What’s Better a Patent or a Trade Secret?

By Russ Fisher

In the composites industry, there have been many processes that have been developed that are novel ideas. In order to protect these ideas from competitors, two avenues are generally considered. One is a patent and the other a trade secret. Let’s address what factors should be considered when deciding which is better for the inventor or company.

The first thing to do is review the definition of patents and trade secrets. With a patent, the U.S. government gives an inventor a twenty-year monopoly on his/her idea in exchange for the inventor’s full public disclosure of the idea in a patent document. In order to obtain the patent, the idea has to be novel and not obvious in light of existing technology. The word patent comes from the Latin patere (to lay open).

A trade secret can protect the same novel idea, but does not make it available to the public. A trade secret theoretically has no expiration date, but if the technology covered by the trade secret is reverse engineered by a third party, the trade secret “rights” are immediately lost.

Patents can be licensed to other individuals or companies for use of the technology covered by them. For patents, the scope of the license is defined in the patent that was issued and economics of both the licensee and licensor. Trade secrets are typically more difficult to license because the scope of the technology covered by the trade secret is more difficult to define. Further, licensees are wary of trade secrets because their duration is indefinite.

The Original Idea
A composite molder company has what it thinks is an original idea on a seal for the RTM (resin transfer molding) process. It allows more cycles per hour on the part, and reduces normal replacement of the seal by five fold. A patent search was done on the idea to determine whether there is a prior art that may hinder the molder’s ability to obtain a patent.

The search turned up a similar but not identical idea on the seal. In light of the results of the prior art search, the molder consulted its patent counsel to determine the potential scope of coverage the molder could get if they applied for and obtained a patent. In determining whether to file a patent on the technology or keep it a trade secret, the molder should consider the ease of which a competitor can reverse engineer the idea. In this example, the molder initially decides to file a patent application. Once the application is filed, the molder can represent the technology as patent pending, which provides no substantive rights, but may act as a scarecrow to keep competitors from investing time and money in similar technology. No one knows what is going to be considered novel or unique in the public sector.

Patent Process
The patent application process can take at least one year, and usually takes longer. In this case, the government patent examiner rejected this patent in order to force the applicant to narrow the scope of what the patent covered. Each claim has to be reviewed on its own merit. Even though the molder has already filed a patent application, the molder may still decide to make the seal a trade secret since patent applications are kept secret during their application phase.

It is wise to have all parties who want to know about the idea of the seals sign confidentiality agreements to protect the interest of the inventor. In this case, because the patent examiner rejected the claims in the patent application, and because the molder determined the seal was difficult to reverse engineer, the molder decided to abandon the patent application and make the RTM seal idea a trade secret. This will reduce the exposure of the idea and would limit the process to internal company use so as to keep it a secret. The chance for licensing is limited. Trade secrets have been used for several decades; Coca Cola’s formula is a trade secret. Even today it is being protected with great care.

Another company had an idea on a valve release system in a vacuum infusion process. The idea was to monitor the vacuum in the infusion process that would increase the rate of resin movement in the mold. A patent search was performed and no similar inventions were found. The patent claims were made as broad as possible in an effort to give the company the broadest possible patent coverage.

After the patent application was filed, it took the patent examiner 13 months to respond with a formal action. In this case, some of the claims were allowed and some were rejected. The company decided to continue with the patent application process. The U.S. patent office issued the patent and made the patent application public by publishing it. Everything seems to be on track to profit from this valve system.

International Patents
The story, however, does not end here, because other countries have their own patent laws. There have been efforts to have global agreements on how to handle patent statutes, but in many cases, it is up to the individual countries to enforce their own patent laws. This means that a patent could incur great expense to cover global protection of a novel idea. This company decided to cover Canada, Europe, and Mexico. Costs vary by country, but patent costs are typically at least $10,000 per country.

The same company found out that someone else is using the novel valve release system to mold composite parts. To enforce the patent, the company must file a lawsuit in federal civil court for infringement of the patent. Several things can happen: The parties can settle outside of court by signing a license agreement; The court could find the patent invalid and thus unenforceable; The court may find the second party is not infringing on the company’s patent; or, The court may find the second party guilty of patent infringement. In this case, as happens more often then not, the parties settled out of court by signing a license agreement, which gave the company a royalty on the valve system.

Trade Secrets Move Fast
Trade secrets are preferred over patents when the technology related to the novel idea is moving swiftly. A good example of this is biomass resin systems. These systems are changing so fast that the technology covered by the patent could be obsolete before the patent is issued.

Economics is another factor to consider concerning whether to file a patent application or keep an idea a trade secret. A patent costs more up front due to attorney fees and government filing fees. The cost of obtaining a patent in the United States is typically at least $10,000, and maybe much more. Licensing a patent is easier than licensing a trade secret because the trade secret could be gone tomorrow or it could last for hundreds of years. The trade secret can be expensive to enforce and monitor because everyone who sees the idea must sign a confidentiality agreement. If the company does not take a reasonable effort to keep the trade secret a secret, the secret may no longer be protected.

It can be difficult and expensive to enforce both trade secrets and patents internationally since each country has its own set of laws. Many times, the laws are based on the economic growth of the country. Third world countries, and even more advanced industrial ones might not have the same laws as the country in which the patent or trade secret originated.

From Patent Application to Trade Secret
Here is one more example of a novel concept. A company had an idea to use a natural fiber in the manifold process for a vacuum bag/infusion process. It has not been developed, yet, according to the patent search by their patent counsel. The company must decide whether to apply for the patent or make it a trade secret.

To start out, the company began the patent application process. This took many weeks of preparing formal patent drawings and drafting a technical explanation so the examiner could understand the invention. The claims in the patent made all natural fibers as novel to this process. After 15 months, the patent examiner rejected the claims in order to force the applicant to narrow the claims to specific types of natural fiber and not all fibers.

The company had to review the changes to see if anyone could reverse engineer the idea using other natural fibers other than the ones in the modified claims. The results were that other fibers worked, but not as well and were more expensive. The company decided to not go ahead with the application, but to keep the idea a trade secret. Their reasoning for this decision is because enforcement of the patent would be almost impossible since the company could not easily get access to other companies molding facilities. Another factor focuses on the international availability of natural fibers that could be used in the future along with the cost of these fibers going up and down in the free market place.

Protection is the Economic Advantage
The answer to the question whether a trade secret or a patent is better has no exact conclusion. It depends on the issues that are discussed and advice from a good patent attorney. Economics, ease of reverse engineering, and cost of enforcement are major factors in the process to protect an idea. Protection is to give a company an economic advantage from the idea surrounded by rules, regulations and laws of the country. At the end of the day the best-kept secret is to keep your secret to yourself.

I would like to thank patent attorney Mr. Ryan Carter of the law firm of Shuttleworth and Ingersoll, PLC in Cedar Rapids, Iowa for his contribution to this article.

Russ Fisher is president of Fisher Composite Technologies and a contributing editor to CM: 262.641.6379; frussell827@aol.com.