PATENT VS. TRADE SECRET – HOW TO LOCKOUT YOUR COMPETITION
PATENT VS. TRADE SECRET – HOW TO LOCKOUT YOUR COMPETITION
Coca Cola does it. Apple does it. Businesses across the globe do it – prudent business owners protect their brands and maintain their competitive edge by safeguarding their Intellectual Property (“IP”). IP refers to the ideas, inventions, innovations or processes that distinguish your business from the rest. IP laws are in place to help you achieve two primary advantages:
(1) Maintain a Competitive Edge by protecting your work product from misappropriation from someone who did not invest the time and money necessary to develop it.
(2) Secure Your Rights to legally complain and seek compensation if a competitor actually steals your work product or confidential information.
Your IP rights are only protected when your work product falls under one or a combination of the following classifications: Patents, Trademarks, Trade Secrets and Copyrights. Understanding and selecting the best form of protection for your works will likely require legal guidance, especially as it relates to patents and trade secrets.
In a previous article, we covered the key differences between trademarks and copyrights – click here to learn Whether You need a Trademark or Copyright? In this article, let’s explore patents and trade secrets since their close relation usually causes a lot of confusion for entrepreneurs.
What is a patent?
Very simply, a patent is an IP right granted to an inventor by the federal government. That right allows the inventor to prevent others from reproducing, selling or using the invention for a specific amount of time.
The United States Patent and Trademark Office (“USPTO”) governs the issuance of patents. Applications for patents usually fall within 3 categories – utility patents, design patents, and plant patents.
Utility Patents protect the invention of or the improvements to machines, processes, methods, compositions and anything manufactured that has a useful and specific function. This patent prohibits others from manufacturing, selling, using or distributing your invention for at least 20 years. Utility Patents are the most common type of patent.
Design Patents protect the appearance, design, shape or general ornamentation of an invention and prevents others from using, selling or manufacturing the appearance of your product for at least 14 years.
Plant Patents protect the unique invention of plants that are asexually reproduced and cover hybrids, mutants, and other plant varieties. This patent protects growers who discover new varieties, and it’s enforceable for at least 20 year.
Experienced business attorneys understand that no matter the patent type, your application must demonstrate to the USPTO that your innovation is novel, distinct and not obvious.
Advantages of a Patent:
The advantages of obtaining a patent include limiting, if not eliminating, competition which will automatically increase your market share. With exclusivity granted to the patent-holder, opportunities to significantly increase profits exist. For instance, patent-holders are free to sell their product or idea at any time. They can also grant licenses to other entities to enlarge their income potential.
Disadvantages of a Patent:
The disadvantages include the complexity of the process for obtaining a patent, not to mention the costs associated with applying and maintaining patents. In addition, there are obvious costs associated with the research and legal fees to prepare the required application documents. Finally, the greatest disadvantage is the risk associated with public disclosure of your patent as required by law. This means competitors may have an opportunity to infringe or expand upon your invention.
Key Takeaway about Patents:
Regardless of the type of patent for which you apply, remain mindful of these considerations:
Move Quickly – The first to file with the USPTO is the inventor who gets to claim patent rights on their invention. In other words, if you snooze you may lose. Don’t allow your competition to beat you to the punch or in this case, the patent. Consider filing a provisional patent until all of the details are refined, especially if your groundbreaking invention or idea is on the cutting-edge in a rapidly moving industry.
Seek Expert Advice – Having the right attorney to complete your application and guide you through the application process is key to ensuring your patent includes appropriate language that’s thorough, accurate and clearly represents current and future business interests.
What are Trade Secrets?
Trade secrets are your business’ confidential information or works that set you apart from others in the same line of business. McDonalds has a “special sauce” and Coca Cola has a “secret formula.” Both of these very successful, global entities take extreme precautions to ensure their secrets are extremely protected. Essentially, trade secrets consist of formulas, patterns, compilations, programs, physical devices, methods, techniques or processes highly guarded by a company to maintain a profitable advantage over competitors.
In most states, for a work product or information to qualify as a trade secret it must meet the following criteria:
— Have commercial value.
— Owners must have taken reasonable steps to keep it a secret.
— It must really be a “secret” from staff, vendors and competitors; and shouldn’t be easily accessible to circles that normally deal with the information in question.
Essentially, business owners must take the necessary steps to ensure their proprietary information or product remains disclosed. Of course, the best way to ensure confidentiality is to not disclose the information. Beyond that, owners can require employees and vendors to execute a Non-Disclosure or Confidentiality Agreement, which includes provisions noting penalties for disclosing company confidences.
In our Trade Secrets 101 article, you can learn the basics that every business owner should know about actionable steps to creating trade secrets and how to maintain them.
Advantages of a Trade Secret:
Unlike patents, trade secret protection is immediate, and it’s not limited in time. Therefore, your work product’s protection continues as long as it remains a heavily guarded secret and undisclosed to the public.
Trade secrets also have an advantage over patents as it relates to costs. Trade secrets don’t involve registration, issuance or reapplication costs. In addition, you’re not required to comply with formalities such as disclosure of your confidential information to the USPTO.
Disadvantages of a Trade Secret:
One the major drawbacks to trying to classify your work product as a trade secret is that others can legally inspect, analyze, dissect and discover your secret with the intent to recreate it (i.e., “reverse engineer” ). When a competitor reverse engineers your product, there’s little ground to stopping them from using it and profiting from its use. Another drawback is that trade secret protection does not provide the exclusive right to prohibit third parties from making commercial use of your innovation. Only patents can guarantee this type of protection.
The level of protection granted by trade secrets varies significantly, but generally pales in comparison to the level of protection granted by a patent. Therefore, trade secrets are more difficult to enforce than patents, especially depending on the information or product that’s being concealed and the degree to which you conceal it.
Key Takeaway about Trade Secrets:
Develop a Protocol – When a secret is disclosed, anyone may have access to the information and can use it as they will. Therefore, you want to develop a documented protocol for protecting your information and take action that suggests you’re actually trying to safeguard your secret.
Understand Fair Play – Trade Secrets can be reverse engineered by someone else who discovers your product or information through legitimate means. Consider having relevant parties sign an Acknowledgement, Non-Compete, Non-Disclosure and/or Confidentiality Agreement to put them on notice of what you consider confidential, proprietary information and the potential consequences for disclosing such information.
Is a Patent or Trade Secret Best?
Whether you decide to patent your invention or keep it a trade secret, remember the goal is to protect your assets while increasing profits.
Trade Secrets like Krispy Kreme’s doughnut mix, KFC’s chicken batter or Bush’s Baked Beans’ recipe leave their competition busy and working hard to catch up. As it relates to patents, Paul Brown, the inventor of the liquid dispenser valve, made approximately $13 billion dollars after selling his company. Thanks to his valve, now we can store our ketchup and mustard upside down, and Paul can retire early (if he hasn’t already). Explore and weigh all of your options with qualified and experienced counsel to determine the best course for you.
Your Thoughts: We’d love to hear from you. What’s your million or billion dollar idea? How are you staying ahead of your competition? Don’t worry; you’re among friends so your secret is safe with us.
This article is intended to provide you with general information; it does not constitute any type of legal advice. For recommendations related to your specific matter, we encourage you to review our Practice Areas page for additional information and then contact us to discuss your company’s legal needs.