So, you’ve got a new idea, huh? You want to find the best way to protect and monetize your innovation…. Plus, you’ve heard a little about trade secrets and patents, so...what’s the best option? What are the pros and cons of each? Well, before we jump to deciding which option is better, it’s critical that you have a good understanding of what they each are first. So, the first part of this guide will cover the basics of what patents and trade secrets are. Then, we will spend the remainder discussing the following threshold questions about which option is best. Section 1: Basics of Patent Law Section 2: Basics of Trade Secret Law Section 3: Ultimate Comparison Chart Section 4: Reverse Engineerability Section 5: Detectability for Enforcement Section 6: Market Readiness Section 7: Licenseability Section 8: Costs (Attorney, Government, and Internal) Section 9: Duration of Rights Basics of Patent Law Even though I’ve written over 50 in-depth articles on patent law (and delivered just as many presentations), explaining what patents are and how they work never gets old. It's complicated enough of a subject that each time I explain it, I am likely getting more refined, polished, and effective at conveying it to the public - specifically those who are new to the subject. On top of that, technology moves fast... and so do the court cases passed down from Federal Circuit and Supreme Court on point. And because of that, I know that as long as I practice, it will be my happy duty to explain the law of patents. That said, here goes (again)! Our founding fathers thought that patents were so important that they put them in the very first Article of the Constitution. Article 1, Section 8, Clause 8 reads as follows; Without elaborating, the simplest way to explain this clause is to say that the US government (through Congress and the United States Patent and Trademark Office (USPTO)) shall give exclusive rights (meaning they are the only one that may make, use and sell) to their “writings and discoveries”. Now, “writings” has been interpreted over the years and makes up what is common day copyright law. Meaning, any written work is the sole right of its author. Courts have extended this to include all forms of artwork including drawings, paintings, sculpture, performing, lyrics, musical scores, etc. “Discoveries” has been interpreted to mean inventions. This is the heart of this article, and therefore the protection all inventors seek when they seek patent protection through the USPTO. Inventions have been defined by three separate categories, and the USPTO currently awards granted patents for the following: Utility Patents Design Patents Plant Patents Utility patents are granted for novel and nonobvious machines/devices, manufacturers/assemblies, compositions of matter, and methods/processes. The protection extends to what the invention does as opposed to what it looks like. Design patents are granted for any novel and nonobvious 3D man-made object of manufacture. The protection extends to what the invention looks like as opposed to what it does. Plant patents are for unique and nonobvious asexually reproducible organic plant species. The most comprehensive guide to patents can be found at USPTO.gov. The government has done a wonderful job putting together tons of resources there. Within the USPTO website is the complete guide on patent law is found in the Manual of Patent Examination Procedure (MPEP). That’s the high-level summary! You bet there is a ton more to learn about patents, and we will be exploring patents as we compare the various topics below... but if you want a great summary of what patents are, please visit our blog page and dive in! Basics of Trade Secret Law Compared to patent law, trade secret law is basically the wild west! There is no mention of trade secrets in the US Constitution, and there is no controlling federal law on point at all! In fact, trade secret governance is left completely up to each state, and therefore the enforcement vehicle by which a trade secret theft (called misappropriation) is brought before the state court varies. That said, in 1985, the American Bar Association did publish the “Uniform Trade Secrets Act”, which most states in the US have adopted, so there is some uniformity around the country. In addition, just recently in 2016, the “Defend Trade Secrets Act” was published. This put into place a federal mechanism for enforcing trade secret misappropriations. This was largely to account for the increasing popularity of businesses that expand across multiple states. There is no granting of trade secrets by the US Government, and therefore there is no certificate or serial number or any type of registration for a trade secret. This makes it more difficult to protect, enforce, and monetize... as we will discuss below. The UTSA, as mentioned above, has been adopted by most states in the US (except New York and North Carolina). The UTSA provides that in order to have a trade secret, it must meet the following three requirements: Must not be readily ascertainable Must be economically valuable Demonstrated efforts to keep secret “Readily ascertainable” just means that the secret cannot be well known in the industry or in the public. Note, that this also means it may be known by some members of the public. In fact... one of the most interesting points to raise is that more than one company could feasibly have the SAME trade secret, and both would be able to be enforced against a would-be misappropriator. “Economically Valuable” means that, by nature of keeping the information secret, the company is able to gain financially in the market. Another way of testing this element is if the secret were to get in the hands of a competitor, whether they would be able to put it to use immediately and gain financial benefit. “Efforts to Keep Secret” means that the company is properly labeling “secret” or “proprietary” information and/or controlling access to the information and contractually binding employees or 3rd parties from disclosure. Ultimate Comparison Chart Patents Trade Secrets** Subject Matter Inventions (Utility, Design, and Plant) Business Information & Know-How Governing Law All Federal Mixed State and Federal Certificates Given Yes No Legal Requirements Novel, Nonobvious, Utility Not Well Known, Economically Valuable, and Efforts made to keep secret Violators of IP Infringement Misappropriation Reverse-Engineerability* If easily reverse-engineered if not easily reverse-engineered Detectability* If theft is easily detected If theft is not easily detected Market Readiness * Seek if Market is ready Seek if Market is not ready Licensability * Easier to License More difficult to license Costs: Attorney Fees* Initially high fees, with decreasing fees as the company grows initially low fees, with increasing fees as the company grows Costs: Government* Initially high while acquiring patent rights No fees Costs: Internal* Initially low, while preparing patent application and prosecuting Initially, low fees increase in fees as company size grows Duration of Rights* 15-20 Years Perpetuity, as long as it remains a secret *Will be discussed in more detail below ** Remember, for a FULL guide on what trade secrets are all about click THIS link here. Reverse-Engineerability If you’re struggling with which IP to go after - patents or trade secrets - and there was only one test that I could recommend, it would be this one. How easily reverse-engineerable is your invention? The key here is to put yourself in the shoes of a competitor. Imagine that you implement your innovation on your product, service, or system. When you sell it on the market, and a competitor buys it to see how you did it, takes it apart and tries to copy you... will they be able to easily? Once sold on the market, will someone like you be able to take the final market-ready design/product/service and tell how you made it or what innovations went into it? If yes, then you should really look toward patents because you are going to want to be able to stop infringers who will inevitably rip your invention off. If no, and you don’t think even your competitors will know how to make their own after looking at your final product, or if they won’t even be able to tell what you did to give it the additional utility, then you’d be just fine with trade secret protection, because the protection, as you’ll read below can last forever - as long as the secret remains confidential. Detectability Now, ignoring whether your innovation is reverse-engineerable for a moment, let’s focus on detectability. Meaning, if you have a patent granted on your invention... once you sell your product or implement the system/solution on the market, will you be able to spot an infringer? Will you be able to pick up a competitor’s product and know for sure they infringed on your claimed patent? In the world of patent law, someone is liable for infringing when they perform the entirety of what’s been claimed by the inventor/owner of that patent right. This means that within each claim, there are what are called “elements”. And, as you can see below, some patent claims are very specific, which means it can be difficult to identify whether someone is infringing. Here’s an example claim set for US Patent 7,695,655: Notice that on Claim 1 there is a method with seven steps! Each of these steps has very specific language about “conveyer member becoming faster toward the latter…” and so on. There are a lot of steps here. NOTE: If you fail to perform one of these steps, or perform them in a different fashion... YOU ARE NOT INFRINGING! Method claims like this are largely VERY difficult to enforce because, unless you can tell from the end product that the infringer used the patented method, you cannot even monitor or detect infringement. Further, patents for which it is difficult to detect infringement would likely require access to a competitor’s shop to see if they really are using their patented method. This is the key differentiator, in that some of these method or process patents, while wonderful innovations would be nearly impossible to actually see whether there is an infringement or not...you need to be able to tell from the FINAL (market ready) product that they infringed on your method/process. Therefore, most methods/processes for manufacturing or processing are better kept as trade secrets. Market Readiness What you’ve developed, no matter how genius, should not be sought for patent protection if there is limited or unknown market potential. Yes! This does mean that you should at least do your own research to confirm there is a demand for your innovation (or, better yet, seek a market professional to vet your invention before going too far in the patent process). Seeking patent protection for innovations is no small endeavor, and the amount of investment needs to be worth the reward. No company should ever seek patent protection just for the piece of paper on the wall… it needs to deliver a return on their investment. Thus, I always take a look at our client’s marketing plan before endeavoring down the patent path. It’s very important that a big enough market exists already or that there is a strong likelihood it will grow. Sure, much of this “likelihood” analysis and “market size” is speculative, but it should be based on some economic principles and some diligence should be done. So, if the market demand is not apparent, the best course may be to keep the innovation as a trade secret. Although the best plan, keeping an innovation as a trade secret is not simple either. Keeping a trade secret within a company gets exponentially harder when a company grows and has many employees that have access to the trade secret information. The burden becomes high because of the requirements to maintain control of the circulation of the secret and properly label (physical and electronic) as well as maintain clear records for who has access to the documents/information. The major takeaways here are: Do not simply seek patent protection just because it’s patentable! Just because it’s not something you’re going to patent right now, doesn’t mean you won’t later If you’re trying to protect something to patent later, keep it protected as a trade secret now! Licensability Whether you’ve sought the protection of your innovations as a trade secret or patent, you may license them to 3rd parties. The major differences are that trade secrets tend to be less clear when it comes to bounding and defining the secret itself. Usually, when licensing know-how and trade secrets, there tends to be more work needed in the contract and on follow-up maintenance to assure both parties are comfortable as it is being executed. Patents, on the other hand, are clearly defined. Meaning, there is no question as to what the scope of rights is, and for how long it is good for - the US Government (through its United States Patent and Trademark Office and the examiners) force inventors to put in a nice neat claim set (for utility and plant applications) or a very refined drawing (for Design patents) the scope of rights. So, licensing patents is more straight-forward, and predictable because of the scope of rights is so clearly defined. If you’d like a deeper dive on patent licensing and licensing in general, please check out this blog article here: https://boldip.com/blog/patent-licensing/ Costs It does cost some initial money to get started with either patent protection or trade secret protection. As the ultimate chart showed above, the key here is that patents do cost more initially, but over time, trade secrets likely cost more because of the ongoing efforts to keep it secret. Please do note that I have written a full article on how much patents cost. I’ll take each type of cost in turn here and explore some of the main differences: Attorney costs are relatively high when trying to seek patent protection. If you use a Patent Attorney to make sure you get the broadest protection possible and set yourself up for success in later litigation, it could set you back $20-$30K. These fees are likely going to be the total cost over 1-2+ years, then after that, the attorney fees are very minimal to maintain the patent rights. Attorney costs to help initially formulate a trade secret are near $0. However, to draft contracts that employees will sign, oversee the digital and physical marking/labeling and access controls can be costly. And as state laws change, especially employment laws, those contracts must also change… so this can add up and become an ongoing need for trade secret counsel. Government Fees/Costs really do not exist for trade secrets. That is because (as you saw above) there are no certificates or governmental institutions that get involved with trade secret acquisition and enforcement. For patents, the government will charge fees to apply for and prosecute the patent applications. You can see the USPTO fees following this link here: https://www.uspto.gov/learning-and-resources/fees-and-payment/uspto-fee-schedule Internal Costs is an interesting one. I think the higher costs are going to be with trade secrets. This is going to increase as the company employee count increases, as now you have more people to monitor to assure they are not misappropriating trade secrets (especially in companies where there is high turnover). The #1 time when trade secrets get stolen is when employees either leave voluntarily (seeking greener pastures working for a competitor) or are fired (want to seek vengeance). Duration of Rights A well-kept trade secret can last over 100 years. Just think, when you take a sip of Coca-Cola...that’s the taste of over one hundred years of IP protection through trade secret law. Tastes pretty good, huh? Had Coke patented their recipe, they would have likely become an unrecognizable name today - and we’d all be drinking Amazon Coca-Cola, who knows? Think about the factors we’ve discussed above. Would Coca-Cola have been easy to reverse engineer? Likely not. Even if a chemist can determine the exact proportion of elements within the liquid, there is no way they could tell the order of operation, the heating, the cooling, the emulsification, etc. It’s both ingredients and method/process. In Summary So… that’s really all the basics you need to know! Hopefully you have a clearer idea of the difference between patents and trade secrets so that you can make an informed decision when it comes to your unique ideas and information. To recap, we covered: Section 1: Basics of Patent Law Section 2: Basics of Trade Secret Law Section 3: Ultimate Comparison Chart Section 4: Reverse Engineerability Section 5: Detectability for Enforcement Section 6: Market Readiness Section 7: Licenseability Section 8: Costs (Attorney, Government, and Internal) Section 9: Duration of Rights It is my hope that this article gives you the knowledge and clarity you need to Go Big and Go Bold℠ ! with your invention and business! Which type of protection do you think you’ll be looking into? Legal Note: This blog article does not constitute as legal advice. Although the article was written by a licensed USPTO patent attorney there are many factors and complexities that come into patenting an idea. We recommend you consult a lawyer if you want legal advice for your particular situation. No attorney-client or confidential relationship exists by simply reading and applying the steps stated in this blog article.