Trade Secret or Patent?

Business owners often ask whether they should protect their intellectual property with a trade secret or a patent.  The answer is:  It depends.

What Can Be Protected? 

The first thing to consider is what it is that needs to be protected.  A trade secret protects a business’s confidential and proprietary information.  The information can be a formula, process, or customer list.

A patent protects an invention.  The invention can be an article of manufacture, a machine, a process (such as software), or a composition of matter (like a chemical formula).

Thus, there is some overlap between what can be protected by a trade secret or a patent.  However, information that does not fall into one of the four types of patentable inventions cannot be protected as a patent.

How Is Protection Obtained?

In order to protect information as a trade secret, the information must not be generally known, must have economic value from being kept secret, and must be the subject of reasonable efforts to keep it secret.  Those efforts should include keeping the trade secret information in password-protected or locked files, limiting access to the information to the least number of people who need to know, marking all digital and hard copies of the information as confidential and proprietary, and having all employees and independent contractors sign written confidentiality and nondisclosure agreements.

In order to obtain a patent for an invention, the invention must be fully disclosed in a written patent application.  The patent application has to describe the invention in detail and how to make and use the invention.  The patent application is filed in the United States Patent and Trademark Office (PTO) and is examined by a patent examiner.  The invention must meet several requirements in order to be patentable.  It must be novel (new) and not obvious based on the existing technology in the field.  The examination process is a back-and-forth process between the PTO and the patent attorney and may take several years.  At the end of the process, the PTO makes a final decision to either allow or reject the patent application.  If the patent application is allowed, the applicant pays the required fees and a patent is issued.  If the patent application is rejected, the applicant may take further steps to try to overcome the objection.  Once the patent is issued, it provides certain protections.  The patent gives the owner a limited monopoly:  the rights to exclude others from making, using, selling, offering to sell, or importing the invention in the United States.

What Is the Protection?

A trade secret is protected as long as it is kept secret.  If the information has been publicly disclosed, it is no longer a trade secret and the protection is lost.  As long as the information is secret, the trade secret exists.  Thus, a trade secret can be protected indefinitely.  However, if the trade secret can be copied or reverse-engineered (without unlawful conduct), or independently created, then there is no longer any protection.

A patent protects the invention for 20 years from the filing date of the patent application.  Unlike a trade secret, a patented invention cannot be kept secret; the invention must be fully disclosed in the patent application. Also, unlike a trade secret, a patent protects against copying or reverse-engineering and independent creation of the invention.  In general, anyone who makes a patented invention without permission infringes the patent.

Thus, there are several factors that must be considered in deciding whether to rely on a trade secret or a patent for intellectual property protection.  One of the most important factors is that a trade secret must be kept secret, while a patented invention must be publicly disclosed.  This difference often determines which type of protection is best.