your invention. Although you can’t stop the competition from infringing your rights, you can sue and may be able to recover triple damages.
  • Independent development by a third party cannot be used as a defense to infringement.
  • You have a monopoly on the product for the 20-year length of the patent.
  • You can disclose information about the invention without losing your rights.
  • You can use your patent offensively to demand licenses for its use or defensively to reject requests for licenses. Moreover, licensing brings in fees and licensees may be more willing to pay for technology that is patented.

Patent Standards

Does your invention meet these four high standards of U.S. law that allow you to pursue a patent?

  • Patentability. An invention must be patentable under definitions set by Congress and interpreted by the courts. Machines, processes/methods, and compositions of matter can be patented; algorithms and laws of nature cannot.
  • Novelty. Your idea or invention must be new.
  • Usefulness. Fundamentally, as long as there is some person in the world who could use your invention, it meets the test.
  • Not obvious. People working in your field would consider the invention surprising.


Protecting your inventions is essential to maintaining your rights. But the process is complicated and must be undertaken with care and expertise.

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