Patents Vs. Trade Secrets: Which Way To Go?

Patents vs Tradesecrets which way to go

Patents Vs Trade Secrets | Choose Wisely!

‘Patents are expensive, why don’t we just trade secret everything?’ If this is a thought and cost cutting is something you’re looking to do, read on. It is no secret that investing in patents is an expensive affair. At the same time, a rich IP portfolio is very advantageous. Here, we talk about Patents, Trade Secrets, and Defensive Publications as IP tools to help you decide which one to be used in which scenario.

Trade Secret:

A trade secret is any information that’s unique to your enterprise and gives you an advantage over your competitors. As a company, this could include formulae, technical data, code, manufacturing data, customer information or any other technical, scientific information that a company may take steps to keep secret.  To keep such things as a trade secret does not require any money however you need to take care of certain things to maintain the secrets (as described later).

Defensive Publication:

A defensive publication is a disclosure of invention by the inventor to the public. This disclosure allows the inventor to safeguard the freedom to use this invention by preventing others from patenting it.

In the event a patent is sought to be obtained for the same or similar invention, a pre-dated defensive publication will act as a deterrent to the issue of such patent.

Put simply, any printed or electronic publication that fully describes an invention and was published before the filing date of a patent application can disqualify that patent from being granted.

Patent:

A patent is an exclusive right granted by a government for an invention, which is a product or a process that provides, in general, a new way of doing something, or offers a new technical solution to a problem. 

In order for an invention to be patentable,  

  1. It must be new
  2. It must involve an inventive step, one that is non-obvious to a person skilled in the field
  3. And it must be capable of industrial application

Patents protect your inventions for 20 years during which you enjoy a monopoly in the market place. However patent protection is country specific. So you enjoy the monopoly within the geographic boundary that your patent has been granted in. As a patent owner, you can do the following:

  1. You have the right to prevent others from using it, abandon it, sell it.
  2. You may also assign it or license it in totality or for a specific purpose. 

So, how does one choose what kind of protection to use for an invention? 

Trade Secrets

There are three vital things to do when you think of protecting something as a trade secret:

  1. Define your trade secrets and maintain an inventory of the trade secrets of your organization.
  2. Make your employees aware of the fact that these are trade secrets. Ensure confidentiality and non-disclosure agreements are in place.
  3. Do not make any information about your trade secret publicly available.

Here are some questions that will help you choose the right type of IP protection: “Patents Vs Trade Secrets”.

How easy is it to reverse engineer your invention?

The thumb rule of trade secret protection is to use it when inventions are impossible or require a very hard degree of effort to be reverse-engineered. By its very nature, a trade secret is vulnerable to reverse engineering because it only remains secret until it’s a secret! So, patent protection for inventions that can be easily reverse-engineered is more appropriate. How easy reverse engineering is; depends on the nature of your invention.

Mechanical inventions

Products that are a result of this kind of innovation are fairly easy to reverse engineer. With anything that is easy to reverse engineer, trade secret protection becomes completely ineffective.  

Chemical Compositions, Software & Electronic Inventions

While these are not as easy as mechanical inventions, with a little time and effort these products can also be reverse-engineered. Read this to understand how!  

Processes

These are quite difficult to reverse engineer. Since processes are business-specific, they are easier to keep within the company. There is a long list of food products that have managed to keep their recipes or chemical formulae as trade secrets for many years e.g. Coca-Cola, Listerine, Twinkies, Krispy Kreme Donuts, WD-40, etc. Google Search Algorithm and NewYork Times criteria for creating the best Sellers list are two processes that serve as great examples for trade secrets.

How beneficial is it to your company to keep your invention a secret?

In a cut-throat market place, competition is everything. A major aspect to consider if keeping your invention a trade secret gives you a clear competitive advantage. There are six factors of competitive advantage: price, quality, selection, speed, turnaround and service. Does your trade secret serve or help further any of these purposes?

Who are your likely competitors and how motivated will they be to access your invention?

To choose the right kind of IP protection, it is important to understand your competition. The motivation of your competition to access your invention will be directly proportionate to your market position. So, having a clear understanding of your market, your product and the path of your company will help with answering this question. 

Will the invention be useful after 20 years?

One of the reasons you choose trade secret protection over patent protection is to extend the lifetime of protection that it offers. While patents offer you protection or a monopoly of 20 years; trade secrets can last you a lifetime. Although trade secrets are less of a strain on the pocket procedurally, keeping them a secret always comes at a cost. Being able to gauge the usefulness of your invention after 20 years is a great tool to decide how you would like to protect it. 

Patents

The following is a list of reasons to patent and questions that will help you evaluate the patentability of an invention:

Competitive Edge

A business usually wants to patent an invention to have a competitive edge, market power, and as a tool to earn more money. Hence the first question to ask is whether there is a market for the invention, the technology, or products incorporating it? 

Need in the Market

If there is a market for your invention, what are the available alternatives to it, and how do they compare with your invention? Check multiple factors such as utility, price, availability, customer satisfaction etc.

Utility of Invention

Once you have data on the market space, ask if the invention is useful for improving an existing product or developing a new product? If so, does it fit in with your company’s business strategy? 

Fund Raising

Another big reason for choosing to patent is using it as a tool to raise funds and attract potential investors. Before you choose to spend resources on a patent, check if there are potential licensees or investors who will be willing to take the invention to market?

New Revenue Stream

If you are looking to patent to sell your invention or as a tool to add a new revenue stream by licensing your patent, ask how valuable will the invention be to your business and to competitors? Also, just how easy is it to reverse engineer your invention from your product or to “invent around” it? Is reverse engineering easy enough to tempt others, especially competitors, to invent and patent what you have invented?

Sales & Profit

Purely as a tool to increase sales, profits, and revenue, do the expected profits from an exclusive position in the market justify the costs of patenting?

Commercial Utility

Lastly, what aspects of the invention can be protected by one or more patents, how broad can this coverage be and will this provide commercially useful protection

Defensive Publications

If you don’t want to walk down either the Trade Secret or the Patent route, you may consider a Defensive Publication. By making a defensive publication, your invention is neither a trade secret, nor patentable (if not done so within the time frame offered under certain jurisdictions). A defensive publication may be ideal for smaller inventions or inventions which do not serve your company greatly, financially.

What a defensive publication does is safeguards your right to continue doing what you are doing or at the very least opening yourself out to challenge patents. When you make a defensive publication, you essentially disallow someone else from filing a patent. Or giving you the arsenal you need to hold a patent invalid because you published first. With a defensive publication (made in the USA), you are given a one year grace period to file a patent based on such publication. 

A Quick Recap | Patents Vs Trade Secrets

To summarise, here is a tabular comparison of “Patents Vs Trade Secrets”.

FactorsPatentsTrade Secrets
Reverse EngineeringNot a factor that needs to be worried about since you make public disclosure with a patent, and are granted full rights.The easier it is to reverse engineer your invention, the riskier it is to protect it as a trade secret.
CostExpensive mechanism of protection. Involves attorney fee for drafting and filing and official fee for obtaining a patent.In theory, a trade secret is free. Practically, keeping it a well-guarded secret may cost your company a certain sum of money.
Life of the inventionIf your invention can stand the test of time and still be relevant after twenty years, this is not the right protection.The benefits of keeping a trade secret are directly proportionate to the life of your invention.
Funding and Marketing Better option to obtain funding as ideas become easier to explain to investors because of public disclosure. Difficulty in explaining the invention to an investor for fear of divulging a secret may prove to be a hurdle for funding.
First Mover AdvantageYou lose out on the advantage of being an initial significant occupant as disclosure through a patent application can help competition enter the same market space slightly quicker than otherwise. With choosing to protect your invention as a trade secret, you can extend this advantage to a slightly longer time as your competition will have no information on your invention in the public domain before its market entry. 

Conclusion

Choose wisely when deciding how you want to protect your ideas/inventions. Trade secrets are a great way forward and help you save your resources. Use these resources in patenting your best inventions. They don’t always have to cost a fortune. Here’s a guide to cost-effective patenting.

Like all things, life and business, IP protection is also all about balance. Trade secrets and patents can sometimes be used in a manner that is more complimentary than the contrary. IP strategy is personal to a Company and its journey. Hopefully, this shall make you choice easier: Patents Vs Trade Secrets.

Types of Intellectual Property & Related Costs – Triangle IP

Everything about you IP cost in US

A Quick Overview: Types of IP

Type of Intellectual Property (IP) protection needed for an invention depends on the nature of invention. Each of 4 main types of IPR – Patents, Trade Secrets, Copyrights & Trademarks has their own use cases. Patents are best suited for inventions that revolve around a product – process of manufacturing, its layout or appearance etc. If you wish to protect a recipe or a formula, keeping it as a trade secret shall be the best choice. Copyrights protection is well suited for artistic works like music. Trademarks are the best way to protect the visuals that represent a brand.

Each type of IPR protection costs different, this post shares great insights on costs related to each type of IP protection.

To Patent or Not To Patent: Inventor’s Choice

In August  2010, two MIT alums filed a patent for an application that helps multiple clients share and access files over a network. There are high chances that you’ve used this file-sharing app. You must have used “Dropbox”, Haven’t you? Today, it has more than 14 million users and is a billion-dollar enterprise.

Dropbox patent drawing - Intellectual Property related costs

Not every founder, inventor or developer is as generous as  Linus Torvalds, who gave his masterpiece (LINUX) to the world for free? 

If the founders (Drew Houston & Arash Ferdowsi) of Dropbox Inc. hadn’t protected their asset by patent, Dropbox might have even had 10 times its user base today, but they wouldn’t benefit from it. This is why individuals and organizations should safeguard their intellectual property. 

Most organizations are wary about the costs involved in protecting their intellectual assets.There is an assumption that it costs a bomb to get it secured. While there is no easy answer on how much it costs to safeguard your intellectual property, the safest answer is – “it depends on a lot of factors”. In this article, we will help you traverse the difficult terrain of intellectual property and your IP related costs. 

What Is Intellectual Property? 

The intangible creations of the human mind are called intellectual property. It refers to inventions such as literary work, artistic work, designs, symbols, names, product recipes, images, and so on. To ensure that others do not steal your intellectual property, you need to secure them.

There are four different types of intellectual property (IP) rights.  

  • Trademark
  • Patent
  • Copyright
  • Trade Secret

4 Types Of Intellectual Property : Patents, Trade Secrets, Trademarks, Copyrights

Trademark:

An American conglomerate filed a lawsuit against a Chinese company for using a brand name that was eerily similar to theirs. Even though the courts found that there were dissimilarities in products, since the latter was able to acquire clients and capture significant market share using the brand name, they had to pay up the American company. 

What Is A Trademark?

It protects brands. Under the law, a trademark is anything by which customers recognize a brand or the source of a product. A trademark offers legal protection for logo, design, symbol, phrase, wordmarks, or a combination of those that represents a source of goods or services. 

Example:

Trademark Example - Intellectual Property related costs
Credits: Legalwiz

Costs For Securing Trademark Rights in USA:

According to USPTO, the initial application fee for electronic filing for a trademark is $225 per class of goods/services. There are 45 classes of goods and services. 

  1. Your attorney will file a trademark application for you and the charges for it will be anywhere between $300 and $1000.
  2. Once the application is filed, it will be examined by a Trademark Examiner. 
  3. If the examiner issues an Office Action refusing the application, then the attorney’s fees to respond to that would be between $200 and $2000. 
  4. The application needs to be filed based on having used the mark already for sales or with an intent to do so in the future. A Statement of Use is filed if nothing has been sold using the mark. The government’s fee to file it is $100 for each class of goods. Attorney fees to prepare it is between $250 and $700. 
  5. After your application has matured to registration, you must fill the required maintenance documents. Between the 5th and 6th year of registration, Section 8 declaration has to be filed. 

i.) A Section 8 declaration is a signed statement saying that the trademark is in use in commerce and if not, then it should come with an excuse explaining the reasons. 

ii.) Between the 9th and 10th year after registration, a combined declaration of use/non-use and application for renewal under Sections 8 and 9 should be filed together. The fee for combined filing is $425 per class of goods or services. 

For a detailed account of the trademark fee, you can use this link here

How Long Does The Trademark Protection Last?

While the terms of trademark registration can differ, the duration is usually ten years. Also, the USPTO requires that between the fifth and sixth year after the date of registration, the trademark owner should file an affidavit stating that the mark is still being used commercially. If the affidavit is not filed, the registration is cancelled. The USPTO will not send any reminders requesting you to send the affidavit. 

Note: The trademark can be renewed indefinitely by paying additional fees. 

Patent:

One of the most famous patented inventions is the electric lightbulb. Another significant one is the telephone (Transmitter and Receiver for Electric-Telegraphs) which was patented by Alexander Graham Bell in 1876. Each of these made the patent owners significantly wealthy. 

What Is A Patent?

Patents protect the innovative ideas of processes. There are two types of patents:

  1. Utility patent – It protects a process, manufacture, composition of matter, and a useful machine. Example: Fully convertible high heel-to-flat shoe

Utility Patent: Convertible High Heel Shoe: Types of Intellectual Property

  1. Design patent – It protects the shape, appearance, pattern design, layout, and looks of a product. Example: Car or similar article by Warner Bros. (BatMobile)

Patent D311882 Bat Mobile - Intellectual Property related costs

Costs For Filing A Patent in USA:

For filing a patent, the costs vary not only based on the country, but also on the complexity of the invention. It could be $1000 if you plan to do most of the filing work or can be upwards of $40,000+ if your invention is complex. 

  1. The basic cost to file a patent application at the USPTO is $300. If you are an individual, and it is $75 and $150, if you are a small entity. 
  2. For professional attorney patent searches, it would cost anywhere between $800 and $3000. Find the best tips to hire a patent attorney here.
  3. Expect to pay anywhere between $3000 and $5000 on average plus the USPTO fees to an attorney to prepare a new patent application. 
  4. The costs for the patent depends on the type of patent you apply for. 
  1. Provisional Patent: $1500 – $3500
  2. Utility Patent: $5000 – $15000
  3. Design Patent: $2000 – $3500
  4. Plant Patent: $4500 – $8000
  5. International Patent- $100000+

Here is the USPTO link where you can find more information about the fees for filing a patent. 

If you want a cheaper route, then you can do all of this by yourself, but you need to be meticulous in terms of recording everything about your invention. You might have to spend hours filing everything correctly. 

Choosing Inventions For Patenting

While every innovation of your invention deserves a patent, it might not be feasible to patent everything as the prices are a bit steep. Not everyone has huge budgets so corporations may have to pick and choose on what to patent (according to the strategy that they might have). You need to evaluate your ideas before you decide. The company should take the call on which part of your invention to pursue for patenting. The most important part in this process is to keep a track of all ideas so that nothing is missed. You can use a simple spreadsheet but that tends to get corrupted with time along with having security issues. TriangleIP provides a free tool which helps you in maintaining and tracking your ideas. It provides you with 4 different workflow stages till the filing process – through which you can navigate and track your ideas. 

Maintenance Costs:

Patent maintenance fee is paid to the USPTO to keep up a granted patent and is sometimes applicable for pending patent applications. Note: Design and Plant patents do not require maintenance fees. Maintenance fees are to be paid at the fourth, eighth and twelfth year anniversary from the time the patent is granted. To calculate the maintenance fees for your patents, you can use this link from the USPTO website

Maintenance Fees of patents - Intellectual Property related costs

How Long Does Patent Protection Last?

A utility patent is granted for 20 years from the date the patent application is filed. A design patent is protected for 14 years from the date the patent is granted. To enforce the protection of the patent, there are fees involved. 

Copyright:

Vanilla Ice’s song Ice Ice Baby used parts of music from the song Under Pressure by David Bowie and Queen.

When they faced a lawsuit, Vanilla Ice confessed to sampling the work, and the case was settled out of court for an undeclared sum of money and crediting Bowie/Queen for the track. 

What is Copyright?

It protects the original work of authorship. It helps the copyright owner to control reproduction, performance, adaptations, and distribution of the work. Examples of such works are- literature, drawings, paintings, songs, music, computer software, films, photos, web content, etc. 

Copyright is generally attached to the work when the original work is available in a fixed medium. It means that the work has been written down on a piece of paper, saved in a storage device, or in some tangible format. 

Costs for copyright protection in USA:

Filing a copyright application involves a lot of forms and each of them has different fees. Here is a breakdown of the costs involved to copyright your work.

  1. The copyright registration fees for one work by one author costs about $45 if you are filing online. The fee is $125 for paper filing. 
  2. For all the other filings, it will put you back by $65. 
  3. There are special fees for registering an application claim in a group or obtaining additional certificates of registration. 
  4. The USPTO does special services that have a different fee format too. 

How Long Does A Copyright Last?

The terms of a copyright for a work depends on a variety of factors, including whether it has been published and if yes, then the date of publication. 

  1. Copyright protection lasts for the author’s entire life plus an additional 70 years, for works created after January 1, 1978. 
  2. For anonymous works, or a work made for hire or a pseudonymous work, the copyright is for a period of 95 years from the year of its first publication or 120 years, whichever expires first. 
  3. For works published after 1923, but before 1978 are protected for 95 years from the date of its publication. 
  4. If the work was created but not published before 1978, then the copyright lasts for the life of the author plus 70 years. 

Renewal:

For works that are created after January 1, 1978, the copyright is not subject to renewal registration. 

Trade Secret:

In 1953, inventors at Rocket Chemical company came up with a formula at the 40th attempt and called it WD-40 – “Water Displacement, 40th Formula”. The company never patented it because trade secret seemed like a better protection and wisely so. And the company managed to keep it a secret for 50+ years. By the fiscal year 2017, gross revenue for the company, including sales of the familiar WD-40 Multi-Use as well as other products, totaled $381 million in annual revenue. It was only in 2009, that “Wired” with advanced processes like gas chromatography and mass spectroscopy managed to find out what’s inside WD-40.

WD 40- Tradesecret - Intellectual Property related costs
Credits: Wikipedia

What is a Trade Secret?

A trade secret is any valuable information that is not publicly known and of which the owner has taken reasonable steps to maintain secrecy. It could be ingredients used in their dishes, business methods, customer data, ideas related to your business, marketing strategy, experimental technology, etc. 

Costs To Guard Trade Secrets in USA:

Since you don’t have to register with a government body for qualifying your product/business as a trade secret, there are no costs associated with it. Guarding the secret requires security measures, and these might accrue some costs.

As trade secrets costs feel nominal compared to patenting expenses, you might get tempted to opt for trade secrets. This may or may not be a good idea. Thomas Franklin, the founder of Triangle IP has shared great insights in the following video to choose between patents and trade secrets.

How Long Does Trade Secret Protection Last?

Indefinite protection to the trade secret as long as the secret is commercially viable. It will continue as long as the secret is not available to the public. Also, unlike patents or copyrights, trade secrets are protected without registration. 

How To Protect Your Intellectual Property?

We have discussed the major four types of intellectual property and how they can safeguard your business from infringers. It is the onus of the business to protect its assets. Losing one of your assets can result in significant damages to your business. Getting the right advice from professionals will make it easy for you to protect the interests of your business.

For starters, you could write down a list of ideas, discuss them with your lawyer and decide which are the ones that are worth going after. TriangleIP helps companies with a free tool using which ideas can be managed till the filing process.

Conclusion:

In summary, below is the list of the 4 forms of intellectual property related costs discussed in this article:

IP FormProtects Life (in yrs) Prosecution & filing costsMaintenance Cost
TrademarkInfringement/Damage of reputation by another company10 (can be renewed indefinitely)$225-$400 per class of goods/services depending on the type of application $425 per class of goods/services
PatentIt protects the commercial use of the invention without the consent of the patent owner20$75-$300 based on the size of your company$1,600 for large entity | $800 for small businesses | $400 for micro businesses
CopyrightIt protects the original work of an author70-120 yrsStarts at $45 for e-filingNo maintenance fees
Trade SecretIt protects information that is crucial to a business, using which the entity has a strong competitive advantageLasts as long as the trade secret is viable commerciallyThere is no need to register with a government body to guard your trade secretNo maintenance fees

A report from the Commission on the Theft of American Intellectual Property pegs the loss from IP theft between $225 billion and $600 billion annually. If you fail to protect your intellectual property because of the costs involved, you might end up losing a major chunk of revenue as competitors might copy it. You will lose your competitive advantage too when others claim to provide the same features that you do. 

It is normal to feel overwhelmed with the rigmarole of the lengthy procedures involved in filing applications for each intellectual property, which is exactly why you should delegate it to the experts, depending on the situation.

5 Strategies To Reduce Patent Expenditure

5-Strategies-to-Reduce-Patent-Expenditure

“Reduce Patent Expenditure”: Have we read your mind?

The on-going pandemic has drastically affected the availability of resources for discretionary expenses such as patents. It is of no surprise that many companies are proactively looking to conserve cash by pruning their patent portfolio.

So, what are some of the strategies that companies can opt to reduce their patent expenditure?

The following points aim to highlight the plausible ways:

Trade Secret

Patents are intangible assets, and so are trade secrets that enjoy legal protection from misappropriation.

The caveat here is that if a trade secret holder fails to maintain secrecy or:

  • if the information is independently discovered,
  • becomes released, or
  • becomes known in the general course of business,

then the protection of a trade secret is lost.

Nevertheless, here is how the Courts can enforce trade secrets in misappropriation cases:

1. By ordering maintenance of secrecy.

2. Payment of royalty to the owner.

Watch Webinar: How to manage your prosecution in the Covid environment?

Webinar: 5 Strategies To Reduce Patent Expenditure In The COVID World

Defensive Publication

Patents are expensive, defensive publication is a good alternative. You can curtail or defer expenses relating to patents by using the defensive publication to your advantage.

The defensive publication refers to the publishing of a technical disclosure of your idea in the public domain. This disclosure prevents competitors from obtaining a patent.

The reason behind the popularity of defensive publication is its cost-effective nature over patents.

Provisional Patents

Unlike a utility patent, a provisional patent is not reviewed by the USPTO.

A provisional patent acts as a reservation for the invention until an investor is willing to file a utility patent. However, the follow-up utility patent application needs to be filed within a year.

Thus, filing a provisional patent allows a company to defer patent expenses for a period of less than a year. In this period you can continue to conduct more research into the market viability of the patent. You can also use this time to refine the patent product/process itself. 

Also Read: Everything You Should Know About USPTO Patent Center

Curtail Overseas Spends

Patents are an expensive proposition, more so in foreign countries where patent applications stretch out over a year or sometimes more.

Furthermore, the patent protection regime in such countries may not be conducive to patent filing as enforceability is often lax.

Therefore, companies should reconsider their non-strategic patent spends and weed out jurisdictions after undertaking a cost-benefit analysis of obtaining a patent in that particular country.

Continuations

A continuation patent application is an extension of the existing patent application. The continuation patent application increases the scope of patent protection from multiple perspectives.

However, continuations are expensive to file. Since they are “designed” around an existing patent, it only serves to enhance coverage of an existing patent.

To conserve cash, companies can either forego filing continuations or defer them.

Other Strategies

Here are a few more high-level strategies that will ensure the optimization of patent spends for companies:

Ask Questions

Companies or clients should regularly question their patent attorney to gauge the timeframe as to:

  • when a patent will be issued,
  • what are the chances of getting a patent,
  • how best to curtail patent spend, etc.

By asking questions at every step along the patent application process, the viability of a patent can be determined. Whether it makes monetary sense to pursue the issuance of a patent or abandon it altogether.

Align Corporate Strategy

Often, patents are pursued with the sole intention of ensuring the protection of an invention rather than a monetizable invention.

Hence, in the prevailing scenario of depleting cash reserves, it is prudent to pursue patent applications of those inventions which:

  • align with the overall corporate strategy
  • or are expected to provide for economic benefits.

License to Litigate

Patents are a means to litigate. They provide for the legal protection of your inventions. In cases of infringement, the Court can award damages, court costs, and reasonable attorneys’ fees. Hence, it is a wise notion to pursue a strategy only for patents that are litigate-able.

Let’s Sum It Up

The COVID pandemic has thrown corporate strategies as well as financial forecasts for a toss. It is the all-hands-on-deck mode to conserve cash. It is widely acknowledged that patents, albeit extremely critical to the success of a company, incur exponential costs.

Companies can rationalize their patent expenditure over the short-term and medium-term by aligning it with the overall business objectives. Companies can also opt for ways to postpone filing a patent application.

Hope the insights presented in the post shall help you reduce patent expenditure.