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Protecting a company’s technology capital requires consideration of two main forms of intellectual property protection – patents and trade secrets – and their strategic application. Patents and trade secrets vary in several respects, and these differences typically will guide their use, depending on the technologies involved, to develop a framework for protection.
As a backdrop, one should bear in mind that we trade in a market where free competition is the rule. The open market rewards the better, faster, cheaper, more attractive – all things being equal (which, often, they are not). Relationships with employees, contractors and business associates may be short-lived through the influence of the expanded worldwide economy and as businesses seek to expand and diversify their product lines. Information is highly mobile and more available then ever. Anything that has been published or can be gained by reverse engineering is fair game. Finding information through analytic methods, electronic databases and web sites is relatively easy.
As exceptions to these general rules, patents reward public disclosure of inventions with limited exclusivity, while trade secret law protects valuable technological and commercial information not generally known against unauthorized taking and use by others.
Trade secrets and patent protection vary in several important respects. U.S. trade secret law comes from a patchwork of state statutes and court decisions and may vary slightly with the jurisdiction of a particular business or business dealings. A trade secret right is simply the right to halt the taking, dissemination or use of confidential technological and commercial information, including information that cannot be patented (e.g., customer and supplier lists, business plans and forecasts, drawings, etc.), and inventions that may not be patentable beyond the state-of-the-art (e.g., manufacturing practices, machining tolerances, constituent blending techniques, etc.).
Trade secret law requires the holder to prove he preserved the secrecy of the information and that the information would be valuable to a competitor. This proof typically requires the holder to maintain confidentiality practices, such as keyed access, computer security and sign-in logs. These rights can only be asserted against a person who took the information, so fair acquisition, independent development and reverse engineering cannot be reached by trade secret law.
By contrast, all patent law is in a single set of federal statutes. A patent is a right to exclude others from making, using, selling, offering for sale or importing an invention for a period of years. Patents can only protect those inventions that fall into the specific categories: compositions of matter, machines, processes and articles of manufacture. Patents are granted only after a patent application is examined to determine whether the invention is both novel and non-obviousness over known technology. The application process is relatively expensive and typically takes one to two years to reach a point where the applicant receives some indication from the Patent Office regarding the potential patentability of the invention. Once granted, maintenance fees must be paid during the patent’s lifetime. After a patent expires, the invention is available for the public to use. The patent system does allow applicants to protect trade secrets for a time, as patent applications are not published until 18 months from filing or not until issued (if the applicant elects to forego foreign patents based upon the U.S. filing).
Developing an overall strategy to protect innovation and market advantage will depend upon the technology history, its maturity and estimated lifetime, as well as the relevant market conditions, including the number, sophistication and motivation of potential competitors. One should consider whether and to what extent a given technology can remain secret. A product or technology that may be reverse engineered cannot be protected by trade secret law and are good candidates for patent protection, as are technologies that might be developed independently by competitors. In contrast, technologies that may have only a short shelf life (those associated with a first-mover advantage) or which cannot be obtained through reverse engineering, normally will be maintained as a trade secret.
If licensing is desired, patents are preferred because it is difficult to license and secure trade secrets from disclosure or parallel development. Patents may give a smaller company bargaining power in negotiations with customers and business co-venturers and may be made part of cross-licensing agreements to allow the company access to other patented technology.
No single strategy fits every technology-based business. Generally speaking, a well-conceived intellectual property strategy will involve consideration of a combination of patenting some technology while maintain other technology in secret. An intellectual property strategy should be designed with short and long-term business goals in mind and may change as new technological developments and business opportunities present themselves.
Roger Gilcrest is a partner in Schottenstein Zox & Dunn’s Intellectual Property Practice Group in Columbus, Ohio. He can be reached at (614) 462-1055 or rgilcrest@szd.com.
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