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Patent law and trade secrets law can both offer helpful protections for your business’s intellectual property assets, and can often work in tandem if your patented process or invention involves proprietary know-how. Both strategies provide different types of protections, along with different benefits and drawbacks.
As a small business owner, when it comes to protecting a product-based invention, you likely need to decide whether to patent it or to pursue trade secret protection. There can be significant overlap between the two when product-based inventions are concerned.
Under the Leahy-Smith America Invents Act (AIA)—which governs patent applications filed on or after March 16, 2013—an invention is generally eligible for patent protection if it involves a process, an article produced from manufacturing, a machine, or a composition of matter.
These inventions must also be simultaneously novel, useful, fully and particularly described, and not easily reproducible by someone with knowledge in the field based on pre-existing published patents and/or publicly available information.
Trade secret law, on the other hand, provides federal and state law protections to a broader group of inventions, data, and formulas. The federal Defend Trade Secrets Act (DTSA), for example, protects all of the following types of inventions and data, so long as their owners take reasonable steps to maintain their secrecy and the inventions or data in question have independent commercial value from remaining secret:
“All forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing.”
Here are five factors you should consider when deciding whether to protect your idea as a patent or a trade secret.
Under the AIA, business owners who are successful with navigating the patent prosecution process for a utility patent will receive a 20-year limited monopoly to prevent competitors from making, selling, using, or importing their invention. This term, however, is measured from the date you file your application. Given that a utility patent application takes anywhere from 12 to 32 months to be approved for issuance, this 20-year monopoly can be shorter than advertised if the USPTO decides not to add on additional time to account for procedural delays.
While successful design patent applications are awarded a 15-year patent term measured from the date the patent is granted, design patents are limited to protecting a product’s design and ornamental features only. Once your patent term expires, anyone—even competitors—can use the information and techniques shared in your issued patent to create competing products.
Trade secrets, on the other hand, can be enforceable indefinitely so long as your business takes reasonable steps to keep them confidential.
Unlike when you file for trade secret protection, if you’re looking to obtain patent protection, you will need to disclose detailed information about your products and processes in your patent applications to the USPTO.
In a standard utility patent application, you will do this by providing background information on the problem your patent is designed to solve, including drawings and diagrams of how your invention is structured and assembled, and submitting in-depth descriptions about how your patent should be assembled. In the end, your completed patent application will resemble an instruction booklet designed to allow the average worker with knowledge and skill relevant to the field of the invention to re-create your product or process from scratch.
These applications are made publicly available by the USPTO for others to review. You can also use Google’s searchable patent database to review U.S. issued patents and published patent applications, as well. This means that even if you don’t receive patent protection, your competitors can still access your application data and create potential workarounds.
With trade secrets, business owners do not need to follow any formal registration or disclosure procedures to receive protection.
If you decide to protect your invention as a trade secret, it’s possible that you may lose protection if your customers and competitors are able to figure out how the invention is constructed, without resorting to misappropriation or other improper strategies.
The general rule of thumb is that particular details of a product are “readily ascertainable” to users if they’re able to take the invention, formula, or process apart and piece together how the end product was made using proper means. California, for instance, recognizes reverse engineering and independent derivation as legitimate ways to discover trade secrets, so long as they’re done independently of such crimes as bribery, theft, and misrepresentation.
Because business owners who file for patents are required to disclose information about how their inventions function and are constructed, reverse engineering and independent creation are not viable defenses for countering active patents, making it impractical for others to ride on your product’s coattails during the term of your issued patent.
While you can always directly sell your patented and trade secret-protected products to consumers, licensing your patents and trade secrets to other companies can be another effective option for monetizing your ideas. Patents and trade secrets, however, entail different licensing considerations.
With patents, your legally enforceable registration allows you to engage in ongoing revenue generation from licensing partners over the course of your patent’s active term—so long as you actively monitor your licensee’s commercial activities to ensure compliance.
A trade secret license, on the other hand, is structured to give the licensee access to your trade secrets in exchange for lump sum payments or royalties. To avoid losing out on your trade secret protections, you need to structure your agreements to prevent your licensees from making your proprietary products, processes, and know-how from becoming public knowledge. Clauses that incorporate confidential arbitrations, trade secret sharing restrictions, and post-agreement confidentiality practices can help with this.
It’s important to note that you may still need to account for trade secret-related protections in a patent license agreement depending on the nature of your product or process.
If you treat your inventions and proprietary processes as trade secrets, you need to devote a lot of effort to keeping those innovations and processes truly secret. Some steps you and your business need to take include drafting non-disclosure agreements (NDAs), adopting stringent document marking policies, implementing internal access controls for employees and executives, and establishing clear physical and data security procedures to protect your trade secrets.
When working with vendors and business partners, you also need to incorporate strict confidentiality and information sharing clauses in your contracts, conduct regular audits of their systems, and request back any confidential documents you’ve shared with them to facilitate work-related tasks.
Patent enforcement has its own set of challenges, as well. You likely need to earmark funds for challenging conflicting patent applications before the USPTO, initiating Section 337 investigations with the U.S. International Trade Commission (ITC) to go after infringing imports, and file infringement lawsuits where necessary. You may also need to develop an international intellectual property enforcement strategy, since USPTO-issued patents are only enforceable within the United States against imports and domestic sales activities.
These are just a few of the factors you should consider when deciding whether patent protection or trade secret protection is the right move for your small business. It’s also a good idea to talk to your business lawyer early on the decision-making process.
Author’s note: This article has been prepared for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney or accountant to obtain advice with respect to any particular issue or problem.