Patents vs. Trade secrets

Keeping it secret?

Innovation-driven companies invest the majority of their capital in developing their technologies, so it is natural that they would seek some sort of intellectual property protection. Allowing competitors to copy a technology that was under development, often for years, is to be avoided.

What type of intellectual property protection is best fitted for my business? How can I maximize my IP protection? Would it be possible to keep my “recipe” secret forever?

These are all questions you ought to be able to answer in order to assess how can you best preserve and use the intellectual property assets of your company.

There are two strategies we want to emphasize regarding the nature of your IP protection, namely keeping your assets in-house, as trade secrets, or seeking public protection by patenting your assets.

Shield your idea: trade secrets

Yes, it is possible to keep some parts of your innovation secret, at least in theory.

A trade secret is a specific type of intellectual property right that usually applies to information that a company wishes to keep secret in order to gain a competitive advantage. This could be a recipe, a manufacturing process, a customer list, or any other type of confidential information. A trade secret does not need to be registered or made public, and it can be protected indefinitely as long as the company can demonstrate that reasonable efforts are being made to keep the information secret.

There is even a legal framework for this type of protection, namely the EU trade secrets directive (EU) 2016/943. This EU Directive defines a minimum standard for trade secret protection. It is applicable when the appropriation, use or disclosure of trade secrets is done without the consent of the trade secret holder and through the use of dishonest means, breach of law or breach of contract. This protection applies, for example, against hacking, theft of documents, or bribery. Trade secrets are thus only legally protected in instances where someone has obtained confidential information by illegitimate means.

The same EU Directive establishes that in order to qualify as a trade secret, the information must have economic value because it is not generally known or readily ascertainable by others, and the owner of the information must take reasonable steps to maintain its secrecy. Among the steps that were proven strong in litigation cases, are:

- the implementation of business confidentiality practices such as confidentiality and non-disclosure agreements with employees and business partner

- the creation of business procedures and plans

- the identification of the trade secrets

- the establishment of physical and digital security means

One of the main advantages of trade secrets is that they can provide indefinite protection, as long as the information remains secret. This can be especially useful for information that has a long shelf life and continues to have economic value over time. In addition, trade secrets do not require any formal registration or public disclosure, so they can be a good option for businesses that want to keep their information confidential.

However, there are also some disadvantages to relying on trade secrets. Because they are not registered, it can be difficult to prove that the information is, in fact, a trade secret. This can make enforcing trade secret protection, challenging, especially if the information is improperly acquired or disclosed. In addition, trade secrets can be difficult to protect in a world where information is increasingly shared and where it can be difficult to control the flow of information.

Go with your idea into the open: patenting

An alternative to hiding the idea in the confined space of your business is to try to obtain a patent for your innovation.

Patents are a form of intellectual property protection that can be obtained for new, inventive and economically profitable inventions. A patent gives the owner the right to exclude others from making, using, selling, or importing the patented invention for a certain period of time, providing a significant competitive advantage. In addition, patents can be a useful tool for licensing and collaboration, as they provide a clear framework for establishing the rights and obligations of the parties involved. The main advantage of patents is thus their enforceability.

Nonetheless, in order to obtain a patent, an inventor must file a patent application with the relevant patent office and the application must undergo a rigorous examination process before a patent is granted. In this process, the invention becomes public and after the expiration period of the patent, usually set at 20 years, the described invention is free to use. A patent is thus valid for a limited period of time. In order to get that protection, one must lay out their cards in the open and disclose the innovation in a sufficient manner. For some parties, this may come as a drawback or even a reason not to choose patent protection.

Conclusion

Trade secrets are advantageous for those ideas that are difficult to materialize into patents, namely where novelty and/or inventiveness is difficult to prove, or where you benefit from keeping it secret. Production methodologies, specific recipes, or algorithms are all examples of innovations you may want to shield from the competition by means of a trade secret. Once the trade secret is identified, one should take appropriate actions to treat the information as a secret. This may require an investment in an appropriate docketing system and security measures. Keep in mind the caveat that eventually said secret information can become public by mistake.

Patents are advantageous for businesses for which the exclusivity gained for a defined period of time outweighs the public disclosure of their innovation or when the innovation simply cannot be kept a secret.

A hybrid version, where part of the innovation is patented and part is kept secret can coexist in the same company. For example, some parts of the technology that are not obvious from the marketed product (e.g. the production process) can be maintained secret while the parts that are prone to be copied or reverse-engineered may be patented. This is a balanced approach meant to minimize the risks both ways.

In summary, trade secrets can be a powerful form of IP but come with certain risks. Patents offer more secure legal rights and can serve as a deterrent to competitors, but only for a limited time period. Ultimately, the choice between trade secrets and patents will depend on the circumstances and goals of the company, the nature of the invention or information, the company's business strategy and the competitive landscape. It's important for companies to weigh the pros and cons of each form of protection and decide which is best suited to their needs.