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Avoiding Trade Secret Misappropriation
Qualifying Information as a Trade Secret

Trade Secrets vs. Patents

Disadvantages. Patent protection can be relatively expensive, requiring fees for drafting patent drawings, government filing fees, attorney fees for drafting the initial application and prosecuting the application through the Patent & Trademark Office (PTO),and assisting in the prosecution through foreign patent offices. Maintenance fees also must be paid to the PTO at various intervals throughout the life of the patent, which become increasingly more expensive as the patent approaches its twentieth year.

Filing a patent application does not guarantee that a patent will eventually issue. It also does not guarantee that if a patent does issue, it will have the scope the inventor desires, since the scope of protection can be affected by necessary amendments made to the patent application during prosecution through the PTO. Additionally, when a patent eventually issues, it is limited to only 20 years of protection, unlike a trade secret, which potentially can offer indefinite protection.

Publication is a further disadvantage with a patent. In the U.S., once a patent issues it is published, allowing the patent holder's competitors a chance to analyze the invention. Filing in certain foreign countries results in publication of the patent application at 18 months from the filing date, even if a patent never eventually issues from the application.

It is possible to use patent protection in conjunction with trade secret protection. For instance, one may file a patent application on the confidential technology and at the same time use trade secret protocols. If patent prosecution proceeds poorly, the application may be abandoned and the confidential technology may enjoy trade secret protection, provided the application is not referenced in a subsequent U.S. patent. Under U.S. law, patent applications are kept confidential until issuance, unless referred to in a U.S. patent, wherein the abandoned application then is available to any member of the public, thereby destroying trade secret protection. If the individual proceeds with prosecution and a patent does eventually issue (and is thereby publicly disclosed), trade secret protection also is lost.

Another factor to consider is public disclosure. If an item was sold, offered for sale, or displayed to the public, it may not be patentable due to statutory bars that require a U.S. patent application be filed no later than 12 months from the aforementioned activity. However, trade secret protection still may be an option, depending upon the specific circumstances.

Further, if an industry is one in which technology progresses rapidly, thereby making advancements obsolete in a short time, trade secret may be the most logical form of protection. This is due primarily to the cost of filing a patent application and the amount of time an application may spend during prosecution in the PTO, usually several years.

Conclusion

Trade secret and patent protection can be very effective tools in securing a company's intangible assets and competitive edge. However, a careful analysis must be conducted to determine which type of protection is best suited for a particular piece of information and the specific circumstances. As evidenced, a client's long-term goals, product line, and the specific industry the client is in must be reviewed carefully in making this determination.

Endnotes

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¹ See generally, Milgrim on Trade Secrets, §1.01[1] at 1-20, (1993) (Matthew Bender).

²K.F.C. Corp. v. Marion-Kay, 620 F. Supp. 1160, 1172, 228 U.S.P.Q. (BNA) 545 (S.D. Ind. 1985).

³Coca-Cola Bottling Co. v. Coca-Cola Co., 107 F.R.D. 288, 289, 294, 227 U.S.P.Q. (BNA) 18 (D. Del. 1985).

⁴ Pioneer Hi-Bred Int'l. v. Holden Found. Seeds Inc., 35 F.3d 1226 (8th Cir. 1993).

⁵ See generally, R. Mark Haligan, The Recently Enacted Economic Espionage Act, Nat'l. L.J., Dec. 9, 1996.

⁶ If the trade secret theft benefits a foreign government, the penalties are even more severe, fining an individual up to $500,000 and a possible prison term of 15 years. A corporation may be fined up to $10 million. See 18 U.S.C. § 1831.

⁷ Stacey A. Barlow and Stasia L. Ogeden, After the Economic Espionage Act: Hiring, Firing, and Dealing in Corporate America, Intell. Prop. Today (1997).

⁸ See Minuteman Inc. v. Alexander, 147 Wis. 2d 842 (1989), for a general discussion of Wisconsin trade secret law.

⁹Wis. Stat. § 943. 205(3).

¹⁰ D. Goodin, "Busting Industrial Spies," The Recorder,American Lawyer Media, L.P., Sept. 25, 1996.

¹¹ Stephen A. Bent et al., Intellectual Rights in Biotechnology Worldwide, 346-47 (1987).

¹² Haligan, id. at note 5; see also Religious Tech. Ctr. v. Lerma, 908 F. Supp. 1362 (E.D. Va. 1995) (A disgruntled former member of the Church of Scientology posted various documents on the Internet that were deemed trade secret information by the Church of Scientology. A court held that because this information was posted on the Internet, it was effectively part of the public domain, impossible to retrieve, and a party who merely downloads Internet information cannot be liable for misappropriation of what was once a trade secret even though the individual who originally posted the trade secret information on the Internet may be liable for misappropriation.)

¹³ This general rule is derived from the strong public policy to encourage employees to use the general skills and knowledge they acquired during employment. This policy of favoring employee mobility and free competition puts a heavy burden on the employer. See Derek P. Martin, An Employer's Guide to Protecting Trade Secrets from Employee Misappropriation, BYU L. Rev., at 958 (1993); Lee T. Gesmer, Protection of Trade Secrets in the Computer Industry, LGU Tech. L. Bull. (January 1986).

¹⁴Arthur Wineburg, Reconciling IP Rights and Industrial Policy, Legal Times, Sept. 13, 1993.

¹⁵ Kevin Rivette and Orving Rappaport, Golden Opportunities, Legal Times, Dec. 19, 1994.

¹⁶ Id. at n.13.

¹⁷ Id.

¹⁸35 U.S.C. § 284.

¹⁹35 U.S.C. § 285.

²⁰ 19 C.F.R. § 12.39.

²¹ See generally, Chisum on Patents, chapter 1 (1996) (Matthew Bender).

²²U.S. Patent No. 2,435,355, "Package Construction" patented in 1948 by Edgar Ingram Sr. covers the White Castle box still used today.