What is a Trade Secret?
Broadly speaking, any confidential business information which provides an enterprise a competitive edge may be considered a trade secret. Trade secrets consists of manufacturing or industrial secrets and commercial secrets. The unauthorized use of such information by persons other than the holder is regarded as an unfair practice and a violation of the trade secret. Depending on the legal system, the protection of trade secrets forms a part of the general concept of protection against unfair competition or is based on specific provisions or case law on the protection of confidential information.
The subject matter of trade secrets is usually defined in broad terms and includes sales methods, distribution methods, consumer profiles, advertising strategies, lists of suppliers and clients, and manufacturing processes. While a final determination of what information constitutes a trade secret will depend on the circumstances of each individual case, clearly unfair practices in respect of secret information include industrial or commercial espionage, breach of contract and breach of confidence.
What is a Patent?
Patent, is a legal document granted by the government giving an inventor the exclusive right to make, use, and sell an invention for a specified number of years. Patents are also available for significant improvements on previously invented items.
The goal of the patent system is to encourage inventors to advance the state of technology by awarding them special rights to benefit from their inventions. Books, movies, and works of art cannot be patented, but protection is available for such items under the law of copyright. Patent law is one branch of the larger legal field known as intellectual property which also
Patent law centers round the concept of novelty and inventive step (or lack of obviousness).
The right which they accord is to prevent all others, not just imitators but even independent devisors of the same idea from using the invention for the duration of the patent. The special potential of a patent is accordingly that it may be used to prevent all others from including any form of invention in their product and services. A patent thus poses serious difficulties for its competitors. This is why patents are not freely available for all industrial improvements but only what is judged to qualify as a patent-able invent.
DIFFERENCE BETWEEN PATENT AND TRADE SECRET
The best practices noted above for protecting inventions earmarked for patenting apply even stronger in the case of trade secrets. Among trademarks, copyrights and trade secrets, trade secrets are more analogous to patents than any other kind of intellectual property asset. Indeed, before information becomes part of a published patent application, it is effectively a trade secret. Moreover, what is revealed in a patent or patent application can affect whether information is trade secret – therefore, understanding the difference between the two is key.
Trade secrets last indefinitely, as long as they are kept secret. Patents have a limited term as set by the patent laws. Perhaps, the most famous trade secret is the formula for Coke. Had Coca~Cola chosen to patent that formula, Coca~Cola’s rights to that formula would have been lost long ago. The same is true for the Colonel’s secret recipe.
This is because for one to get a patent for an invention, one must disclose how to make and use the invention to the Patent and Trademark Office which will in turn publish the patent application or the resulting patent. Once this publication takes place, the information in the patent application or patent is available to the general public. Therefore, a patent or published patent application will extinguish a trade secret.
Patents cost money in the form of filing fees (and usually attorneys’ fees) to obtain and maintain; this is not necessarily the case for trade secrets. With trade secrets the typical expenses involved relate to establishing security measures for sensitive information, educating employees about the sensitivity of the information, having employees or collaborating companies sign appropriate agreements and prosecuting those entities that try to misappropriate or use trade secret information.
A patent owner can pick and choose which infringes it wants to sue. The owner of a trade secret that has been misappropriated must stop all persons using the trade secret or the information will lose its trade secret status. Critically, even though information may have economic value, it cannot be trade secret if it is publicly known or generally available. With patents one must disclose how to make and use the invention in order to get exclusive right to invention for limited time. With a trade secret, disclosure is fatal. Hence, you cannot claim both a patent and trade secrets on same technology.
Trade secrets are creatures of state law. This distinguishes trade secrets from patents, trademarks and copyrights which are either exclusively (patents or copyrights) or predominantly (marks) protected by federal law. While patents can be used to prevent anyone from using your inventions, trade secret law only protects one from using your information/invention if the subject information was “misappropriated.” Trade secret law does not protect against reverse engineering or independent creation.
Thus, two or more different entities can conceivably own the same trade secret at the same time. Not every business will own a patent. Nor will every business own a copyright. Many, but not all, will have trademarks, service marks or trade dress. But every business will (or should) have trade secrets. If there is a business that does not own trade secrets, likely it will not be business for a long time.
Intersection B/W Patent And Trade Secret
The law governing the patent and trade secret serves two very different purposes in the society; patent law mainly serves to promote the sharing of information, while the trade secret serves to protect an individual or a company from theft and promotes secrecy. Trade secret law has evolved more slowly compared to the patents.
Now, the question arises that what to choose between patent and trade secret?
The Kewanee court has examined three categories of subject matter that an inventor would consider in choosing between patent protection and trade secret protection:
- the trade secret believed by its owner to constitute a validly patentable invention;
- the trade secret known to its owner not to be so patentable; and
- the trade secret whose valid patentability is considered doubtful.2
For the category of subject matter “known to its owner not to be so patentable,” the court held that there is no conflict or preemption of patent law by state trade secret law because patent law would never be applicable to those inventions. For the category of subject matter “whose valid patentability is considered doubtful,” the court held that on balance, “eliminating trade secret law for the doubtfully patentable invention have deleterious effects on society” and thus presents no conflict with patent law. Finally, for the category of subject matter “believed by its owner to constitute a validly patentable invention,” the Court held that trade secret law “presents no reasonable risk of deterrence from filing a patent application.
- Patentability– The most important factor to determine is whether the information under consideration is patentable or not. If it is not patentable a company’s resources are better to spend on seeking trade secret protection. And if the information is not capable of being kept a trade secret then a patent may be the only recourse for the protection.
- Term of protection– Patent terms are expressed as twenty years from the application filing date or earliest priority date. Realistically, because patents are not granted the day they are filed, the period of time a granted patent may be enforced is less than this 20-year term and in some cases, substantially less.4 Trade secrets, on the other hand, offer a more flexible approach to information protection as no limitation to the time period is there. Thus, a trade secret is more effective at protecting the subsequent improvements and evolution of an invention without incurring significant additional costs and/or efforts.
- Enforcement considerations– To enforce a patent, a company must prove infringement. But depending on the technology and type of protection obtained, infringement may be difficult to prove. Patent enforcement may be difficult where the theft (infringement) occurs abroad, by foreign individuals or entities in jurisdictions that do not enforce patents. This is becoming an increasing threat for many companies due to the rapid internationalization of businesses and their practices. Similarly, trade secret enforcement proceedings on foreign soil are subject to the same barriers as patent enforcement noted above. Proof of trade secret misappropriation, in contrast, can be based on circumstantial evidence.
- Injunctions– If either company A or company B generally considers money damages as Inadequate, trade secret protection may be the better option. In 2006, the Supreme Court raised the threshold for obtaining an injunction for patent infringement.5 What was once an automatic injunction upon a finding of patent infringement became instead discretionary relief that is granted only upon the showing of four factors:
- Whether the plaintiff suffered an irreparable injury;
- Whether remedies available at law are inadequate to compensate for that injury;
- Whether considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and
- Disclosure– Trade secrets and the laws protecting them are premised on the non-disclosure of economically valuable information. For example, companies A and B may prefer to protect their patentable inventions as trade secrets to prevent the flow of information to their competitors. In contrast to trade secrets, the disclosures in patent applications, once published, can give the competition important strategic insights into what a company is doing or maybe pursuing. Such competitive intelligence might give bigger and better-financed rivals a competitive head start in developing a competing product.6 Moreover, rivals may use this information to design around or even make patentable improvements to the company’s inventions.
- Costs– At the end of the day, regardless of what a company believes is the best and most effective protection for its information (innovations, inventions), it will likely choose the option that it can afford. It is generally true that procuring patents is, far more expensive than creating a trade secret. While the list is not exhaustive, these six factors with are likely to be the most relevant and should almost always be considered in a trade secret versus patent analysis
Also read about Why India Patent Law needs improvement?
POSITION IN INDIA
There is no proper and specific legislation in India to protect trade secrets and confidential information. While in Indian courts trade secrets are upheld on the basis of the principle of equity and common law action of breach of confidence, which amounts to a breach of contractual obligation. The remedies which are available to the owner of the trade secrets is to obtain an injunction restraining the licensee from disclosing the trade secret, the return of all confidential and proprietary information and the compensation for any losses suffered due to disclosure of trade secrets.
In India, a person is contractually bound not to disclose any information that is revealed to him in confidence. The Indian courts have upheld a restrictive clause in a technology transfer agreement, which imposes a licensee not to disclose or use the information received under the agreement for any of the purposes other than that has been agreed in the said agreement. The Delhi High Court in the case of John Richard Brady and Ors v. Chemical Process equipment’s P. Ltd. and invoked a wider equitable jurisdiction and awarded injunction even in the absence of a contract.
The intersection of patents and trade secrets can be described as a delicate balance of disclosure and secrecy. The USPTO views that trade secret protection is “an alternative to patent protection.” But the position of trade secret protection is better than the patent protection on the basis of the points we have discussed earlier. The position of India in relation to the trade secret is not clear as no proper law has been implemented so the law regarding the trade secret should be made for greater understanding.
This article is written by Rishika and edited by Rupreet Kaur Dhariwal.