While patenting prevents copying of innovations, applying for a patent results in other businesses knowing more about the inner working of the IP. Industries that put a larger emphasis on confidentiality instead turn to trade secrets to protect innovation.
Trade secrets are often used alongside patents, copyrights and trademarks to protect products. Consider a Diet Coke bottle. The distinctive fluted shape of the bottle was patented in 1915, before becoming a trademark in 2002. Copyright law protects the Coca-Cola logo and script design, while the recipe for Coca-Cola’s syrup is a trade secret known only to a very few select and anonymous employees.
What are trade secrets?
Confidential business information that gives a company competitive edge and is not general knowledge of the public can be considered a trade secret. To be recognised, the trade secret must:
- Be secret and not generally known
- Have commercial value
- Be subject to regular efforts by the rightful holder of the information to keep it secret
Which industries use them?
Trade secrets can occur in industries such as software algorithms and ingredients in global fast-food chains. Google continues to modify its top-secret search algorithm and while certain updates are made public, the inner workings of the algorithm are a closely guarded trade secret. In the food industry, Kentucky Fried Chicken originally kept its secret mix of ingredients in founder Colonel Sanders’ head – today it is written down in a safe in Kentucky. Only a few employees know the recipe and are bound by a confidentiality agreement.
Why would you use trade secrets instead of patenting?
Trade secrets may concern inventions or manufacturing processes that do not meet patentability criteria. An example could be a customer list or a manufacturing process that is not sufficiently inventive to be granted a patent.
There are a few key differences when comparing trade secrets with patents. Trade secrets are not limited in time, involve no registration costs and take immediate effectThey also do not require compliance with formalities such as supplying a government authority with information about the trade secret. They are however influenced by governments – the 2016 EU directive on trade secrets created a clear framework that discouraged unfair competition while promoting collaboration.
Companies build value with trade secrets beyond protecting innovation. Competitive advantages realised through a trade secret can result in increased sales of products and services, the ability to charge a premium price, increased market share and reduced costs. A trade secret owner might even consider licensing or selling a trade secret to generate investment returns.
What are the pitfalls of trade secrets?
If a trade secret is embodied in an innovative product, competitors might be able to dissect and reverse engineer it, discovering the secret. Without a patent the competitor would then be entitled to use it freely, as trade secret protection of an invention does not provide exclusive rights. If the secret is made public, anyone would have access to use it at will.
Trade secrets are also more difficult to enforce than a patent, with protection varying from country to country. If a competitor is able to develop the relevant information by legitimate means, a trade secret could be patented by another party, making the original holder of the secret lose their competitive advantage.
To find out more about how trade secrets interacts with IP strategy, join our upcoming Patent Resources Group (PRG) Spring 2018 Advanced Courses Programme.
The Trade Secret Strategies course is a great opportunity to interact and learn from our expert faculty, John Williamson, Mareesa Frederick, and Jacob Schroeder while gaining an overview of how to protect innovation and build value in corporate and IP law firm teams.