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This question posed by the title of this post can be a very tricky one to answer because both patents and trade secrets can provide strong and valuable protection for ideas. But patents and trademarks have different risks and costs involved, and it usually is these risks and costs that drive the decision whether to protect an idea by obtaining a patent, or by relying on the trade secret laws.
First, a few definitional points. As a general proposition, a patent protects an idea reduced to practice (i.e. the invention) that is novel and not obvious. A patent allows its owner to prevent others from using the invention covered by the patent (i.e. practicing the patent) for the term of the patent, which general is 20 years for a utility patent and 14 years for a design patent. Once the term of the patent is over, the invention embodied in the patent goes into the public domain.
A trade secret is any technical, scientific or business data which is not generally known to the public, provides economic value to the owner, and is protected by reasonable means to keep it secret. The information and invention embodied in a patent is completely disclosed to the public when the patent is issued, and anyone who reads the patent will know how to practice the invention. By contrast, as the term implies, the essence of a trade secret is secrecy – the trade secret information is valuable because it is secret. Trade secrets do not have a specified term, but are protected for as long as the trade secret information remains secret.
Obtaining trade secret protection does not require any formal application or registration process – the protection comes into existence upon development of the protected information and the implementation of measures to keep the information secret. In contrast, patents are issued by the United States government, so obtaining a patent requires an application to the federal Patent and Trademark Office. The preparation and prosecution of a patent application can be quite expensive and time consuming in many cases.
So which is better, a patent or trade secret? That question can only be answered in true lawyer fashion, it depends.
All patents start out as trade secrets up until the time a patent is issued. But trade secret protection can be lost through independent discovery, accidental disclosure, or in some cases even unauthorized publication (i.e. theft of the trade secret). Most have heard of the term “reverse engineering” – while that phrase can have negative connotations in some contexts, it is perfectly legitimate for business competitors to “reverse engineer” their competitor’s products and, if trade secrets are discovered, trade secret protection is lost. So if reverse engineering is a concern or there is a risk of public disclosure notwithstanding the measures taken to protect secrecy, patent protection rather than trade secret protection may be the preferred path. But many start-up businesses may not have the financial resources to obtain a patent (which often can cost tens of thousands of dollars) so the business may have no choice but to rely on trade secret protection. Likewise, if the period for which the business’ technology has value is short (or at least shorter than the term of a patent), trade secret may be the better option.
Because a patent provides the right to the owner to exclude all others from practicing the patented technology, it provides very strong protection (especially if the scope of the patent is broad). Patents also usually are the preferred basis for licensing agreements. But because a patent involves public disclosure, competitors are given a roadmap how the patented invention works and legitimately can try to design around a patent. This is especially a risk with narrow patents in crowded fields. And there can be significant cost involved in trying to enforce a patent through patent infringement litigation.
The bottom line is the determination of whether a business should seek a patent or rely on trade secret protection must be made on a case-by-case basis with respect to the information involved, how the information will be commercialized, and the financial resources of the business.