What’s the Difference Between a Patent and a Trade Secret?

To succeed in a competitive landscape, tech companies have to understand their options for protecting intellectual property (IP).

IP refers broadly to your business’s proprietary work, which can range from your company logo, to your manufacturing processes, to your product features. 

It’s an important concern to keep in mind: You can reduce the risk that your competitors will steal or copy a valuable invention by making well-informed decisions about what legal protections to pursue.

In this post, we’ll outline the four main types of IP protection relevant to high-tech industries, and then take a deep dive into patents versus trade secrets — because those are your best options for protecting technology with strong commercial potential.

The Four Main Types of Intellectual Property

While there are other types of IP, like design rights and right of publicity, we’re focusing on the four types that are most relevant to high-tech industries.

1. Copyrights protect original works of authorship that have been fixed in a tangible medium. For high-tech companies, this will most likely apply to your website and any software or firmware you develop, but also to artistic works that you create like writing, music, photos, and videos.
2. Trademarks can apply to any distinctive mark (e.g., a word, phrase, sound, or symbol) that differentiates a company’s product or service. Well-known examples include the Nike slogan “Just Do It” and the Apple logo.
3. Patents give you the right to exclude others from making, selling, using or importing a particular product or service — in exchange for full public disclosure of your invention.
4. Trade secrets are formulas, processes, or other business information that derives its commercial value from being kept secret, and that a company is making reasonable effort to keep secret. One famous example: Google’s search algorithm.

If you’re looking to protect an innovative technology product or service with strong commercial potential, patents and trade secrets are the most relevant options.

Patents vs. Trade Secrets: Which is Appropriate For You?

Patents and trade secrets offer different types of protection, so choosing between the two will depend on the type of innovation you’re trying to protect.

Generally speaking, because patents must be publicly disclosed but trade secrets are (as the name suggests) kept confidential, there are several key differences in how you secure each type of protection.

We’ve outlined these in the comparison table below:

	Patent	Trade Secret
What does it protect?	New, useful inventions	Valuable, secret information
How does it protect my IP?	Gives you the right to exclude others from making, selling, using, importing	Protects only against “misappropriation”
What must you disclose?	Invention becomes public	Information remains secret
How do you get it?	Formal application, examination by patent office	No application or registration required
How long before it takes effect?	2-3 years, on average	As long as it takes to establish and maintain internal procedures
How long is it valid?	20-year term	Potentially perpetual
How much does it cost?	Between $30,000 to $50,000 per patent, per country	No application fees; only administrative costs for establishing internal procedures and staffing

Each of the differences described above could affect your strategy for developing and distributing your IP rights. Use the following questions to help you decide if patent or trade secret protection is right for your particular circumstances.

1. Can Your Invention Be Patented?

In order to receive a patent, your invention must meet all legal requirements set by the country where you’re filing an application. In the United States, your invention must be:

1. Patent-eligible subject matter: Defined by U.S. law as a “process, machine, manufacture or composition of matter”, but with many exceptions
2. Novel: Different from all “prior art,” not just prior patents
3. Non-obvious: More than a trivial variation of “prior art”

Importantly, recent case law has created significant uncertainty as to what qualifies as patent-eligible subject matter in the United States, especially in certain fields of technology. If your invention doesn’t have a reasonably strong chance of satisfying one or more of the criteria for patent protection, consider trade secret protection instead. Trade secrets do not require public disclosure, and aren’t subject to the same formal application process or expense.

2. Does Your Invention Need to Be Publicly Disclosed?

Trade secret protection can only apply to information that has been kept confidential. Therefore, if you need to publicly discuss how your invention works, a patent is the best way to maintain a competitive or defensive edge.

For example, you might need to discuss your invention at a conference or as part of your marketing efforts. With a patent, you can prevent others from copying what you’ve shared, and warn your competitors that, if they develop a competing product, they could face a patent infringement suit.

3. Can a Competitor Independently Come Up With the Same Solution?

It’s possible that after going to the trouble to protect your invention as a trade secret, you then discover that somebody else has patented your invention. Worse yet, you could end up facing a patent infringement suit for something you developed but failed to patent!

Trade secrets do not prevent others from using your work; they only prevent others from finding out about your work through improper means. If there’s a reasonable chance that a competitor will independently invent or reverse engineer your work, consider pursuing patent protection instead.

4. How Long Is Your Product Life?

In some cases, your product may be viable in the market for only a short time (if the rate of technological change in your industry is very high, for instance).

A patent remains in force for 20 years after the effective filing date, and the process of getting a patent in the first place is costly and time-consuming. If your product won’t be commercially viable for a reasonable part of that 20-year time frame, a trade secret may be the better option.

5. Where Is Your Company in Its Lifecycle?

If you’re an early-stage startup, you may need to weigh your IP protection options against cash flow considerations. Because patents are expensive to obtain (a successful application could cost tens of thousands of dollars), you may not be able to afford one at this time. If you’re still operating in stealth mode, you might be able to preserve patent rights by keeping everything confidential until you have sufficient funding.

But otherwise, all innovative tech companies should build patent expenses into their R&D budget. Especially if you’re launching a new product, a patent could signal to the market that your invention is unique and can’t be copied. With this assurance, you might be able to attract funding from investors — making patents a worthwhile investment.

Are You Ready to Pursue Patent Protection?

In choosing how to protect your inventions, consider the big picture: What will best serve your business priorities?

If you think filing for a patent is the best path for your startup, Henry Patent Law Firm’s free checklist can help you determine whether you’re really ready to file for a patent — download the checklist now!