Software patent vs trade secret
In a perfect world, businesses would be able to plan whether to protect their best ideas  with patents or with trade secrets. But businesses do not operate in a perfect world. They operate in the real world. And in the real world, businesses often have to make difficult decisions based on their circumstances. A patent is a limited monopoly granted by the government to inventors in exchange for public disclosure of how to make and use their invention.
The Founding Fathers included patent and copyright protection in the Constitution. While there can be disagreement about whether your idea is new or useful, most of the back-and-forth discussions between inventors and the USPTO concern the non-obvious concept of non-obviousness.
When the USPTO rejects your idea as obvious, it puts itself in the position of one skilled in the subject matter of your idea and combines ideas from multiple prior art references some would say in hindsight to come up with your idea.
Anything tangible or intangible or electronically kept or stored, which constitutes, represents, evidences or records a secret scientific, technical, merchandising, production or management information, design, process, procedure, formula, invention or improvement. Under the UTSA, a trade secret, therefore, must software patent vs trade secret some value as software patent vs trade secret secret, and the company must make efforts to keep the trade secret a secret.
In many cases, businesses will make a conscious choice to protect their ideas with either patents or trade secrets. But in many cases, businesses are unaware software patent vs trade secret such a choice exists.
And, of course, how one chooses to think about the issue will also depend on how the question is framed. Consider the following questions:. The above software patent vs trade secret are obviously designed to be pro-patent and anti- trade secret.
But patent protection software patent vs trade secret not always the most appropriate course of action. Often times trade secret protection is the right choice. And although the title of this article may suggest that there are only two choices, there are software patent vs trade secret.
And most businesses are in business to make money. Therefore, your decisions about intellectual property and about all business decisions, for that matter should consider the financial results you are trying to achieve. In business, you do not have to know all of the answers. You just have to know which questions will lead you to the answers. Therefore, beginning with the end in mind, ask yourself these questions:.
The answer is, of course, it depends. The rights granted to inventors under the Patent Act include the right to exclude others from making, using, or selling your invention throughout the United States.
Practically speaking, this means that you can use your patent offensively to request licenses from competitors either through negotiations or litigation or defensively to reject requests for licenses from competitors.
A trade secret, as long as it is kept secret, gives you an advantage over your competitors. It is worth noting that trade secret rights are rarely litigated. A trade secret can be the subject of a patent application. And if the patent application never matures into a patent, the applicant can fall back on trade secret protection, because Software patent vs trade secret. However, in order to bring U. If your product software patent vs trade secret be reserve engineered, then patents are preferable.
If reverse engineering reveals something that you had been protecting as a trade secret, then the subject of your trade secret is no longer secret and hence no longer a trade secret.
In this case, patent protection is preferable. If you believe that your invention is likely to be invented by a competitor, then it makes sense to pursue patent protection. The worst case scenario would be for you to choose trade secret protection, have your competitor independently come up with the same invention, patent it, and then require you to pay a licensing fee for your software patent vs trade secret invention! If you need to publicly disclose your idea, then patents are preferable.
For example, you may have a software invention that your sales force needs to demonstrate, describe, and offer to sell.
In this case, it may be easier to file for a patent, rather than try to have each and every prospective customer sign a nondisclosure agreement. Trade secrets are the only choice when your invention was, but no longer is, patentable for example if you have publicly used the invention for more than one year or you have sold or offered to sell the invention for more than one year. Trade secrets are the better choice when the life of your product is substantially shorter than the year life of a patent.
These include publishing your invention and selling or offering to sell your invention. Once these events have occurred, you have a one-year grace period in which to file your patent application. Second, be aware of your competition. Are they working on the same technology, and are they likely to file software patent vs trade secret a patent on it?
Third, keep good records of invention. Most of the rest of the world grants patent priority to the first inventor to file a patent application. Filing is important in the United States as well, but if a dispute arises, invention notebooks and software patent vs trade secret like will be used to determine which inventor invented software patent vs trade secret.
Fourth, file at the right time. But if you file your PPA and are unable to turn your idea into money in the next year, then you will have lost the benefit of the earlier filing date. In other words, by filing your RPA too soon, you can inadvertently prevent your invention from getting patented.
Having a patentable invention is great, but you also have to convince others to pay money for it. Fifth, quit your day job. Second, establish procedures for keeping your trade secrets confidential. All employees should sign employee agreements on their first day of employment. You should also make sure you are paying your employees more than enough to keep them from jumping ship.
Fourth, if you are filing for a patent on a trade secret, initially elect not to file for foreign patents. This way, your trade secrets will not be automatically published by the USPTO 18 months after you file, and if your patent application ultimately fails, you can fall back on trade secret protection for your idea.
What should Company A consider? Would your answer change if the company had ten products instead of one? If the product were a consumer product or a business product? But if you are thinking outside of the box, you will see that there are two other options that have not been discussed at least not directly in this article. Your publication will prevent applications filed a year after your publication from receiving a patent.
In fact, there are special interest groups dedicated to doing just this. Note that while courts generally will software patent vs trade secret employee confidentiality agreements, they are less likely to uphold employee non-compete agreements that prevent individuals from making a living. Whatever method you adopt to protect your ideas should be thoroughly tested. If you succeed, you should re-draft your patent application. When you create a trade secret policy, you should put yourself in the position of an employee who is committing corporate espionage.
Ultimately, protecting your best ideas is a process, not an event. But it is a process that software patent vs trade secret not exist in a software patent vs trade secret. It is a process that is affected by other events. And it is a process that must evolve as your business evolves to remain competitive.
Trade secrets can include customer lists, product launch plans, formulas, and the like. So I am framing the issue as whether to protect business ideas as inventions via the application of patent laws or as secrets via the application of trade secret laws. The Uniform Trade Secrets Act is one such model code. The UTSA has software patent vs trade secret been uniformly adopted by all 50 states.
See, for example, the trade secret statute for Massachusetts, M. Based on census data http: What does this tell you? If you software patent vs trade secret a US provisional patent application, and then abandoned it no non-provisional filedcan this non-published document be subsequently used as a first-to-invent record against future patenting by another party?
Since the US uses the first-to-invent system, any publication can be used to try key word to prove that you were first. The problem is that this issue typically has to be proven in court.
If you want proof without lawyers, then a published patent application or issued patent is the best prior art to use. The USPTO is very good at searching patents and patent applications, not so good at searching non-patent prior art. Hi Is it not possible to have a trade secret and use a commerical timestamp server http: Drug companies make large use of timestamp technology to back up their patents. Are there no cases that bring this to bear regarding trade secrets? Due the development of the Internet, digital media, and computer network technologies such as peer-to-peer file sharing, reinterpretation of these exceptions has been necessary.
What is a Patent? What is a Trade Secret? Patent and Trade Secret Comparison Chart software patent vs trade secret. What Good is a Patent?
What Good is a Trade Secret? Can a Patent Become a Trade Secret?
Intellectual property is vital to the health and growth of a complex market economy. The choices facing inventors and companies in terms of how to protect their intellectual property are complex, typically requiring analysis of legal, economic and strategic issues. This chapter highlights some of the economic variables to be considered when choosing between patenting an invention and protecting it under the laws and regulations of the patent system or protecting the invention by keeping it secret and making use of the relevant trade secret laws.
An inventor or company can choose to disclose an invention so that the world can benefit from it and the knowledge that went into its creation, and in return receive a patent. A patent right grants the holder the ability to exclude others from using the patent without permission for a limited period ie, 20 years from filing of the patent.
Alternatively, the same invention can be software patent vs trade secret secret. In this case the knowledge is not shared and the idea is protected as long as it is software patent vs trade secret secret — potentially forever.
However, if another party separately discovers the same invention, the initial inventor has no recourse. Those weighing whether to patent an invention or protect it as a trade secret will be steered by the asymmetry of costs, rights and remedies, as well as the perception of which is more beneficial to the inventor or company, as discussed below. Patents have finite lives — 20 years from the date of the first filing. The lifespan of a trade secret is determined by how long it is kept secret and whether another party discovers the invention in a legal manner ie, separately and not by stealing it.
Further, the choice may be significantly influenced by the cost and uncertainty regarding the period between filing of a patent application and grant or rejection. For example, forgoing patent protection may make sense in an industry where innovation is rapid, as the time from filing to grant may be longer than the economic lifespan of the invention and the disclosures required to obtain the patent may provide competitive information to the market.
Further complicating the issue is the fact that a company seeking patent protection may be required to file and pay fees in multiple jurisdictions. These upfront costs, coupled with the uncertainty regarding the effective economic life of the invention, make this decision complex. A patent owner can license its invention exclusively or to a number of potential licensees in a manner that a trade secret owner cannot.
Trade secrets can be shared through the use of non-disclosure agreements and joint development agreements, but cannot typically be the basis for a stream of licensing revenues. Inventors and companies that are not going to make or sell a product covering the invention usually seek patent protection and monetise the intellectual property through a licensing programme.
Monetising a trade secret through a non-disclosure agreement is also an option, but is typically more restricted, since dissemination can cause software patent vs trade secret secret to lose its value. Patents are often used as a barrier to entry into a market. A patent owner may signal to the market that it has a technology and desires to maintain exclusive control over it — for example, through enforcement actions.
As with licensing, once a company has chosen to protect its invention as a trade secret, it is extremely limited in its ability to signal to the market that the secret is a barrier to entry. Marketing and advertising the importance of a trade secret will be limited, since disclosure of the nature of the secret may put it into the public domain and end its economic value. The age and maturity of a company may have a software patent vs trade secret impact on its decisions regarding protection of intangible assets.
To a start-up, patents may represent significant expenditure of resources and funds, causing management to forgo a patenting strategy or adopt a limited patenting programme.
Conversely, since start-ups are typically cash and capital poor, they may need to patent in order to signal to the market that they have a valuable business plan and competitive edge, thereby attracting capital, as well as to create collateral for borrowing. Start-ups may wish initially to keep their technology protected by a trade secret and only later follow a patenting programme to protect technologies and products that have already been established.
Similarly, mature companies and companies in mature industries may focus on patent protection to maintain market share against competitors that perceive advantages to growth through trade secrets. The owner of software patent vs trade secret trade secret can protect the secret from any party that steals it or uses it in a manner that violates a non-disclosure agreement.
The owner of a patent has much greater flexibility to software patent vs trade secret its rights and protect the exclusivity of the technology. Further, a patent holder can monetise a patent through licensing software patent vs trade secret well as litigation. However, asserting a patent exposes it to challenges, including potential loss of the patent right. The Patent Trial and Appeal Board has reduced the cost of challenging a patent, thus increasing the number of patent software patent vs trade secret and the likelihood of patents being voided.
These recent changes have served to weaken the rights of patent holders. This change is reflected in recent decreases in US patent filings and in the observed transaction prices of publicised patent portfolio sales. This is likely to make trade secrets more attractive to inventors and companies. Rapid technological change, often in software-dependent industries or technologies, coupled with the abovementioned weakening in patent protection, has made inventors and companies more likely to choose trade secret protection.
Increased uncertainty software patent vs trade secret patentability, coupled with the higher initial cost of patenting a technology compared to protecting it as a trade secrethas shifted the economic balance in recent years.
In industries with rapid innovation and changes in technology, the protection offered by patents will be affected more than in industries with a slower rate of technological change.
Other industry factors can also have an influence: A trade secret cannot be protected from reverse engineering that is carried out without stealing the secret. In fact, the patent process discloses the invention so that practitioners in the relevant industry can understand and replicate the process. Companies in industries and technologies where reverse engineering is easier generally benefit from disclosing their inventions and software patent vs trade secret patent protection rather than seeking to protect technology as a trade secret and losing the asset when it is reverse engineered.
The decision is further complicated in industries where there is both rapid technological change and reverse engineering of software patent vs trade secret, since these two variables are in tension.
In these instances, more information is typically needed. For example, if the cost and time required to reverse engineer are great, the rapid technological changes in the industry could still tip the balance in favour of trade secret protection. Economic factors that further complicate these decisions include the relative size of competitors and the order of entry into the market. These factors alone may not clearly indicate the most appropriate form of protection, but they can have important consequences once a specific form of protection has been chosen.
For example, a late entrant which believes that its technology offers incremental benefits may wish to use it as a barrier to entry in order to recover from a late start and gain market share. In that case, patenting accompanied by signalling to the market software patent vs trade secret it will vigorously enforce its rights may be the best path to follow. The remedies software patent vs trade secret where another party infringes a patent or steals a trade secret are also an important consideration.
Here too there software patent vs trade secret differences in quantifying economic damages that should be considered when choosing the form of protection to seek. Simply put, a patent holder can sue an infringer and — assuming that a valid enforceable patent was infringed — recover either a royalty for past infringement or the profits that it lost due to the infringement.
After the trial, the patent holder may be able to obtain an injunction so that the infringer cannot continue to make and sell the infringing product, or obtain ongoing royalties from the patented technology. The owner of a trade secret can sue a party that steals its trade secret and recover the profits that it lost or the unjust gain that the infringer enjoyed. Unlike patent damages, these damages are not limited to the past. Damages can also be calculated as a royalty, but software patent vs trade secret fewer restrictions regarding how it is calculated than in patent infringements.
The owner of a trade secret can also obtain injunctive relief. The asymmetry in the calculation of damages is particularly striking when the owner of the patent or trade secret is small and the defendant is large.
Lost profits may be unavailable to a small patent holder and damages may be limited to a royalty that is much lower than the actual profits enjoyed by the infringer of the patented technology. In a trade secret dispute with the same facts, the owner of the trade secret can choose to calculate economic harm and unfair benefits gained from unlawful use of the trade secret.
This can software patent vs trade secret the present value of future benefits and can equal the profits of the large company. In other words, the choice of protection can have a significant impact on the economic recovery, assuming infringement or theft of trade secrets.
Driving revenues and profits by harnessing the technologies that use intellectual property is crucial for the growth of individual firms, as well as for the wider economy. The decision on how to protect intellectual property is complex, involving legal, economic and strategic issues. This chapter has focused on the important economic factors that help to determine whether to protect intellectual property through software patent vs trade secret or trade secrets.
Certain factors examined in isolation eg, the desire to license can provide a clear indication of which path to choose. Software patent vs trade secret factors eg, the size of the company in the market and the order of entry indicate no clear path when examined in isolation. However, this chapter has not addressed legal and strategic issues, including the use of other forms of protection such as copyright.
Similarly, the strategic interplay between the law and economic variables has only been referenced tangentially. Hence, given that deciding how to protect intellectual property requires an understanding and analysis of multiple factors, and that any decision software patent vs trade secret affect a company for years, a fact-intensive analysis incorporating legal, economic, technological and strategic issues should be considered.
Stephen Scherf Principal sscherf asterion-consulting. Stephen Scherf is the founding principal software patent vs trade secret Asterion. He is a certified public accountant with a BBA in accounting from Temple University and an MS in finance and an advanced professional certificate in taxation from Drexel University. Mr Scherf provides consulting and expert witness services in forensic, valuation and IP matters, as well as a wide array of accounting matters — including acting as a trustee and plan administrator in bankruptcy matters.
Richard Gering Principal rgering asterion-consulting. Richard Gering is a principal at Asterion. He has a BComm in economics with honours in economics from the University of KwaZulu-Natal in South Africa and an MA in economics from the University of Maryland, where he was a PhD candidate and completed all requirements except for his dissertation.
He is a Certified Licensing Professional. Mr Gering provides consulting and expert witness software patent vs trade secret with an emphasis on economic analysis and damages in complex commercial disputes covering all forms of intellectual property.
Ability to license and monetise A patent owner can license its invention exclusively or to a number of potential licensees in a manner that a trade secret owner cannot. Right to exclude Patents are often used as a barrier to entry into a market. Lifecycle of the company The age and maturity of a company may have a software patent vs trade secret impact on its decisions regarding protection of intangible assets.
Ability to enforce The owner of a trade secret can protect the secret from any party that steals it or uses it in a manner that violates a non-disclosure agreement. Rate of technological change Rapid technological change, often in software-dependent industries or technologies, coupled with the abovementioned weakening in patent protection, has made inventors and companies more likely to choose trade secret protection. Ability to reverse engineer A trade secret cannot be protected from reverse engineering that is carried out without stealing the secret.
Order of entry into the market Economic factors that further complicate these decisions include the relative size of competitors and the order of entry into the market. Economic damages remedies The remedies available where another party software patent vs trade secret a patent or steals a trade secret are also an important consideration.
Conclusion Driving revenues and profits by harnessing the technologies that use intellectual property is crucial for the growth of individual firms, as well as for the wider economy. Register for more free content Read more IAM blogs and articles Receive the editor's weekly review by email. Accept Cookies, Terms and conditions.