Crafting an effective intellectual property (IP) strategy is a cornerstone of protecting innovation, regardless of industry. An IP strategy with successful outcomes, often depends on whether the innovation can be kept confidential and for how long. For technology innovation the two most common forms of IP protection that are utilised to help amplify commercial value, are patents and trade secrets.
This article explores two primary approaches of IP protection—patents and trade secrets—and provides insights into the benefits and challenges of each, as well as how IP landscape searches and taking a coordinated approach with your IP, plays a vital role in securing and maximising IP value.
Understanding the basics: Patents vs. trade secrets
For innovations, IP protection typically falls into two categories: patents and trade secrets. Each has specific advantages and limitations, depending on the nature of the innovation and the goals of the business.
- Patents: A patent provides an exclusive right to an inventor to produce, use, and sell an invention for a limited period, generally 20 years from the filing date. However, patents require public disclosure of the invention's details, which becomes publicly accessible information once the patent is published. As a result, while patents grant strong protection, they sacrifice confidentiality.
- Trade secrets: Unlike patents, trade secrets rely on confidentiality rather than public disclosure. A trade secret can protect any information or process that gives a business a competitive advantage as long as it remains confidential. Notably, trade secrets can potentially last indefinitely, but their protection is lost if the secret becomes public knowledge, whether through leaks or reverse engineering or even due to a having to meet regulatory requirements to be able to ship or sell the product.
The choice between these two IP strategies hinges on whether the innovation can be feasibly kept confidential and for how long.
Trade secrets
When confidentiality is key
For some companies, trade secrets are the preferred route for IP protection because they do not require public disclosure. Iconic examples include the formulas for Coca-Cola and KFC’s seasoning, both of which are carefully guarded trade secrets. By choosing this approach, these companies have preserved their competitive edge over decades.
Key characteristics of trade secrets
Trade secrets are particularly effective for innovations that can be securely protected within an organisation, including:
- Processes: Manufacturing processes and unique methods that are difficult for competitors to reverse-engineer can remain proprietary indefinitely, provided the organisation takes steps to secure confidentiality.
- Data: Proprietary data, especially if it is exclusive and crucial to business operations, is often better protected as a trade secret.
- Chemical formulations: If a product's composition can be maintained confidentially (as in Coca-Cola’s formula), a trade secret strategy may be appropriate.
Advantages and risks
Trade secrets can theoretically last forever, but they carry certain risks:
- Risk of disclosure: The trade secret is only secure as long as it remains confidential. Internal leaks, theft, or independent discovery by competitors can all jeopardise the benefits of trade secret protection.
- Regulatory compliance: Certain industries have disclosure requirements that could potentially force a company to reveal proprietary information.
- Investor disclosure: Disclosures to investors, even if under a non-disclosure agreement, can also threaten trade secret protection.
Because trade secrets can be challenging to protect in the long run, companies considering this strategy must take rigorous security measures, from non-disclosure agreements to restricted access policies.
Patents
When patents are necessary: Protecting non-confidential innovations
For innovations that cannot feasibly remain confidential, patents become a critical option to consider. Once a product or process is visible to others, it becomes vulnerable to reverse engineering. Hardware, for instance, is particularly susceptible since any product that can be physically examined may be replicated.
Reasons to choose patent protection
Certain types of innovations are difficult, if not impossible, to keep secret:
- Hardware products: Hardware can often be disassembled and studied, making it difficult to maintain confidentiality.
- Processes and formulations with regulatory exposure: Innovations requiring regulatory approvals—such as pharmaceuticals or chemical processes subject to packaging and labelling laws—will often necessitate public disclosures, making trade secret protection impractical for certain aspects of the business.
- Disclosures to stakeholders: If disclosure to investors or regulatory bodies is essential, or if the innovation is at risk of being disclosed through theft or independent discovery, patent protection may be the more secure path.
The challenge of timely filing
For patent protection to be valid, companies must apply for patents before public disclosure or risk forfeiting their rights. Therefore, timing is essential in IP strategy—delaying the filing of a patent application can jeopardise protection altogether.
IP strategy
The role of landscape searches in IP strategy
Regardless of whether a trade secret or patent strategy is pursued, conducting an IP landscape search early as part of designing your IP strategy is essential for understanding the broader IP environment. An IP landscape search provides insight into what similar innovations exist, how other companies are positioning their IP strategies, and whether potential IP conflicts might arise.
- Identifying prior art: A landscape search helps identify if other companies have already developed similar innovations. If another company has already patented the concept, pursuing your own patent becomes impractical, and a trade secret strategy may also be at risk if the innovation is publicly known.
- Determining freedom to operate (FTO): In addition to patentability, an FTO analysis is often performed to determine whether the innovation infringes on existing patents. FTO analysis can reveal potential obstacles or highlight areas where the innovation might require modification to avoid conflicts.
Landscape searches not only guide the choice between patents and trade secrets but also inform the broader business strategy, from market positioning to R&D direction.
Integrating IP strategy with business goals
The information from an IP landscape search helps shape an IP strategy that aligns with the company's business model and market goals. For example, if the innovation is novel but cannot be kept confidential, a patent-based approach could support market exclusivity and brand authority. Alternatively, if the innovation involves unique data or a proprietary process, a trade secret strategy might offer a better fit.
Moreover, the landscape search can uncover opportunities to pivot an IP strategy. For example, if it is found that a similar product exists, a company might adapt its approach by focusing on a new market application or tailoring the innovation to enhance its uniqueness.
IP housekeeping: Ensuring a strong IP foundation
A solid IP strategy is not just about patents and trade secrets; it also involves general IP housekeeping practices. Proper IP management bolsters both business operations and investor appeal.
- Clean chain of title: Ensuring a clear chain of title, or documented ownership, is crucial in IP management. A company's rights to an IP asset can be questioned if there are gaps in documentation, particularly when IP is acquired through mergers, acquisitions, or licensing agreements. Clean title is essential for protecting and enforcing IP rights effectively.
- IP culture: Building a culture of IP awareness within a company can enhance IP protection. When employees understand the importance of IP—through training on non-disclosure practices, for example—they are more likely to contribute to protecting trade secrets and respecting patent requirements. An IP-conscious culture is also beneficial for maintaining robust internal IP practices, which can prevent inadvertent disclosures.
- Investor appeal: Investors often view strong IP management as a signal of a well-organised and forward-thinking company. A company with a clear IP strategy, clean chain of title to the IP that they own, and a commitment to confidentiality and security has a competitive edge in attracting investment.
Crafting a tailored IP strategy is key
Developing an IP strategy requires evaluating the nature of the innovation, assessing the feasibility of maintaining confidentiality, and performing IP landscape searches. Both patents and trade secrets offer valuable IP protection, but their effectiveness depends on the specific attributes of the innovation and the company’s long-term business objectives.
Landscape searches and IP housekeeping play an integral role, ensuring that a company’s IP strategy is comprehensive, adaptable, and aligned with its competitive position in the market. In a rapidly evolving business environment, a well-planned IP strategy provides a framework for sustained innovation, competitive differentiation, and, ultimately, business success. By understanding the nuanced considerations of IP protection, companies can make informed choices that maximise their innovations' value and security.
