Patents vs. Trade Secrets: Do You Need a Patent, or is a Secret Good Enough? | IPWatchdog Unleashed

This week on IPWatchdog Unleashed we will explore the age-old question about whether it is best to keep an innovation as a trade secret or if it makes sense to seek patent protection. And while this question is not new, it is a question that has been getting more attention in recent years as patents in the United States become weaker, which makes trade secrets increasingly look like a viable alternative for a host of different innovations in a variety of technology fields.

There are a variety of reasons patents in the United States are becoming weaker, and simply not desirable for certain innovators. Whether we like it or not, a patent is no longer an exclusive right in America. Sure, the grant of the patent itself says that the patent owner holds the right to exclude, but the reality since the Supreme Court’s decision in eBay is that patent owners simply cannot expect to obtain injunctive relief anymore. And what is and what is not a patent eligible innovation defies logic and reason. Indeed, we are at the point where tangible items like a garage door and MRI machine have been found to be abstract, a drive shaft is not patentable because it is considered a law of nature, and even things like cameras are often rejected as patent ineligible by patent examiners. And as absurd as it is that tangible devices are routinely found to be patent ineligible, more problematic for the future of American innovation is the fact that artificial intelligence related tools, platforms and inventions are frequently found to be ineligible for patent protection. Meanwhile, medical diagnostics are patent eligible only if they include a treatment step, which means you can’t patent a medical diagnostic, which has dried up research and development obviously. And whatever you think about any of this—whether you believe it is good, bad or downright ugly—the truth is the way the courts and the Patent Office interpret what is and what is not patent eligible has significantly influenced what individuals and corporations are willing to even try to patent. So, it is easy to understand why so many innovators and innovative companies are increasingly exploring trade secrets as an alternative—particularly where you know with virtual certainty that you can’t obtain a patent, or the patent you might obtain just isn’t worth the effort and expense.

So, it is against this backdrop of increasing interest in trade secrets instead of patents that I decided to have a conversation about how to go about determining whether to keep an innovation as a trade secret or to plow forward to seek patent protection.

Joining me for this conversation are Carlo Cotrone, who is the former Chief IP Officer for Techtronic Industries and who also spent time in the oil and gas industry as lead IP counsel for Baker Hughes. Today, Carlo is the founder and principal consultant for Quartal IP. Also joining the conversation is a former law school mate of mine, Arash Behravesh, who is Enterprise Counsel for the Chemistry & Supplies Division at Agilent Technologies, and Bryan Walker, who is Senior IP Counsel at 3M, where he has responsibility for developing and managing international patent portfolios, trade secrets, generative AI and more.

Cotrone started us off by discussing the importance of knowing the company, what they are doing and what is important to them because “trade secrets may be more pivotal and valuable than patents for certain kinds of technologies.” He also explained the importance of not allowing bias to enter into the calculus “because otherwise the notion of patents being king can take over.”

“I have a pretty easy formula that I use to balance the patent versus the trade secret [question],” Behravesh said. “And that is, can it be reverse engineered? How much does it cost the competitor to reverse engineer it? And if we decide to keep it as a trade secret, how long will it be before somebody potentially discloses the information to the public?”

Picking up on the importance of reverse engineering, Walker drilled down on detectability, particularly for software patents. “On one end, you have something that’s readily apparent, that’s detectable, you can reverse engineer it–you probably want to go with patents,” Walker explained. “If you have something that you really can’t detect, and it’s going to take a lot of discovery, and you may never truly know how it works on the back end, trade secrets may be the way to go.”

From here we move the conversation into discussion of specific innovations.

“In the battery space, for example, many of you know, it’s extremely crowded,” Cotrone explained. “And to get fundamental patents nowadays, it’s possible, but less likely. So, a lot of this technology now, like cell chemistry, perhaps, is very trade secret driven… Certain innovations we would pursue patent protection for, but a lot of the extreme formulations and additives… it becomes a trade secret question.”

“And just to build off of this, so it depends on your industry as well,” Behravesh said. “If you’re in the chemical pharmaceutical industry, it’s extremely difficult for somebody to reverse engineer something. You don’t know what the process is in order to get the final product. It’s almost impossible to reverse engineer that from the final product. So most chemical processes or pharmaceutical processes tend to be more trade secrets than patents, just by its nature, if you can’t reverse engineer it.”

While in the chemical area it is not uncommon for there to be a 50-50 split between trade secrets and patents, for those that operate in a tangible, product driven market, the split is often 70-30 in favor of patents. Having said that, Walker pointed out that it is important to understand that the magnitude of the trade secrets can be substantial.

“It’s not just quantitative, it’s also qualitative,” Walker said making the point that it is a mistake to think the overall aggregate value of trade secrets is any less than the value of patents. “The numbers don’t tell the whole story… one very valuable trade secret can be worth more than quite a few patents or vice versa.”

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