Patents and Trade Secrets: The Best Way to Protect Your Business

Introduction

If you are an innovative person worried about their inventions or a company owner who needs to protect confidential business information, this article is written just for you. Patents and trade secrets are the most common types of intellectual property protection. At first glance, these terms look similar, but still, you should be aware that distinctive advantages and disadvantages reside in each of them, and choosing the method that fits your circumstances and goals is of great importance.

Consider the Coca-Cola case for instance. If Coca-Cola had used patent protection for safeguarding its drink formula, it would have been protected only for a limited time and wouldn’t have been a secret anymore. Thus the company definitely wouldn’t have been as wealthy and successful as it is now and would have lost its popularity only by choosing the wrong method of protection. 

So that’s how important it is to choose a suitable method of protection. A wrong choice would turn a giant company into a big loss. Conversely, the right one can guarantee your business protection and make it a great success.

Case Study Involving Disclosure of Patent and Trade Secrets

Life Spine, Inc. v. Aegis Spine, Inc., No. 21-1649 (7th Cir. 2021)

Life Spine, Inc. v. Aegis Spine, Inc. is a case filed by Life Spine, a medical device company, against Aegis Spine, a competitor in the same industry, involving a spinal implant device called the ProLift Expandable Spacer System that is made and sold by Life Spine.

The two companies entered into a distribution agreement where Aegis Spine was obligated to distribute the ProLift to hospitals and surgeons. As part of the agreement, Aegis Spines committed to safeguarding Life Spine’s confidential information, serving as a fiduciary for the company’s property, and refraining from reverse-engineering the ProLift. Despite its contractual obligations, Aegis Spine shared the details about the ProLift with its parent organization, intending to assist in developing a rival spinal implant device.

The parent organization later released a competing product to that effect. Upon discovering the same, Life Spine filed a lawsuit against Aegis Spine for breach of the distribution agreement and misappropriation of trade secrets.

In its defense, Aegis Spine argued that the trade secret in question, which concerned the precise measurements of a spinal implant device used to treat degenerative disc disease and that was subject to a patent and marketing, had already been disclosed. The district court issued a preliminary injunction prohibiting Aegis Spine and its associates from promoting the competing product. 

Aegis Spine is currently disputing the injunction because it was based on a flawed legal conclusion: a company can retain trade secret protection for a device that it has already publicly disclosed via patents, marketing, and sales. The Seventh Circuit affirmed the district court’s decision and further determined that. In contrast, public-domain information cannot be considered a trade secret. A limited disclosure, on the other hand, does not terminate all trade secret protection.

The Seventh Circuit concluded that Life Spine did not publicly disclose the specific information it sought to safeguard by patenting, marketing, and selling the ProLift. Thus, Life Spine’s trade secrets were not in the public domain but available only to Aegis Spine, a party to the confidentiality agreements.

What Is Patent Protection Anyway?

Simply put, a patent is a legal document granting an exclusive right to the creator of a new product or a process for a limited time. For obtaining patent protection, certain registration formalities and payments depend on the law of the country from which you want to get the patent.

What Does It Mean to Obtain a Patent? What Rights Do You Exactly Gain by Obtaining It?

The main value of a patent falls under the answer to this question. The patent holder can decide who may or may not use the patented invention. So when an invention is protected by a patent, it cannot be commercially made, used, offered for sale, sold, or imported by others without the patent owner’s permission. However, you should be aware that this exclusive right is not unconditional, and that’s why learning about the cons and pros of a patent is of great importance.

What Are the Pros of Obtaining a Patent?

As mentioned earlier, the main benefit of patent protection is the monopoly that the patent holder gains on the invention. As long as you own the patent, you can use the patented invention in any form. Meanwhile, you have the right to take necessary legal actions against any usage without your consent.

But what should you pay in exchange for obtaining this right? In other words, what are the cons? 

Registration formalities and fees

To obtain patent protection, you have to go through a rather complex patent registration process and pay the required fees, which vary from country to country. So you need to reach for legal advice regarding the law of the related country before going through this procedure.

Time limitation

Patents are granted for a limited period, which varies in different countries. After the expiry of this period, your invention will fall under the public domain. That is to say, everyone can exploit it, and your permission won’t be a requirement anymore. 

Territory limitation

Patent rights are only enforceable in the territory of the country or countries that have granted the patent to you. So, at least in the current state of the international patent system, there’s no such thing as a worldwide patent. The more countries give you the patent, the more protected your invention will be. This highly-recommended protection surely necessitates legal experts from different jurisdictions. 

Risk of disclosure

Note that patent rights are granted in return for the inventor’s full disclosure of the invention to the public. Indeed no matter how public the information is, while you have a patent, you’re protected. But the risk of tricky infringement still exists.

For example, if you create an improved perfume-spreading device to spread the perfume to a certain distance, someone else may do the same, only with spreading power at close distances. So competitors can easily make this device with slight differences that don’t violate your rights but appeal to the same buyers.

Thus, if a new process is so vital and confidential that you never want your competitors to discover, you may need another type of protection, which will be the next section, trade secret. 

What is a Trade Secret?

A trade secret is confidential information used in business and gives a company a competitive advantage. This information can be any type of knowledge, process, formula, design, pattern, technique, or other information that is not generally known to the public but is kept secret by the company for its competitive advantage.

What Kind of Secret Is a Trade Secret?

Suppose you are a company that provides products or services with unique features. To guarantee your income and protect your special product or service from your competitors, you’d better keep the feature that makes your work exceptional a secret. No matter if it’s a new formula or a special recipe.

There are many popular examples of trade secrets that you’ve probably heard of, such as McDonald’s Big Mac “special sauce,” Google’s search algorithm, and the most common one, Coca-Cola’s recipe for their signature drink. 

So basically, the types of work you protect with trade secrets are secrets. These are things that might not be patentable but are nonetheless commercially valuable. 

How can Information Qualify for Trade Secret Protection?

For information to qualify for trade secret protection, it must meet the following criteria:

• It must be secret or confidential: The information cannot be generally known or readily available to the public.
• It must have commercial value: The information must have actual or potential commercial value because it is not generally known to others in the industry.
• It must have been subject to reasonable efforts to maintain its secrecy: The owner of the information must have taken reasonable steps to keep the information confidential, such as implementing security measures, confidentiality agreements, and limiting access to the information.

What Are Trade Secret Protection Advantages over Patent Protection?

No registration and payment

Unlike patents, trade secret protection needs no registration and, as one might expect, no payments. Thus, there’s no complex process to acquire trade secret protection. You don’t have to do anything to get a trade secret except to do the things that make a trade secret a trade secret. You must have a secret that you try to keep secret by, for example, forcing people to sign non-disclosure agreements, training your employees not to disclose the secrets, or even keeping them in safes.

No time and territory limitation

Trade secret protection is not limited to any period. So the information can be a secret as long as you want it to be. Besides, since you don’t receive this protection from a specific jurisdiction, thus your secret is not limited to a certain place but is everywhere. 

No risk of disclosure

Since you don’t have to disclose your invention to the public for the competent authority to give you trade secret protection- for it’s not obtainable from authorities at all. Hence, there’s no risk of disclosure to the public. As long as you keep your invention a secret by the means mentioned above, your confidential information will be safe.

What Are the Drawbacks of Trade Secret Protection in Contrast to Its Tempting Benefits?

You are responsible for maintaining the trade secrets

As set forth above, trade secret protection involves taking necessary steps to maintain this valuable confidential information, such as non-disclosure agreements or simply keeping them in safes. Making any mistake in this regard would directly hurt your business because once the secrecy is gone, you have no legal actions to take.

Trade secret protection is not necessarily suitable for any subject matter

The difficulty of trade secret protection is that, if your information concerns a specific method of building a device or any object when putting it on the market, it would be susceptible to independent discovery and potentially reverse engineering. And when the information is unraveled, there’s nothing to do because you’re responsible for maintaining it.

Conversely, if you protect this product under a patent, no matter how public the information will be, as long as you hold the patent, you can take legal actions against any form of exploitation which lacks your consent.

So you’d better use the trade secret protection mostly for process inventions.

What Is the Best Way to Protect Your Business?

Now it’s time to sum up, and find out which one of these types of protection works the best for you. The answer to this question would be different depending on who you are, your aim of protection, and what item you want to protect. 

So be careful that there’s no absolute answer. While deciding which protection to choose, you must consider all relevant circumstances, including your financial sources, how much time you have for being protected, your subject matter of protection, and, more importantly, your vision for the future of your business. In addition, the method of protection taken by others may not necessarily be suitable for you. 

Last but not least, be sure to consult with a business lawyer before selecting a method. That’s an essential requirement since patent laws may vary from one country to another.

Besides, you need to file an application in each country that you want your invention to be protected in, since in the current state of the international patent system, there’s no such thing as a worldwide patent. So the more countries that give you a patent, the more protected your invention will be.

Share your goals and circumstances with business lawyers, and they’ll guide you in accordance with the law of any desired country of yours.

Patents and Trade Secrets FAQ

What is the difference between a patent and a trade secret?

A patent is an exclusive right granted by the government to an inventor for a certain period, while a trade secret is a confidential information kept secret by a company and gives it a competitive advantage. Patents require public disclosure; trade secrets require confidentiality.

How long do patents and trade secrets last?

Depending on the jurisdiction, Patents generally last for 20 years from the filing date, while trade secrets can last indefinitely as long as the information is kept secret. However, a trade secret can lose protection if it is no longer kept secret, particularly when disclosed to the public.

Which is better for my business, a patent or a trade secret?

The choice of whether to use a patent or a trade secret basically depends on the type of information to be protected and the business goals. For example, a patent can be best used for protecting inventions or products that are unique and difficult to replicate, while a trade secret can be best used for protecting confidential information that gives a business a competitive advantage. Therefore, it is essential to assess the benefits and drawbacks of each before making a decision.

Conclusion

Patents and trade secrets are two key ways to protect your business’s intellectual property and gain a competitive advantage. On one hand, a patent can be best suited for protecting an invention or a unique product that is difficult to replicate. On the other hand, a trade secret is best for protecting confidential information that gives a business a competitive edge, for example, manufacturing processes. 

Furthermore, a patent requires public disclosure, while a trade secret requires confidentiality. Thus a business must take measures to keep its trade secrets secret. This can be done by utilizing factors such as non-disclosure agreements, restricted access to information, and employee training, which are all important tools for protecting trade secrets.

Ultimately, choosing between a patent and a trade secret will depend on the type of information to protect and the business goals, as well as having a clear insight into both the benefits and drawbacks of each.