A recent study performed by the School of Economics and Management at the Technical University of Lisbon concluded that, contrary to perceived conventional wisdom, only 10 percent of innovative products in the marketplace are patented. The study was based on an analysis of 2,802 inventions from 1977 to 2004 that won Research & Development magazine’s R&D 100 Award, which annually recognizes the top 100 technologically significant products of the year. The results were particularly surprising in light of the fact that, to win the award, the products must have been available for sale and licensing and therefore represent full-developed R&D efforts. Typically, these types of products would be the most ripe for the patent process. Yet, for some reason – whether patent protection was simply unavailable or innovators are opting out of the patent process – the vast majority of innovation is taking place without resort to patent protection.
One lesson from this study, however, is clear. Trade secret law, as an alternative to patents, may be one of the most important ways to protect and develop new and cutting-edge ideas for up to 90 percent of innovative products. As the U.S. Supreme Court pointed out in Kewanee Oil v. Bicron, 416 U.S. 470 (1974), “trade secret law will encourage invention in areas where patent law does not reach, and will prompt the independent innovator to proceed with discovery and exploitation of his invention.” Though trade secret law is generally related to contract, tort, property and even criminal law, most legal scholars and courts now firmly consider trade secrets to be a form of intellectual property. (See Mark A. Lemley’s The Surprising Virtues of Treating Trade Secrets as IP Rights, published in the Stanford Law Review.) Trade secrets are generally defined as an exclusive right to valuable information not generally known in the industry or readily ascertainable by competitors.
In many cases, it makes more sense to protect intellectual property using trade secrets rather than patents. Trade secret law: (1) provides broader protection than patent law; (2) is immediately available and requires no government approval and costs significantly less; and (3) permits the inventor to keep the innovation “secret” without having to disclose the idea through patent publication.
First, with respect to breadth, trade secret law protects assets that are not otherwise protectable under the patent law. Trade secrets need not be “novel” and extend to valuable information like business plans, customer lists, technical drawings, processes, procedures, marketing data and forecasting that are specific to the innovator so long as they are secret, valuable and not generally known in the industry. A trade secret can also be “negative” know-how, that is, what paths to development would be unsuccessful, which are sometimes as valuable in terms of time and money as those that are. Moreover, trade secrets may be protected in perpetuity – or until someone else independently develops the idea or reverse-engineers it – whereas patents have a duration of 20 years.
Second, trade secret protection attaches automatically to ideas and information that are kept secret and subject to reasonable measures to protect secrecy. Trade secrets do not require any government approval, formalities, are not subject to a registration process, or official costs. Trade secrets are also not subject to the attendant delay of the patent process, which could take years to complete, and therefore are a more practical and attractive alternative for innovators in fast-moving industries. For the same reasons, trade secret protection is often less expensive than obtaining a patent and is also attractive to startup companies and small businesses.
Third, unlike patents that are published and must be enforced through litigation if infringed, the holder of a trade secret must only keep the information secret to qualify for protection. The ability to keep information secret, rather than disclosing it through the patent process, could potentially be a very lucrative decision. The classic example, of course, of where an inventor made a great choice choosing trade secret over patent protection is the formula for Coca-Cola, which still maintains its trade secret status.
Trade secret protection is not always the best strategy for protecting intellectual property. Trade secrets are not protected if another person develops – independently and without accessing the secret information – the same exact idea. Moreover, if a product that contains a trade secret is released into the market, trade secret protection is lost if the trade secret can be reverse-engineered. Thus, trade secret law is not effective for obvious and generic new ideas or those that could be easily reproduced once a product is in the market. For example, the design of a cement mixing truck was held not to be a trade secret because it was obvious once the truck hit the street which direction the cement was being loaded to be mixed, in Sims v. Mack Truck, 488 F.Supp. 592, 603 (E.D.Pa. 1980).
With the upside of protecting vast amounts of otherwise nonpatentable information and ideas through the use of trade secrets, the question becomes: Are innovators doing enough to protect their trade secrets? Methods for protecting trade secrets will vary depending on the size and scope of the enterprise and the secrets kept therein, but here are general guidelines to help ensure secrecy:
• Build a culture where innovative ideas and information are highlighted as critical, valuable and that they will be protected.
• Emphasize the importance and secrecy of the information through the use of nondisclosure and noncompete agreements.
• Ensure that facilities where trade secrets are kept are physically and electronically secure with locks, passwords and credentials, and limit access to such information to those that really need to know.
• Mark physical and electronic documents with legends and footers indicating that the information is “trade secret” and “confidential.”
•Establish policies and procedures to protect the information and continue to make employees aware of the importance of such information through training.
• Keep current with technological advances that allow misappropriation of trade secrets and adjust security, monitoring and policies as necessary. •
Leigh Ann Buziak is an attorney in the Philadelphia office of Blank Rome, an international law firm. She concentrates her practice in complex commercial litigation, specializing in trade secret and noncompete cases and can be contacted at 215-569-5386 or firstname.lastname@example.org.