When developing new products and services, innovative businesses often develop commercially significant inventions. The natural question is then how to protect those inventions for their own use. This can be achieved through the grant of a patent, or by keeping the invention a “trade secret”, with each option having its own specific requirements and advantages.

Keeping the invention as a trade secret obviously requires that the details of the invention are maintained as confidential. On the other hand, the process of seeking patent protection means that the invention will be published, but in return for a time-limited monopoly to the invention. These are but a few of the important differences between patents and trade secrets. Moreover, once a decision is taken on which form of protection to pursue, it is generally impossible to change to the other. It is for this reason that inventors must carefully consider each option, including the specific requirements and advantages, to ensure that they make the right choice for their invention.

What is a trade secret, and what does it cover?

There is no statutory definition of a trade secret in Australia. However, there are various statutes which protect against the disclosure of confidential information through imposing an obligation of confidence[1].  The value that attaches to the trade secret is the information that gives the owner a competitive advantage over its competitors, and can be considered as any information that is: not in the public domain, is of a confidential nature or is known to a limited number of persons, is subject to reasonable steps taken by the rightful holder of the information to keep it secret, be of commercial value now or in the future, and have access controlled/limited. The mere desire or intent to keep information a secret is not enough.

Examples of trade secrets include information such as: business plans, manufacturing processes, , algorithms, software code, marketing information, client and supplier data, formulae, test data, cost data, and competitive analysis.

3 factors to consider

The decision between obtaining a patent and maintaining a trade secret is sometimes not straightforward, and can depend on the business objectives. There are several factors to consider, including: the “kind” of the information, the timeframe of protection required, and the ability to be reverse engineered or discovered independently. In the following, we explore the factors that can affect which option to pursue, and in Figure 1 we have mapped out a convenient flowchart.

 

Figure 1

 

1. What is the information that requires protection?

A trade secret can be any information of commercial value decided by a business. In contrast, a patent may only be granted to an invention that satisfies specific criteria, e.g., the invention must satisfy an inventive step[2]. Additionally, patents are not available for certain inventions, such as biological processes for the generation of humans[3], or a substance (or process for producing a substance) that is capable of being used as food or medicine (whether for human beings or animals and whether for internal or external use) and is a mere mixture of known ingredients[4]. In addition, an invention may not be patentable if it was used for commercial gain before a patent application is filed, i.e., “secret use”. However, in some jurisdictions, such as Australia, a 12-month grace period is available in which to file a complete patent application after any (intended or unintended) disclosure or secret use of the invention.

It is therefore important for a business to assess the patentability of the information that requires protection. If it is not patentable, a trade secret may be the only viable option. In some cases, a “mix and match” may be employed, whereby the invention is patented, while certain information relating to the invention remains a trade secret. For example, a medical device itself may be patented with aspects of the unique manufacturing process remaining as a trade secret. This ensures that the medical device itself is protected from infringing activities within its patent term, while those aspects of the manufacturing process are reserved for other potential products. The “mix and match” approach can be valuable for complicated inventions, and requires deliberate strategy and management.

2. How long is protection required?

A trade secret can be kept indefinitely if confidentiality is maintained, while a standard patent has a maximum protection term of 20 years[5]. If the information has a diminishing value over the course of 20 years, for example if it is in a rapidly evolving field of technology, a patent is likely the preferred option.

3. How difficult is it to protect the information?

A trade secret loses its value when publicly disclosed, and the risks of disclosure increase with an increasing number of parties that have (authorised) access to the information. On the other hand, the information in the patent specification will be in the public domain once it is published.

Trade secret protection is not useful for inventions that can be reverse engineered, or otherwise independently developed.  Certain technologies may mean reverse engineering is difficult or impossible, whereas others maybe relatively simple to reverse engineer. Generally speaking, the easier it is to reverse engineer an invention, the less value there is in keeping the invention as a trade secret, since others could independently discover it. As such, patent protection is more appropriate for these inventions. Conversely, where it is harder to reverse engineer the invention, trade secret protection becomes more valuable.  Additionally, it follows that patent protection is preferred for inventions that are easily detectable.

Conclusion

This article outlines some of the important questions faced by a business when considering how to protect its IP. Understanding the requirements and advantages of both patents and trade secrets helps organisations make informed decisions on how best to protect their IP.

[1] such as the Corporations Act 2001 (Cth) and the Privacy Act 1988 (Cth).

[2] Patents Act 1990 (Cth) s 7(2).

[3] Patents Act 1990 (Cth) s 18(2).

[4] Patents Act 1990 (Cth) s 50(1).

[5] up to 25 years in Australia for pharmaceutical inventions.