Trade Secrets and Patent Protection: Protecting Intellectual Property

A business must decide how to best protect its intellectual property. Sometimes that decision comes down to deciding between using trade secret or patent protection. This lesson explains the key differences between these two intellectual property protections.

Protecting Business Secrets

I’m furious! My very best employee, Wilma, quit! She quit to go to my biggest competitor, the Wash and Woof. I own Barks and Bubbles, the biggest dog groomer in town. But, Wash and Woof recently moved in next door. They’re stealing my employees and clients! Now, Wilma is working at Wash and Woof, and I hear that right before she left, she sent letters to all my Barks and Bubbles clients. She told them she was leaving and encouraged them to come see her at Wash and Woof. I may learn the hard way the importance of protecting proprietary information, or business secrets and intellectual property.

That was my client list. It was in the Barks and Bubbles front desk computer. Only Wilma and I had access to that computer. We had to sign-on with a secret password and Wilma knew it was secret. I can’t believe this! What if she shares other proprietary information with Wash and Woof? She has all kinds of secret information about my products and services! I’m going to see my business attorney right away. I need to find out what I need to do to protect my information, or if it’s just too late.

What Is a Patent?

My business and Wash and Woof are both pet grooming businesses. Therefore, we use the same type of equipment and the same type of products. However, I’ve spent a lot of time developing my own unique line of products. I’ve even invented a key piece of equipment that’s in use at my shop. My attorney reminds me that, as a result, I own several patents. Patents offer one of the very highest levels of protection for proprietary information, so this is good news for me.

A patent is a legal document issued by the government. It protects a party’s intellectual property rights in an invention. The invention must be unique and original, and not previously disclosed to the public. A person receives a patent by applying with the United States Patent and Trademark Office, or USPTO. Patents are only issued for inventions or improvements to a tangible and functional object.

How Are Patents Protected?

I own patents on the recipes for my citrus-scented dog hair care products and also on a negative ion dog hair dryer. These patents serve as my property rights in the inventions. Like all patent owners, I’ll own my rights for 20 years.

Patent rights mean that the patent owner can exclude others from making, using, offering for sale, or selling the patented item in the U.S. or importing the item into the U.S. To do so is patent infringement. Patent infringement is a federal, civil cause of action alleging that one person used another person’s patented item without the patent owner’s permission. In other words, I can sue Wilma, or Wash and Woof, if they use my items. In a lawsuit, I can ask the court for an injunction. This is a court order preventing the defendant from continuing to use the patented item. I can also ask the court for an award of damages. This is a money award meant to compensate the patent owner for any loss incurred due to the defendant’s patent infringement.

What Is a Trade Secret?

Now, let’s get back to that client list Wilma took. My attorney explains that this list is a trade secret. Trade secrets are probably the most common form of intellectual property because this category is the broadest. Generally speaking, a trade secret is any confidential business information that provides the business with a competitive edge. This includes things like sales methods, distribution methods, marketing methods, research methods, consumer profiles, advertising strategies, suppliers list, client lists, firm software and manufacturing processes. You’ll notice that many of these items don’t meet the necessary criteria to be patentable.

There are only a few standard conditions that must be met in order for information to be considered a trade secret. These requirements come from the Agreement on Trade-Related Aspects of Intellectual Property Rights, or TRIPS. This is an agreement, administered by the World Trade Organization, which sets internationally applicable minimum standards for many different forms of intellectual property regulation. For trade secrets, TRIPS simply requires that:

  • The information is a secret. This means that the information isn’t generally known to, or accessible to, people that normally deal with this kind of information.
  • The information has commercial value because it’s a secret. In other words, if the information was made public, its value would decrease.
  • The owner of the secret has taken reasonable steps to protect the secret. This simply means that the rightful holder of the information has tried to keep the information confidential.

Notice that trade secret information is meant to be confidential forever. This is different than patent information. Once a patent application is filed, it becomes a government document and a matter of public record.

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How Are Trade Secrets Protected?

Now, let’s take a look at how trade secrets can be protected. Most businesses have many types of trade secrets, though many businesses don’t take precautions to protect their trade secrets. Many business owners may not realize that trade secrets are easily protected. Unlike patents, trade secrets don’t require registration. Therefore, they can be protected for free, for an unlimited amount of time, and protection has an immediate effect.

There’s not a particular or standardized way that trade secrets have to be protected. The Uniform Trade Secrets Act is a model act regarding trade secrets and adopted as law in 47 states. This act says that the law protects a trade secret only when the owner has made efforts that are reasonable under the circumstances to maintain its secrecy. For most business owners, this means taking measures, such as:

  • Stamping documents CONFIDENTIAL
  • Password protecting certain files
  • Limiting physical access to certain areas
  • Using confidentiality, or non-disclosure, agreements

Once the trade secret is properly protected, any unauthorized use of the confidential information will be considered an unfair business practice and the misappropriation of a trade secret. This is a business tort and a civil cause of action. The business owner can sue in state court. Common remedies include injunctions and money damages. Notice that this isn’t a federal cause of action, like a patent infringement case.

Sounds like I might have a state cause of action against Wilma for her misappropriation of my client list. I’m so glad I protected this information and made it obvious that it was a secret. My attorney’s calling Wash and Woof right now.

Lesson Summary

Let’s review. A patent is a legal document issued by the government. It protects a party’s intellectual property rights in an invention. The invention must be unique and original and not previously disclosed to the public. A person receives a patent by applying with the United States Patent and Trademark Office, or USPTO. Patents are only issued for inventions or improvements to a tangible and functional object. These rights last for 20 years.

Patent rights mean that the patent owner can exclude others from making, using, offering for sale, or selling the patented item in the U.S. or importing the item into the U.S. To do so is patent infringement. Patent infringement is a federal, civil cause of action alleging that one person used another person’s patented item without the patent owner’s permission.

Trade secrets, on the other hand, are probably the most common form of intellectual property. Generally speaking, a trade secret is any confidential business information that provides the business with a competitive edge. This broad category includes things like sales methods, marketing methods, consumer profiles, advertising strategies and client lists. Many trade secrets don’t meet the criteria necessary to be patentable.

Unlike patents, trade secrets don’t require registration. Therefore, they can be protected for free, for an unlimited amount of time, and protection has an immediate effect. There’s not a particular or standardized way that trade secrets have to be protected. Generally, an owner must simply make efforts that are reasonable under the circumstances. Any unauthorized use of a trade secret will be considered an unfair business practice. This is a business tort and a civil cause of action. The business owner can sue in state court.

Learning Outcomes

Following this lesson, you’ll be able to:

  • Define patent and trade secrets
  • Identify the elements required for something to be considered a trade secret
  • Explain what is required to patent something
  • List ways that business owners can maintain the secrecy of documents or information
  • Differentiate between patent infringement lawsuits and unfair business practice lawsuits

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