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IP Strategy

The Pros and Cons of Trade Secrets

Patents and defensive publishing offer broad protection for innovative technologies and allow companies to monetize their intellectual property. However, they are not the only way companies can protect their valuable formulas, processes, designs, and other IP. Trade secrets are a viable method for securing a competitive advantage, but they aren’t without unique pros and cons. Deciding if utilizing trade secrets is right for your latest innovation requires an understanding of how they can benefit your business—and how they could hurt it. 

The Pros of Trade Secrets

To understand the biggest draws of trade secrets, you have to know the limitations of patents. Patents expire after 20 years and the cost to secure patent protection in the US alone can be tens of thousands of dollars. In comparison, trade secrets never expire and there are no associated application or renewal fees. You also won’t have patent attorney fees. This is not to say trade secrets are free; you will need to invest in a process to protect your IP. Patent protection requires that your invention is novel, non-obvious, and useful. Trade secrets can offer protection if your product, process, or other technology does not meet these requirements. Also unlike a patent, a trade secret offers immediate protection for your invention. 

Under the America Invents Act’s (AIA) “prior use” defense, your company can continue to use any trade secret it has been using commercially, even if that technology has since been patented by another entity—as long as you can demonstrate prior use of at least a year. This eliminates the concern that a competitor could reverse engineer your trade secret, patent it, and sue you for infringement. 

If your trade secret is disclosed by an employee, collaborator, or licensee, there are civil and criminal repercussions available. This is also true if the secret is stolen. 

The Cons of Trade Secrets

Patents offer protection because your IP is publicly disclosed. Trade secrets offer protection by doing exactly the opposite: keeping your IP confidential. However, this means that once your IP is no longer a secret, perhaps because the technology was leaked or reverse engineered, it is no longer protected. This is likely the largest downside of trade secrets for many companies. 

Keeping your trade secret safe requires internal standards for protection, because there are no formal processes for protection outside the company. Usually, this is done with nondisclosure agreements and other contracts, which must be standardized, implemented, and enforced. 

Lastly, trade secrets have limited options for monetization beyond bringing a product to market yourself. It’s difficult to license or sell a trade secret, as opposed to a patent.