Comparatively Speaking: Patent vs. Trade Secret

By: Anthony J. O'Lenick Jr., Siltech LLC

Posted: November 2, 2011

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Reverse engineering is not considered a violation of trade secret law. This practice is based upon the analysis of a lawfully obtained product in order to defeat a trade secret. In the cosmetic and personal care industry, ingredient labeling requirements allow for the easy reverse engineering of new products and have therefore pushed the industry toward patents.

Examples of potential trade secrets include: a formula for a sports drink; survey methods used by professional pollsters; recipes; a new invention for which a patent application has not yet been filed; marketing strategies; manufacturing techniques and computer algorithms.

An important and unfortunate situation whereby a trade secret may be lost is when another inventor obtains a patent on the same trade secret product or process. And while patents are awarded in order to advance technology, a valid patent can be used to stop a company from practicing that trade secret. Additionally, trade secret status can be lost when the owner fails to take the necessary steps to protect the trade secret. In many respects, the management of trade secrets requires a higher level of sophistication than the  management of intellectual property covered by a patent. Trade secrets are more easily lost by mismanagement than inventions covered by patents.

With all the potential to lose a trade secret, why then choose to keep an invention a trade secret rather than to patent it? In theory, trade secrets can last for an indefinite period of time. Therefore, a trade secret is in that regard better than a patent. Another reason is that there are a number of trade secrets that do not rise to the level necessary to obtain a patent. Finally, there are certain limited time frames in which patent protection must be sought, or the right to get a patent will be lost.

The best way to protect trade secrets is through use of nondisclosure agreements. Courts have repeatedly reiterated that the use of nondisclosure agreements is the most important way to maintain the secrecy of confidential information. Or put another way, without nondisclosure agreements, the odds go up that information considered to be extremely valuable to a business will be deemed to have no legal protection.