Register an invention as an intellectual property (IP) right or keep the innovation as a trade secret? What is the difference and what speaks for and against each option?

What is a registered IP right?

A registered IP right is, for example, a patent, which – in return for disclosure of the invention and payment of fees – grant the owner an exclusive right for a limited period (usually 20 years from filing). Namely the (negative) right to prohibit third parties from commercially using the same or an equivalent invention. This means the deal is: sufficient disclosure to the patent office including fee payment in exchange for a temporary legal monopoly.

What is a trade secret In contrast?

A trade secret is a technical or commercial information that is:

• neither generally known nor publicly or (at least) readily accessible to the public,
• has a commercial (economic) value because it is secret and
• has been made subject to reasonable steps – particularly adequate technical, organizational, and legal measures – to keep it secret.

Trade secrets can be both technical innovations and commercial (business) information.

• They include (positive) knowledge and experience such as
• new inventions (which are not patented), research & development data, improvements of products or processes, at present unannounced products, processes or other creative ideas including the related technology, drawings, models, prototypes, sketches, plans,
• As well as commercially sensitive distribution or manufacturing information such as customer lists, supplier lists, non-public financial information or spreadsheets, strategy, and operations (valuable insight).
• But also “negative” knowledge and experience such as failed projects or negative results from which the competition could learn and save efforts by avoiding unpromising research paths.

What this information always has in common is that it gives the owner a competitive advantage (cf. commercial value) over its competitors, who would be interested and would like to have access to it. That is the vital point in the end whether a trade secret exists or not.

Against this background, with trade secrets, it is the other way around: No disclosure (this means secrecy) and potentially unlimited duration of protection, provided and insofar as the information in question actually remains secret. It is therefore merely (but still) a de facto protective situation (and ownership), albeit without exclusivity rights as with patent rights. The owner of a trade secret must not disclose the respective information without confidentiality obligations sufficient to protect the trade secret.

If secret information leaks out or if a third party happens to create the same innovation in parallel, be it by lawful discovery or reengineering, the supposed ‘glory’ may be over. If a product is freely and publicly available on the market, there is in principle no general ban on reengineering or imitation in competition, subject to any contractual, competition law or, where applicable, IP restrictions such as patent or copyright law. A company should be aware of this and protect its trade secrets accordingly (s. below).

What happens in the event of violations (remedy for infringement or breach)?

In case of the infringement of patent rights, the owner has the option to file a civil action, for example, for injunctive relief (prohibition), removal and financial compensation (as the case may be), whereby the claims of the patent (forming the defined scope of protection) are compared with the individual features of the contested object (such as a device or a process). In practice, unfair competition or criminal law play a rather subordinate role in patent law.

In case of a breach of laws for the protection of trade secrets, such as a misappropriation or divulgation, the aggrieved person can file a civil law action or initiate criminal proceedings with the prosecution authorities (as the case may be). As mentioned, the protection does not consist of an exclusive right against every third party, but of specific protective provisions in the law against unfair or criminal conduct aimed at circumventing safeguard measures to protect trade secrets. Protection of trade secrets usually stands and falls with the ability to prove that the commercially valuable information was previously available to the claimant, was secret, was protected against unauthorized access and publication and ultimately passed to the violating party without authorization or was misappropriated by the latter. This can be a complicated and extensive process in terms of evidence.

Is trade secret protection always cheaper than patent protection?

You cannot say that, or at least not in every case. Especially as it is clear from the above that every company wishing to invoke trade secret protection should define and record a corresponding internal policy with respect to trade secrets, that defines which sensitive information is protected and how, in order to be able to prove this (if necessary) in the event of a dispute. But definition and recording alone are not enough; the company must also ensure that employees adhere to it, when they deal internally with other employees (maybe without need-to-know) or externally with business partners, collaboration/development partners, freelancers, subcontractors, universities, customers or suppliers.

In addition to contractual (legal) safeguards in employment, non-disclosure, development cooperation, supply, and other agreements, such policy shall also include further organizational and technical measures in everyday business such as checklists for onboarding and offboarding staff, regular/periodic employee training, technical or physical access restrictions, labeling requirements and confidentiality levels, code word or password protection systems, cyber security measures and much more. This also causes internal costs.

When should which option be chosen? What speaks for and what against trade secrets?

There is hardly a right or wrong answer to this question or a response that fits any situation. As usually in the case of law, it depends on the specific individual case at hand.

First, it should be noted that a combination of both approaches (patent right and trade secret in parallel), is possible and even common in practice, depending on the technical solution (be it product, method, or service). One could think of a patent application and surrounding trade secrets: A patent application could be filed for the basic technology (technical teaching), where as much as necessary but as little as possible of the technical details is published (to get the patent granted). By way of contrast, the details required to carry out or exploit the patented invention as optimal as possible (customer needs) on the other hand, could be kept secret and deliberately not included in the patent specification or proceedings. This could include particularly the most suitable accompanying circumstances and parameters (in case of bandwidths), preferred supplier materials, precise recipes, additional professional knowledge and practical experience of employees about the behavior of certain materials, etc. Such practical advantages over the competition could well remain trade secrets.

Another reason for trade secret may be that the innovation in question is for some reason not patentable or very difficult to patent. Or if the money for legal enforcement of patents were lacking in the long term. However, it should be borne in mind that a patent has even more and different values than the mere assertion of defense claims against third-party infringers. For example, the defensive effect or the nature as an intangible asset. It is also conceivable that if a patent application is not filed by the owner of a respective trade secret, someone else or even a competitor may make the same or at least a similar invention and then file a patent application for it. Unpleasant.

Finally, If an infringement by third parties is easy to detect and prove in practice, this speaks more in favor of patent right. In this case, the features of the challenged object can be compared with the patent claims. If, on the other hand, infringement by third parties is not easily recognizable or difficult to recognize and prove, the reverse applies. For example, if a product can hardly be re-engineered or it is unclear whether a product has been manufactured or treated using a certain process.