Patent vs. Trade Secret

By Louis Rumao

In today’s challenging economic and competitive climate, intellectual property (IP), comprising of both patents and trade secrets, is crucial to a company’s growth and survival. IP also helps in developing strategic collaborations, joint ventures and licensing.Louis_Rumao

A trade secret is information that: is not generally known to the public; confers some sort of economic benefit on its holder (where this benefit must derive specifically from its not being publicly known, not just from the value of the information itself); is the subject of reasonable efforts to maintain its secrecy by the company.

The advantages of trade secrets are that a trade secret is not limited in time – it continues indefinitely as long as the secret is not revealed to the public. A trade secret does not have any registration costs, has an immediate effect, does not require compliance with any formalities, or disclosure of the secret to the public. The disadvantages of trade secrets are that others may be able to legally discover the secret and be thereafter entitled to use it, others may obtain patent protection for legally discovered secrets, and a trade secret is more difficult to enforce than a patent.

A notable recent trade secret case was DuPont versus Kolon industries, wherein Dupont alleged that Kolon Industry stole trade secrets concerning the production and marketing of Kevlar. Kevlar is a high strength synthetic fiber used in applications as diverse as tyres and body armour. On Sep 14, 2011, a jury found in favour of DuPont and awarded damages of $919.9 million. However, this verdict was overturned on April 3, 2014 by US Court of Appeals in Richmond, Virginia.

In the case of patents, inventions must clear the hurdle of being novel and non-obvious. In USA, patent protection typically lasts for 20 years, making it a decaying asset, compare that to a trade secret which is a perpetual monopoly; it does not expire as would a patent. Also, a recent patent law, The America Invents Act, went into full effect recently, switching from a “first-to-invent” system to a “first-to-file” system. This change encourages companies to speed their research and patent filing process.

Truly “game-changing” patents are not that common in the tyre industry – a couple of notable exceptions being the Banbury’s internal mixer (1916), which replaced a roomful of two-roll mills; and McNeil’s Bag-O-Matic curing press (1950), which revolutionised tyre vulcanisation featuring a curing bladder as an integral part of the equipment. These innovations produced handsome profits for the patent owners and lowered the cost of tyres for consumers. A large number of composition-related patents have been issued and are being developed, and this trend in pushing patent boundaries will continue with the expected deluge of bio-monomer and biopolymers as the tyre industry attempts to lessen its use of materials derived from petroleum.

Every US patent has a set of “claims” which defines the protection afforded by the patent. A patent filer makes certain claims to precisely define the rights and protections sought. The following considerations enhance the value of a patent:

Breadths of Claims- Claims that are broader are typically more valuable because they offer more protection and control a larger part of the market.

Number of Claims – Patent with more claims is typically more valuable because each claim is presumed to cover a different aspect of the invention.

Diversity of Claims- There are two basic categories of claims: a physical entity (a system, a product, an apparatus, a machine etc.) and an activity (a process, a method, a use, etc.).  A patent that has claims from both these categories is typically more valuable.  Having both types of claims covers all bases and makes the patent legally more defensible in court.

The practical value of patents differs from industry to industry, and is affected by the following realities: bargaining power of supplier and customers; threat of substitute products / technologies; extent of competition from new and established suppliers.


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