There are various means by which business organizations can protect innovation by preventing unfair use by competitors of the organization's innovations, while preserving the innovator's right to use. These include patents, trade secrets, and naturally occurring competitive advantages. Intelligent use of these tools requires consideration of the implications on the business organization's ability to freely commercialize the innovation in the marketplace. Deciding between these tools is not so straightforward, especially where technology innovation is susceptible to alternative forms of protection, such as in the chemical and metallurgical process industries. For example, many innovations in the chemical and metallurgical process industries relate to processes whose commercial exploitation does not require their public disclosure, and which are difficult to reverse engineer from the ultimate commercial product deriving from such process. Potentially, such technologies could be either patent protected or protected as a trade secret. Impressing on this is the importance of preserving the right to use the technology, which imports the consideration of defensive publication.
Defensive Publication vs. Trade Secrets
If the invention is of marginal value, it may be difficult to justify the costs of patent protection. Other IP-unrelated competitive advantages may be sufficiently significant to outweigh any benefits associated with securing patent or trade secret protection. These IP-unrelated competitive advantages include:
- first mover advantages;
- excessive time lag before competitors recognize market opportunity;
- significant R&D catch-up hurdles;
- brand power;
- network effects; and
- oligopolistic market conditions.
As well, it may be difficult to justify choosing trade secret protection, having regard to the risk of infringing future patent rights of a later-innovating competitor and becoming blocked from using the invention. If the innovator keeps the invention a trade secret, a competitor may later develop the same invention and still be able to secure patent protection. Generally, being blocked by such a competitor's patent is less of a concern in those jurisdictions (eg. some European states) that recognize prior user rights (prior user rights do not appear to be sufficiently recognized in Canada and the United States to completely remedy this situation, especially with respect to chemical/metallurgical and other industrial processes). Generally, prior user rights insulate prior users of an invention in a jurisdiction from patent infringement liability to competitors with later-arising patents in that jurisdiction so long as the use precedes the competitive patenting.
Even when prior user rights are not available, these patent infringement risks are tempered by the fact that a later-innovating competitor could, of course, choose to rely on trade secret protection. Also, even if the later-innovating competitor chooses patent protection, infringement risks are tempered by virtue of the fact that, because the subject innovation is amenable to trade secret protection, infringement detection is more difficult in these circumstances. Having said that, the potential consequences of infringing such competitor's patent may be sufficiently significant (eg. business failure) that assuming the risk that a competitor will independently develop and patent the same invention, and be able to detect infringement, may not be worth it, thereby eliminating the trade secret protection option from consideration.
In these circumstances, instead of patent or trade secret protection, there may be a justifiable bias towards defensive publication so as to create prior art that blocks competitors from obtaining patent rights for the same invention, and thereby preserve the innovator's right to use and commercialize the invention (hence the characterization of the publication as "defensive"). Although other forms of public disclosure trigger prior art consequences in some jurisdictions, prior art consequences are triggered in a wider number of jurisdictions when the public disclosure is elevated to the form of a "publication".
For example, technologies in the chemical or metallurgical process industries that are susceptible to trade secret protection, but also warrant consideration for defensive publication, may include laboratory equipment and methods, internally-used material handling equipment, minor improvements to chemical or metallurgical processes, or simple non-core technologies. Bias to either one of trade secret protection or defensive publication depends on, amongst other things, the likelihood and consequences of infringing a competitor's future patent and the likelihood of detection of such infringing activity. For laboratory methods or internally-used material handling equipment, competitive patenting activity is more likely to be low, infringement detection is more likely to be difficult, and the consequences of infringement are not likely to be significant. In such cases, there may be a justifiable bias towards maintaining trade secrecy. On the other hand, where potential infringement consequences are higher, such as for marginally improved chemical/metallurgical processes, and especially where relatively little value is likely to be extracted from protecting the technology by trade secret, such as in the case of simple non-core technologies, the bias may swing towards defensive publication.
Patent vs. Trade Secrets
If the invention is of more than marginal value, and there are no other ways available to assist the innovating organization in recouping its R&D costs, its protection through patenting or trade secrecy is more likely to be warranted.
There is a bias towards trade secret protection where there is confidence that the invention could be maintained in secret and where it is unlikely that the same invention will be independently developed or reverse-engineered by a competitor. This bias becomes eroded when circumstances exist which increase the risk of loss of trade secret protection. The following circumstances increase the risk of loss of trade secret protection:
- extent to which the invention is easily visible in the marketed product or service;
- existence of relatively high employee/contractor mobility or competition for key employees;
- government regulation requires disclosure of information to a government authority;
- existence of many potential customers and concomitant increased opportunity for information exchange;
- sales process requires information exchange between vendors and customers;
- customers receive on-going technical support, thereby creating further opportunity for information exchange;
- nature of the innovator's business requires regular collaboration with third parties;
- business strategy includes licensing of invention to third parties;
- problem solved by the innovation is something which pervades the industry, and there is a high probability that competitors are continuing, in parallel, to expend R&D efforts, searching for a solution to this same problem; and
- existence of significant market opportunity, attracting competitors to develop same invention.
The bias against trade secret protection becomes even stronger if there is an aversion to accepting the potential consequences associated with the independent development and patenting of the same invention by competitors.
Patenting is the preferred choice when its deterrence power is high or when licensing potential for the invention is attractive. Generally, patents, rather than trade secrets, are the favoured vehicles for licensing. The value of patents as licensable rights increases where:
- the territorial reach of a business organization is limited;
- the invention is embodied in a non-core technology;
- the invention relates to a disruptive technology; and
- the patent landscape is fairly crowded and there is a concomitant increase in the risk of an infringement claim by a competitor.
Patenting may also be necessary to make potential investors feel more comfortable when financing the associated business venture. Further, patenting is more attractive where the innovator can realize value from the patent's ability to facilitate knowledge transfer, open the door to third party collaborations, and thereby inspire collaborative or third party development of foreground or improvement technologies which are potentially useful to the original innovator.
In parallel with filing a patent application, defensive publication of the invention could be effected so as to trigger more immediate prior art consequences, and assist in preserving the innovator's right to use the invention, versus waiting for the patent application to publish in the normal course of prosecution of a patent application (typically, 18 months after its filing).
Technologies that are relatively more valuable, and that are also susceptible to both patent and trade secret protection, may include more significant chemical/metallurgical process improvements or pioneering process technologies. In these cases, a bias towards patenting exists when the technology has been jointly developed, or where licensing is a desired business strategy, or where employee mobility is likely, as these circumstances increase the risk of information disclosure that destroys trade secret protection. As well, the bias exists where government regulation requires disclosure of information to a legislated body, such as the Energy Resources Conservation Board created under provincial legislation in Alberta, which, in regulating the design and construction of new oil & gas projects in Alberta, could force the disclosure of potentially valuable trade secret information in order to help evaluate the environmental impact of the project. The bias also exists, or is further strengthened, when there is significant risk that competitors will independently develop the same technology. Independent competitive development chips away at the exclusivity previously enjoyed by the original innovator who chooses trade secret protection, thereby undermining the original innovator's competitive position. If there is a belief that the competitor will choose to patent the independently developed technology, this, combined with an increased risk of infringement detection arising by virtue of an increased risk of information disclosure through third parties (ie. the joint developer, licensees, or former employees), increases the risk of exposure to patent infringement consequences, and further biases the decision-making towards patenting.
A decision-making tool, in the form of a flowchart, is attached, as a general guide to deciding whether any invention should be protected by way of patent, trade secret, or defensive publication. Of course, this tool is merely a guide, and could be modified so as to recognize further intermediate levels of value and risk and their relevance to possible outcomes, and also to suit personal preferences, objectives, and philosophies.
To view the Guide for Choosing Between Patents, Trade Secrets and Defensive Publication, click here.
To read the full-length version of this article, click here.
About Ogilvy Renault
Ogilvy Renault LLP is a full-service law firm with close to 450 lawyers and patent and trade-mark agents practicing in the areas of business, litigation, intellectual property, and employment and labour. Ogilvy Renault has offices in Montréal, Ottawa, Québec, Toronto, Calgary and London (England), and serves some of the largest and most successful corporations in Canada and in more than 120 countries worldwide. Find out more at www.ogilvyrenault.com.
Ogilvy Renault joins Norton Rose Group on June 1, 2011.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
