IP Showdown: Patents versus Trade Secrets

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IP Showdown: Patents versus Trade Secrets

It’s the end of the year and time for a showdown, IP-style.  If you’ve been paying attention at all, you know that trade secrets can be pretty important for food businesses.  Most recipes, formulations, and manufacturing processes are held as trade secrets.  You can learn how here.  But once in a while, a food entrepreneur has a new idea for an ingredient, product, process, or packaging that is so new and different that it raises the opportunity to pursue a patent.  Patents are strong protection and often more durable and versatile than trade secrets.  But how do you decide whether a patent is really better than a trade secret?

Trade Secret covers a wondrous variety of mission critical know-how in most businesses, from customer lists to financials to operations.  For much of that confidential information, trade secret is really the only form of legal protection available (with some backup from copyright on things like data compilations and written procedures).  But the crown jewels for many businesses are in their innovations.

Most innovation is conducted internally or within confidential relationships with customers, suppliers, or contractors.  So, in its early stages, information about new innovations is a trade secret (unless you mess something up and let it get out).  When that innovation is sufficiently developed and perhaps nearing deployment, either in a back-end process or a product or service, it’s time to consider patent protection.

Why? Patent provides the strongest and most flexible form of IP protection for innovations.  Once an innovation is codified in a patent, you have a defined asset that can be licensed, enforced, and shouted from the rooftops.  It’s durable and good against those who might develop something similar or attempt to reverse engineer what you are doing.  As part of a portfolio, it can be the best defense for maintaining your unique value proposition, distancing competitors, or at least maintaining parity and deterring litigation.

On the downside, patents are expensive to get, maintain, and enforce.  It’s very difficult to take advantage of them without a substantial investment in multiple patents (a portfolio) and alignment with your business strategy.  But perhaps the most overlooked downside is that you have to teach others exactly what you are doing, enabling competitors and undermining your trade secrets.  In many cases, patent versus trade secret is a trade-off, it takes a very sophisticated approach (and the right kind of innovation) to maintain both.

So, how do you decide whether to pursue a patent or stick with your trade secrets?

  1. Can it be seen? If the innovation will be visible in the finished product or service, then trade secret isn’t really an option. Once the product is out there, your trade secret will die, so you should consider a patent if you want protection in the marketplace.
  2. Can it be discovered? Even if the innovation is not apparent in the product, could smart folks tear the product apart and figure it out? Many folks are shocked to realize that reverse engineering a product is completely legal in most cases.  If your competitor can legally get your product and figure out your innovation from it, that is not a violation of your trade secrets and you should probably look to patents.  Thankfully, complex food products and flavors can be really difficult to reverse engineer.
  3. Will someone else develop it? Trade secret does not prevent someone else from figuring out the same thing on their own, but a patent is good against anyone who comes later—even if they didn’t get the idea from you. If others are actively researching in the area or might be inspired to do so by your product, then your trade secrets may not last, where your patent is good for 20 years.
  4. Do you want to license it? Patents are much easier to license. Know-how licensing is great, but it only works for a small number of licensees unless it can be tied to some other, more durable IP, like patents, copyrights, or trademarks.  If your plan is to license lots of people or folks you don’t have a strong existing relationship with, then a patent is a much better idea than just trade secrets.
  5. Do you trust people? As I have previously written, trade secrets are only as strong as the people keeping them secret.  If you haven’t given serious thought to trade secret protection and taken action to make sure everyone is on board with protecting them, it is folly to rely on them.  Sooner or later, you will lose them through accident or malice and there is little that the law can do to get them back.  For all the costs and challenges of patents, they are much easier to keep track of than trade secrets in many companies.

So, when do trade secrets make sense for protecting innovation? When the innovation doesn’t matter that much or the market isn’t big enough to justify the costs of a patent, then trade secret is a cheap way to keep the advantage as long as you can.  Or, if the innovation is truly internal such that no one else will see it and you wouldn’t even know if they were using it, then a patent provides little advantage.  And, of course, there are many gray areas where it really depends on your overall business strategy.  Just make sure you understand that the trade-off exists and give it some thought.

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By | 2016-01-25T23:52:52+00:00 December 31st, 2014|, |Comments Off on IP Showdown: Patents versus Trade Secrets

About the Author:

Devin Morgan is Founder & Food Geek at Eat Drink Law, a blog for craft food and beverage entrepreneurs and anyone who is passionate about innovation and growing small businesses. He started 3-Blazes to spread the word about the power of entrepreneurship and the importance of innovation at every level of business. He is the creator of 12 Things Every Business Should Do About Intellectual Property and Special Counsel at Hoffman Warnick LLC, where he handles trademark, patent, and other intellectual property matters for select clients.