For many reasons, innovators often seek patent protection for inventions. A patent can offer powerful and valuable protection by preventing competitors from making or using an invention during the term of the patent. Similar forms of protection are also available for other types of innovations such as plant breeds and integrated circuits.
However, some innovators choose instead to try to keep their valuable business knowledge secret. For example, famous recipes for Coca-Cola and Kentucky Fried Chicken have been, and are claimed still to be, vigorously guarded trade secrets. As another example, the violin maker Antonio Stradivari apparently kept secret his technique for the manufacture of Stradivarius violins.
So, what are some considerations that should go into deciding whether to pursue patent protection versus keeping an innovation as a trade secret?
Whether the innovation can be kept secret. Many innovations must be put in the public domain to derive commercial benefit from them. For some innovations, once in the public domain, competitors can easily figure out how they work and what components go into making them. Trade secrets are generally not advisable for these types of innovations since they will be virtually impossible to maintain. For example, it would have been difficult, if not impossible, for the Wright brothers to commercialize and protect their “flying machine” without patent protection.
However, where an innovation can be kept secret, owners of the innovation have a choice between disclosing the innovation to seek patent protection or trying to keep the innovation secret. Innovations relating to manufacturing methods and processes are generally easier to keep as trade secrets. For?example, if an innovation relates to a new cost-effective way of manufacturing widgets, if once those widgets are in the marketplace it would be impossible for a competitor to figure out how the widgets were manufactured, then it is perhaps better to keep the new cost-effective manufacturing technique as a trade secret. In this manner, instead of obtaining a limited-time monopoly by way of a patent, keeping the innovation as a trade secret will allow commercial exploitation of the innovation indefinitely (or at least for as long as the innovation remains secret).
Duration of protection. Patents are time-limited and generally require comprehensive disclosure of the innovation in question. Therefore, once these rights expire, the innovative subject matter is generally available for use by anyone. On the other hand, trade secrets can be protected indefinitely as long as they continue to remain secret. Therefore, by choosing not to seek patent or similar protection, the owner of the innovation takes a risk that the innovation could be disclosed and exploited at any time.
Risk of losing secrecy. If the subject matter of a trade secret becomes public knowledge, then there is limited available protection – and sometimes no available protection – from competitors who might take advantage of that subject matter. For example, if a trade secret is discovered, such as by chemical analysis or reverse engineering, then that information is probably irrevocably in the public domain. Trade secrets can also be disclosed inadvertently or misappropriated by those who know the secret.
Trade secrets must therefore be protected vigilantly. For example, both the Coca-Cola and Kentucky Fried Chicken recipes are said to be stored in highly secure vaults and accessible to only very few individuals. But, of?course, to commercialize a trade secret, at least some persons must know at least part of the secret, and trade secret owners therefore rely on legal protection against misuse by persons who know their secrets.
Available legal protection. Unlike many states in the United States, Canada does not have legislation to protect trade secrets. Nevertheless, owners of trade secrets can impose contractual duties of confidentiality. Furthermore, Canadian courts have recognized duties of confidentiality even without contracts.
Therefore, any person – such as a current or former employee, officer, director, supplier, or licensee – who learns confidential information of another on a confidential basis may owe a duty of confidentiality. Even a third party with no direct relationship to a trade secret owner can in some circumstances owe a duty of confidence to the trade secret owner.
A person who owes a duty of confidentiality may breach that duty by making unauthorized use of the confidential information and may be liable for damages, injunctions, and a variety of other remedies for such breach. Monetary remedies for a breach of confidentiality can, of course, be very significant.
However, generally speaking, a trade secret owner can only obtain remedies from those who owe a duty of confidentiality. A trade secret, once legitimately in the public domain, is freely available to all. The owner has no recourse against a person who innocently learns the secret. Patents, in contrast, can be enforced against competitors regardless of how the competitors learned of the invention.
Therefore, owners of innovations that can be kept secret often have an important choice between keeping the innovation secret and the competing strategy of disclosure in exchange for time-limited protection in a patent.
As recently as 2009, the Kentucky Fried Chicken recipe was reportedly relocated under significant protection. Auction prices for Stradivarius violins have set records in recent years, including one for over $3 million. Therefore, beyond the protection from competitors, trade secrets may also capture widespread public curiosity and bring substantial fame to these and other products.
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