Patent vs. Trade Secret

There have been various forms of intellectual property (IP) which encompasses patents, trademarks, copyrights, etc. To know more about IP, please refer to the article “What are Intellectual Property Rights?”. Amongst different forms of IP, patents have been unarguably the best mode of IP protection available to any invention in the form of a product or a process. However, recently, trade secrets have become an important part of the IP portfolio of any organization.  Both patents and trade secrets can be used to protect inventions, formulae, process steps, and ingredients in a composition. However, it depends on the nature of the information and the applicant who is required to assess the best mode of protection for such information. To do so, it is essential to understand the important ingredients and requisites of patents and trade secrets. While the law relating to patents is codified and well developed through judicial precedents, trade secrets law is still at its nascent stage in India. However, certain judicial precedents give a fair idea about trade secrets.

What is a trade secret?

While the patent is a right to prevent third parties who do not have any consent of the patentee from using the invention in any manner as prescribed in the statute, as per WIPO’s definition, trade secrets are IP rights on confidential information which may be sold or licensed. More details regarding patents can be accessed in the article “What is a Patent?” Further, WIPO has provided certain conditions which are required to be fulfilled for information to be classified as a trade secret:

1. commercially valuable because it is secret;
2. the information was only accessible to a limited group of people;
3. the right holder had taken reasonable steps for keeping the information secret.

In a few decisions rendered by Indian courts, trade secrets will include formulae, technical know-how, or a peculiar mode or method of business adopted by an employer that is unknown to others.[i] Therefore, trade secrets are protection for information, provided, that such information is confidential. On the other hand, the information protected by a patent has to be first disclosed to the public by way of complete specifications.

What protection is available to trade secrets?

Firstly, to seek remedies concerning trade secrets in India, the following conditions[i] are required to be fulfilled:

• That the information itself has the necessary quality of confidence about it;
• That the information was transferred in circumstances imparting an obligation of confidence;
• That there was an unauthorized use (including threatened use) of that information to the detriment of the party communicating it.

Further, unlike other IP rights, there is no exclusive statute or laws protecting trade secrets in India. Mostly, trade secrets are governed by contracts and common law (including torts, breaches of confidence, etc.). In agreements, strict covenants restricting the disbursement of sensitive information such as non-disclosure agreements (NDAs) and confidentiality clauses in employment contracts, service agreements, and license agreements shall be provided. Therefore, if best practices are ensured, a trade secret can be protected for an unlimited period. Also, in absence of an express contract, it will be difficult to claim common law remedies available for infringement of trade secrets.

Points to be considered during licensing of trade secrets:

For licensing the confidential information/trade secret, certain strategic points are to be considered:

• Trade secret/confidential information must be clearly defined to include all types of communication whether written or electronic form.
• Technical information/knowledge can also qualify as trade secrets/know-how.
• The information exchanged must be marked as confidential.
• Non-disclosure/secrecy clauses need to be expressly provided in the agreement specifically stating that liability shall arise in case of any violation whether deliberate or unintentional or induced.
• Express clause ensuring licensee’s acknowledgment that any breach would cause irreparable harm to the licensor, and as such an order of injunction without posting a bond would be necessary in case of any breach. This is to secure and contain any damages to the licensor due to breach.
• Access to information shall be provided on a need-to-know basis. Appropriate clauses regarding the same shall be provided.
• In case of any third party required to be engaged by the licensee, firstly consent shall be taken from the licensor and secondly, appropriate restrictions on the third party shall be imposed restricting access to information.
• In case of any leak of information, the licensee shall promptly inform the licensor.

Patents vis-à-vis Trade Secrets

While a patent can be used for protecting information in the form of an invention subject to fulfillment of certain conditions, a trade secret can be used for protecting any information. It is noteworthy that patent rights can be used for preventing any third party from using the invention in any manner. However, trade secret protection can be agitated only when there is any kind of misuse. In the case of a patent, there must be a disclosure of all the information but in the case of a trade secret, the secrecy of information is to be maintained. For maintaining a trade secret, only certain restrictive practices need to be developed, however, for patenting any invention, a patent application must be filed before the respective patent office, and after grant annuity has to be paid. Therefore, expenditure in the case of maintaining a patent is much more than maintaining trade secrets. Also, the term of protection is limited to 20 years in the case of patents but if appropriate practices are maintained, a trade secret can be protected for an infinite time.

Factors to be considered for deciding the type of protection

Owing to the aforesaid advantages, often inventors and business owners face the dilemma of opting for a patent or a trade secret for their information. To choose the right option, it is important to weigh the invention/information sought to be protected from different dimensions. A few points which may be considered while deciding the type of protection are as follows:

1. In case the information or invention may not be fulfilling the statutory requirements for a patent grant, then it is better to maintain it as a trade secret.
2. It has to be seen whether the invention is commercially viable for a limited period, or if it is better to keep it a secret for a longer duration.
3. One has to weigh the enforcement considerations as well. In the case of a patent, it is easier to get preliminary injunctions, however, for enforcing a trade secret, it is important to first prove that the misappropriated information was secret or confidential.
4. While trade secrets are premised on secret information, patent law requires information to be disclosed to the public. Therefore, one has to weigh whether keeping information secret is of utmost importance to the business or not.
5. Finally, for protecting a trade secret, only certain restrictive practices have to be in place, but for patents, one has to file a patent application which is not so reasonable.

Conclusion

Given the above, it can be seen that both trade secrets and patent protection are important and powerful tools to secure information. However, it is only after weighing all the considerations one is required to proceed with the desired protection. It is always better to use them in a harmonizing manner and put restrictions and limitations on such information which is valuable if kept secret and information which is to be disclosed should be available to the public. Moreover, the law prevailing in the jurisdiction also needs to be examined before designating any information as a trade secret and the remedies available in case of misappropriation.

[i] Emergent Genetics India Private Limited v. Shailendra Shivam, 2011 (125) DRJ 173 (Delhi High Court).

[i] Ambiance India P. Ltd. v. Naveen Jain 122 (2005) DLT 421.