In a series of articles devoted to trade secrets, Gowling WLG professionals share their knowledge to help you understand and manage trade secrets to use them as tools for competitiveness. These articles are the preamble for our upcoming conference on October 24.
We hope to enlighten you on:
- Items that may be subject to protection under trade secret law;
- The benefits that trade secrets bring compared to other forms of intellectual property; and
- The long-term competitive advantage that the protection of trade secrets can provide.
Since we defined trade secrets and discussed their valuation in previous articles, we will now examine strategic aspects of the protection granted by trade secrets. To do this, we will compare the different methods of protecting intellectual property.
Strategic implications of trade secrets
The main advantage of trade secret protection is that it is often available where other forms of protection are unavailable due to legal or business considerations. A careful analysis of the advantages and disadvantages of each form of intellectual property should be carried out before any valuable information is made public or shared.
Trade secrets vs. patents
Trade secrets offer an alternative to patents for the protection of technical inventions. The trade secret protection is particularly suitable for inventions that cannot meet the requirements of patentability, especially in terms of subject matter eligibility. For instance, pure software algorithms might prove difficult to protect using patents.
It is also important to consider whether your solution is isolated from external scrutiny and, therefore, difficult to learn and replicate. In such cases, disclosing information through the patent application might be damaging rather than helpful. Your competitors might be able to jumpstart their product development efforts without being preoccupied by your patent because it would be difficult for you to prove infringement on their part.
Trade secrets can also provide protection during the early research and development stages of a product, before the technology is mature enough for a patent application to be drafted and filed.
While the protection afforded by trade secrets is fundamentally different from that of patents, it has the distinct advantage of the absence of an expiry date, as long as the matters remain secret. However, one must not neglect the quality of the documentation produced for the trade secret, which should be given the same level of attention as the filing of a patent application.
Trade secrets vs. copyright
Trade secrets, in contrast to copyright, generally lose any protection afforded by the law once they are made public. However, copyright law does not protect the underlying ideas or concepts of a published work – it only protects the physical medium – whereas trade secrets law can protect valuable business assets such as recipes, know-how and formulas that usually fall outside of the scope of copyright protection.
For example, we often see software companies strictly relying on copyrights for the protection of their source code. While this strategy might be sufficient and sound to prevent theft of the code files themselves, it provides very little protection for the functionality provided by the software application. When the code is subject to “open source” licensing, protection by trade secret is obviously not relevant. In other instances, or by properly segmenting the source code, it might be possible to take advantage of trade secrets protection.
Preserving your competitive advantage and the value of your business
Trade secrets can be extremely valuable assets of a business, but their value is fragile and can vanish if not adequately protected. Knowing how to identify and protect these assets is a vital consideration for start-ups, large multinationals and all companies in between.
As discussed in our previous article, safeguarding your trade secrets from fatal disclosure requires a comprehensive strategy that should include a review of existing trade secrets as well as proactive measures to protect against unjustified disclosure. In some cases, it might be necessary to carry out an internal due diligence review of the current protection process for your most valuable information, to whom it is shared and on what terms. This exercise will enable you to deploy corrective measures.