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Trade Secrets: The Big Thing for Tech Companies

tech companiesWhat do Google and WD-40 have in common? They can both attribute their continued success to trade secrets. It may be relatively easy to build a search engine or an aerosol can that sprays lubricant, but it is practically impossible to replicate the success of Google and WD-40. The two companies do not have patents on their products, precisely because that would require public disclosure of how to produce the product that has made them so successful. The benefit of a trade secret is that it continues in perpetuity. Coca-Cola's trade secret for its formula is over 120 years old. If Coke had decided to patent its formula instead, the patent would have expired over a century ago and the company would not be the giant it is today.

In order to qualify as a "trade secret," the information must have economic value and must be kept confidential by the company. This can be done through legal documents, compartmentalizing information, physical and digital security, and enforcement actions against leakers of information. Tech companies should consider the use of trade secrets if a product is one that is not easy to develop independently. Software code and chemical formulas are two prime candidates. Importantly, trade secrets are governed by state law, which can vary as to confidentiality requirements.

It is often difficult for tech companies with new products to determine whether trade secret or patent protection better suits its needs. Fortunately, it is possible to do both for a short period of time. Patent applications are kept secret for the first 18 months after they are filed. If the company decides during this time that trade secret protection would be more beneficial, it may withdraw the application through a request for abandonment and still have trade secret protection, so long as the state confidentiality requirements are maintained. Alternatively, companies can file a request for non-publication at the same time as filing its patent application. The patent will stay a secret until the examiner determines if it is allowable. During this time, the company should be evaluating the strength of its patent. If it appears as though the patent will be narrow or weak, it can always be abandoned before publication, and trade secret status will be maintained.

Another strategy would be to file a provisional application. It is only good for 12 months before it has to be converted to a regular application but provisional applications are never published. And you don't have to give up your ability to file in other countries like you do with a non-publication request.

Perhaps the most effective method to protect new tech products is to split the product into parts. One part may be more appropriately protected by a patent, while the other may be better treated as a trade secret. WD-40 has done this with a can that goes from a wide to concentrated area of application. Because the can is easy to reverse engineer, it is patented, but because the WD-40 formula is not, it is treated as a trade secret. Tech companies may receive the best possible protection of their products by using a similar strategy.

The balance between patent protection and maintaining a trade secret is delicate. Make sure you are getting the best advice.

Categories: Intellectual Property, Patents, Trade Secrets

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John brings a unique perspective to Foster Swift with his practical experience as an entrepreneur, business owner, and manager.  He focuses in the areas of business, tax, intellectual property and entertainment.

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