Should you file a patent or go the trade secret route?

One of the common questions I get is “should we patent our invention or go the trade secret route?” While there are no one size fits all answer to this question, it’s worth looking at the advantages and disadvantages of each.  There is a lot of strategy involved in building a solid intellectual property portfolio for any company and you might want to diversify and manage your risk.

Sometimes the dilemma between patent and trade secret is not an issue if your invention is not patentable, or if your invention can be readily reverse engineered.  But here are some considerations to take into account when making the decision for your business.

  1. Can your invention be readily reverse engineered? If so, a patent might be your best bet

If your invention can be easily reverse engineered, then trade secret would be a weak form of protection for your work and getting a patent will give you better protection.

With the technology and tools available today, it has become easier to dissect and decipher an invention.  With today’s sophisticated tools, figuring out how an invention works and ways of duplicating that technology has become relatively easier. If there is some chance that you could keep your good idea a secret while making money from it, then a trade secret is an option.

One of the most famous stories is the Listerine story.  In the 1880s, Dr. J.J. Lawrence invented the antiseptic liquid compound Listerine, then licensed its secret formula to J. W. Lambert and the Lambert Pharmacal Co. Warner-Lambert Pharmaceutical Co., successor to Lambert and Lambert Pharmacal (which later became Pfizer Inc.).  The Lambert company was making its royalty payments to the Lawrence family according to the licensing agreement over the next 70 years, despite the fact that Listerine’s formula was revealed along the way. After about 70 years of honoring the agreement and after having paid over $22 million for a formula which was revealed along the way, Pfizer sued for a judgment to no longer pay the dues since the formula was not a secret anymore.  Unfortunately for Pfizer, the courts sided with the Lawrence family, ruling that the contract makes no stipulation about stopping payments if the trade secret is legitimately discovered by others, which it could have done. The court also added that since since Pfizer had obtained the formula when the formula was not revealed and still secret, it had received a marketplace advantage [source: Warner-Lambert Pharmaceutical Company v. John J. Reynolds].

The most famous successful trade secret to this day is the Coca-Cola formula.  At the end of the 19th century, Coca-Cola had to decide between patenting the formula for its popular soda which meant disclosing its ingredients or keep the formula secret.  The original recipe allegedly contained a small amount of cocaine, so the company decided to keep the recipe secret.  According to research, no single contractor has the full recipe; each is tasked to prepare only parts of the classic blend. The company has kept the secret for over a century by storing it in a vault in downtown Atlanta, and restricting access to only a handful of executives.

  1. The value of Trade Secrets

The upside of a trade secret is that it may last indefinitely if kept secret, much longer than the limited 20 year term of a patent. But unlike patents, if the invention is reverse engineered and other find out how to duplicate the invention on their own, without people leaking the trade secretly, then you can’t stop others from making, selling or distributing that invention.

The bad news is that if someone else comes up with the same idea without getting information leaked inappropriately, then the trade secret does not preclude them from using the idea or getting a patent on it.

Under 35 USC Section 273, you would have continued rights to use your trade secret after someone later patents the same idea but this would limit your right to license to others to use your trade secret.  Under the America Invents Act,  you can now seek a patent for a trade secret after using the trade secret for a while.

  1. The downsides of Trade Secrets

While a trade secret could potentially last forever, it is legal for others to reverse engineer and copy a trade secret.  A patent requires you to disclose and publish information about your work and invention, but in exchange for that publication and sharing your knowledge, you can stop others from using, selling, making and distributing your work for a period of 20 years.

Patents and trade secrets can seem like diametrically opposite choices:

  • On the one hand with trade secrets:

    • Your protection is derived from the secrecy of your work
    • There are no filing fees, legal fees, or patent translation fees.
    • A trade secret does not need to be filed or approved.
    • It need only be designated as secret.
    • The designation takes effect immediately,
    • Although not required, a company may choose to invest in protecting its trade secrets through non-disclosure agreements (NDA).
    • Filing a UTSA claim in the event of stolen trade secret information does not require that an NDA was in place.
    • A protection claim only requires that the claimant demonstrate that a reasonable effort was made to protect the information, and prove that the information was wrongly acquired.
      • A “reasonable effort” could mean physically keeping people away from restricted areas or securing highly sensitive documents.

  • On the other hand, with patents:

    • Your invention can only be patented if you disclose enough information in your application and enough details for someone skilled in the art to make the invention.
    • Patent applications are legal documents that must include great detail.
    • Patents must be filed with the relevant patent offices, followed by a patent search and examination.
    • If the patent is granted, you will also need to pay maintenance fees to maintain it.
    • Filing and drafting fees can range anywhere from $5,000 to $15,000.

These considerations are company specific and vary on a case by case basis.

  1. Hedging your bets and limiting the risks

If you’re not sure whether you can secure a strong patent for your invention, and if you’re not planning on protecting your patent rights internationally, you can file a patent application with a non-publication request.  During the prosecution and discussions with the USPTO, you can wait and determine whether you will be able to secure a strong patent or decide to go back to having a trade secret and your invention won’t publish or become public.

Interested in learning more about how to secure your intellectual property?
Schedule a free discovery call with our team today.

Innovent Law helps innovators protect, maintain and defend patent, trademark, copyright, and other intellectual property rights in the United States and around the world.