Patents are investments that can create long-term value, especially when combined in a comprehensive and strategic portfolio. Patents benefit their owners by granting two decades of legal protection — a significant amount of time in light of how rapidly technology develops. Trade secrets can protect a wide variety of innovations and may be a valuable tool in protecting a company against theft for as long as the company can keep a secret. In this article, we will offer you pointers for weighing the pros and cons of each form of protection.

What Is a Patent, and What Is a Trade Secret?

The concept of a patent can be traced back to ancient Greece, where some rulers granted exclusive rights to innovators and inventors for their products and refinements to encourage innovation. In the modern legal system, patent holders can sue infringers, seeking damages and court orders to prevent other companies from copying their products and processes. This gives inventors a wide-open field to sell their products in the marketplace and the opportunity to license their intellectual property to other companies to use, manufacture, or distribute their inventions.

A patent is a legal right to an invention that grants exclusivity to the patent owner to make and sell the invention it covers. To receive a patent, an inventor must file a patent application, which is examined by the patent office in a given country. In the United States, the examiner will decide whether the invention passes four criteria: eligibility, novelty, usefulness, and non-obviousness.

A trade secret is, in some ways, the opposite of a patent. There is no government filing or examination process involved, and the documentation about the innovation is simply kept under wraps within the company. The right to the trade secret exists simply upon designation of the innovation as a secret by the owners, and the right exists for as long as those owners can keep a secret. A trade secret is the secret sauce kept hidden from the competition – it’s the Colonel’s 11-herb-and-spice blend that’s been locked away since the 1940s, the secret to Coca-Cola, and even certain Google search algorithms.

The Pros and Cons of Trade Secrets

Filing a patent requires an investment of time and money, including inventor attention to collaborating with patent attorneys and the expense of attorney and government fees. Patents are excellent at deterring the competition from using an innovative technology. However, enforcing a patent against infringers comes with costs, such as those associated with sending cease-and-desist letters and filing litigation.

Furthermore, although there are some preliminary rights available to a patent applicant at the time of filing, most of the benefit comes years later – if and when a patent is granted.  Not every company will be able to take on the costs of enforcement and should discuss with their attorneys what value the patent will provide before it is granted and if it is never enforced.

One key advantage of a trade secret over a patent is that keeping a trade secret costs nothing in terms of filing fees, and the protection for the trade secret goes into effect immediately. Unlike patents, there is no application that must be filed to claim a trade secret and no legal entity with which to complete formal filings.

However, best practices for increasing the enforceability of a trade secret against someone who spilled the beans will involve additional costs. To enforce a trade secret, a court will look at whether the owner took reasonable measures to keep the information secret; therefore, companies are advised to draft and use non-competition and non-disclosure agreements. Companies also are advised to develop written protocols, such as marking relevant documents and communications as confidential and restricting access to the information on a need-to-know basis and documenting the policies defining that basis. Generating and implementing such protocols adds to the cost of the trade secret.

Another advantage of going the trade secret route is the lack of uncertainty about whether it will pass scrutiny. Patent applicants don’t know for certain if the patent office will approve an application, and patenting software comes with its own unique challenges. Unlike patents, which must pass the obviousness test and satisfy other legal requirements, trade secrets can be incremental improvements in technology or abstract ideas. It’s up to company leadership — not a Patent Office employee — to determine whether something is valuable enough to keep hidden.

However, trade secrets provide no protection if a competitor independently invents the secret or reverse engineers the secret. The company with the trade secret may have kept the secret in the most secure vault ever designed but will be defenseless if a competitor designs a similar invention on their own or figures out what the secret was without resorting to theft. Furthermore, if a competitor manages to steal a trade secret (for example, by hiring away an unscrupulous employee who is willing to share the trade secret), the former owner of the secret is no longer able to get a patent or other protection for the former secret.

Business leaders need to carefully measure the costs of each route, the risks, and the potential profitability to make the best decision. An experienced software patent attorney can work with a company to help make IP decisions that align with the organization’s business objectives.