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The illusory world of trade secret protection

By Lawrence B. Ebert, Esq.

In an article titled Inside Entrepreneurship: Patent protection isn't only option , SUSAN SCHRETER discusses the trade secret alternative to patenting in a favorable light. Quoting attorney Warren Rheaume,

"Unlike patents, trade secret protection does not require inventors to publicly disclose the specific attributes of their innovations, which appeals to entrepreneurs who worry about educating their competitors. Trade secrets can also be applied to areas that are typically not patentable, like customer lists."

Rheaume also notes that trade secret protection is well respected among sophisticated angel investors and venture capitalists. "Investors know that technology advances that are covered by trade secrets do not restrict a company from licensing or selling the underlying technology. The key is how well the company and its licensing partners adhere to policies to keep their trade secrets as secret. Trade secrets also don't expire like patents, providing some additional strategic value to a company."

Sadly, Schreter and Rheaume are giving 19th century advice to 21st century problems. The correct answer for protection these days is a provisional patent application. There are several difficulties with the trade secret approach.

First, to deal with a potential backer, one has to negotiate a nondisclosure agreement. This can be tricky, and if things go bad, it's bye-bye invention.

Second, in a world filled with "simultaneous" inventions, if someone else comes up with your idea, and does get patent protection, it's bed time for Bonzo.

Third, if you actually get to the production stage, and someone can design around, they will. Except if you only have trade secret protection, it's called (legal) copying.

Moser already discussed the issues between trade secrets and patents, as to inventions in the 19th century. These days, the balance tips wildly toward patents, because it is harder to conceal anything. In the food business, advances in analytical chemistry allow the interested competitor to determine the content of almost anything. Similarly, scientific devices can be stripped to their bare bones in no time. What worked in the 19th century doesn't work now.

Even with patents, life is tough. Ask the Wright Brothers. Anything they didn't nail down was copied immediately. What they did nail down was copied too. Even in 1903, they knew that trade secrets wouldn't work for them.

See also

"Unlocking the Sky": missing a few facts?

On Fighting Giants

Full post as published by IPBiz on May 23, 2008 (boomark / email).