Drawing a Line Between Trade Secrets and Patents

Ensuring the confidentiality and protection of intellectual property within a company and defining trade secrets is a fundamental element of long-term success and profitability. As you and your colleagues work toward these goals, understanding the power of the work you’ve already put in and how that work impacts the business over time is crucial.

One of the biggest challenges for companies is understanding what is actually defined as a trade secret, what can be protected as a patent, and what the consequences of failing to understand those differences are. Without certain protections in place, your trade secrets could be used to power another company, and your patentable inventions could turn into someone else’s success.

Defining Trade Secrets for Your Business

The Uniform Trade Secrets Act (UTSA) offers a comprehensive definition of a trade secret as any “information, including a formula, pattern, compilation, program, device, method, technique, or process that:

  • Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and
  • Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

This definition emphasizes the necessity of deriving “independent economic value” from being concealed and not easily decipherable. Trade secret status cannot be claimed for just any element that is easily deduced or reverse-engineered by other individuals or organizations. Client lists, proprietary internal processes, and software codes on secure servers are great examples of trade secrets, safeguarded through reasonable efforts to preserve their confidentiality.

Work That Garners Patent Protection

Patent protection, facilitated through filings with the US Patent and Trademark Office (USPTO), ensures the ongoing protection of original inventions that are new, useful, and non-obvious. This protection ensures the patent holder’s ability to license the invention and control its overall use, adding significant value to the individual or company responsible.

This might sound a bit like a trade secret in the sense that it’s non-obvious and adds value to the company, but there’s an important line to draw. Patents, by nature, offer transparent and government-sanctioned defense for your innovations. Trade secrets have less specific guidelines and are offered no government-certified protection. It’s merely based on an honest internal account of what information and processes are worthy of protection through litigation rather than through filing an application with the USPTO.

Understanding the Distinctions

One of the biggest differences is the overall cost of protecting patents vs. trade secrets. As long as your company handles them correctly, trade secrets are free to protect (short of any costs of training and defining the information to members of the company). Patents have a high cost for applications and upkeep. However, the enforcement costs for both are comparable, primarily arising from litigation.

Opting for a patent is wise when the innovation cannot be kept secret. Patent applications are government-acknowledged legal documents that provide substantial legal leverage to the patent holder. Trade secrets rely on the evidence you can gather yourself to prove necessary secrecy. Designating internal documents and procedures as trade secrets does not, in itself, ensure legal protection if access to the information is not adequately controlled.

Properly Define Your Intellectual Property

Deciding whether you’re dealing with a trade secret or an invention that requires patent protection is a challenge for many businesses. At McDermott IP Law, we take pride in helping individuals and corporations properly define the work they have and assist in securing the proper legal protection. Where you’re ready to protect your innovation, contact McDermott IP Law.

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McDermott IP Law

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