Intellectual property owners may seek to protect certain information either by obtaining a patent or by maintaining its secrecy. A patent provides strong, exclusive rights for a fixed period of time, generally twenty years. A trade secret may last indefinitely but protection can be lost through independent development, reverse engineering, or failure to maintain secrecy. (We previously published a chart comparing the features of patents and trade secrets.) This article discusses those instances when trade secret protection may be superior to patent protection.
Below are some factors to consider in selecting trade secret over patent protection. The factors should be considered together with respect to the IP owner’s circumstance. No single factor is dispositive.
- Productization. Products and their components released to market are subject to scrutiny by competitors. Trade secrets in such products are vulnerable to reverse engineering. This risk may be reduced where reverse engineering is particularly difficult or expensive (although tomorrow it may be easier and cheaper), or where distribution is carefully controlled to prohibit reverse engineering. Processes and technologies reserved for internal use are generally better candidates for trade secret protection.
- Competition. Patents are useful to protect IP from independent development. In assessing the likelihood of independent development, consider who the competitors are, their known development activities, their capacity and appetite for development, and the probability of new competitors arising. However, disclosure is the trade-off for patent protection. A patent may spur the competition to invent supplementary or even replacement technologies. A trade secret owner has more control over the evolution of the technology.
- Shelf life. Obtaining a patent takes at least a couple years and generally provides twenty years of protection. If the valuable life of the IP is only several years or less, consider whether the time and expense of obtaining a patent is worthwhile. Technology may quickly become obsolete in rapidly changing segments.
- Maintenance. For effective trade secret protection, secrecy must be maintained. Internal confidentiality procedures must be developed, implemented, and enforced. Employees must be educated, and appropriate precautions taken for both new and departing employees. Disclosing the trade secret when necessary to third parties requires extreme care, such as non-disclosure agreements and court filings under seal. A patent is protected by right, but effective monetization of the patent may require diligent detection of infringements. If infringements are difficult to detect or prove, the patent may be worthless. It is challenging to enforce patent infringements that occur outside the United States.
- Cost. Obtaining a patent requires significant up-front expense and effort, including review and approval by the Patent Office. Patent infringement and invalidity actions are notoriously expensive. Trade secrets can take immediate effect and may involve little up-front expense but require ongoing expense and effort to maintain secrecy.
- Capitalization. A trade secret owner with modest financial assets may find it difficult to attract investors or partners who have concerns over the ability to protect the secret. These third parties may be more comfortable with the relative certainty of patent protection. This factor must be carefully weighed against the cost factor, given the expense of obtaining patents and conducting patent lawsuits.
It is also important to be aware of several circumstances in which patents and trade secrets can provide complementary protection. First, a patent application generally remains confidential for eighteen months after filing. Thus any trade secret disclosed in the patent application may still be protected as a trade secret during this 18-month period while the application is under review. Furthermore, filing a request for nonpublication with the patent application can extend this 18-month period indefinitely, as long as the IP owner does not file a foreign or international patent application for the invention.
Second, the owner can strategically seek patent protection for part of the IP while keeping the rest a trade secret. Common examples are withholding improvements or innovations made after filing or withholding manufacturing processes related to the patented invention as trade secrets.
Third, the best mode of carrying out a patented invention could theoretically be maintained as a trade secret. While the patent application must disclose the best mode contemplated by the inventor at the time of the application of carrying out the invention, a subsequent “best mode” determined by the inventor or a contemporaneous “best mode” determined by a third party, such as an assignee, rather than the inventor need not be disclosed.