Trade secrets and patents compared

Li Mi, Patent Attorney

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An issue frequently faced by in-house counsel is how to determine the most appropriate form of IP protection for inventions. Should they be kept secret and protected as trade secrets or should they be patented and disclosed? The decision will often not be an easy one, as it requires both a proper understanding of the different forms of protection and a balancing of various technical, business and legal considerations.

Patents and trade secrets

A patent is a property right offered by the government to inventors in exchange for their agreement to make the technology available to the public. For the term of the patent, the patentee has the sole right to make, use, sell, offer for sale or import the patented technology.

Any technology, know-how or business information that has been kept confidential will constitute a trade secret. The unauthorised access, use or disclosure of a trade secret is actionable as an act of unfair competition or, where a confidentiality agreement has been signed, a breach of contract.

It should be noted that if the technology can be discovered by reverse engineering from relevant commercial products, trade secret protection is not suitable. In this situation, patent protection is more appropriate.

Differences

Subject matter

Patents protect devices, substances, methods or processes that are new, inventive and useful. Some innovative technologies, like business methods, are not patentable in China and the patentability of human embryonic stem cells is being challenged in many countries.

Virtually any business information can be protected as a trade secret provided appropriate measures are taken to keep it confidential. Trade secrets can include technical information such as formulae, patterns, processes, devices, designs, drawings, programs, new product information before market launch and commercial information like actual or potential supplier or customer lists, management techniques, marketing, sales and advertising strategies.

Duration of protection

A patent has a specific duration. The term varies for different types of patents. For an invention patent it is 20 years, usually from the filing date. For a utility model patent, it is 10 years.

Theoretically, the duration of trade secret protection is indefinite. It will last as long as the information in question is kept confidential. In practice, however, the duration is uncertain. Once a trade secret is leaked or disclosed to the public, by any means and by anyone, even in bad faith, the protection will be lost forever.

Jurisdiction

A patent is a legal right granted within a particular territory. To obtain patent protection in a number of countries or areas, patent applications must be extended to each country. The applications will usually be examined and granted by the individual national patent offices.

Because the protection of a trade secret is dependent on the maintenance of confidentiality and sometimes based on a confidentiality agreement or international treaty, it can extend worldwide. The right to protection is not granted, or recorded, by any official authority.

Cost

The cost of patenting is high, especially for individual inventors and small and medium-sized enterprises. Including attorney fees for drafting and prosecuting patent applications and official fees for maintaining an issued patent, costs can range from $10,000 to $40,000 over the lifetime of the patent. Some big pharmaceutical companies are ready to spend much more than that in order to obtain protection for an important chemical invention.

One advantage of opting to keep information confidential is that there are no official fees involved, either for establishing protection or maintaining it. At the rights acquisition stage, trade secret protection is clearly less expensive than patent protection. Maintaining a trade secret, however, can involve considerable expense as well as considerable management time and effort.

Stability

Once a patent right has been granted, the right is relatively stable. Unless it is held invalid in legal proceedings, a patent will always be considered valid and enforceable.

The stability of trade secret protection, on the other hand, is entirely dependent on the maintenance of confidentiality. Trade secret holders are required to take appropriate measures to maintain the confidential status, for example, by introducing company bylaws establishing general rules for all employees and contracts that specifically define the liability of anyone to whom access is given.

The choice

Whether to seek patent protection or maintain sensitive information as a trade secret is a decision that requires case-by-case consideration. It is important to keep in mind the characteristics of each form of protection and to examine the particular underlying asset, the context in which it will be used and any other relevant commercial factors. Sometimes, the choice will be obvious. Patent protection is likely to be preferred, for example, if a product could potentially be reverse-engineered or is likely to be independently developed by competitors (or a second inventor). On the other hand, a trade secret is likely to be the right choice for information that is not patentable or the relevance of which is likely to be of short duration, for example, one-off holiday promotions. More often, however, the choice will involve complex considerations depending on the facts of the particular case.