IP Law Essentials

Trade Secrets and Patents: Similarities, Differences, and Interplay


Trade secrets and patents constitute two of four types of intellectual property. (The other two types are copyrights and trademarks.) This means that the underlying purpose of trade secret and patent laws is the same: to help inventors and owners protect their intellectual property, the fruits of their labor. However, patents and trade secrets are intended to protect different things, are obtained differently, and can be lost differently. The following Q&A addresses these issues.

Q. What is the difference between what a trade secret is intended to protect and what a patent is intended to protect?

A. A trade secret is typically defined as information that derives economic value from not being generally known or readily ascertainable and has been the subject of reasonable efforts to maintain its secrecy. Take a look at our earlier post on the fundamentals of trade secrets for a few examples of types of trade secrets. On the other hand, a fundamental aspect of a patent is that it does not remain secret. It is published and made publicly available for the purpose of encouraging and promoting further invention.

For trade secrets, if you believe that certain information is worth protecting because the secrecy of that information provides you with a competitive edge, then it very likely already has "economic value." The trade secret must also be guarded with "reasonable measures" to protect its secrecy. As we explored in our earlier post on reasonable measures for the protection of trade secrets, whether measures to maintain secrecy can be deemed "reasonable" depends on the circumstances. For example, courts may look to see if internal and external access to the information was restricted on a need-to-know basis, or whether business partners were required to sign non-disclosure agreements before gaining access to the information.

Patent protection, on the other hand, is based on whether the invention has been sufficiently disclosed to the public, as well as whether it is novel, non-obvious, useful, and constitutes patentable subject matter. An invention is "novel" under the patent law if it is new; "non-obvious" if it is inventive; and generally "useful" if it not a fantasy or an impossibility (like a time machine or a perpetual motion device). Whether an invention is "patentable subject matter" is complicated and is addressed in detail in earlier posts. Suffice it to say that courts don't like the patenting of abstract ideas, laws of nature, or natural phenomena.

Trade secret protection is available for a broad range of technologies: formulas, patterns, compilations, programs, devices, methods, techniques, and processes. Some examples of trade secrets include secret formulas, manufacturing processes, and source code. Confidential business information such as client lists and pricing data can also qualify for trade secret protection. A safe rule of thumb would be to assume that any internal document or information is a trade secret if it would upset you, your boss, or your company if it were to be obtained by a competitor. It's also probably safe to assume that most sophisticated companies have at least one trade secret. Patents can similarly protect many types of inventions. But the range of patentable inventions is arguably narrower than the range of inventions protectable by trade secret. Devices and manufacturing processes, and their improvements, are among commonly patented inventions.

Q. How can I obtain trade secret or patent protection?

A. Your information is already a trade secret if it has economic value due to its secrecy and you have taken reasonable measures to keep it a secret. In the U.S., you don't have to register your secrets with any governmental body to qualify for trade secret protection. But to obtain a patent, you must apply to the United States Patent and Trademark Office and, typically, go through a lengthy examination process by a patent examiner. If your patent application contains misrepresentations or inaccuracies, or if your patent is written ambiguously or without proper disclosure, the patent may be invalid. Patent applications publish before the patent issues. So your invention will be publicly available as soon as the application is published, not when or if the patent application actually becomes a patent.

Q. How can I lose my trade secret or patent?

A. Trade secrets are lost as soon as the information is no longer a secret. This includes if someone legally reverse engineers your trade secret or independently derives it. But if the information never loses secrecy, a trade secret can theoretically last forever. In contrast, patents expire at some point after they are registered. In the U.S., this is typically 20 years after the patent was filed. To maintain your patent, you have to pay the Patent Office maintenance fees every few years. Patent protection can also be lost if your issued patent is challenged and deemed invalid by a court, the Patent and Trademark Office, or the Patent Trial and Appeal Board.

Q. Can I obtain patent and trade secret protection on the same invention?

A. Patent and trade secret protection cannot be used simultaneously to cover the exact same aspects of the exact same invention. Because patents are published, the public disclosure necessarily destroys the requite secrecy for trade secret protection. This means that, depending on the nature of your invention or information, you have to think carefully about which protection is most appropriate for you. However, you can use trade secret and patent protection for different aspects of your business or invention to allow for more synergistic or complementary protection. For example, you might opt to patent a device, but maintain the manufacturing process for that device as a trade secret. Similarly, if an invention has been disclosed in a patent application, the associated or collateral know-how not divulged can, and arguably should, still be retained as a trade secret. This includes all of the research and development data even if you later opt to disclose some or all of that information in a subsequent patent application. In other words, complementary patenting and padlocking is tantamount to having the best of both worlds, especially when technologies are complex and consist of many patentable inventions and volumes of associated know-how.

Q. What if someone uses my patent or trade secret?

A. If you believe that your patent or trade secret is being improperly used, you may have grounds to bring legal action. Even before a judge or jury rules on your claims, you may be able to obtain a "preliminary injunction" in your favor. This typically means that the person or entity utilizing your intellectual property must refrain from any further use until the end of the case (or a date determined by the judge issuing the preliminary injunction). Because trade secret protection is destroyed by public disclosure, how long you take after discovering a misappropriation to bring legal action can often determine whether you get to keep your trade secret. Conversely, because you don't lose patent protection from public disclosure, time is not as critical.

If you ultimately win your patent or trade secret case, you can obtain some sort of remedy. The remedy may be in the form of a permanent injunction, which means that the defendant is prohibited from engaging in the enjoined conduct. You could also win money, which is referred to as monetary damages. Many of the types of damages for patent and trade secret cases are the same. For example, infringement of either type of right may require the defendant to pay a "reasonable royalty," which is what the defendant would have paid you for a license had they licensed your technology instead of violated your rights. And in both trade secret and patent cases, you may also get the amount you lost in profits due to the defendant's conduct. In both patent and trade secret cases, attorneys' fees may also be available, but only if the circumstances were particularly egregious.

But some damages are unique to the type of right. A defendant in a trade secret case may have to pay "unjust enrichment" or the money the defendant earned off the plaintiff's trade secret. And patent damages may be defined or limited by statute. One example is the damages multiplier that applies in some cases where the defendant knew about the patent before engaging in the infringing conduct (i.e., they willfully infringed). Another example is the notice that you must have given in order to get back-damages.

In sum, patents and trade secrets are both powerful tools to protect your innovations and business. They may be used in a complementary manner to get the utmost protection, but it is important to know their different scopes or protection and how each can be obtained and lost. For further reading, take a look at our blog post about the differences between patent and trade secret litigation.

More questions? Contact the authors or visitFish's Intellectual Property Law Essentials.