The Legal Brief
Trade Secrets and Patents: Which to Use?
October 24, 2022
Intellectual property (IP) provides some of the largest value to many companies. But protecting that property through patents can prove to be expensive, while failing to protect some crucial IP like customer lists. In lieu of patents, many companies should consider classifying IP as a trade secret, which enjoys protection under U.S. law and can often be obtained at far lower costs.
Patents require companies to disclose inventive properties publicly. Patent protection is also limited in time, usually lasting no more than 20 years, while trade secrets remain protected indefinitely. Like Coca-Cola, which does not hold a patent on its secret cola-recipe, many companies choose to protect their secrets rather than disclose them in a patent application.
According to the Uniform Trade Secrets Act (UTSA), a trade secret is “information, including a formula, pattern, compilation, program, device, method, technique, or process that derives independent economic value” by remaining unknown. The UTSA protects trade secrets by permitting civil suits against disclosure of secrets through improper means. Famous examples of trade secrets include Google search algorithms and the recipe for KFC’s chicken.
Companies should consider their needs and risk assessment when considering whether to protect IP as a patent or trade secret. Some secrets do not qualify for patents because they are not sufficiently inventive to receive exclusive rights. Others do not fall into areas covered by patents, such as abstract ideas. In those cases, designation as a trade secret is the only way to protect the information or process.
The most substantial advantage of a trade secret designation over a patent is cost. Unlike patents, trade secret protection does not require filing or approval. There are no governmental fees, and the designation takes effect immediately, whereas a patent application could take years.
Non-disclosure agreements (NDAs) can protect some IP, but NDAs are not required to file a UTSA claim if trade secret information gets stolen. A protection claim only requires that the claimant demonstrate they made a reasonable effort to protect the information and can prove that the information was wrongly acquired. A “reasonable effort” could simply mean keeping people away from restricted areas or securing susceptible documents.
Trade secrets can remain protected indefinitely, and governments do not require reports about it. Both patents and trade secret designation provide advantages and disadvantages. An experienced IP attorney can help you navigate these issues and help you discern whether a patent or trade secret makes most sense for your company.
If you have any questions, email Joshua Claybourn at jclaybourn@jacksonkelly.com