“If you build a better mousetrap, the world will beat a path to your door.” Ralph Waldo Emerson
The importance of Protecting Intellectual Property
Protecting an invention is often an existential endeavor, especially for a startup. Nothing is more disheartening to an inventor than to pitch an idea to an interested funder, only to see the idea appear as marketed products. Tracing the source back to someone connected to the product pitch is galling.
Traditionally, obtaining patent protection on an invention is popularly thought of as an easy path to riches. However, the reality is more complex, and monetization of an invention requires more work than simply getting a patent. As Thomas A. Edison reputedly said: “Genius is 1 per cent inspiration and 99 per cent perspiration.” While probably an exaggeration for dramatic effect, there is much truth in the statement when taking into account the effort that is needed for implementation of an idea. President Lincoln, incidentally the only US president to ever have obtained a US patent, said in support of the patent system that it “added the fuel of interest to the fire of genius.” It is the rewards provided by the patent system that provide the incentive for an inventor or multinational pharmaceutical company to spend fortunes and countless hours on perfecting and developing an innovation to where it is marketable to a wide purchasing public.
Protection of an idea lies at the heart of intellectual property. An idea that seemingly comes out of the blue requires development, marketing, and sales in order to monetize it. Protection of that idea from poaching requires vigilant efforts in monitoring competitors. Blocking a competitor from capitalizing on the fruits of one’s ideas and efforts, which can often be done at little expense to the late-coming poacher, depends on a risk-reward balance and is all-important to commercializing an invention. But what are the best means of protecting intellectual property?
Idea Protection Made Easy
To protect an idea itself, so as to claim exclusive rights to practice the idea, the two types of protection available under U.S. law are patents and trade secrets. There are advantages and disadvantages to each. Patent rights derive from Article I, Section 8 of the US Constitution, giving to Congress exclusive powers in which to legislate “to promote the Progress of Science and useful Arts.” Instituted pursuant to that authority, the Patent Act creates a patent system in which an inventor is granted exclusive rights in an invention for a limited time, currently twenty years from the patent application filing date. In exchange for this right to commercialize an invention exclusively (without fear of competition) for the indicated time period, the inventor must disclose all that will enable someone else who is knowledgeable in the field of the invention to practice the invention without any further research or experimentation. This patent “contract” promotes the progress of knowledge in that once the patent is published, it becomes publicly available to the industry to which it pertains. This leads to dissemination of the knowledge imparted in the patent, and once the patent expires, all are free to practice it without fear of liability.
Trade secrets can also protect an idea under the right circumstances. A trade secret is information that has either actual or potential independent economic value by virtue of not being generally known. However, efforts must be made to maintain the secrecy because the value of a trade secret is lost if it becomes public. Examples are specialized techniques or know-how directed to a product’s manufacture, precise ratios of ingredients in a recipe, financial and marketing information or plans, specific algorithms for ranking websites, and other similar types of valuable information.
Patent and Trade Secret Advantages
The advantage of a patent is that even if a second, late-coming inventor independently discovers the same invention, that later inventor may not obtain patent protection, and a claim of infringement can be brought against the second inventor if the patent claims cover the invention. The patent further provides enhanced marketing power since the patent number listed on a product serves as a warning to competitors thinking about venturing onto another’s technology and enhances a purchaser’s confidence that the technology is cutting edge.
In contrast, a trade secret is not time-limited, but is limited in the scope of protection it offers. Another drawback is that trade secrets are enforceable only against those who misappropriate a trade secret. If a competitor can reverse engineer a product or if a trade secret is independently developed, then the protection offered by a trade secret becomes ineffective. A recurring theme in trade secret litigation is a competitor who obtains the secret by hiring a key employee having knowledge of the trade secret or by conducting surreptitious industrial espionage, with the trade secret owner then trying to salvage what trade secret value is possible after that misappropriation.
Another major consideration is the cost of securing one or the other type of protection. The costs of obtaining a patent, including all costs of discovery, research, and development, are significant, especially for a first-time inventor or a small concern. These costs include hiring a patent lawyer to write the application, preparing appropriate patent drawings, paying filing fees, and covering the legal costs associated with the application examination process in the United States Patent and Trademark Office. Costs to maintain the patent after it is granted include escalating patent annuities or periodic payments to keep the patent in force. Also, if an invention is considered important enough, filing for patents in foreign countries will be required to protect from foreign competitors.
The timing of these patent costs is also important, as many arise at an early stage of the development of an invention. The costs of obtaining and maintaining patents in the US will likely exceed $10,000, with another $10,000 or so per additional country in which protection is sought, depending on translation costs, etc. These costs are upfront sunk costs, often incurred before an invention can be commercialized and marketed. Commercialization that does not occur early on in development, that is, before the technology can be validated or becomes obsolete, risks having the patent process become ineffective.
By contrast, the costs of trade secret protection are considerably less than those involved with obtaining patent protection. Essentially, the costs of obtaining a patent are avoided, but appropriate measures aimed at preventing discovery are needed to maintain trade secrets. The value of a trade secret lies in the economic advantage derived from the competition not knowing or being able to duplicate or “reverse engineer” an innovation. Thus, after a trade secret has been developed, it is important to maintain its secrecy from the public, such as by carefully guarding the secret against dissemination, keeping documents and formulas in a safe place, and making such information available to only those who will use it in the business. It is perhaps an apocryphal story that only two people in the Coca-Cola company have complete knowledge of the formula for the flavoring in the popular soft drinks. Trade secret protection may also necessitate the use of non-disclosure agreements with employees, vendors, and suppliers, which will require legal expertise. Nevertheless, the costs of maintaining the secrecy of a trade secret are minimal when compared to patent protection.
Factors for Choosing Patent or Trade Secret Protection
What attributes of an invention will lead a sharp business owner to choose one type of protection over another? Companies need to choose which type of protection offers better returns while minimizing the overall risk that one’s intellectual property will be misappropriated, especially in these days of the risks of foreign competition horning in on one’s business after large sums and diligent efforts have developed a product line.
- Of utmost importance is the ease with which an innovation can be “reverse engineered.” If a product can be disassembled and its working and operation are easily discovered, then trade secret protection is not the right avenue.
- Consideration of costs leads to the question of whether monetization of the idea or sales of the product will exceed the costs of patent protection.
- In fast-moving industries, e.g., integrated circuit production, technology changes so quickly that twenty years will far exceed the product’s marketing life span. Obtaining a patent on aging or obsolete technology does nothing to protect against competitors using the idea while the patent is pending, so trade secrets and know-how may be more effective in these cases.
- Another factor is the life span of the protection, since trade secret protection if properly maintained can be virtually indefinite. If a trade secret has value for a period of over twenty years, then it is more desirable than a patent.
- As a final point, if an invention need not be protected overseas, and there is a possibility of obtaining patent protection, US patent law permits non-publication of a patent application, so that it retains its secrecy. When a patent is granted, and then published, it affords patent protection for the twenty-year period. If it is not granted, then the inventor does not divulge enabling details of the invention, and can maintain any aspects of the invention that remain protectible by trade secret.
Article by Van Economou
This blog post is not intended to be legal advice, and no attorney client privilege attaches by any communications. Ziliak Law, LLC stands ready to assist you in evaluating your invention and to advise whether patent or trade secret protection is more appropriate. Our litigation team is also ready to assist in enforcing your rights should your patent be infringed or trade secret be misappropriated.