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Trade Secrets vs Patents

By Chris Daming, J.D., LL.M. on February 10 2021

If you haven't read our trade secret protection guide, start there. If you have, one important issue is to determine when trade secret protection or a patent makes more sense. If you rely on trade secret protection in certain situations that call for a patent, your company could lose valuable information to competitors. Failing to apply the appropriate protection could destroy your company.

Differences between Patents & Trade Secrets

One important distinction to make is the difference between a patent and a trade secret. A lot of people ask, why wouldn’t I just file a patent instead of banking on this trade secret stuff?

And the answer is, “it depends.” Very often your information could be either a trade secret or a patent, so it’s important to analyze what intellectual property protection is best for your business.

To help you decide, think of these 2 things:

How long can you keep it a secret?

If you think your advantage from the information being secret will definitely last longer than 20 years--and still be valuable after 20 years--then trade secrets start to make a lot of sense. This is because patents only last 15 to 20 years depending on what type of patent it is. But also consider the next point.

How easily can the product/information/idea be reverse engineered?

How hard will it be for people to take your product and split it apart to see how you made it? Can they make a decent copy of it easily? If yes then a patent would be smarter because while the protection only lasts for a definite time, it protects you from reverse engineering for that whole time - trade secrets are not protected that way.

If you make the mistake of thinking that trade secrets are protected from reverse engineering, then the mistake could cost you the value of your company. Here’s an example.

Reverse Engineering Example

Let’s say you have confidential information that acts as a type of algorithm to help your customers automate their sales. But a competitor buys the product and is able to reverse engineer the technology. If you relied on that information to be a trade secret and that information was the entire value of your company, then you would’ve lost your entire company because you didn’t get a patent for the information.

Apart from being precluded from going with the other intellectual property type, this could also cost you years of protection. This is because you’ll lose the value of your intellectual property early if you make the mistake. If you go with trade secret and your product is reverse engineered, then you lose it immediately. Or if you go with patent and the value would’ve lasted a lot longer than 20 years, then you’ll lose it eventually when it was unnecessary.

Also Consider Cost

Another consideration is that patents cost more, which is a factor for many new, cost-conscious businesses. If you have a strong product and you’re not sure about this issue, you should reach out to an IP attorney to get help. There’s just way too many variables to give a definitive answer in gray areas without knowing all the specific facts.

Topics: Trade Secrets