Patent or Trade Secret?

Introduction

In today’s digitalized society, information is a value-creating resource for many companies. Knowledge and information are used extensively in order to develop products, both physical and digital, and to be able to offer new innovative services and solutions. Information is also used to build internal strategies and create competitive advantages over competitors. What many people may not think of is that information, which is sometimes the company’s most important asset with great economic value, can enjoy protection such as trade secrets. A prerequisite, however, is that the information is processed correctly. This raises a number of issues. What exactly is a trade secret? What measures need to be taken for protection to arise? Is not it better to apply for patents for innovative solutions?

This article aims to clarify what applies when it comes to trade secrets and to give an overview of the above-mentioned questions.

What is a trade secret?

In short, it can be said that virtually all confidential information can in principle constitute trade secrets. This can, for example, be information attributable to operation, production or development work. The information may be of a technical, commercial or administrative nature and need not be documented in any particular form. This means that individuals’ knowledge of a certain relationship, even if it is not documented, can also constitute a trade secret. Some examples of common trade secrets are sales methods, customer profiles, marketing strategies, customer registers and manufacturing processes. Source code and algorithms are now also typical cases of trade secrets, not least Google’s search engine algorithm can be mentioned as an example.

How does protection arise?

In order for protection to arise, it is required that the holder has taken reasonable measures to keep the information secret. The protection thus does not arise automatically as is the case with copyright. Reasonable measures must of course be placed in the context of the type of information in question and in relation to the routines that apply to each company. Some examples of measures may be limited access to certain files on a server, access card systems, training on trade secrets, establishment of internal policies and confidentiality agreements.

Keep secret or patent?

Not infrequently, a dilemma can arise as to which protection, from a strategic perspective, is preferable to the other. Of course, both patents and trade secrets have their advantages and disadvantages as intellectual property protection mechanisms.

Advantages of patents:

A patent can be used openly without the right holder having to worry that information pertaining to the invention will be disclosed after the patent application has been published. The right holder of a patent receives, in exchange for knowledge being published in a patent application, the exclusive right to the invention for twenty years. Of course, the opposite is true for trade secrets that completely lose their value when information is disclosed.

Another advantage of patents is that some inventions simply cannot be used in secret. This applies in many cases to inventions for which product patents are applied for. It is not uncommon for competitors to disassemble products to examine how they work and then make copies with the same functionality. In patent law, the procedure is usually referred to as “reverse engineering”. If there is a valid patent, the right holder can prevent others from making, selling and marketing such copies. Because of this, it is more common for manufacturing processes and methods to produce products to adequately enjoy protection as trade secrets rather than the end product itself.

Benefits of trade secrets:

A clear advantage of trade secrets is that there is no external time limit for the validity of the protection. For patents, the term of protection is, as mentioned, twenty years. A trade secret holds protection as long as the information is kept secret. There is also no requirement for the active use of the information that is kept secret. For patents, the right holder may be required to issue a compulsory license if the patented invention is not used.

Another benefit regarding trade secrets is so much more falls within the scope of what may constitute a trade secret. The definition of trade secrets is thus much broader than that which applies to patents. This means that traders who have a clear routine and policy for handling confidential information can to a greater extent tailor their intellectual property scope.

Another aspect that should also be highlighted in this context is the cost that is attributable to the registration and maintenance of patents. Applying for a patent in several jurisdictions naturally makes it even more costly, and in order to take advantage of the exclusive rights that follow from a patent, continuous monitoring of the outside world is required. This should be in proportion to the fact that the financial capacity differs significantly between companies. Of course, large and established companies have the opportunity to build up and maintain a patent portfolio to a greater extent than start-ups and medium-sized companies have. Finally, it should also be mentioned that the protection of trade secrets arises much faster and without the processing time required by a patent. The average time for a final decision regarding patents is approximately two years in Sweden.

In summary, it can be stated that trade secrets are an important intellectual property instrument that has several advantages over the alternative protection that follows from a patent. We are used to intellectual property issues and considerations. If you have any thoughts, you are warmly welcome to contact us!

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