Experts split on how trade secrets should fit into a protection strategy

The discretion of trade secrets makes them an attractive option for rights holders looking to gain a competitive advantage by keeping commercially valuable intellectual property under wraps. However, this approach is not without its pitfalls, as highlighted by the breadth of opinion from this year’s Strategy 300 Global Leaders.

In many jurisdictions, there is “no official registration system in place when it comes to trade secrets” says Erin Pisko of Innovation Asset Collective. Since, by contrast, there is such a well-entrenched patent system this is often the default path. Anna Gregson of Mathys & Squire points out that “smaller companies can also feel pressured by potential investors to have ‘hard intellectual property’ and find it difficult to persuade them that an IP strategy reliant on trade secrets can be strong”.

Risks

For Michael Karson of Winstead PC, the trade secrets process is “full of potential traps for unwary litigants”. Specifically, definition, disclosure and management of the asset can present huge challenges. For Pellegrino & Associates president Michael Pellegrino, it is not worth tackling such hurdles because the economic value of patents “dwarfs those of trade secrets on any given day”. It is his view that the laws that govern trade secrets are “less mature”, which makes damages harder to litigate and cases harder to prove – especially when keeping discovery out of the public eye.

Similarly, Jack Lu of Intellectual Property Market Advisory Partners posits that the two biggest issues with trade secret litigation are defining the intangible asset at issue and “establishing the causality between it and the damages claimed”, both of which can stand in the way of a smooth resolution.

The confidentiality of trade secrets can be a double-edged sword. Since their most valuable function is to keep commercially sensitive information confidential, trade secrets lose all their worth as an IP protection strategy the moment that they are made public. A major concern for Hilco Streambank’s Karl Maersch is that “employees are increasingly mobile – rarely spending their entire careers (or even a significant number of years) with one company”. This risks information being deliberately or inadvertently compromised as individuals move between businesses.

Myriam Davidson of Stratford Intellectual Property has similar concerns, recognising that training is crucial to ensure that “individuals with access to the secret are aware of its status and their responsibilities (especially if the individual is external or leaving the company)”. Looking to other in-house risks with trade secrets, Davidson draws attention to the importance of efficient management to safeguard against leaks, particularly met -data cataloguing and utilising IT to manage assets “holistically”. Kelly Yao of China PAT Intellectual Property Office also maintains the importance of staff training to mitigate risks and maximise the benefits of trade secrets.

Opportunities

According to Brent R Bellows of Knowles Intellectual Property Strategies – despite many clients focusing on patents to protect their intellectual property – trade secrets can have huge “economic advantages under the right conditions”.

For Michael Heim of Heim, Payne & Chorush, the patent system’s requirement for disclosure makes it far more hostile towards technology and software assets; he considers trade secrets the superior protection strategy for this industry if the rights holder wants to safeguard their technological advances. Boehmert & Boehmert’s Heinz Goddar is of a similar opinion that biotechnology and AI learning materials can benefit from much more tailored protection as a trade secret rather than as a patent.

Further, for Karl Maersch, the potential to extend trade secret protection is a major opportunity. While patents typically have a limited duration of 20 years, trade secrets can protect intellectual assets indefinitely if the secret remains as such. It is for this reason that Maersch recommends that all companies incorporate a step in their process to determine whether their asset “would be more valuable if maintained as a trade secret instead”.

Looking ahead

It can be said that there is no competition between trade secrets and patents as valid, robust IP protection strategies – they are simply different and therefore fit for different purposes depending on the asset and its owner’s vision.

Although some experts like Pellegrino maintain that “trade secrets have their place, but they are not a substitute for a patent”, others predict that the number of trade secrets will grow as the development of AI and biotechnology quickens. Time will tell whether there is indeed a strategy of choice, or if it merely depends on the asset itself and the infrastructure in place to maintain a trade secrets’ best quality: its confidentiality. 

IAM’s annual Strategy 300 Global Leaders showcases the patent elite from around the world and explores their insights on the IP industry today

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