Integrating Secrecy and Exclusivity to Gain Competitive Advantage

First Publication Date: 10th December 2010.

Patents protect inventions by granting exclusive rights for a period of twenty years and trade secrets protect any information having business value as long as the information can be maintained secret. Unlike patents, trade secrets need not be registered and will remain valid based on measures taken by the trade secret holder. The subject matter of trade secrets is very broad and a very small portion of that subject matter relating to inventions overlaps with that of patents. What protection should a company opt for with respect to the overlapping subject matter?

As propounded by the US Supreme Court in Kewanee Oil case, inventions may be classified into three categories for making the decision:

a. Patentable inventions;

b. Non-patentable inventions; and

c. Doubtfully patentable inventions.

As far as non-patentable inventions are concerned, the protection strategy is one sided. For example, in India, animals, plants, essential biological processes, business methods, computer programs per se and so on are not patentable and can be protected as trade secrets only. The decision has to be really made only with respect to doubtfully patentable and patentable inventions. It may be easy with respect to doubtfully patentable inventions because patent filing results in disclosure and loss of trade secrets and therefore, trade secret protection may be a more favourable option. When it comes to patentable inventions, there is a direct conflict and one of the options may have to be chosen by a company based on certain business considerations. Some of the factors considered for making the decision are:

Independent creation is an exception to trade secret misappropriation and if the probability of an invention being independently created are higher, patent would be a better option else trade secret protection may be favoured. For example, if two scientists are working on the same target for diabetes, it is likely that both of them will come up with the same invention. Under such a scenario, patent protection would be a better option.

Reverse engineering is another exception to trade secret misappropriation. If an invention can be easily reverse engineered, patents would be a better option else trade secret protection may be favoured. For example, if a person has come up with cricket balls that are durable because of ingredients used in it, patent protection may be a better option because any person can buy a ball in the market and understand the ingredients.

If many companies are working on an invention, it may be advisable to go for patent protection because the possibilities of independent creation are higher. For example, many companies are today working on wireless communication technologies and it would be advisable to file for patents instead of protecting such inventions as trade secrets.

If the invention has a very short life of five years or a long life of more than thirty years, then trade secret protection may be favoured over patent protection. On the other hand, patent protection may be a better option if the life of the invention is around ten to twenty years. The cost and effort of acquiring a patent may not be worthwhile if the invention has a very short life and in case of an invention having a very long life, patent protection may reduce the value that may be derived from the invention because the patented invention after twenty years enters the public domain. For example, if a person comes up with a anti-virus software , it may be advisable to go for trade secret protection because its shelf life may not be more than three to five years.

If the number of patents relating to an invention are very high, it means that many people are working in the field and therefore, patent protection may be favoured. On the other hand, one more patent to an already crowded field may not give any business advantage and trade secret protection may be preferred.

If an invention relates to a technology that may form part of standards, patent protection may be advisable over trade secret protection. For example, if a person comes up with an invention with respect to 4G technology, it is better to file for a patent in order to push it into the standards.

The afore-mentioned and other relevant factors must be considered as a whole for making the decision with respect to patent or trade secret protection. Having said that, different facets of an invention may be protected as patents and trade secrets. Acquiring a patent requires disclosure of details of an invention as mandated under the patent law and other information with respect to the invention may be protected as a trade secret. For example, a patent specification must have an enabling description of an invention and negative data, best mode after patent filing and other details need not be provided. Such information may be protected as trade secrets. If the subject matter of a patent is a chemical composition, the best way of making the composition and substitutes to ingredients of the composition may be protected as trade secrets. Under such circumstances, an invention must be strategically protected under both patent and trade secret regime.

Trade Secret protection provides business and competitive advantage to a company based on secrecy. A company protecting information as a secret gets the right to prevent patent grants with respect to the invention that is the subject matter of secrecy. Section 64(1)(l) of the Indian Patents Act provides that a patent may be revoked if it was secretly used in India before the priority date of the patent. Unlike in many other countries, the secret use for revoking a patent need not be by the patent holder himself. Any person secretly using an invention can revoke the patent with respect to the invention in India provided the prior secret use can be proved. By using secrecy against a company successfully prevent another from gaining competitive and business advantage through patent protection.

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