Are trade secrets nothing but “baby patents”?

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Are trade secrets nothing but “baby patents”? After incredibly derogatory and defamatory statements about trade secrets, which I have heard in the past, such as, “trade secrets don’t have a single redeeming virtue” from a corporate chief IP counsel and “trade secrets are the cesspool of the patent system” from a Washington, DC IP professor, comes the dismissive statement that trade secrets are nothing but “baby patents”. This opinion was expressed in a recent meeting, which I attended, of West Legalworks in New York City on “Advanced Strategies for Cultivating, Exploiting, Tracking and Protecting Your Intellectual Property,” by the moderator of a Roundtable Discussion on “Choosing the Optimal IP Strategy for Your Company”.

As I cover trade secrets, trade secret licensing and hybrid patent/trade secret licensing in my Technology Licensing course, it occurred to me that this “baby patent” comment would be a good problem for the final exam in this course on December 13, 2007. I asked the students to write a brief essay on whether this statement is a correct or an incorrect characterization of trade secrets.

And the students had a ball with this exam problem, to say the least.

All but three students out of 79 disagreed with this characterization, labeling it a very narrow or simplistic view, or an oversimplification or even a mischaracterization or serious misconception. Some called it incorrect, incomplete, inadequate or even woefully inadequate or totally or blatantly incorrect or flat wrong. One allowed as how it was a “misnomer of gargantuan proportion.”

The three students who opined that this characterization was correct did so by pointing to Mark Halligan’s statement that “all patents are born as trade secrets,” but otherwise indicated that trade secrets are a very important IP category in their own right and that patents and trade secrets fully complement one another.

Reproducing one of the best essays will demonstrate that my students learned their lesson about the importance of trade secrets, the complementariness of patents and trade secrets and the criticality of trade secrets in technology licensing very well indeed.

Here it is:

Trade secrets cannot be considered as “baby patents.” Trade secrets are so important that they should not be considered as “baby patents.” Patents and trade secrets are actually highly complementary and mutually reinforcing. The truth is that patents and trade secrets can not only coexist, but dovetail and are in harmony rather than in conflict with each other. “(T)rade secret-patent coexistence is well-established, and the two are in harmony because they serve different economic and ethical functions.” (Prof. Donald Chisum)

Indeed, patents and trade secrets are inextricable intertwined, because the bulk of R&D data and results or associated, collateral know-how for any but the simplest invention, cannot and need not be included in a patent specification even if in hand before filing, but deserves and requires, protection via trade secrets. And such data and know-how are immensely important because, as a practical matter, patented technology without access to associated or collateral know-how is often not enough for commercial use because patents rarely disclose the ultimate scaled-up commercial embodiments. Trade secrets are a component of almost every technology license and can increase the value of a license up to 3 to 10 times the value of the deal if no trade secrets are involved (per Mel Jager).

It’s also noteworthy that patents are but tips of icebergs in an ocean of trade secrets, with over 90% of all new technology being covered by trade secrets and over 80% of all technology licenses covering proprietary know-how, i.e. trade secrets, or constituting hybrid licenses embracing patents and trade secrets.

Any contention that trade secrets cannot coexist with patents on a given invention overlooks the simple truths that the best made requirement applies i) only at the time of filing ii) only to the knowledge of the inventor, and iii) only to the claimed invention.

In conclusion, let it be said that it is unproductive to base decisions for protecting innovative technology and commercial and technical know-how via patents or trade secrets solely on postulated differences between the two and the presumed respective advantages and disadvantages flowing therefrom.

Trade secrets are a viable mode of protection and can be used in lieu of patents but, more importantly, they can and should be relied upon side by side with patents to protect any given invention as well as the volumes of collateral know-how, because for from being irreconcilable, patents and trade secrets in fact make for a happy marriage as equal partners. Hence, it is patents and (not “or”) trade secrets.

With patents and trade secrets it is clearly possible to cover additional subject matter, invoke different remedies in litigation and have one standup when the other becomes invalid or unenforceable and thereby exploit the overlap and strengthen exclusivity. Utilizing both routes for optimal protection should be a critical part of any IP management strategy.

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This page contains a single entry by Carol Ruh published on January 18, 2008 11:09 AM.

Protection of Software via Patents and Trade Secrets was the previous entry in this blog.

Trade Secrets and the Best Mode Requirement -- No. 15 is the next entry in this blog.

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