Important contrasts between patents and trade secrets

Written by Mike Biagio on 8 February 2023

Patents and trade secrets are two distinct forms of intellectual property protection that serve different purposes, with each offering both advantages and disadvantages. Understanding the differences between these two forms of protection is crucial for businesses and individuals who want to safeguard their valuable innovations.

Patents are legal monopolies granted by the governments of particular territories that give inventors exclusive rights to prevent others from exploiting their invention for a limited period of time, usually 20 years from the date of filing. In order to obtain a patent, an inventor must file a patent application that describes the invention in detail and meets the requirements for novelty, non-obviousness, utility, enablement, and best mode. During the patent process, the patent application gets examined to check whether these requirements are met, before it gets granted as a patent. For more details on the patent process, see this link. The process of obtaining a patent can be expensive and lengthy, but it provides the inventor with a powerful tool to prevent competitors from exploiting their invention and to generate licensing income.

Trade secrets, on the other hand, are confidential information that gives a business a competitive advantage and is not known to the public. Trade secrets can include formulas, recipes, customer lists, business plans, software source code, and any other information that has commercial value and is kept secret. The protection of trade secrets does not require government registration, but it depends on the business keeping the information confidential and taking steps to prevent its unauthorized disclosure to others. If a trade secret is leaked or otherwise becomes known to the public, the business loses the ability to claim protection.

The requirements of “enablement” and “best mode” of a patent means that the patent application must describe the invention in sufficient detail so that a person skilled in the art will be able to carry out the invention, and that the best method of carrying out the invention that is known to the inventor must be described. During the patent process, the patent application is published, informing the public as to how the claimed technology works. This puts a patent directly at odds with a trade secret, in that you cannot have both a patent and a trade secret for the same subject matter.

One of the main advantages of patents is that they provide a higher level of legal protection compared to trade secrets. A patent gives the inventor the right to sue others who infringe on the patent and to receive damages. If the patent is infringed, the inventor can take legal action and the court can issue an injunction to stop the infringing activity, as well as award damages or an account of profit. In contrast, trade secret protection relies on the business taking legal action against the individual or entity that misappropriates the trade secret. If another business develops similar trade secrets independently, they cannot be stopped from exploiting this information. Where a business has developed technology that is easily reverse engineerable once it is sold, the preferred form of protection would be by patenting. Whereas if the technology developed is difficult or almost impossible to reverse engineer (think Google’s search engine) then the preferred form of protection would be as a trade secret.

Another advantage of patents is that they can be licensed or sold, providing the inventor with a source of income. Patents also offer a way for inventors to obtain funding by licensing or selling the patent to investors or companies who are interested in commercializing the invention. In contrast, trade secrets are more difficult to license or sell, since the value of a trade secret lies in its confidentiality, and once this is disclosed to others, this introduces risk that the confidentiality will be broken.

Trade secrets, on the other hand, offer several advantages over patents. One of the main advantages is that trade secrets are cheaper and easier to protect than patents. There is no need to pay government fees or engage in a lengthy examination process, as is required with patents. Trade secrets can also be protected indefinitely, as long as they remain confidential.

Trade secrets also apply across borders by virtue of their confidentiality, while patents are territorial in nature (e.g. an Australian patent only has legal effect in Australia).

Another advantage of trade secrets is that they can be adapted and changed as needed, without the need to file new applications or pay additional fees. In contrast, patents have a limited time span in which development can be added, after which any further developments must be sufficiently novel and inventive to be able to apply for a new patent.

In conclusion, patents and trade secrets are two forms of intellectual property protection that serve different purposes and offer distinct advantages and disadvantages. Patents provide a higher level of legal protection and a more convenient way to generate licensing income, but they can be expensive and time-consuming to obtain. Trade secrets are cheaper and easier to protect, but only apply to some types of technology and they rely on the business having good house-keeping procedures in place to keep the information confidential. When deciding whether to protect an innovation with a patent or as a trade secret, it is important to consider the specific needs and goals of the business.

If you have any questions about patents or trade secrets, please feel free to contact one of our attorneys.

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