Patents vs. Trade Secrets

Patents vs. Trade Secrets

By Satya Narayan

Companies regularly consider whether to protect their latest invention or technology by obtaining a patent or using trade secret measures. Obtaining a U.S. patent gives the patent holder the right to exclude others from making, using, or selling the invention in the U.S. for a period of 20 years from the patent application filing date; however, this right is granted in exchange for full disclosure of the invention claimed so that others may make and use your invention at the end of such period. Alternatively, you may choose to protect your company’s invention or technology as a trade secret by taking reasonable measures to maintain its confidentiality. A trade secret can theoretically last forever as long as you maintain it as a trade secret; however, you will have no right of action against third parties who learn of the trade secret through lawful reverse engineering, independent development, or inadvertent disclosure. Ultimately, your choice of patent vs. trade secret protection for your invention should take into consideration the following factors: (1) whether your invention is patentable; (2) how easy or hard will it be for your competitors to reverse engineer or independently develop your invention; and (3) the cost implications of a patent or trade secret protection strategy.
Is your invention patentable?
Filing a patent application is no guarantee that a patent will be granted or that all of the inventions claimed in the patent application will be granted without modification. The U.S. Patent and Trademark Office examines patent applications and will review your invention for the following requirements: (a) whether the invention is patentable subject matter (that is, whether it falls within the permitted categories of patentable inventions under the U.S. Patent Act), (b) whether the invention is new (that is, it must not form part of the state of art anywhere in the world), (c) whether the invention is useful (that is, it must capable of use and provide some identifiable benefit), and (d) whether the invention is non-obvious (that is, it should not be obvious to a person skilled in the relevant art). The U.S. Patent Act also requires that your patent application be filed within 1 year of the first public disclosure or offer for sale of your invention. Keep in mind that discussing your invention with potential partners or friends without a confidentiality agreement may constitute “public disclosure” and start the 1 year filing clock.

How easy or hard will it be for your competitors to reverse engineer or independently develop your invention?
When evaluating your patent vs. trade secret strategy, a key consideration will be just how complex your invention is and whether the novel aspects of your invention are in a form that would make reverse engineering difficult. If your invention can be easily reverse engineered (e.g., mechanical inventions incorporated in consumer goods) or independently developed, seeking patent protection is a better strategy assuming the invention is patentable (see above). If it would be difficult to reverse engineer or independently develop, such as complex beverage formulations or internal manufacturing processes, trade secret protection may be a better choice as the protection can last for as long as you can keep the invention or technology a secret.

What are the cost implications of a patent or trade secret protection strategy?

After adding up lawyers’ fees, prior art search fees, and filing and processing fees, obtaining a U.S. patent can cost between $5,000 and $10,000, with patent prosecution costs for complex inventions costing even more. Patent maintenance charges and foreign patent costs are additional. None of the patent processing / maintenance charges applies to trade secrets. Common costs of a trade secret strategy involve costs associated with implementing reasonable security measures to protect the invention or technology as a trade secret, such as securing the company’s facilities and networks, training employees and subcontractors in confidentiality practices, and securing non-disclosure agreements from anyone who will have access to the company’s trade secrets. The incremental costs of a trade secret strategy may be lower to the extent such measures are implemented as part of your company’s best practices for operating its business.

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Roger Royse

Roger Royse, the founder of the Royse Law Firm, works with companies ranging from newly formed tech startups to publicly traded multinationals in a variety of industries. Roger regularly advises on complex tax structuring, high stakes business negotiations and large international financial transactions. Practicing business and tax law since 1984, Roger’s background includes work with prominent San Francisco Bay area law firms, as well as Milbank, Tweed, Hadley and McCloy in New York City.
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