Patents vs. trade secrets

While trade secrets undoubtedly have a place in R&D-intensive organizations, they suffer inherent weaknesses that should be contemplated when creating a robust IP strategy.

Patents and trade secrets represent opposing strategies for protecting know-how developed by the organization. Theoretically, know-how can remain secret for ever, but reality can be very different, for five key reasons:

Similar know-how emerges in similar entities

Scientists with similar training in similar fields read the same articles and often have similar ideas over relatively concise periods of time.

These similar entities (AKA “competitors”) may file patents that overlap with the organization’s trade secrets, which can block freedom-to-operate (FTO).

While filing a patent doesn’t necessarily protect FTO, a patent can create leverage for entering into a cross-licensing arrangement — because the patent may also block the competitor’s FTO.

Knowledge leakage occurs between partners

Collaborations inevitably involve sharing of know-how among partners, often inadvertently.

It can be difficult to police use of trade secrets after a collaboration ends — such relationships rarely end after a project finishes, and maintaining the ongoing relationship may be deemed strategically more important than preventing use of trade secrets.

Knowledge leakage occurs when employees depart

Former employees holding trade secrets disseminate the organization’s know-how, often inadvertently.

While it is possible to sign the former employee to a non-disclosure agreement, these are difficult to enforce. It is also possible to prevent former employees joining competitors, but such restrictive covenants will be considered unreasonable if they last more than six months (or 12 months if the field is niche).

Products can be reverse engineered

Products containing trade secrets can be reverse engineered and used without fear of litigation by the originator.

Reverse engineering is incredibly easy these days — it is now trivial to reverse engineer even the famous Coca Cola recipe, supposedly known by only two people at any given time.

The real secret behind Coca Cola’s success is the bulwark of IP rights Coke has created over the years — which involves use of copyright, trademarks, industrial design rights, and patents.

Trade secrets can be stolen

Industrial spies can hack into an organization’s IT systems, or even steal their garbage. And, in an era in which even our televisions may be spying on us, how confident can anyone be about their trade secrets?

While it may be possible to block a thief from using stolen trade secrets, the theft must be proven in court and the trade secret thus placed into the public domain. It is next to impossible to pursue thieves in some foreign countries.

If secrets do become public during the course of the theft, it is difficult to prevent other entities from using the stolen trade secrets.

While filing a patent does reveal valuable know-how to competitors, the patent then provides protection for 20 years — assuming it is granted.

In the past, know-how would remain relevant for centuries — in modern, complex technologies, know-how rarely remains valuable beyond 5–10 years. During the course of the 20-year period of patent protection, old know-how becomes obsolete and new know-how emerges, which can in turn be protected with new patents.

A lost trade secret is usually lost for good — and a lack of protection can debilitate the former owner. As such, patents are the cornerstone of IP strategy, particularly for R&D-intensive organizations.