Which is more valuable: trade secrets or patents?

This month’s issue of the American Bar Association’s Landslide magazine includes a thought-provoking article about this topic.  In the article, R. Mark Halligan points out that patents have limited lifespans, are costly to enforce, and are subject to ever-shifting legal standards of patentability.  The article asks:  can trade secret protection be a better choice for many inventions? 

As with many questions, the answer is “it depends.”  When a client approaches me with an invention to patent, one of the first questions that I ask the client is “why patent this?”   The answer not only helps me draft a patent application that meets the client’s business objectives, it also helps me to ensure that the client does not file a patent application on an innovation that would be better held as a trade secret.  Because of this, it’s important that companies have processes in place to protect both patents and trade secrets as appropriate. 

Patents are valuable, but they require a trade-off in cost and disclosure.  The inventor must disclose intricate details of the invention in the patent application.  The process of getting a patent can be long and costly, especially where global protection is involved.  The prize at the end of the process is an asset which the patent-holder can then license, enforce, sell, or use as collateral to attract financing or investments.

Trade secrets, on the other hand, gain immediate protection.  Like patents, trade secrets can be licensed, and trade secret rights can be enforced.  When you protect a trade secret, you do not disclose your business processes, recipes, formulations, or other valuable information to the world. 

Although trade secret protection can be immediate and less costly than a patent, companies must not be lulled into a false sense that their secrets are secure.  A company must ensure that it has adequate legal protections (employee policies, contractor agreements, site visitor agreements, etc.) and physical safeguards (e.g., security systems, encryption) in place to keep secrets under wraps.  Trade secrets require ongoing care and protection, and companies who hold trade secrets must implement business processes and training programs to ensure that valuable information does not walk out the door. 

Last week I had the opportunity to participate in a monthly briefing of the Intangible Asset Finance Society that touched on this topic.  Roya Ghafele (formerly of WIPO and now with the University of Oxford), Mary Adams (of I-Capital Advisors) and I discussed perceptions of “IP” vs. “IPR”, and the difficulty that companies have in accounting for hidden value in IP / IP Rights.  For more information, the entire session is available as a podcast for purchase on the IAFS website.