Patent or Trade Secret: Choosing Correctly
Updated: May 6, 2020
There are many forms of protecting intellectual property (IP) among which are patents and trade secrets, choice of the form of protection depends on the type of property. For example, a literary work can be protected by means of copyright only. However, information can only be protected by way of Patent or Trade Secrets, which is the main concern of this Article. In order to understand which of the two shall be adopted the intent of the owner and to see which of the two will be more feasible certain aspects need to be taken into account, these aspects shall be dealt with in detail hereunder.
According to World Intellectual Property Organization, ‘A patent is an exclusive right granted for an invention, which is a product or a process that provides, in general, a new way of doing something, or offers a new technical solution to a problem. To get a patent, technical information about the invention must be disclosed to the public in a patent application. [i]’, while ‘A trade secret is defined as any information that is: (1) not generally known to the relevant business circles or to the public; (2) confers some sort of economic benefit on its owner. This benefit must derive specifically from the fact that it is not generally known, and not just from the value of the information itself; and (3) the subject of reasonable efforts to maintain its secrecy. A trade secret continues for as long as the information is maintained as a trade secret.’ [ii]
From the above definitions, we can infer that the two are indeed inherently different in nature and strive two attain opposite rights for the owner. It is easily identifiable that the point of overlap between the two is very narrow, broadly covering the information of technical know-how.
The most striking difference between the two is that patentability requires the owner to disclose the information to the public, while trade secrets can be applicable only till the point when the information is kept a secret. When talking of the Indian perspective, another important point of differentiation is that patents are protected by a structured legislation but trade secrets are not.
However, as a signatory to the Trade Related Aspects of Intellectual Property Rights [iii] (TRIPS) Agreement, and a member State of the World Trade Organization (WTO), India is bound by Article 39 of the Agreement to provide protection to Trade Secrets as an intellectual property. Article 39 paragraph 2 states that member nations must provide a manner for protecting a secret information as part of an honest trade practice, which has commercial value owing to its secrecy, and the owner of such secret information has taken reasonable steps to keep it secret. Indian Courts, in the absence of a Legislation uphold the validity of Trade Secret on the basis of principle of equity and common law action of breach of confidence arising out of a breach of contract. The Delhi High Court in the case of John Richard Brady and Ors –v- Chemical Process equipment’s P. Ltd. and anr [iv] invoked a wider equitable jurisdiction and awarded injunction even in the absence of a contract.
Patents as mentioned earlier are protected by a legislation, the Patents Act, 1970. Which provides a detailed protection to patented products and information and stops the misuse of the same. Therefore, we can say that once the Patent is granted the right of the owner is secure and no further prevention is required to protect the right, however, once the owner decides to make an information a trade secret, they have to make sure to protect the information at every given stage as long as they want to draw out the benefits from the information.
Which brings us to the next point of difference, which is that patents have a limited lifetime, they have a life of twenty years only, while trade secrets on the other hand are perpetual in nature, the benefits of which can be drawn as long as the secrecy remains.
As discussed above, both the laws have completely different agendas and ideologies and implement two different modes but at the end they both aim to protect the interest of the owner or inventor of the information from misuse and further provide incentive to for future research and development. However, there is one very important difference, which is that every patentable information can be protected by way of trade secret, but every information that can be protected under trade secret, cannot be patented.
In Kewanee Oil Co. v. Bicron Corp. [v] the court chalked out three plausible parameters for an owner to decide between patent and trade secret [vi]:
i. the information is believed by its owner to be clearly unpatentable;
ii. the information is believed by its owner to be clearly patentable; and
iii. the information is believed by its owner to be doubtfully patentable.
Therefore, in the first case, where patent is not an option, the owner would resort to trade secret without any second thought, while in the second situation they would clearly opt for patent, as it is a safer option, in comparison to trade secret, even though it might be a little expensive in comparison to the other. It is the third case where the confusion arises and the choice of risk vis-à-vis expenditure has to be made by the owner, which means, that the owner needs to decide, whether he wants to take the risk of spending a high amount of money, and end up their patent getting rejected, or if he chooses to take the less expensive path of trade secret, but remain under constant risk of their secret being leaked to the world, and the owner losing all the exclusivity over the information.
The Court also pointed out that in cases where patent is resorted for, there arose no question of trade secret, because once patent is granted and the information becomes public, the whole point of it being a secret is frustrated. However, a bigger point is missed in this observation, that is the phase when the patent is still in the stage of being filled and has not received approval, this is the stage where most owners choose to protect their information by way of trade secrets and non-disclosure agreements, to avoid damage to their patents while still being filled. Which is why we can say, that in even the surest of sure cases of patents, protection by trade secret is most likely to precede the actual patent.
1) Future aims- While Trade secret option includes no investment and work stress, it is not a secure option for most of the technology protection cases. It operates on secrecy. Other requirements are administrative and documented control of the secret and over the persons who are aware of the secret. The fewer people know about it, the better degree of protection company owns. Therefore, Trade Secret needs a high degree of care and protection. While Patents on the other hand need less or no maintenance once it is patented, in fact once patent is granted it becomes public knowledge and can be used widely.
2) Patentability- This is one of the most important point of discussion. As mentioned above, in the Kewanee Oil Case [vii] there are three situations, if the information is not patentable, which can be based on the concept of novelty, since Patents require a higher degree of novelty, than trade secrets, which if not met the information may not be patentable, then trade secret remains the only option to go to. And in cases where patentability is doubtful, then the company needs to choose whether they want to engage the company’s resources into a patent which may not even be granted, or simply take recourse to trade secrets to help them protect the information.
3) Cost and formalities- Which brings us to the cost comparison in both the cases, as discussed time and again, Patents are very expensive and take a huge amount of investment at one go, which is where the economic factor and viability of the choice comes to play. Unlike United States or United Kingdom, India does not provide a start-up or MSME Company friendly patent regime as of now, though it is under discussion it is still not implemented. Further, not only is the procedure expensive, even the advocates who work for the companies charge exorbitant fees, making the option even more expensive and uneconomical in comparison to trade secret.
4) Stage- As discussed above, in India, patents can be granted only after the innovation is fully completed, which is why, during the research and development, or the period when the patent has not been approved the company’s information are at a risk of exposure, which can also lead to a lapse or denial in grant of patent, which is where trade secret plays a very crucial role. This allows the company to license its information, that it intends to get a patent for without the risk of losing its patentability rights.
5) Time period- A patent is granted for a period of twenty years only, from the application filing date or earliest priority date. And practically, patent is never granted on the day itself when filled for, the buffer period from the date of filing to the date of granting can extend up to a couple of years, which reduces the life of the patent, for the simple reason that during this buffer time the information is not protected at all, which is why if the company or the owner does not classify it as trade secret it cannot use the information for the fear of losing its IPR. Also, in case of patents any further enhancement to the information, has to be protected again, incurring extra costs to the owner. Trade secrets, on the other hand, offer a more flexible approach to information protection as no limitation to the time period is there. Thus, a trade secret is more effective at protecting the subsequent improvements and evolution of an invention without incurring significant additional costs and/or efforts.
6) Enforcement considerations-To enforce a patent, a company must prove infringement. But depending on the technology and type of protection obtained, infringement may be difficult to prove. It is difficult to enforce the law when the perpetrators happen abroad, or beyond the jurisdiction. This is a huge restriction on the inventions, since businesses in the era of globalization happen cross borders. A similar issue is encountered in case of Trade Secrets, however, it is easier to prove breach of trade secrets through circumstantial evidence and other aids since, the information under trade secret is circulated in a control environment and amongst a limited number of people, it is easier to find the perpetrator than in the other case.
In case of a patent there are many requirements which need to be fulfilled like the innovation should be useful, novel and non-obvious, while in case of trade secret, the only requirements are that it should be a secret or not generally known in the industry and should have an economic value attached to its secrecy, novelty and non-obviousness is not important, which is why, trade secret includes a huge number of information which patents do not necessarily hold, patents in case of information are therefore a sub-set of information under trade secret.
One best example of Trade Secret usage is Google’s algorithm, which they have successfully protected over the year. Therefore, we can say that Patents construe a strict definition hence, including very few information under its periphery in comparison to trade secrets.
It can be said that both trade secrets and patents are an important tool to protect a company’s or individual’s IPR in the form of information. While both have its own advantages over the other, while patent is a stronger mode of protection, trade secrets cover a broader part of information which can be protected. Also, patents are for a limited period and are very expensive, trade secrets are comparatively less expensive and have a potential to last perpetually if properly protected.
As a conclusion, we can say that grant of patent in itself is a protection while the information in a trade secret need to be perpetually protected by the owner to derive its benefits, which is why patents may be more viable for the owner, since licensing in case of patents is easier than in case of mere trade secrets. But at the end of the day it is the decision of the owner that matters when choosing between the two which can vary from person to person. At the same time, we must not forget that the same information can be protected under trade secret while the patent has not yet been granted.
[i] https://www.wipo.int/patents/en/ last visited on 17th September, 2019
[ii]https://www.wipo.int/export/sites/www/sme/en/documents/pdf/ip_panorama_4_learning_points.pdf last visited on 17th September, 2019
[iii] https://www.wto.org/english/docs_e/legal_e/27-trips.pdf last visited on 17th September, 2019
[iv] AIR 1987 Delhi 372.
[v] 416 U.S. 470, 493 (1974)
[vi] https://www.law.cornell.edu/supremecourt/text/416/470 last visited on 21st September, 2019
[vii] Supra at v
Nikita Sultania, ALSK, B.Com. LL.B.(H)