In general, a trade secret is only legally protectable as long as the information is kept secret. Under both federal and state law, a trade secret is generally defined as any information from which commercial value is derived from the fact that the information is secret. Information as simple as customer or vendor lists can be trade secrets as long as the lists are kept secret and commercial value arises from the fact that the lists are secret.

But what about patent applications? Does a person or business lose trade secret legal protection by filing a patent application? The answer is “no.” The reason is that a patent application is not published and is deemed confidential when filed with the US Patent & Trademark Office (“USPTO”). Patent applications retain their confidential status for 18 months. Thus, any information contained in a patent application will remain a “trade secret” for at least that long. It is possible to ask the USPTO to publish a patent application after four months and also possible to request an extension beyond the normal publication at 18 months.

That being said, once the USPTO issues the patent, the patent becomes public and all information therein is no longer secret. As such, the trade secret legal protections are lost. But, in exchange, the patent has significant legal protections. Those infringing on the patent can be brought to justice and required to pay money damages in a patent infringement lawsuit even though the information underlying the patent is now publicly known. The reason is, of course, that patents provide notice of the owner’s exclusive right to use or license the patent. Without publication, other third parties would not know they are infringing on patented technology, methods or processes.

Note, however, that the same is NOT true when filing a foreign patent application. Those become publicly available upon filing. Thus, to protect trade secrets, it is obviously best to file for a patent in the United States first, then seek a foreign patent.

It should be further noted that patent protection only lasts for 20 years (or shorter for design and other patents). Generally, this is sufficient time to maximize the commercial profitability of a new invention, but it DOES raise the question of whether protecting an invention through trade secret law is a better option. Obviously, this depends on unique circumstances surrounding the invention including whether a competitor is “hot on the trail.” If a competitor obtains the patent first, then you may lose the ability to use the new invention and may end up as the target of a potential patent infringement lawsuit. But, there may be value in protecting an invention through trade secret law — for a least a short time — before filing a patent application.

The Patent vs. Trade Secret Decision: A Strategic Framework

The choice between patent protection and trade secret protection is one of the most consequential strategic decisions an inventor or business can make. The two forms of protection are fundamentally different in how they work, how long they last, and what they protect against:

• Patents require disclosure; trade secrets require secrecy. A patent is granted in exchange for full public disclosure of the invention. Once the patent issues, the invention is publicly known and anyone may use it after the patent expires. A trade secret, by contrast, can theoretically last forever — as long as the information remains secret. The Coca-Cola formula, often cited as an example, has been a trade secret for over a century.
• Patents protect against independent discovery; trade secrets do not. If a competitor independently develops the same invention without any access to your information, a patent gives you the right to stop them. Trade secret law provides no protection against independent development — the competitor who re-discovers your secret through its own research has committed no violation.
• Patents can be reverse-engineered around; trade secrets can be reverse-engineered away. A patent claim may be designed around by a clever competitor. But if a competitor can lawfully reverse-engineer a product and discover the trade secret through that process, the trade secret is gone. Patent protection would have prevented use of the invention regardless of how the competitor discovered it.

The choice depends heavily on the nature of the invention and the competitive landscape. For inventions embedded in products that can be reverse-engineered, patent protection is generally superior because it provides protection even against independent discoverers. For inventions embedded in processes — manufacturing methods, formulas, or algorithms — that cannot be observed from the finished product, trade secret protection may be superior because it can last indefinitely and avoids the disclosure required by patent law.

Provisional Patent Applications: Preserving the Option

A practical middle ground is the provisional patent application. A provisional application is filed with the USPTO and establishes a priority date — the date from which the inventor’s rights are measured against competing inventors and prior art. Critically, a provisional application is never published. It lapses automatically after 12 months unless a non-provisional application is filed claiming its benefit. During that 12-month period, the inventor has the benefit of a secured priority date, can lawfully use the term “Patent Pending,” and can assess the commercial viability of the invention before committing to the cost of a full non-provisional application. The trade secret protection of information in the provisional application remains intact throughout the 12-month pendency period.

Protecting Trade Secrets When Working With Outside Parties

One of the most common ways trade secrets are lost is through disclosure to outside parties — vendors, contractors, investors, potential partners, or licensees — without adequate legal protection in place. Before sharing any confidential information with an outside party, a well-drafted non-disclosure agreement (NDA) should be executed. The NDA should specifically identify the categories of information being disclosed, the permitted uses of the information, the duration of the confidentiality obligation, and the return or destruction of confidential materials upon termination of the relationship. Generic, one-size-fits-all NDAs are inadequate for high-value trade secret disclosures. An attorney familiar with trade secret law should draft or review any NDA used in connection with the disclosure of significant confidential information.

In the employment context, trade secret protection should be built into every employment and contractor agreement through confidentiality provisions, invention assignment clauses (ensuring the employer owns all inventions created in the scope of employment), and — where legally permissible and appropriately scoped — non-compete or non-solicitation provisions that limit a departing employee’s ability to immediately exploit the trade secrets they learned on the job.

Contact Revision Legal

Revision Legal’s intellectual property attorneys advise clients on patent prosecution, trade secret protection, NDAs, and IP strategy for new inventions. If you are deciding how to protect a new invention or need to review your trade secret protection practices, contact us today.