A Contrast between Trade Secrets and Patents

This article has been written by Khyati Basant pursuing BBA LLB from Symbiosis Law School, NOIDA. This article briefly deals with information about trade secrets and patents. 

Suppose you have developed a gaming programme for the youth. After a year of specialisation, you decide to launch it. You saw a great response from the public. Now you are worried that this programme of yours might get copied by someone. What would you do to protect it? Now imagine your mother runs a bakery shop. One day she experimented and created a new kind of pudding. She started mass production of the pudding and over the months the shop was known for the pudding. What was the secret recipe? Do you want it to be known by the people? What will you do to keep this a secret? Both the words patent and trade secret may seem similar but they are different from each other. A lot of professionals face difficulty while choosing between patent and trade secret. This is thus a big confusion for them. 

‘Patent’ means the rights which are granted to any person who has invented something novel, unusual and innovative whereas a ‘trade secret’ can be defined as any formula or any technique which is kept as a secret. Patent and Trade Secrets are the most relevant forms of Intellectual Property Rights that can be used to serve for the protection of a product or services with strong confidentiality.

A product when patented protects patentable information which can be patented and qualifies patentability criteria whereas a product when protected under trade secret, is used for the economic benefit of the inventor and his company. The same information can be protected under a patent as well as trade secrets. Thus, here lies the confusion for the professionals to choose between patent and trade secrets.

Trade Secret

A trade secret protects any formulas, patterns, or information that is not disclosed in the general public. This is the cardinal point of trade secrets. The fact that the secrets are not disclosed in the public gives its holders the advantage of earning an economic benefit from it. It also helps them to have an upper hand from its competitors.

Trade secrets are not protected under laws and regulations in India. The concept flows from the common law principles of equity, breach of confidence and contractual obligations. These principles are relevant in India. There is no formal registration that is required under this.

Trade secrets can also be protected by copyright laws. Here’s an example. Suppose you have a novel idea for cleaning your automobile and places a copyright notice on the sheet containing a description of the process. So long this is kept a secret. But if this comes to someone’s notice and he tries to copy it, trade secrets have no protection thereafter. Trade secret law no longer provides any defence because there is no confidential arrangement to be followed or unethical actions to be disciplined. Copyright law may forbid the stranger from copying and publishing the definition. The theory is confirmed by the decision in Russell v. Trimfit. In this case, Russell the copyrighted plaintiff sketches of the mitten toe or glove shoes. The defendant made identical shoes, and the plaintiff sued for the breach. The court dismissed the case, observing that there was no claim that the defendant had ever made, invented, sold or circulated any copies of the footwear drawings of the plaintiff. Given though the design was the original invention of the plaintiff, the court ruled that the copyright did not protect the copyright holder against the socks being created illegally.

The Indian courts have been protecting trade secrets on the basis of the principles of breach of confidence, equity and contractual obligation.

  1. Breach of confidence – The owner of the secret might reveal the secret to a hand full of people to run his business smoothly. The owner does so with full confidence that the other person might not reveal it. Thus, the person is obligated to maintain the secret. If the person does not maintain the secret an injunction is filed in the court. This creates a breach of confidence. In Diljeet Titus v. Alfred Adevare & Ors, the court held that the breach of confidence is independent of any other right under the law. The obligation has to be expressed and not implied. This means that the protection does not always have to be from the owner having the right but from the obligations implied to maintain this confidence under the trade secrets in general.
  2. Principle of equity -the other person to whom these secrets are revealed must not indulge in any unfair trade practice. The employees must be educated for protection under the principle of equity. In John Richard Brady v. Chemical Process Equipments P. Ltd it was held that if any person has been given the information must not take the unfair advantage over it. This case has been awarded an injunction even in the absence of a contract. In this case, an agreement was made between the parties for the supply of thermal panels. The plaintiff after knowing the incapability of the defendant did not place any order. The plaintiff shared some of the information with the defendant before the agreements such as the drawings, the know-how process. Thus, the plaintiff filed a suit against the defendant of the know-how and the design of the thermal panel. In Mr Anil Gupta and Anr. v. Mr Kunal Dasgupta and Ors, the plaintiff had come up with the idea of the matchmaking ‘swayamvar’, a reality show. This was shared with the defendant. The plaintiff filed an injunction as he saw the news that the defendant was planning to come with a reality show using his concept. The argument of the Defendants that once the concept was registered under the Copyright Act the same came under public domain, cannot be sustained in the eyes of the law. As a matter of fact, when a concept is registered, the same is protected from the public domain. Therefore, it was held that the Defendants could not be permitted to launch its TV programme if the same was based on the concept of Swayamvar, conceived by the Plaintiff.
  3. Contractual obligation – this explains that the employees of the company should enter into an agreement for non- disclosure. This will create a contractual obligation. In Niranjan Shankar Golikari v. Century Spinning, it was held that during the course of employment or even after that the employee should not reveal confidential information. The court says that this would not amount to restraint of trade. The former employees should not take undue advantage over the secrets revealed to them in confidence. Homag India Pvt. Ltd. vs. Mr Ulfath Ali Khan and IMA AG Asia Pacific PTE. Ltd, this is a very interesting case. In this case, Mr Ulfath Ali Khan had to maintain information confidential after his course of employment. He was under a contract that he would not work for any company with the enmity of Homag India for a period of 1 year. He committed a breach of contract by entering into IMA ltd company. The trial judge dismissed the application for a temporary injunction against the IMA AG Asia Pacific PTE Ltd. on the ground that there was no privity of contract between the plaintiff and Mr Ulfath. It was held that the defendant had infringed the rights of the appellant Homag India.

Thus, anything that has an economic value to its holders and is not disclosed to the general public is known as trade secrets.

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Examples of trade secrets are – 

  • Customs information- Many companies have the policy of keeping their customers’ information confidential. This is done to build customer trust and increase the goodwill of the company.  
  • A recipe or formula – Undoubtedly the famous coca-cola recipe and the KFC’s recipe has been kept a secret for decades. Both these brands instead of patenting their recipe have kept them a secret. 
  • Any design or pattern – The companies try to keep their designs and patterns confidential so as to run their business. For example, software design is to be kept secret. In Data General Corp. v. Digital Computer Controls, Inc, the plaintiff data general invented a minicomputer and named it Nova1200. He notified the owners of the confidentiality of the design by entering into a contractual obligation. The digital computer controls after obtaining the design created a copy of the minicomputer. They claimed that the Data General Corporation did not maintain the secrecy as they shared the design with a number of customers. The court, in this case, held that the Digital Computer Controls were violating the trade secrets of the Data corporation. It was held that the Data General had sufficiently protected the secrecy of its drawings.
  • Production and manufacturing methods- This includes the process of converting raw materials into usable materials and the methods used to make consumer products.

Any information is a trade secret until it is maintained a secret. It is not necessary to keep the information a secret for a lifetime. You may make it easily accessible when it has lost its economic value or has not been protected.

Trade secrets are often patented by its owners. The information, design, recipes remain a secret till the time you have patented it. Once the approval of the patent arrives, the information is no more a secret. This is so because a patent is a right which is publicly recognised. It is not kept confidential.

Patents

The patent is the right that has been granted to the inventors under the Patent Act,1970  to disclose their invention to the public in exchange for certain rights i.e that the invention cannot be used for commercial purposes, imported or sold without the consent of the patent holder. The patent has been granted to inventors to help them manufacture, use or sell their invention for a fixed period. Patent protection is generally granted for a period of 20 years.

The patent comes from the Latin word “patere” which means to lay open. To lay open to public inspection. The patent protects the inventors. It protects the innovation and the techniques that are made while its invention. A patent is granted to safeguard the inventions of the creators. Anything to be patent must meet the following requirement :

  1. Novel – this means that the creation should be new and there should have existed any trace of it.
  2. Unique – The product should be unique. This means that any alteration or change in technology cannot amount to patent.
  3. Usefulness – the product should be useful to the world. Any inventions without any use are just trash. The invention should also be used legally. Any product having usefulness in an illegal activity is not patented.

Getting a patent is a very long process. But it is important to get a patent for your invention as it will build a higher market share and more recognition. This will also increase the monetary value of the product.

Patents are protected under Patent Act in India. A patent is defined under Section 2(m) of the act. This section defines ‘patent’ as patent for invention under the Patent Act. If there is any infringement with the right of the patent holder, the act provides the remedies. The rights and obligations of the holder are also mentioned in the act. Things that are patented under the Patents Act include the things that are novel, useful and involve an inventive step.

Things that cannot be patented in India is mentioned in chapter 3 of the Patent Act, they include:

  • Mere discovery of the formulation of the theory that already exists- Things that are patented under the Patents Act include the things that are novel, useful and involve an inventive step. Thus discovery is something that already exists in nature and therefore is not patentable. Genetically modification of plants and seeds are not patentable in India. The process of genetically modifying the plants or the seeds thus can be patented in India.
  • A scientific theory or mathematical – The discovery of laws or principles of nature or science is not patentable subject matter.  However, the application thereof to produce a particular practical and useful result may be patentable. Patents must be new and involve an innovative step. The reason for not patenting the theory is that it already exists in nature as a discovery and is not patented. 
  • A procedure for medical treatment – It must be noted that the process of carrying out any kind of surgery or blood transfusion is not patent in India. This is so because it is not considered as an invention. People consider patents in biotechnology as poor. It is generally because they make drugs or medical therapies more costly than they would have been if they were sold in a free market.
  • A method or technique for doing any kind of business

There are countless examples of inventions that have been patented. Inventions are done to solve problems and to help others. Some of the famous patents are 

  1. Quadcopter Drone – this was patented back in 1962 by Edward G. Vanderlip.
  2. 3D Printers – This was patented back in 1986. This invention was considered ahead of time and defined the basic technology advancement. 
  3. Bionic Eye – This invention is one of the most important patents.  G. S. Brindley and W. S. Lewin surgically implanted a device in a 52-year-old patient in 1968. 
  4. Bluetooth – Jaap Haartsen invented Bluetooth in 1994, allowing electronic devices in close proximity to connect to each other using low-power, ultra-high-frequency radio waves. Haartsen has drafted multiple patents relating to Bluetooth, but they have been stymied by lawsuits and patent trolls. 

Patent and trade secrets serve different purposes. The basic differences are discussed below.

Confidentiality

The patent is a specific right that has been granted by Patent Act,1970. to its holder to make, sell or use his invention for a specific period. It protects the inventors from others who might sell their inventions.  Thus, the information in the patent is shared at a public domain and is not kept confidential. 

Patent is known to the public at large to use it. For example, life-saving inventions are given patents. Nils Alwall was given the patent right when he invented steel kidneys. Thomas Alva Edison was given the patent right for the invention of the light bulb.

Trade secrets protect the individual or the company’s secret from misappropriation or theft. It helps the holder to keep the formula, pattern, recipe a secret. Thus, the trade secrets are confidential. They are not to be disclosed in public.

Trade secrets are the secrets that are kept confidential and are not disclosed to the general public as it might lead to business failure. For example, the famous Coca – Cola recipe and the KFC burger recipe that is kept secret for years now.

                  

Protection of intellectual property 

A patent gives the inventor a particular right to use, sell or make its product. The patent right in India is given by the Indian Patent Office headquartered in Mumbai, Maharashtra to the inventors to let them know that their work has been recognised. It encourages them for more innovative and new ideas. The other branches of Indian Patent Office are in Delhi and in Chennai.

A patent gives the inventor a particular right to use, sell or make its product. 

Trade secrets are the secret of a company that is kept confidential as it helps the company gain some economic benefit from it. Trade secrets prefer not to disclose the information that gives them economic value.

Trade secrets help to protect the information given from any kind of theft or misappropriation. Once the information is disclosed or patented it is no more considered as a trade secret as it is known to the general public. 

Validity

Patents are granted for a term of 20 years by the Indian Patent Act,1970. Though the patent is granted from the day of the application filing, the patent might be granted for a term less than 20 years depending upon the invention. After the expiry of the patent, anyone can get access to the invention. After the expiry of 20 years can be renewed. If not renewed the patent comes under public domain. They might use the inventions for their benefit and the patent holder might not have any right over it. The Patent Cooperation Treaty (PCT) is an international treaty with more than 145 Contracting States under The World Intellectual Property Organization (WIPO). It administers a single application in one language submitted in one country and will be a universal application. A request (Form PCT / RO/101) accompanied by an English or Hindi description, claims, abstract (and drawings if necessary) of the invention. The foreign application to be filed in three copies. Patent is a territorial right. If a patent is filed in India it is valid only in India and a patent is applied in the US it is only valid in the US. Thus, you must apply for a patent in every country.

Trade secrets are a better option in this case. The term period is perpetual.it is protected by the common law principles. There is no limitation period for trade secrets. There is no expiry date. This is because a trade secret remains confidential until it is transferred to someone. Any information remains a trade secret unless it is disclosed by someone in the public or is patented by the owner. Trade secrets expire only when it is patented. This is a more flexible approach for the protection of the information without any additional efforts. The full coca-cola recipe is still confidential and is not known to the public.

Effect

The process of granting a patent takes a time of approx 2-3 years from the day of filling the information. The holder may get a notification of “patent holding” status on the day of filing the patent. This may offer some protection to the holder. The full patent rights can only be granted to the patent holder after its procedures have been completed which takes about 2- 3 years. 

This competing company or any other individual may come up with the same invention in this time gap. This can hinder the rights of the previous holder. The patent holder has been granted the right under the Patent Act that no person is allowed to use the holder’s invention for commercial purposes without his consent.

Trade secrets have an advantage in this case. Trade secrets do not take this long. As soon as the trade secrets have been acknowledged and the owner maintains the internal procedures and establishes, it becomes a trade secret and is protected. 

Protection Offered

Patents protect the novel inventions of the inventors. It helps them to protect their new and innovative inventions. Any kind of discovery or any method to do a particular thing cannot be patented. The patent right guarantees the inventors the protection of their invention from other competition in the market. This secures the inventors and further motivates them for more ideas and useful innovations.

Protection is granted to the inventions that are useful and unique.

Trade secrets protect valuable information. This does not require the information to be disclosed to the government. This information helps the owner to have some economic benefit from it. Trade secrets as the name suggests help the trades to keep their information a secret. It is thus important to know that the level of protection involved in trade secrets are comparative much less than that of the patents. It is generally very difficult and weary to enforce protection for trade secrets when especially compared to patents. 

Cost and Expenditure

The cost and expenditure are far more in patents than in trade secrets. 

Patents require application fees and internal procedures also require fees that are to be maintained. On an average 50,000 – 65,000 INR is required for the filing of patents depending upon the fact that you have hired a patent professional for the process of patent search, writing and filing a patent application. The professional charges at patentability search range from Rs 10,000 to Rs.20,000. Patent drafting charges range from Rs. 20,000 to 30,000 (professional fees). Request for examination fees is Rs. 4000 or 10000 or 20000 (based on type of applicant) The cost may even vary from country to country.

Trade secrets do not require application fees. It only requires the administration cost for internal procedures. It may require money for staffing. The typical cost that is required in trade secrets is security measures. Thus gives trade secrets an edge over the patent. It is thus important to remember that it applies only to the products that have confidentiality. 

Procedure

Patents require a lot of paperwork. The process involves hiring legal help to fill and other paperwork. This is considered as one of the major drawbacks for patents. It involves filling for a patent, meeting the administrative work and the work involved in its internal process. This makes the patent more enforceable because there is a lot of paperwork to back up any kind of confusion or misrepresentation. This signifies patent protection more efficiently than trade secrets. 

The process of granting the patent may require a period of 2-3 years in India.

The steps required is for filling the patent are :

  1. Invention Disclosure – Then the inventor must disclose what he has invented. He must mention the details of his invention such as the area of invention, how it works, advantages.
  2. Patentability check – Then the invention must go through a patentability check. In section 3 of the Patent Act, there are certain inventions that cannot be patentable. Thus this is an important step.
  3. Patent Drafting – Patent drafting can be done by a professional or even by your own. Provisional application provides the benefit of low cost and secures the final date.
  4. Filing the application –  After the draft has been made with all the specialisation, it must be filed. It generally requires a period of 18 months for the publication from the day of filing. An early publication date can be filed if you do not wish to wait for 18 months with the prescribed fees. There are different types of patent applications in India. They include 1. Provisional application, 2. Non-provisional application, 3. Conventional application, 4. PCT international application 5. PCT national application 6. Patent of addition 7. Divisional application.
  5. Requesting examination – The patent application is examined after receiving the request. The examination is done on the basis of patentable matter, novelty, non- obviousness, inventive steps, and industrial application. This is known as the first examination report. This report is submitted to the controller. 
  6. Respond to objections (if any) – Most of the patent applicants will receive some kind of objections in the examination report. It is therefore suggested that the applicant discussed this with professionals. The applicant is required to reply to all the responses made. This is important because if the response has not been answered, the invention will not be granted the patent.
  7. Grant of Patent – If the applicant has met all the requirements he will be placed in order for the grant. The grant for patents is notified in patent journals.

Trade secrets do not involve much of the paperwork as compared to the patents. It does not involve any formalities. This is because the information has to be kept a secret rather than its disclosure in the public. The holder may not have to spend a lot of time engaging in the procedures. This has its benefits for the holders.

                   

Laws and Regulations

In India, the law governing patents is the Patents Act,1970. This act has been amended three times so far. Patents (Amendment) Act,1999 was the first amendment followed by amendments in 2002 and 2005. The Patent Cooperation Treaty (PCT) is a treaty incorporated by the World Intellectual Property Organization (WIPO). The Patent Cooperation Treaty helps to seek patent protection at international levels simultaneously by filing a single patent application. The most important reason to have a patent rather than trade secrets is that it is easier to sue someone in this case. If someone comes up with the same idea unintentionally and independently then also the patent holder has the full right to make the other person or company cease.

Trade secrets protect holders from theft or misrepresentation. But if any individual or a company comes up with the same recipe or the technique then that holder has no right over that individual. In India, there are no laws or regulations that govern trade secrets. In Indian courts, the cases of trade secrets are discussed by the rules of breach of confidence and laws relating to the principle of equity. This amounts to contractual obligations. If any person intentionally steals the secret, the court might punish them under the Information Technology Act, 2000 with an imprisonment of 3 years or a compensation of 5 lakhs or both.  A person is legally bound to not disclose any information that has been shared to him in confidence.

Though there is a remedy which is granted to the holder. The remedy involved the secret holder to enforce an injunction restricting the other person to not disclose the secret to anyone and keep it confidential. He might compensate for any loss that has been incurred due to disclosure of the secrets by the individual.

The laws in India regarding the trade secrets are not yet very clear. Though this should be made more clear for better understanding. Thus, a product to be a patent or a trade secret depends on its kind. It is so important to make your inventions recognised legally for the motivation and credits. Trade secrets and patents are mutually exclusive.

The kinds of intellectual property generally overlap and thus creates a lot of confusion in the minds of people to choose between them. 

What to choose between patent and trade secrets only depends on the product which has to get patentable recognition. It also depends on the company or the inventor.

The decision must be made meticulously by taking into consideration every point. This will ensure that the coverage is significantly different from the others and the variables of the intellectual property are also well maintained.

There must be a balance between secrecy and disclosure of the information. Trade secrets and patents are mutually exclusive. The position of trade secret is not yet satisfactory in India. This is because of the absence of laws relating to trade secrets. The laws must be made with Indian jurisdiction. No business is successful without secrets.  

 

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