There are four primary forms of intellectual property: patents, trademarks, copyrights, and trade secrets. For the most part, these forms of intellectual property protect distinct categories of intangible assets. Trade names and slogans, for example, are the subject of trademark and substantial creative works are protected by copyrights. Things get a bit less clear with respect to patents and trade secrets, however. There are certain innovations that potentially qualify for protection under a patent or as a trade secret.
A patent is a limited monopoly granted by the federal government for a novel, non-obvious invention. The key features of patent protection are:
Novelty & Non-Obviousness. There are various forms of patents and they provide potentially broad categories of inventions that can be patented. The key requirement is that the invention be “novel” and “non-obvious.” Thus, patents are available only for inventions that are new and which were not obvious in light of what was already know.
Administrative Proceeding. Patents are obtained through an administrative proceeding before the U.S. Patent and Trademark Office. During the process, you will be required to disclose your invention and provide information about how to create it. Going through the process will generally cost tens of thousands of dollars in fees and expenses and will require multiple years to complete.
Limited Life. Patents offer protection for a period of 20 years after the date on which the application for a patent was filed. After a patent expires, anyone is free to use the invention.
Absolute Protection. During the term of a patent, the protection is complete for what is protected. A patent provides its owner with a monopoly — no one is allowed to make, use, or sell a patented invention without the patent owner’s authorization. This means you can seek to prevent competitors from using the technology (or seek damages for infringement) regardless of how they came to use the invention — even if they independently created the invention later.
Trade Secrets Explained
A trade secret is commercially valuable information that is not generally known and that you take reasonable efforts to protect. Trade secrets are protected as a matter of state law, so the particular requirements can vary by state. That being said, state law generally requires three elements to protect a trade secret: (1) the information is not generally known, (2) reasonable efforts are made to protect the secret, and (3) the information has commercial value. The key features of trade secret protection are:
Confidentiality. There is no requirement that the information be novel or non-obvious. Instead, the key element is that the information be confidential. Thus, you can protect customer lists, recipes and formulas, programs, methods, techniques, processes, etc. So long as the information is held in confidence, it is entitled to protection.
Automatic Protection. Unlike patents, trade secret protection is automatic. You are not required to go through an administrative procedure to obtain the protection. Thus, trade secrets do not require you to spend any money other than ensuring that necessary protections are in place to protect the confidentiality of the information.
No Time Limits. Trade secret protection does not have a time limit. Thus, information can potentially be protected indefinitely. The recipe for Coca-Cola, for example, has been protected as a trade secret for over a century.
Limited Protection. Unlike patents, trade secrets do not offer complete monopoly protection. Trade secret protection prevents competitors from using information they obtain through improper methods. Thus, a competitor cannot steal the information, bribe an employee to obtain it, or misrepresent its intention to obtain access to information. Similarly, employees who leave your company cannot take trade secrets with them. But your competitors are allowed to reverse engineer your products and can use any information they learn independently (even if it is identical to your trade secret).
The Point of Intersection
Patents and trade secrets are not synonymous, and the choice between the two avenues of protection will often be straightforward.
There are categories of confidential business information that are subject to trade secret protection but that would not fall within the purview of patents. Customer lists and other data compilations, for example, would almost never qualify for a patent. Thus, these innovations will almost always be protected as trade secrets.
On the other hand, there are inventions that will qualify for a patent and for which trade secret protection is not a realistic option. A product that you intend to release to the public and that can be reverse engineered easily, for example, will rarely be a candidate for trade secret protection. Thus, if you have the option to file a patent application for such a product, that will generally be the best course.
There are certain innovations, however, where the choice will not be so obvious. A novel business method that can be kept confidential or a secret formula (e.g., the Coca-Cola recipe) will likely qualify for either form of protection. In those cases, you will have to weigh the competing strengths and weaknesses of each form of protection to determine which will best serve your needs. Where cost is not a concern and an innovation has a limited shelf-life, a patent will have greater appeal. For innovations that are evergreen and that can be kept confidential for the long term, on the other hand, trade secret protection will have more appeal.
Choosing between patents and trade secrets is not easy for these innovation. It is a choice that you should make only after you have conferred with an intellectual property lawyer. Hopefully, having read this post, you will be in a better position to have a meaningful discussion with your lawyer.