Got Intellectual Property? Part IV: The Unsung Trade Secret

A famous example of a company that chose to forego the patent route for a product is Coca-ColaCheck out the previous article in Mary's series on IP here.

In the area of Intellectual Property (IP) , startups or small businesses tend to fall into two groups. Those who focus exclusively on patent protection and those who view patents as too expensive and pointless without the money to defend infringement.

What is a Patent? It is not a Trademark, Copyright, or Trade Secret 

How often have you heard someone state, “My idea needs a patent” or “I will make a billion dollars on a patent for my <fill in the blank with exciting idea>.”

A client received an email from a competitor that demanded she stop using his “patented name.”  Patents are not granted for names. In another situation, the name associated with a patented product may well be a potential trademark or copyright but the name itself will never be patentable.

The other extreme is an anonymous inventor who had slight tunnel vision in creating his product, securing patents, and finding early customers. He was successful with all patents but unfortunately, the product’s name infringed upon a trademark in a major way. Unraveling that type of mess is expensive yet was avoidable by considering all types of IP for each idea or invention.

Patent Right to Exclude

Tangible products or inventions are traditional candidates for utility or ornamental design patents. Patents are also available for plant varieties, rounding out the three types of patents available to inventors in the US.i 

The USPTO defines a patent as the right to:

… to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States.i (emphasis added)

This right to exclude is given to the patent holder for a defined period of time. The patent holder may stop others from performing the actions, as listed above in bold, for twenty years from the application date for utility patents and fourteen years from the grant date for design patents. As an aside, a patent can take years to obtain in the US.

The US government grants a patent in exchange for the public disclosure or publication of the invention at the time of grant. The plan, process, and everything will be online at the USPTO for the whole world to see once the patent issues.

Not a right to make

Public disclosure is the trade-off for the right to exclude others from all making, using, selling, offering for sale, or importing of the patented invention. It is important to note that the patent is not the right to make or produce the patented invention, especially if that product relies on others’ technology or patents. The patent is simply the right to exclude.

Enforcing or Policing the Patent

If someone infringes on a patent, for example by making the exact same product and selling it to competitors, the patent holder has the right to enforce the patent rights. This is where the debate about the worth of a patent starts.

Like any other business decision, a cost/benefit analysis needs to be done and legal counsel must be sought. Patent litigation in the US is extremely costly. More importantly a lawsuit is very time consuming and can divert a small business from the important matters such as growing and running a business.

A pragmatic option is to use the patent to leverage the legal protection and collaborate. Thus, instead of suing, ask the infringer for a partnership or licensing arrangement that benefits both companies.  

After the Patent Expires

A famous example of a company that chose to forego the patent route for a product is Coca-Cola. The Coke formula has been secret for over a hundred years. 

If the company had taken the patent route, the formula would have been in the hands of the public when the patent was granted and fair game to make, sell, offer for sale and so on once the patent expired.

Coca-Cola would have been able to prevent others from making Coke using the formula and selling it during the life of the patent, but when the patent would have expired, anyone could have used the recipe and process to  create a Coke product.

Instead, the Coke formula is a trade secret that lasts forever without any filing with the US government as long as it remains a secret.

The often under-valued trade secret 

Trade Secrets are the unsung heroes to an entrepreneur or small business. The cost of keeping the secret is almost always substantially less than patent protection.

Like everything else in business and life, it is all in the planning. Once the secret is out, any protection ends. In the US, trade secret law varies state by state but the underlying theory is that the secret must have value to the business and be difficult to replicate. For example, the Coke ingredients may be easy to discover but the proportions and the process are difficult to create independently.

Each US state has different tests for protection but it boils down to having the secret protected by passwords, locks, or physically guarded; available on a need-to-know basis; identified to employee and contractors as secret; and protected by confidentiality and other contracts.   For some extremely valuable secrets, the process can be bifurcated so that no one person knows the entire process. For example in the case of Coke, hypothetically a few people would know the ingredients and a different set of people would know the process.

Deciding upon IP protection is not just a legal issue, it is a strategic business decision.

Therefore consideration should be given to trade secret protection as an alternative to patents. That decision should not be dictated only by the cost of patents or patent enforcement but also include viewing all the IP as a portfolio that can include the possibility of using trade secrets. 

A note on International Patents

The US is poised to change in March 2013 from one of the only places in the world where the first person to invent has patent rights to a system where the first inventor to file will prevail.  That change will be discussed in the future articles.

For now, know when applying for a patent in the US, it will be for the US only. Protecting international patent rights is complex and companies should seek legal counsel very early in the idea stage. The goal is to avoid any inadvertent bar to international patent protection while filing under the current US system. 

The next article will discuss IP ownership strategies and special copyright challenges with respect to software development, and trade dress issues, but please remember, when in doubt, consult an attorney. 

(i) http://www.uspto.gov/patents/index.jsp

This article was written by Mary Juetten, founder of Traklight.com a site that provides inventors, creators, and small businesses with the tools to identify and protect their intellectual property. Traklight® products include the IP Vault®, which enables users to time-stamp and store files to prove dates of creation, invention, and publication. Visit www.traklight.com and take the IP Risk Quiz to assess the risk of losing your IP. Use ID your IP®, the Traklight questionnaire and receive a Report that identifies potential IP, educates, and provides an action plan including strategic IP business tips. For larger companies, Mary also conducts in person IP Audits and provides IP Strategy & Education at InnovaPro Consulting, see www.innovaproconsulting.com 

Disclaimer:  This article is intended to be general information and nothing in this article constitutes legal advice. Please consult with an attorney before making any intellectual property decisions.

Image courtesy of FreeDigitalPhotos.net

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