Patents or Trade Secrets: Which Way Should You Go?

Many of our clients come to us asking for assistance with filing a patent  – when they should instead be keeping their invention secret. That is, they should have a trade secret. But every so often, as was recently the case in Taiwan, an employee (or former employee) walks away with a trade secret, bringing us back to the question of which is better.  After all, if something is valuable intellectual property, shouldn’t you patent it? Isn’t it worse to just hope a trade secret stays a secret? Patents seem to get all the press, right (have you heard of Apple versus Samsung?).

The truth is that patents and trade secrets have advantages and disadvantages, even if having a patent sounds “sexier”. The best method depends on the specific case – and both methods are intrinsically different.

What is a Patent? A patent is a limited monopoly granted by the government, which excludes others from manufacturing, using, or selling an invention for a certain period, in exchange for public disclosure of the invention. Essentially, in return for letting everyone know how something works, no one else can make, sell, or use it for a set time period.

What is a Trade Secret? A trade secret, on the other hand, does not require any application process or public disclosure, but nor does it provide a monopoly. Instead, so long as the owner of a trade secret takes reasonable measures to keep the information secret, third parties are prohibited from unauthorized use or misappropriation of the secret. Usually that means one can’t disclose the information in violation of a NDA or acquire it from one who did.

Truth be told, most patents start out as trade secrets. Most inventors, whether companies or individuals, don’t run down the street shouting “EUREKA” anymore – they keep their idea secret. Somewhere along the way, however, they decide to seek a patent (and publicize it, like Apple) or keep it a secret forever (like Coca-Cola).

Pro-Patent:

• Is the Invention Easy to Develop Independently or Reverse Engineer? Trade secret law does not prohibit third parties from developing secret information independently or learning it through reverse engineering. Coca-Cola’s formula may be best as a trade secret, but patent protection may be preferable for mechanical or electronic products that can be more easily taken apart and figured out. Sadly, with trade secrets, a competitor who develops the same invention independently or through reverse engineering may then patent the invention and require you to license your own invention – another point in favor of patents.
• Is The Information Hard to Protect and Secure? If there are only a few people involved, all of whom first sign NDAs, and otherwise protect the invention, trade secret protection may work. The more chefs in the kitchen, however (suppliers, employees, customers, etc.), the risk of unauthorized increases, making patent protection may be more appropriate.
• Is The Information Subject to Ironic Disclosure? The “Ironic Disclosure” is common in misappropriation of trade secret lawsuits. Apple learned this the hard way in its battle with Samsung – often to protect a trade secret from misappropriation, the plaintiff may be required to publicly disclose the secrets in the lawsuit in order to enforce them, ensuring that the information will no longer be secret and will lose its protected status. Ironic Disclosure can’t occur with patents.
• Is The Idea Even Patentable? If Not… Patents have to be (in the most simplistic terms) (1) New, (2) Useful, and (3) Non-Obvious. If the secret doesn’t qualify under those rules, there’s no patentability – the only method for protecting it is as a Trade Secret.
• Is The Invention Short Lived? If the information is only going to be useful for a short while, and will only have monetary value for a short while, Trade Secrets make more sense. Patents take a long time to be issued; Trade Secrets are instantaneous.
• On The Other Hand, Is The Invention Very Long-Lived? Patent protection lasts twenty (20) years. That’s it. After that, everyone can use your instructions to make your invention. Trade Secrets are forever (or until they’re disclosed). Coca-Cola has protected its formula (a Trade Secret) for over a century; KFC has for nearly a century.
• Is the Cost of a Patent Prohibitive? At levinegerba || attorneys, we’ve done our best to keep costs low – including for our patent drafting and research services – but obtaining a U.S. patent may cost more than $10,000 (and can be way more, depending on complexity and type).   Obtaining a US patent may cost $10,000 – $20,000. Worldwide patent protection costs significantly more, as there’s a lot of additional work to be done. There are other maintenance and security costs as well, over time. On the other hand, a Trade Secret is usually much less expensive – just make sure you’ve put appropriate security and confidentiality measures into place.
• Will It Be Hard to Detect Unauthorized Use? If it will likely be difficult detecting unauthorized use of the information (e.g., it relates to internal business methods as opposed to finished goods) it may be less prudent to publicly disclose the invention in a patent application than to protect it as a trade secret.

Pro-Trade Secret

• Is The Idea Even Patentable? If Not… Patents have to be (in the most simplistic terms) (1) New, (2) Useful, and (3) Non-Obvious. If the secret doesn’t qualify under those rules, there’s no patentability – the only method for protecting it is as a Trade Secret.
• Is The Invention Short Lived? If the information is only going to be useful for a short while, and will only have monetary value for a short while, Trade Secrets make more sense. Patents take a long time to be issued; Trade Secrets are instantaneous.
• On The Other Hand, Is The Invention Very Long-Lived? Patent protection lasts twenty (20) years. That’s it. After that, everyone can use your instructions to make your invention. Trade Secrets are forever (or until they’re disclosed). Coca-Cola has protected its formula (a Trade Secret) for over a century; KFC has for nearly a century.
• Is the Cost of a Patent Prohibitive? At levinegerba || attorneys, we’ve done our best to keep costs low – including for our patent drafting and research services – but obtaining a U.S. patent may cost more than $10,000 (and can be way more, depending on complexity and type).   Obtaining a US patent may cost $10,000 – $20,000. Worldwide patent protection costs significantly more, as there’s a lot of additional work to be done. There are other maintenance and security costs as well, over time. On the other hand, a Trade Secret is usually much less expensive – just make sure you’ve put appropriate security and confidentiality measures into place.
• Will It Be Hard to Detect Unauthorized Use? If it will likely be difficult detecting unauthorized use of the information (e.g., it relates to internal business methods as opposed to finished goods) it may be less prudent to publicly disclose the invention in a patent application than to protect it as a trade secret.