India: What To Choose Between Trade Secrets And Patents

Last Updated: 21 February 2019
Article by Pratibha Ahirwar

Introduction

Trade Secret or Patents! What to choose between both? A Big Confusion in the head of the company. The two have more differences than similarities.

Patents give you the exclusive right to exclude others from making, selling, using or importing a particular product or service in exchange for full public disclosure of your invention. Whereas Trade secrets are formulas, processes, or other business information that derive their commercial value from being kept secret, and that a company is making reasonable effort to keep secret. One famous example: Google's search algorithm, Coco-cola's secret ingredients.

Patents and Trade secrets are the only two forms of IP rights that protect information. Patent protects patentable information which can be patented and qualifies patentability criteria while trade secrets can protect patentable information and any of the other information which can add the economic value to the holder. Therefore, the same information can be protected by patents and the trade secrets. And this is the place where the dilemma to choose what should come into play arises.

The blog seeks to compare between the patent and trade secret and what should likely be used by the inventor.

Comparison Between The Patent And Trade Secret

Patents are publicly disclosed but trade secrets are kept confidential, so there are several key differences in how you secure each type of protection1 -

  1. Patent protects new and useful invention whereas trade secret protects valuable and secret information.
  2. Patent gives the patent holder a right to exclude others from making, selling, using or importing the invention. Whereas the trade secret protects only from the misappropriation.
  3. While patent is granted the invention becomes public but this is not the case in trade secret, in case of trade secret the information remains secret. For granting of patent the applicant must have to file a formal application followed by the examination in the patent office. No such formalities in the case of trade secret.
  4. The duration for the granting of patent is approximately 2-3 years which is way more than trade secret, as they take the time as long as it takes to establish and maintain the internal procedure only.
  5. The term of protection of patent is 20 years. Whereas the term is perpetual in case of trade secret.
  6. The cost and expenditure in patent is more as compared to trade secret (no application fee, cost for only internal procedures only) and varies from country to country.

Suppose, if you have an invention that is not eligible for a patent, you can still protect that invention by claiming it as a trade secret. Trade secrets protect information that is valuable non-public information. If the invention allows your business to gain an advantage over your competitors because your competitors do not have the information than that information will qualifies to be protected as a trade secret.

Intersection B/W Patent And Trade Secret

The law governing the patent and trade secret serves two very different purposes in the society; patent law mainly serves to promote the sharing of information, while the trade secret serves to protect an individual or a company from theft and promotes secrecy. Trade secret law has evolved more slowly compared to the patents.

Now, the question arises that what to choose between patent and trade secret?

The Kewanee court has examined three categories of subject matter that an inventor would consider in choosing between patent protection and trade secret protection:

  1. the trade secret believed by its owner to constitute a validly patentable invention;
  2. the trade secret known to its owner not to be so patentable; and
  3. the trade secret whose valid patentability is considered doubtful.2

For the category of subject matter "known to its owner not to be so patentable," the court held that there is no conflict or preemption of patent law by state trade secret law because patent law would never be applicable to those inventions. For the category of subject matter "whose valid patentability is considered doubtful," the court held that on balance, "eliminating trade secret law for the doubtfully patentable invention have deleterious effects on society" and thus presents no conflict with patent law. Finally, for the category of subject matter "believed by its owner to constitute a validly patentable invention," the Court held that trade secret law "presents no reasonable risk of deterrence from filing a patent application."'3

Criteria For Choosing Between Patent And Trade Secret

  1. Patentability- The most important factor to determine is whether the information under consideration is patentable or not. If it is not patentable a company's resources are better to spent on seeking trade secret protection. And if the information is not capable of being kept a trade secret then a patent may be the only recourse for the protection.
  2. Term of protection- Patent terms are expressed as twenty years from the application filing date or earliest priority date. Realistically, because patents are not granted the day they are filed, the period of time a granted patent may be enforced is less than this 20 year term and in some cases substantially less.4 Trade secrets, on the other hand, offer a more flexible approach to information protection as no limitation to the time period is there. Thus, a trade secret is more effective at protecting the subsequent improvements and evolution of an invention without incurring significant additional costs and/or efforts.
  3. Enforcement considerations- To enforce a patent, a company must prove infringement. But depending on the technology and type of protection obtained, infringement may be difficult to prove. Patent enforcement may be difficult where the theft (infringement) occurs abroad, by foreign individuals or entities in jurisdictions that do not enforce patents. This is becoming an increasing threat for many companies due to the rapid internationalization of businesses and their practices. Similarly, trade secret enforcement proceedings on foreign soil are subject to the same barriers as patent enforcement noted above. Proof of trade secret misappropriation, in contrast, can be based on circumstantial evidence.
  4. Injunctions- If either company A or company B generally considers money damages as Inadequate, trade secret protection may be the better option. In 2006, the Supreme Court raised the threshold for obtaining injunction for patent infringement.5 What was once an automatic injunction upon a finding of patent infringement became instead discretionary relief that is granted only upon the showing of four factors:

    1. Whether the plaintiff suffered an irreparable injury;
    2. Whether remedies available at law are inadequate to compensate for that injury;
    3. Whether considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and
    4. Whether the public interest would not be disserved by a permanent injunction.
    The results were almost immediate, with substantially fewer injunctions. By reducing the threat of an injunction, the Court in the eyes of some decreased the potential reward for asserting patent infringement and the risk in defending against patent infringement charges.
  5. Disclosure- Trade secrets and the laws protecting them are premised on the non-disclosure of economically valuable information. For example, companies A and B may prefer to protect their patentable inventions as trade secrets to prevent the flow of information to their competitors. In contrast to trade secrets, the disclosures in patent applications, once published, can give the competition important strategic insights into what a company is doing or may be pursuing. Such competitive intelligence might give bigger and better financed rivals a competitive head start in developing a competing product.6 Moreover, rivals may use this information to design around or even make patentable improvements to the company's inventions.
  6. Costs- At the end of the day, regardless of what a company believes is the best and most effective protection for its information (innovations, inventions), it will likely choose the option that it can afford. It is generally true that procuring patents is, far more expensive than creating a trade secret. While the list is not exhaustive, these six factors with are likely to be the most relevant and should almost always be considered in a trade secret versus patent analysis.

Position In India

There is no proper and specific legislation in India to protect trade secrets and confidential information. While in Indian courts trade secret are upheld on the basis of principle of equity and common law action of breach of confidence, which amounts to breach of contractual obligation. The remedies which are available to the owner of the trade secrets is to obtain an injunction restraining the licensee from disclosing the trade secret, return of all confidential and proprietary information and the compensation for any losses suffered due to disclosure of trade secrets.

In India, a person is contractually bound not to disclose any information that is revealed to him in confidence. The Indian courts have upheld a restrictive clause in a technology transfer agreements, which imposes a licensee not to disclose or use the information received under the agreement for any of the purpose other than that has been agreed in the said agreement. The Delhi High Court in the case of John Richard Brady and Ors v. Chemical Process equipment's P. Ltd. and anr7 invoked a wider equitable jurisdiction and awarded injunction even in the absence of a contract.

Conclusion

The intersection of patents and trade secrets can be described as a delicate balance of disclosure and secrecy. The USPTO views that trade secret protection is "an alternative to patent protection."8 But the position of trade secret protection is better than the patent protection on the basis of the points we have discussed earlier. The position of India in relation with the trade secret is not clear as no proper law has been implemented so the law regarding the trade secret should be made for greater understanding in the Indian jurisdiction.

What to choose between the patent and trade-secret solely depends on the company or inventor or depend on what type of invention is being to be protected.

Footnotes

[1] https://www.henrypatentfirm.com/blog/whats-the-difference-between-patent-and-trade-secret. (Last visited on Jan 09, 2019)

[2] Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 493 (1974).

[3] Id.

[4] Patents are only enforceable once granted, so the patent terms may vary depending on the amount of time an application is pending in the USPTO. Although beyond the scope of this article, patent terms vary widely based on technologies, USPTO backlogs, and a myriad other factors. The terms of most granted patents are likely of sufficient duration to at least recoup the invested costs of creating the technology and securing the patent(s) if they are commercialized and/or otherwise monetized.

[5] eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).

[6] Ignatius Horstmann, et al., Patents as Information Transfer Mechanisms: To Patent or (Maybe) Not to Patent, 93(5) J. OF POL. ECON. 837 (1985).

[7] AIR 1987 Delhi 372.

[8] Office of Policy and External Affairs: Patent Trade Secrets, USPTO, http://www.uspto.gov/ip/global/patents/ir pat tradesecret.jsp (last visited Jan. 04, 2019).

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.

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