The World Intellectual Property Organization (WIPO) defines the term “intellectual property” or “IP” as creations of the mind, such as inventions, literary and artistic works, designs, and symbols, and names and images used in commerce. However, this definition overlooks “trade secrets,” meaning confidential business information, including any business practice or process, which is generally not known to others and gives the company an economic advantage over its competitors. In the U.S., intellectual property commonly refers to patents, trademarks, copyrights and trade secrets.
Generally, a patent permits its owner to determine who can make, use or sell an invention. Trademarks permit their owner to market or promote a mark as the source or origin of a product or service to consumers. Copyrights protect the form of a literary or artistic work and provides the owner with the ability to determine who can reproduce or distribute a work, perform or display a work or prepare derivative works. Trade secrets protect confidential business information that generally provides a competitive edge to its owner.
Trade Secrets Can Be a Valuable Form of Intellectual Property Protection
A patent is a 20-year exclusive monopoly on the right to make, use and sell a qualifying invention. This legal monopoly is considered a reward for the time and effort expended in creating the invention. In return the invention must be described in detail to the Patent Office which publishes the information, thus increasing the amount of technological knowledge available to the public.
To obtain a U.S. patent, an inventor must apply to the U. S. Patent Office and demonstrate that the invention is new or “novel” in its area of innovation and compared to prior technology, and it must be useful and “nonobvious.” The most difficult and expensive aspect of patent prosecution is finding a patent attorney knowledgeable in the technological area of the invention and able to demonstrate the invention’s novelty.
Patents can be expensive to obtain, expensive to enforce, and the exclusive rights are limited to a relatively short time period. Further, after proceeding through the initial patent application process, an applicant may be refused the patent after having spent significant dollars on the initial application. However, in certain situations, trade secret protection can be a valuable and, in some ways, an easier alternative to obtaining patent protection. In addition, trade secrets have the added value of having no expiration date – so long as it remains a secret. However, not every concept that is protectable under patent law will qualify as a trade secret and trade secrets require ongoing diligence to maintain “secret” status.
Comparison of Patent Protection vs. Other IP
In contrast, copyright registration currently lasts for the life of the author plus 70 years and trademark protection can last forever – as long as the trademark is used and subject to federal registration maintenance filings. Of the three federally registerable types of intellectual property, patent protection is the hardest to obtain, most expensive, and lasts the least amount of time. All of these types, including patents, require the public disclosure of the invention and how it functions. Therefore, if you create a patent with lucrative uses, you can be sure that following the expiration of your patent, others will use your design.
Trade Secret Protection
Trade secrets can protect many of the same concepts as patents. A trade secret can be anything of value to your company that is unique and not known to persons outside your company. This potentially includes inventions, processes, and formulas, but unlike patents, also includes customer and supplier lists, business methods and processes, and other business information that gives a competitive advantage. To have and maintain trade secret protection requires (1) the secret actually be a secret and (2) you take steps to maintain the secrecy. Proper protection requires a trade secret protection plan, as explained below.
The secrecy requirement of a trade secret represents one major difference from patent law. If an invention can be reverse engineered, trade secret protection will be impossible to maintain. For instance, a new type of mouse trap would be easy for a competitor to copy. They can disassemble it, study it, and reproduce it without your assistance. Without patent protection on the mouse trap, there is no legal bar to such copying. For an invention like this, patent protection is the only way to go.
However, if the invention cannot be reverse engineered, then trade secret protection may be the superior type of protection. Consider one of the most famous trade secrets of all: the formula for Coca-Cola. The Coca-Cola formula has been a secret for nearly 130 years and the formula is a trade secret because no one else has been able to figure it out. Efforts to reverse-engineered it have failed and the Coca-Cola Company goes to great lengths to keep it a secret. Unconfirmed reports and speculation suggest that Coca-Cola actually keeps different parts of the formula in different places and that no one person knows the entire formula. The loss of the formula would likely cost Coca-Cola untold millions of dollars, or more.
Trade Secret Protection Plan
If you have a trade secret that you want to protect, it is imperative that it be kept a secret. Trade secrets are lost once the secret becomes public knowledge. Such disclosure can be made in a variety of ways, including by employees or licensees, by theft, or even by a general failure of the company to keep secrecy measures in place. Once lost, the protection is gone forever.
The best way to protect secrecy is to implement a trade secret protection plan:
- Identify Your Trade Secrets: The first step is to identify your trade secrets. Ask yourself, “is this information that only my company knows that allows it a competitive advantage over competitors?” If yes, then you should treat it as a trade secret. In addition, you should treat your customer list, supplier list, employee list and vendors list as confidential as these qualify as trade secrets.
- Keep Trade Secrets Secret By Restricting Access: If there is physical evidence of the trade secret such as on paper or in computers, you should limit physical or computer access, through use of confidential computer passcodes, or keeping hard copies of such information in a locked file cabinet. Next, you should greatly limit who knows the trade secret. This includes employees, contractors, and any vendors or licensees you use and the trade secret should be shared only with those who “need to know.” Many companies mark stamp “Confidential” on papers
- Protect the Trade Secret through Contractual Obligations: Every party that has access or knows your trade secret should be bound by contractual obligations. Employees and independent contractors should sign employment or independent contractors’ agreements or at the very least should agree to simple confidentiality agreements. A confidential information, invention and non-compete agreement with employees is generally a smart move by employers. Vendors and licensors privy to the information should also have signed agreements that specifically include confidentiality provision that cover trade secrets. Importantly, the terms of confidentiality should specifically stay in place beyond the term of any agreement.
- Maintain Secrecy By Diligently Policing: Following an initial agreement to a duty of confidentiality over trade secrets, you should regularly remind employees, contractors, vendors, or licensees of their duty to maintain the secrecy of your trade secrets. This is especially important when employees with knowledge leave the company. In addition, you should include a noticeable disclaimer on any document that has a trade secret that it is confidential.
Trade secrets offer a valuable alternative to patent law when the content in question can be kept secret. Furthermore, trade secret protection will last as long as it is kept secret, unlike patent protection which is limited to a maximum of 20 years. To maintain the secrecy of a trade secret it is imperative to have a plan and stick to it.
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