Trade Secrets vs. Patenting

The Continuing Dilemma: Trade Secrets (Hidden Use) vs. Patent (Disclosed Monopoly)

Disclaimer:

Issue: Trade secrets compared to patents: I am biased against protecting know-how as a trade secret.  I participated in a 3 years chase of ex-employees turned competitors utilizing a trade secret manufacturing technique.  The burden of establishing the fact that the technique (consistently held behind the curtain and protected as the company “crown jewels”) had been successfully kept secret for nearly 10 years was very expensive for the client. I provide my input regarding trade secrets vs. patenting below.

Reality:  Patent protection is the US is awarded by the inventor that files the earliest application. If Company A has been secretly utilizing a manufacturing method or tool, it can lose the ability to continue business if the tool or method is later developed by a competitor that successfully pursues patent protection. 

Trade Secret advantages

It is true that deciding to keep information as a trade secret avoids the cost and burden of pursuing a patent.  It is also true that initiating an application for patent protection is no guarantee that a patent will be awarded.  Further, filing a patent application requires disclosure of the technique or tool.  (Your full disclosure will undoubtedly facilitate a competitor’s efforts to “design around” your patent.) Also see my articles Patent Application Elements and Patentable Inventions.

Trade Secret Burdens

But the effort that must be taken 24/7 to maintain secrecy is a high and expensive burden.  You always face the problem of knowledgeable employees walking out the door. Requiring non-disclosure and non-compete clauses in employment agreements is only a partial remedy.  Non-compete clauses are often disfavored by law and the courts.  You will probably have to show that each employee received separate and identifiable monetary compensation for agreeing to a non-disclosure/non-compete clause.

It is also hard for a startup, aggressively seeking customers and funding, to not provide hints of what is in the “secret sauce”. Potential investors will certainly want to know about the trade secret as part of their due diligence.  You can faithfully negotiate the burden of obtaining NDAs but if there are 100s, have you really protected the secret?

Also, in order to protect the secret, you must be able to define and document it up front.  What makes your secret sauce really different from what is already known? How do you convince the court that Company B is using your secret tool versus using tooling in the public domain? And if Company B is also keeping the tool secret, how do you know that they are using your secret (wrongfully obtained via an ex-employee) without launching an expensive lawsuit?  (The upfront costs of pursuing patent protection are a fraction of the cost of initiating litigation as well as possible damage to your company’s reputation in the market place.)

How do you keep the your tool/method secret while simultaneously inquiring of what your competitor is doing, perhaps also behind closed doors?

Also, there is always the very real possibility of independent development.  If your product success is a function of your trade secret, obviously your competitors will be seeking to clone or better your tooling, etc. 

One real problem, how to you maintain the secret sitting at your production facility from an OSHA inspector or other government regulators?  Customer’s love to tour a supplier’s facility to obtain a level of comfort regarding their supplier.

Conclusion

In my opinion, few technologies do not suffer from a limited shelf life.  Better to cloak your technology as “patent pending” or “subject of patent No. _____” for the duration of time before the state of the art moves on.  It is likely that the shelf life is less than the 20 year patent term.  The alternative is to expend time, money and energy trying to keep something secret that, if really having a long shelf life, may be taken from you by the independent patenting or inadvertent disclosure into the public domain.   Applying for a provisional patent is a step available to all. See my article DIY Provisional Applications for Patent.