Keeping Secrets

ideaBack in April, I posted Trolls, which talked about Patent Trolls, companies that buy up patents not to build new and innovative products but to sue other innovative companies, seeking lucrative settlements.  The costs of patent litigation has become so high that in most cases, companies settle rater than fighting the Trolls in court.   For large companies,  this an economic expense and a nuisance.  For small businesses, it can spell ruin.  The patent system, which was designed to encourage innovation by protecting proprietary developments, is doing exactly the opposite.  Of course, there are other drawbacks to using patents to protect secrets.  For one, a patent application includes a complete disclosure of the innovation being patented and is made public as soon as the patent is granted.   The secrets are protected from use by others by law for the duration of the patent, twenty years from the date the application was filed for so-called utility patents.  Of course, exercising the patent rights against other companies and defending them against challengers usually requires litigation.  And at the end of the patent term, anyone can use the information disclosed in the patent.

More and more companies are resorting to trade secrets instead of patents to protect their proprietary information.   A trade secret is information that provides you with an economic advantage that derives from keeping it secret and for which you have made reasonable efforts to maintain secrecy.   Your information must not be generally known or, as lawyers like to say, obvious to someone skilled in the art.  Beyond that, it can be almost anything … a manufacturing process, a bit of machinery, a computer program or a customer list.  There is no formal application process for trade secrets, and as long as the conditions that make them trade secrets are met, there is no time limit.  However, reasonable efforts to keep your secret can be quite involved.   You need confidentiality agreements with your employees so they don’t disclose your secrets when they move on to one of your competitors.  You need non-disclosure agreements when you reveal you secret to a potential customer.  And if one of your employees publishes a paper revealing your secret in some obscure journal, it’s no longer a trade secret.   Worse, if a competitor independently comes up with your secret … and can prove it … it is no longer a trade secret.  And here is what astonished me when I first learned it.   If you have a product that uses your secret and a competitor can legally acquire your product, then take it apart to discover your secrets … a process known as reverse engineering … then your secrets are no longer trade secrets.

So, you have a really great idea.  You’ve done your homework and you know how to build it.  Your market research says it will make you millions for 50 years into the future.   Do you apply for a patent to lock up your gizmo for twenty years or do you build it under close industrial security, require confidentiality agreements with all your employees and package your product to be hard to reverse engineer?   Welcome to the world of innovation in the United States of America, where no matter which way you go, you’ll likely end up in court.   Someone will either claim you stole their secret (and often all they want is a cash settlement) … or you’ll find someone’s stolen yours.  Both patent and trade secret litigation are expensive.   Given that, make sure you have good legal counsel specializing in intellectual property matters to help you decide and conduct your business afterwards.  Because a man who is his own intellectual property lawyer not only has a fool for a client … he likely won’t be Keeping Secrets.

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One Comment on “Keeping Secrets”

  1. bluestempond Says:

    Thanks for the good, simple explanation.


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