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- Securing Your Startup’s Intellectual Property Rights: Patent vs. Trade Secret - June 21, 2018
- 3 Components of Becoming an Investable Entrepreneur - March 24, 2018
Entrepreneurs and emerging companies often look for ways to protect their valuable assets. They want to secure their ideas and ultimately enforce their rights around them. Traditionally, there are four types of intellectual property rights: patents, copyrights, trademarks and trade secrets.
Patents and trade secrets are the two types of intellectual property rights that protect information. Patents protect information by filing with the United States Patent and Trademark Office (USPTO) and in return, the owner has a license to sue anyone who attempts to manufacture or sell the information. On the other hand, trade secrets protect the information and the competitive advantage it creates by ensuring the information remains a secret.
From a duration standpoint, a patent provides protection for 20 years, whereas a trade secret can last forever. While information could potentially be protected by either a patent or a trade secret, the moment the information owner chooses to file a patent application and make it public, the trade secret has been lost since the secrecy is gone.
Patent or trade secret
So how does one know whether they should seek a patent or rely on the protection of a trade secret?
While it is a rather complex analysis that requires a certain amount of industry knowledge and legal expertise, at a high level, it can be broken down into a six-factor test.
- Risk of reverse engineering: If the invention holder is going to use the invention publicly, this would reveal the confidential information, so the inventor should focus on patenting his or her invention, rather than attempting to protect it through a trade secret.
- Projected period of commercial exploitation: As previously stated, a patent expires after 20 years, so if an inventor is planning to utilize his or her information beyond the duration of that, they should consider utilizing the power of a trade secret. Further, if you are dealing with technology that could become obsolete rather quickly, you may want to consider a trade secret simply based on the cost associated with securing and maintaining a patent, compared to the cost of securing and maintaining a trade secret.
- Patent strength: After consulting with a legal professional, the inventor may find that a patent covers the most practical way to achieving the protection sought. Under the filing of a patent, it can become increasingly difficult to design around the patent or even challenge its validity. Many people find the owning of a patent to be particularly strong and ultimately a better choice.
- Critical need: There are multiple ways that a trade secret could fail to do its job, therefore inventors will often seek out patents. One such reason is the loss of secrecy, as over time, the inventor or prevelant parties may disclose information publicly, and ultimately defy the secrecy that has been established by the trade secret. Also, there is a chance that at a later time, a party can come along and file a patent and secure the rights previously held by the trade secret.
- Procurement and maintenance costs: From a purely financial analysis, both forms of protection can involve costs, however, they occur at different times and in different ways. Trade secret protection requires a limited amount of expenses due to the lack of necessity to register with the USPTO. However, significant hidden costs in the management and maintaining the confidentiality of the trade secret need to be considered. From an ongoing maintenance perspective, the patent will have nominal expenses on a regular basis during the duration of the 20 years. Ultimately, both of these require the willingness to participate in the cost of litigation in the event the inventor would need to enforce their rights.
- Patent as leverage or message: When an inventor says they own a patent, it sends an inherent message to the world and to potential competitors. It demonstrates a certain position that has been taken by the inventor in regards to their belief in the idea and their willingness to invest in its protection. Patents can provide a competitive advantage, whereas a trade secret is typically not made public based on its inherent nature of being a secret.
As entrepreneurs start and grow their companies, it’s important to protect the assets they create, as well as establish competitive advantages. Properly using the four types of intellectual property, especially trade secrets and patents, can be a very valuable way to achieve these goals.
Securing intellectual property can be confusing at times and it’s why it’s so important to seek the advice of a professional who can walk you through the process to ensure your rights are properly protected.