Trade Secret vs. Patents

A trade secret can be viable alternative to a patent for protecting information.  A trade secret is information that (1) derives economic value from not being generally known and not being readily ascertainable by proper means by other persons to whom it might be valuable; and (2) is subject to reasonable efforts to maintain its secrecy.  See, e.g., Fla. Stat. § 688.001(4).  Information that can be protected under trade secret law includes formulas, recipes, patterns, compilations, devices, methods, techniques and customer lists. Trade secrets can fall into one of two categories.

The first category is information that is not suitable for patent protection.  This category of information will not be granted patent rights because the information does not meet the patentability criteria. To learn more about the patentability criteria for inventions click here.  Many manufacturing companies maintain certain manufacturing processes not capable of patent protection as trade secrets.  For example, a manufacturing company may keep its quality control processes, manufacturing assembly processes, customer lists and pricing as trade secrets.

The second category is information that is suitable for patent protection. When information falls into this category, a business is faced with deciding whether to keep an invention as a trade secret or to seek patent protection.  Before making this decision, a business should carefully weigh pros and cons of trade secrets.

The advantages of trade secrets include:

• Not being limited in time. Unlike patents, which generally have a term of either 14 -15 years (design patents) or 20 years (utility patents), the benefits and competitive advantage of a trade secret will last as long as the information is not revealed to the public.
• Capable of protecting information not capable of being protected by a patent. Certain information that provides an improvement over existing technology may not be capable of patent protection because it does not meet the criteria for patent protection under the U.S. patent laws. However, the use of such information may not be known in an industry.  As a result, keeping that information a trade secret could provide a competitive advantage to the trade secret owner.
• Provides a mystique surrounding the trade secret. An air of secrecy may create an impressive quality when information is kept a secret. As a result, value can be created when information is kept a secret and with sufficient publicity and promotion.
• No registration process. Unlike patents, which require filing a patent application and examination by a patent attorney at the United States Patent Office, a trade secret is not disclosed to a government office or examined by a government official to determine if the information meets any criteria.
• No government registration. Unlike patents, which require that a patent owner pay fees to the United States Patent Office to obtain and maintain the right to enforce a patent, trade secrets require no government fees.  However, trade secrets may have high costs in order to keep the information a secret.

The disadvantages of trade secrets include:

• Capable of being reverse engineered. If a trade secret is contained in an apparatus sold to the public, then a competitor may be able to reverse engineer the device to reveal the secret.
• Destroyed by Disclosure. If a trade secret is disclosed to the public, then the value in the trade secret will be known and the value of the secret is lost.
• Patented by another. If a person or business subsequently obtains, by legitimate means, a patent on a trade secret used by a prior user, then the patent owner could legally force the prior user of the trade secret to stop using the patented trade secret.
• More difficult to enforce that patent rights. Generally, litigating and enforcing trade secrets against another is more difficult than enforcing patent rights.   Additionally, there is a risk that the trade secret may be inadvertently disclosed during the litigation.
• Costs to maintain secret. In certain cases, keeping a trade secret may be expensive.  The costs to keep a trade secret from not being disclosed may include maintaining additional physical security measures, litigation to enforce employment and non-disclosure agreements, and special procedures and logistics for maintaining the information secret.

The patent attorneys at The Plus IP Firm help businesses and innovators understand what type of intellectual property is best suited for a product, process or an idea.  The patent attorneys at The Plus IP Firm have helped numerous clients develop goods and services to increase their market share in highly competitive markets.  To schedule a free consultation, click HERE.  For more information about Derek Fahey, this article’s author, click HERE.