Leveraging Your Intellectual Property: Trade Secret vs. Patent Protection
By: MATTHEW J.S. GRAHAM
July 2006
You have created valuable intellectual property. Now you want to leverage it to create value for your business. Should you apply for a patent, or should you keep it as a trade secret? This article briefly summarizes these approaches to leveraging intellectual property and provides guidance on choosing the best course of action between these two mutually exclusive options.
A patent is a grant of exclusive rights from a government that prohibits others from making or using an invention. Advantages include the ability to force a competitor to stop exploiting the invention and the possibility of generating revenue from licensing arrangements or damages for infringement. Disadvantages include considerable upfront costs, complete public disclosure of the invention, and a limited term before exclusive rights expire.
A trade secret, by contrast, is something that confers a business advantage, is not generally known, and that the owner of which takes steps to maintain as a trade secret. Examples of steps to maintain a trade secret include restricting access to the information and having anyone that comes in contact with it sign a non-disclosure agreement. Trade secret protection allows you to stop an employee or party to a non-disclosure agreement from publicly disclosing the information, or to seek damages from such parties if the information is disclosed.
Advantages of trade secrets include that the information is not revealed to the public or to your competitors. The protection lasts as long as the trade secret is not publicly revealed, and potentially has an infinite term. For example, the formula for Coca-Cola has successfully been kept as a trade secret for decades. Trade secrets do not require registration costs, although there may be large, continuing costs related to keeping the information secret.
There are several disadvantages of trade secrets. If the secret is embodied in a product released into the market, a competitor can inspect the product and discover the secret. If the secret is discovered in this manner, the competitor can exploit it. Once it has been made public, anyone may have access to a trade secret and use it. In fact, if a competitor were to independently invent the substance of the trade secret, it could obtain a patent and stop you from continuing to exploit it.
A major factor in determining your approach to leveraging your intellectual property is your business plan. For example, if your business generates revenue by inventing or branding new products and contracting out their production, patents will likely provide the most competitive advantage. However, if your business thrives in a mature market by improving in-house production techniques, trade secrets might provide more value.
Within the context of your business model, the factors described above can weigh for or against leveraging intellectual property as a patent or a trade secret. Say your company has invented an improved fastener to connect components in a medical device. The medical device is released into the market and the fastener improvement can be easily identified and understood by your competitors. Since the invention can be easily reverse engineered, keeping this information as a trade secret will not provide a significant competitive advantage to your business.
On the other hand, say your company has invented a more efficient method to smooth metal weld joints in a manufacturing process for the same medical device. The process occurs in a limited-access facility and the devices produced by your method and the prior method look the same. Since the invention is a process improvement that cannot be determined by examination of the product released into the market, a trade secret may provide a larger competitive advantage than a patent.
Deciding how to best leverage intellectual property is a complex endeavor. For best results, contact your patent attorney.