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Keep it secret?

How to decide whether to protect your idea as trade secret or patent

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An old Spanish proverb goes: "A secret between two is God's secret; between three is all mankind's."

Nowhere is this truer than in the idea industry, where companies expend huge sums to protect the integrity of their trade secrets, only to have them revealed to or discovered by their competitors.

Some companies, of course, manage to shroud their most sensitive ideas in a thick cloak of secrecy. The most famous trade secret in the world is the formula for Coca-Cola, known as Merchandise 7X.

But many products can be unraveled to discover the underlying ideas they embody, a generally permissible process. This leads many companies and inventors to safeguard their ideas through patents, which protect a company's intellectual property regardless of whether an invention is reverse-engineered or even independently developed.

The basic difference between the two is that a patent -- which requires disclosing to the public exactly how your invention operates -- lasts for 20 years, during which no competitor can practice your idea but after which it's fair game for any and all. A trade secret, by contrast, can last as long as you can keep it -- the Coke formula has been under wraps for 120 years -- but in some cases that may not be very long.

So what can and should you do to protect your most cherished innovation? When is a patent appropriate and when should you rely on trade-secret protection?

Consider the following list of questions:

1. How long-lived will your idea be?

Technology changes so rapidly that today's hot invention could easily become obsolete within 20 years. If that's the case, patent protection might be more appropriate: Even though its term is finite, a patent will shelter your invention from innocent independent development as well as from malicious appropriation. A prototypical patented idea is Thomas Edison's light bulb; revolutionary and remunerative in its time, it quickly became a commonplace household commodity.

On the other hand, if your idea's currency will outlive a 20-year patent term, you might consider maintaining trade secrecy. The Coke formula is still generating massive revenues more than a century after it was concocted.

2. How difficult is it to protect your idea as a trade secret?

Some ideas easily lend themselves to secrecy, while other require great expense. Coke allegedly divides its Merchandise 7X formula into separate components it shares with only a handful of trusted employees -- an enormous challenge for a $23 billion, 55,000-employee company.

If your company has serious confidentiality precautions in place among your employees -- including contractual clauses and workplace-awareness programs -- you'll be more successful at protecting your idea. But if worrying about the integrity of your secrets will keep you up at night, you should consider patenting them.

3. Can your idea be easily reverse-engineered or detected?

You might have come up with an innovative and sophisticated device that will change your industry. But if a clever technician can buy your product and figure out what makes it tick, she can copy the device and resell it as her own without fear of liability if protected only as a trade secret. In such an instance, you'd be better off patenting your device and preventing the technically skilled (and curious) from exploiting your creation.

But if your invention cannot be reverse-engineered even by accomplished professionals in your field, you might benefit by protecting it as a trade secret. If no one can unravel your device, you could maintain your competitive edge by avoiding disclosure of how it works and otherwise complying with the prerequisites for trade-secret protection. Note that you will likely have greater success in safeguarding the secrecy of innovative processes that remain within the company's walls -- for example, a method or machine for manufacturing a product, which typically are invisible to end-users of your product -- than the product itself.

3. What state (and country) do you operate in?

Different states, as well as different countries, offer often widely diverging trade-secret laws. In the United States, various legal societies have produced a Uniform Trade Secrets Act (UTSA) that has been embraced by at least 45 states. But each jurisdiction offers its own wrinkles on the model statute -- along with its own interpretations in its courts -- some more favorable to the holder of the secret, others tilting toward disclosure. California has adopted the UTSA, but falls on the pro-disclosure end of the spectrum.

By contrast, all patent law is federal and (in theory at least) uniformly applied. Regardless of the state you do business in, any legal disputes over your patent will be heard in federal court and ultimately resolved by a single appellate court with exclusive jurisdiction over patent matters. Internationally, patent regimes are gradually converging, but take care to consider the specific patent laws of the countries or continents in which you operate.

Thus, you will need to closely examine where your company is headquartered and where you principally conduct business. If those states, such as California, have trade secret laws that lean toward disclosure, you should strongly consider patent protection.

4. What's your industry like?

Chances are you work in a competitive, cutthroat field. But your decision on how to protect your intellectual property may well hinge on the deviousness of your competitors -- and the mobility of your employees. Industries with high rates of turnover, and those where it's common to transport ideas or designs from one employer to the next, are inhospitable environments for safeguarding trade secrets. While you can take legal action against those who misappropriate your ideas, once they see the light of day, it's virtually impossible to shunt them back into darkness.

Even Coca-Cola encounters such difficulties. Last year, a Coke employee reportedly attempted to sell one of its formulas to Pepsi for $1.5 million. Fortunately, Pepsi officials promptly contacted the FBI, which apprehended the miscreant. But not every competitor is as scrupulous as Pepsi was in this instance.

Of course, in fields where copying is rampant, enforcing patents also can pose a challenge. But with a patent in hand, you can take action against each and every person practicing your patented invention, regardless of how they came upon it. With the potential for trebled (triple) damages for "willful" patent infringement, a patentee has a powerful arrow in her quiver. And keep in mind that even if you don't patent your invention, your competitor might -- and then assert her patent against you.

Most inventions, of course, will fall somewhere in-between here and there. The iPod, for instance, owes its astonishing success to the patents that cover portions of it, to the secret specifications for other portions, and, of course, to Apple's (Nasdaq: AAPL) legendary marketing skills. Just like any robust stock portfolio requires diversified holdings of equities, bonds, and other investment vehicles, so too does any healthy "idea portfolio" demand a thoughtful balance of the various intellectual property protections available under our system.

Thus, it's important to be proactive and to take care -- lest your cherished idea become all of mankind's.

Rosen is an associate and Phillips is a principal at Fish & Richardson's San Diego office, where they both practice intellectual property law.

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