Basic Considerations for Determining Whether to Rely on Patents or Trade Secrets to Protect Your Intellectual Property 01/31/2011

By Stanley Chalvire

Patents and trade secrets both protect valuable information and technology, though each has distinct advantages and disadvantages. A patent grants the owner the right to exclude others from practicing the claimed invention for a limited time (in the U.S., 20 years from filing), in exchange for teaching the public how to make and use the claimed invention. Trade secret laws, on the other hand, protect information that derives value from not being generally known to the public. A decision of whether to rely on patents or trade secrecy must be made carefully, strategically and in consideration of business objectives. The decision will dictate enforcement rights and remedies, and may be scrutinized by business partners, investors and competitors. Several important factors should be considered.

One obvious consideration is whether the technology or information represents patentable subject matter and, if so, whether the likely scope of any patents that may issue will afford meaningful protection. This analysis may be informed by evaluating the closest prior art or by surveying the types of patent claims which competitors are relying upon to protect their intellectual property. To the extent that the anticipated scope of patent protection will be very narrow or allow competitors to easily design around the patent, patent protection may not be ideal.

Timing is also a critical consideration, especially for rapidly evolving technologies. Patent applications are formally examined and, although the time to issuance varies with the jurisdiction, the pendency of a patent application may approach four years or more in the United States depending on the technology. In contrast, no formal approval or examination is required for trade secret protection; rather, the owner need only maintain the secrecy of the information. Although there are mechanisms by which the prosecution of a patent application may be expedited, if the technology may become obsolete within a short period of time, patent protection may not be the best protection.

A fundamental premise of trade secret protection is that the information is not publicly known and that the information remains subject to reasonable efforts to maintain it in confidence. Trade secret laws will not prevent a third-party from independently developing the information or from reverse engineering publicly available products to learn the underlying information, nor will trade secret laws prevent the subsequent exploitation of information which was properly discovered. Accordingly, to determine whether trade secret protection is useful, one should consider the ease with which the information can be kept secret, as well as of the resources that must be devoted to maintaining its secrecy. Generally, reasonable efforts to maintain the secrecy of trade secret information includes restricting access to only those individuals who need to know the information to perform their duties, implementing appropriate employment agreements and security measures, and avoiding disclosures of the information except under appropriate non-disclosure agreements. To the extent that it is impractical or difficult to maintain the secrecy of the information, trade secret protection alone may not suffice.

The above factors (and others that your IP counsel can explain) should be considered in developing a comprehensive strategy to protect your company’s valuable technologies, processes and information. Often, a successful strategy will integrate both patents and trade secrets, as well as copyrights and trademarks. The early development of an intellectual property strategy and the periodic reassessment of that strategy in light of changing business objectives are key to protecting the valuable intellectual property assets of any company.

For more information on this topic, please contact Stan Chalvire.