PATENTS VS.TRADE SECRETS
Key Considerations for Protecting Your Intellectual Property
By: Shane Olafson
When your business develops or acquires information that is not known to your competitors, you may have more than one option for protecting it. Although federal patent law is the primary source of protection for inventors, an inventor may elect to forego patent protection and instead rely on the protection of state laws prohibiting the misappropriation of trade secrets. The decision whether to patent or keep a trade secret is an important one, and should not be made lightly.
What is a Trade Secret?
The Uniform Trade Secrets Act has been adopted by the majority of states. The UTSA defines a trade secret as information that both (1) derives independent economic value from not being generally known or readily ascertainable by proper means, and (2) is subject to reasonable efforts to maintain its secrecy. Trade secrets generally fall into two categories. First, trade secrets may concern inventions or information that do not meet the criteria for patentability, and therefore can only be protected as a trade secret. The second category includes inventions that would also be patentable, in which case you must make a decision whether to patent the invention or to keep it secret.
What is a Patent?
A patent is a federal grant of exclusive rights given in exchange for the public disclosure of a new and non-obvious invention. In other words, obtaining a patent requires the inventor to fully disclose what might otherwise be treated as a trade secret, and, if it meets the statutory requirements, the government grants the patentee the exclusive rights to make, use, sell, offer to sell, or import the invention for almost twenty years.
Advantages of Trade Secrets
In at least two situations, trade secret protection is the clear winner. First, trade secret protection is the only option when the secret involves something that is not patentable. Second, trade secret protection may be favorable when the benefit of the technology is of very short duration; if the invention will be obsolete in less time than it would take for a patent to issue (which can take several years), or if the competitive advantage is gained by being the first on the market.
Another advantage of trade secrets is that trade secret protection is not limited in time. Thus, a trade secret may continue indefinitely as long as it continues to meet the definition of a trade secret.
Other advantages of trade secret protection are that trade secrets have immediate effect, and there are no prosecution costs or maintenance fees in order to establish a trade secret or to keep it in force.
Nevertheless, trade secrets may still be expensive to maintain because of the costs associated with keeping the information secret. These costs include physically restricting access to the grounds and buildings where the secret is kept or used, restricting information to individuals in the company who need to know, labeling information as confidential, protecting electronic forms of trade secrets via means such as encryption, firewalls, and password protection, and drafting contracts for employees, suppliers, customers, and others, which clarify the existence of trade secrets and the duty not to disclose them.
Advantages of Patent Protection
Patent protection is generally more secure than trade secrets because a patent protects your rights regardless of what anyone subsequently develops. For this reason, a technological breakthrough in a highly competitive area usually warrants patent protection. You would hate to read in a trade journal that someone else had patented your invention. Even worse, you would hate to be sued for infringing that patent, and possibly denied rights in your own invention! Each of these unfortunate scenarios is possible with a trade secret.
Patent protection is also more secure because the law of trade secrets does not prevent others from acquiring and using trade secrets, it merely prevents the acquisition by improper means. In other words, if someone were able to independently discover or reverse engineer Coca Cola’s secret formula, trade secret protection would not prevent them from making a competing identical product. Accordingly, if your invention is susceptible to reverse engineering, a trade secret is of little or no use. Patent protection, on the other hand, grants the right to exclude third parties making or using an invention for a limited time, period. Moreover, trade secret protection can be lost overnight if the secret is publicly disclosed, even if the disclosure was unintentional. For these reasons, potential licensees, purchasers, and investors are typically more willing to pay for technology that is patented, versus kept as a trade secret.
Whether to maintain your company’s information as a trade secret or to seek patent protection is a decision which depends on a host of factors, and one which you should evaluate with an attorney experienced in intellectual property law. The decision is extremely important, and must be considered on a case-by-case basis by examining various business, commercial, and legal considerations.
ASK THE ATTORNEY: Fair Use and the “10% Rule”
By: Christy Hubbard
Q: I am writing a book and want to use some materials I found from another source. Can I use the materials so long as I am careful not to take more than 10% of them?
A: It is a commonly held misconception that there is a black line rule about how much or how little you can copy without infringing a copyright. (We hear it expressed as the 10% rule, the 20% rule, etc.). There is no such rule. If you are using the material to criticize it, comment upon it, for news reporting, teaching, scholarship or research, there is a better chance that your use would be considered a “fair use” and thus non-infringing. However, even use within these favored categories is not without risk.
Courts will typically balance four factors on a case by case basis to decide whether your use is fair or infringing. They are:
1) The purpose and character of the use. The more commercial your use, the less likely it will be fair use;
2) The nature of the copyrighted work you have copied. The more creative and original the work, the less likely your copying will be fair use;
3) The amount taken. In general, the less you take, the more likely it is fair use and vice versa but if you take the most important part of a work – even if it is a small percentage of the whole work (e.g. the one chapter in a book everyone wants to read) – this factor will weigh against fair use; and
4) The impact of the use on the market. The greater the impact, the less likely it will be fair use.
It’s important to consider these factors every time you copy someone else’s materials. If you are not sure, contact a lawyer who works in the copyright field. They can help you assess whether permission is needed.
QUICKIE TECHIE TIPS – IS YOUR COPY MACHINE A TRAITOR?
In some instances . . . yes! Copy machines have advanced over the past few years to be a part of the integrated information technology network at your office. If you look at your company’s copy machine and see an Ethernet cable coming out the back of it, do not be surprised. Just as the printers are networked together and can talk to one another, copy machines can do the same thing. In fact, both copy machines and printers are often the most overlooked and vulnerable part of a company’s network. Why?
First, all networked devices need software updates over their lifetime. However, we usually think to only update the actual desktop computers and not other networked equipment. Over time security vulnerabilities may be found and disseminated, but not patched by a company – leading to a potential breach point to external hackers. Second, copy machines are more like computers these days than stand-alone machines. In fact, most have a hard drive that stores digital images of what is copied for faster document reproduction, most are networked, and many have other advanced document features. Third, most companies rent their copy machines. That means that when something goes wrong or new models are rolled out, often times all of your company’s trade secrets roll out the door on the hard drive of the copier. Once a company loses control of this data it is often hard to get it back.
So, take a look around your office. See if your copy machines are networked and start asking questions to ensure your copier does not betray your company.
ONE ON ONE | with SHANE E. OLAFSON
What is your favorite part of your job?
For me, it’s the people I get to work with every day. I consider myself lucky to be surrounded by such interesting and talented people.
Favorite sport to play?
Least favorite sport to play?
What is something nobody would guess when they first meet you?
I toured around the country as the bassist for a rock band.
What is your favorite free-time activity?
I enjoy writing and recording music (I play the guitar, bass guitar, drums and keyboards), and I have a small recording studio where I spend a lot of my free time.
If your life was a movie, who would you like to play you?
What is the last book you read?
Invisible Monsters, by Chuck Palahniuk.
Who would you most like to meet?
Abe Lincoln. His accomplishments are incredible in light of his meager beginnings and the adversity he faced. Moreover, he is still widely viewed as someone who personified classical values of honesty, integrity, leadership and individual rights. What other politician can say that?
When in your life did you feel the most free?
While SCUBA diving. I think it’s the closest thing I’ve experienced to being on a different planet.
Most amazing place you’ve ever been?
That’s tough, but I have to say Manhattan. The time I spent living there was an amazing experience.
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