Trade secrets & confidential information

/ April 12th, 2012 / Comments Off on Trade secrets & confidential information

Trade secrets, sometimes also referred to as confidential information, include information such as specific practices, processes, designs or patterns that typically are not widely available and therefore enable a commercial business to gain an economic advantage over its competitors. In this context a good example of a trade secret would be Cola-Cola’s drink formula.

Two types of trade secrets

There are two informal types of trade secrets. Firstly, there are those inventions or industrial processes that do not meet the requisite patent criteria and therefore can only be protected though confidentiality. The most common examples of such trade secrets would be client databases (lists of customers). Secondly, there are trade secrets that are creative, original and innovative enough to satisfy necessary patentability requirements. In the latter case, inventors face a natural dilemma of whether they should apply for a patent or keep the invention as a trade secret.

How to protect trade secrets?

To protect trade secrets, you should ensure that anybody who has access to them signs a Non-Disclosure Agreement, breach of which will enable you to sue for breach of confidence. The main advantage of NDAs is that they can be renewed indefinitely and therefore, at least in theory, assure prolonged monopoly. The main disadvantage is that unlike for instance patents NDAs do not prevent competitors from independently inventing the same trade secret, be it a design, pattern or process.

Alternatively, as mentioned above if a particular invention fulfils the necessary criteria it can be registered as a patent and fully protected against any competitors.

Advantages and Disadvantages of Trade Secrets

Core advantages of trade secrets include:

  • Unlike patents, trade secrets offer protection for unlimited amount of time, so long as the secret is not revealed to the public it is safe. By comparison patent protection is limited in time (typically for 20 years), however offers a monopoly for the use of the patent.
  • Also unlike patents, trade secrets do not involve registration fee, which in some cases can be considerable. On the other hand, costs of keeping the secret in full confidence might turn out to be higher than initial costs of obtaining a patent.
  • In order to gain protection with patent one has to go through entire application process. Trade secrets require no registration and verification process, having immediate effect.

Despite some clear advantages, there also are considerable disadvantages of protecting confidential information as a trade secret.

  • If the trade secret is contained within a product (i.e. computer software) or is a design itself, the competitors may be able to reverse engineer it and implement it freely into their own products. So long as the information was not divulged in breach of Non-Disclosure Agreement, the owner of the trade secret would have no recourse. This leads to another problem, enforceability.
  • It is more difficult to legally enforce a trade secret than a patent.
  • Once the secret becomes known to the public, anyone can freely use.
  • Keeping a trade secret bears another risk of somebody legitimately developing the same patentable trade secret and obtaining a patent for it.

Should I apply for a patent or keep the information as a trade secret?

There is no simple answer to this question. Selection of the most suitable Intellectual Property plan for your business’ goodwill depends on a number of sector-specific factors. For example, if your business specialises in highly innovative solutions that are not available currently on the market, it might be a good idea to secure a patent and profit from licences. On the other hand, if you think that the invention is unlikely to be discovered by competitors as it is not embodied in the ultimate product (i.e. cannot be easily inspected by the competition) it might be worth keeping the invention as a trade secret. This is especially true if you know that the competition is not likely to catch up with your invention for another 20 years (which is typically the period patents are granted for).

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