The Debate: Patent vs Trade Secret – An Overview

The Debate: Patent vs Trade Secret – An Overview

Bradley Tartick is a JD candidate at Osgoode Hall Law School and is enrolled in Professor Ikechi Mgbeoji’s Patents class in Fall 2011. As part of the course requirements, students are asked to write a blog on a topic of their choice.

The well-known fast food chain Kentucky Fried Chicken (KFC) has zealously protected its famous recipe of 11 herbs and spices for more than half a century. This past September, KFC relocated the original copy of the recipe written by Colonel Sanders to a high-level security complex which included numerous motion detectors, cameras and guards who ceaselessly monitored the vault. To some, this may look like an exaggerated marketing ploy to garner the public’s attention; however, KFC executives probably had other underlying motivations.

How businesses, inventors and alike protect their confidential information, inventions or secrets,1 generally begins with the decision to file a patent application or maintain it as a trade secret. Considering patents and trade secrets work in diametrically opposite ways (i.e. patents protect through disclosure and trade secrets protect through concealment), the best route to take may be obvious. However, the choice isn’t always so simple. Often it requires balancing a number of commercial and legal factors with the facts and circumstances of each particular case.

Occasionally, filing a patent application is the clear choice for protection, particularly when the product can be easily reverse engineered or invented by a competitor.  In circumstances where the choice is not so clear, it is important to consider other factors that favour patent protection. For instance, patents have a fixed duration whereas trade secret protection can be lost instantaneously if the secret is revealed publicly, even if not intentionally. Furthermore, an applicant retains proprietary rights over the invention throughout the lengthy patent application process and can safely and immediately disseminate the invention if need be (e.g. an innovative pharmaceutical). This proprietary time-monopoly that allows the patentee to exclude third parties from the use of the invention and etc., is the most compelling consideration for an applicant.

Although patents offer the most comprehensive protection, the application process is not only time consuming and demanding, but it requires the subject matter to be publicly disclosed. On the other hand, a party can seek to protect its invention by way of a trade secret. Generally this occurs where the patentability threshold cannot be met or where protection by way of a trade secret is more suitable to the party’s needs. Since the jurisdiction over trade secrets is exclusively provincial, its definition varies in Canada (MacDonald v. Vapor Ltd, [1977] 2 S.C.R. 134 at para. 15). No province has enacted any trade secret legislation to date and so we rely heavily on the common law. According to the proposed Uniform Trade Secrets Act adopted by the 1989 Uniform Law Conference of Canada:

“trade secret” means any information that:
(a) is, or may be, used in a trade or business,
(b) is not generally known in that trade or business,
(c) has economic value because it is not generally known, and
(d) is the subject of efforts that are reasonable under the circumstances to prevent it from becoming generally known.

Consequently, trade secrets protection can be applied to a variety of information and material having a commercial, industrial, scientific or technical nature (similar to patents).  Some familiar examples include recipes, marketing strategies and blueprints.

There exist certain situations where trade secrets are more advantageous than patents. Firstly, trade secrets potentially last indefinitely. For companies like Coca-Cola, keeping its cola formula secret has facilitated its competitive advantage since the formulas inception in 1886.  Secondly, where it is imperative that the invention or product be put on the market quickly, a patent would be of little or no use because of its lengthy application process. On the other hand, trade secrets take immediate effect.  Trade secrets also have no administrative and registration costs; however, they may have significant costs associated with keeping the invention a secret.

Considering anyone can use a trade secret once it becomes public, except if disclosed through unlawful activity, it is absolutely essential that an inventor, company or organization undertake significant measures to conceal the secret.  Accordingly, by placing the recipe in a highly secured location with limited access, KFC executives were doing just that.

To further prevent trade secrets from being acquired by competitors, many businesses create restrictive covenants for each of its employees. Non-competition clauses, although limited in time, geographic scope and content (i.e. must be “reasonable”), are widely used to protect trade secrets within many industries. Additionally, the duty of employee confidentiality is particularly important to maintaining trade secrets during the course of employment (Faccenda Chicken Ltd. v. Fowler, [1986] 1 C.R. 297 (C.A.) cited in Canadian case law notably in ACS Public Sector Solutions Inc v. Courthouse Technologies Ltd., 2005), 140 A.C.W.S. (3d) 736 (B.C.C.S.) at para. 38-39, affirmed in 262 D.L.R. (4th) 512 (C.A.)). The longer the non-competition and confidentiality covenants survive, the stronger the protection for a trade secret.

The apparent downside associated with trade secrets is that the law offers very little protection, particularly when compared to patents. The common law in Canada does offer protection to parties whose trade secrets have been revealed through misappropriation, bribery, theft or other such means. Otherwise, a party has to rely on bringing a civil action for breach of contract (express or implied), breach of confidence, breach of fiduciary duty, unjust enrichment or wrongful interference with the contractual relations of others. Although all of these actions can be used simultaneously (Cadbury Schweppes Inc v. FBI Foods Ltd., [1999] 1 S.C.R. 142 at para 40-48), parties can only speculate their chance of success.  Until legislation governing trade secrets is enacted, the extent of their protection remains questionable.

Occasionally, parties will seek the strong enforceability of patent protection and the timeliness of a trade secret.  They are not mutually exclusive. It is certainly possible to intelligibly integrate the two as an effective protection strategy. Since an invention does not become publicly available immediately upon filing a patent application, a party can file an application, maintain the invention as a trade secret in the meantime and not lose trade secret status. This has tremendous value particularly if the party decides to withdraw the application before publication.

It is obvious that the decision to file a patent application and or maintain the invention as a trade secret comes down to a number of factors.  If you choose to maintain your invention as a trade secret, don’t forget to keep it under lock and key.

[Note: This post has been revised since it was first posted to clarify at what point the invention in a patent application becomes publicly available.]

1 “Confidential business information”, “secrets” and “inventions” are used synonymously throughout this article and henceforth be referred to as “invention”.