Business Law-Patents versus Secret Trade Secrets
Introduction
Commercial or business law is a section of legislations that govern and control commercial and business transactions in all forms of businesses. It is indeed taken to be part of the civil law and it governs issues that deal with both public and private laws. Commercial/business law covers laws that govern commercial papers, sales, property (both physical and intellectual), business organizations, contracts, employment and agency laws as well as bailment. The areas encompassed may as well include creditor protection, insurance as well as estate planning and wills. The laws may relate to issues such as dealing with employees, buying or selling of businesses and property, the management of a business, handling of contractual business-just to mention but a few.
This paper specifically tackles an area of business law that deals with the protection of intellectual property, by use of patents and trade secrets; the paper evaluates the two modes of intellectual property protection as well as the preferences behind the two methods of implementing protection as well as their advantages and disadvantages. Intellectual property by definition is any form of property in an intangible form and is as a result of the creativity of an individuals’/group’s work. The intellectual property must have distinctiveness that can allow for property rights recognition to be awarded in the relevant areas of laws. Legal recognition of intellectual property leads to the award of exclusivity in terms of rights to the owner. Intangible properties recognized as such may include artistic and literary compositions, symbols, designs, phrases, inventions and discoveries, musical composition pieces and many more. Commonly known intellectual; properties may include patents, trade secrets, trademarks, design rights of an industrial nature and copy rights. In this paper the patents and trade secrets shall be the major highlights of the paper as part of the recognized intellectual properties (Clift, 2010).
Thesis statement
The commonest ways of safeguarding intellectual property include the use of trade secrets and patents. The both have legal elements, but the patents are more legally grounded than the trade secrets. However, due to the fact that patents offer limited exclusivity, full disclosure conditions, high costs and bureaucracy of acquisition; they seem to be less attractive as a means to protect intellectual property. The trade secrets on the hand, offer unlimited exclusivity pegged on internal conditions of secrecy, low costs of maintenance, possible future patenting and lack of full public disclosure makes them seemingly the most attractive way to protect intellectual property. As such it would be right to assert that trade secrets are the best option in protecting the inventions of any business in comparison to patent acquisition as an option.
Patents and Trade secrets
Patents and trade secrets are the mot common if not only known ways to protect intellectual property. The consideration of these two as options to the protection of intellectual property falls under business law. One based on the principles of civil and business law whereas; the other one is based more on secrecy that law, though it has a legal element attached to it. By definition a patent constitutes exclusive rights granted to an individual/group/ company/organization that make an invention or discovery that befits the standards that are stipulated in order to qualify as patentable (Clift, 2010). This monopolistic right is granted by the government and it restricts any form of commercial use to the owner of the patent. Use by any other person should be subject to agreement. Patents are offered on conditions of full disclosure of the patented information to the public and they should be paid for after a legal scrutiny. They last for a limited period of time after which they cease to be legally recognized as patents and anyone is free to use the information for commercial purposes without fear of any legal measures being taken against him or her. Patents legally last a maximum of twenty years with the minimum being seventeen years. Actually this point is the actual point of concern for this paper that leads to the preference of trade secrets over patents in some commercial situations.
At times an individual or organization may have invested so much into research related to invention, and this research may have even taken more than twenty years with the consumption of so much resources. This time and resources may not be recoverable within the stipulated twenty or seventeen years, probably because the invention may take longer to gain commercial significance. In the end the owner of the patent loses out when the patents legality ceases to be functional. This is actual not ethical and just for the inventor and as such patents should not have a fixed time-frame, rather they should be reviewed individually to provide for a window period within which the patent owner can fully gain the benefits of his/her patent so as to encourage invention and patenting (Clift, 2010). The use of trade secrets may be cited as evidence of the lacking nature of patents, because if people and organizations were sure to get full value of their invention, they would have definitely gone for patents rather than trade secrets. This clearly shows there is a shortcoming in the use and legislation about patents. Another aspect is the invention of products that are basic to human survival such as medication. Firms that invent essential medication may want to hold on to their patents till the end of the period, thus making these drugs expensive to the common populace especially, in poor nations in the third world.
So, while they hold on to their patents, these people are dying because they cannot afford medication. In such instances the patent period should be reviewed downwards to ensure the medication is quickly and cheaply available. This may be unfair to these firms, but options could be offered in form of royalties where manufacturers using the technology pay a portion of their profits for a certain period to ensure the inventor gets value for their invention. Lack of such measures in patent regulations is what drives inventors in to secrecy therefore, preferring trade secrets instead of patents. Examples of inventions that can gain patent protection include industrial processes, totally new products, improvements on existent processes and products, new chemical formulations or compounds, computer software and hardware improvements as well as new methods of controlling existent industrial processes. Qualifications for patenting require the product or process to be patented to meet certain requirements. The basic criteria relate to utility, novelty and inventiveness. Thus the product of process must have be useful on a commercial scale, it must new and not an obvious process or product. This may exclude laws of nature and algorithms (Clift, 2010). Companies that have used patents include Amazon.com, Gillette and Microsoft.
Advantages and disadvantages of patents
The owner of the patent gets the sole right of licensing the patent or using it exclusively in his commercial ventures, and s/he is legally secured because anyone that breaches the patent can be legally sued and pay for the use if it was done without the consent of the owner. There is a possibility of selling the patent at a higher price and the existence of the patent actually deters any party that may want to infringe the patent. Patents also help organizations to easily acquire technology for their commercial ventures instead of setting up expensive research ventures that may fail to yield. The disadvantage is that the inventions information is made public and anyone may access it. This is a serious disadvantage in cases related to piracy. Other organizations may decide to use the invention illegally and in secret to produce goods and services that mimic the actual invention and thus lead to losses on the inventor’s side. The fact that the patent is time pegged may limit the inventor from achieving the full benefits of his invention, especially; in cases where it acquires slow commercial use. The costs of patent acquisition coupled with limited patent validity may outweigh the effort and finances put into the research. These disadvantages may also make inventors to prefer capitalizing on inventions that can be of greater and wider commercial use while avoiding some that may be significant but have least commercial significance because they would like to reap more from their inventions, and this actually impedes the efforts of research and discovery.
Trade secrets
On the other hand, a trade secret constitutes the secretive discovery and use of intellectual property of commercial significance. Trade secrets may constitute processes, patterns, practice, formula, collection of information or instruments, whose making and functioning is not basically ascertainable or comprehended, but they offer an upper hand in business competition to the owner. Trade secrets may befit patent standards or not depending on whether they pass the required legal test that determines whether they can be regarded as patents or not. Trade secrets are trade secrets as long as they are held to be such, and after any disclosure they cease to be trade secrets and as such they can be used by any party for commercial purposes without any legal restriction. Trade secrets may alternatively be referred to as classified or confidential information in some jurisdictions. Trade secrets are advantageous because the upper hand they offer in competition may last for a longer time. However, this is not guaranteed because the trade secrets may be leaked by employees or third party to whom it has to be legally disclosed such as the government. Additionally, they may be discovered and disclosed through the process of reverse engineering (a process through which competitors can discover the functionality of product through examining its components and the way they function). Anyone that reverse engineers a product that is protected under trade secrecy has a right to patent it and use it for commercial purposes without fear of any legal measures, and this is the greatest disadvantage of trade secrecy (Jentz & Miller, 2009).
However, problem on employee and third party disclosure can be dealt with though the use of laws such as non-compete laws and non-disclosure contracts and laws. The non-compete laws are used to contractually restrict employees from leaving a firm and establishing a similar business using the acquired trade secrets to compete with the employer. However, this legal provision has exclusions such as when an employee gets terminated under terms that are beyond his/her control. These may include wrongful termination, lay off and termination due to permanent disability. On the other hand, Non-disclosure laws (NDA’S) are contractual agreements between the inventor-cum-employer with the employees or third parties. Third parties may include the government to whom s/he may be legally obliged to disclose the information. The contract restricts these parties from disclosing this information and this act as the only legal safeguard against trade secrets (Heels, 2002). Examples of companies that have successfully used trade secrets include Coca Cola and it formula for Coke invented by George Pemberton, and Kodak. These firms have been greatly successful, and the only way other firms have been able to compete with them is to go round their inventions to produce similar results and this is the only way of competition for successful trade secrets.
Advantages and disadvantages of trade secrets
Trade secrets offer long term exclusivity and greater benefits from an invention and thus making them the best option for any inventor that may wish to reap the best possible benefits of his/her invention. Trade secrets require no time or financial investment to acquire and as such are the cheapest option in protecting ones inventions. Additionally, inventions of commercial significance which fail to get patents can be maintained as trade secrets (Hosteny, 1999).The downside of trade secrets is that they can easily be lost through reverse engineering and through employee or third party disclosure. However, this can be avoided through the use of non-disclosure laws and contracts as well as non-compete laws to counter such occurrences. Another disadvantage-from the consumers’ view-is that trade secrets may keep essential products such as medication expensive for so long and thus become a negative factor to the health of the world-this may be legally right, but ethically wrong. However, this is a problem caused by poor patent legislation, whereby; inventors resolve to use trade secrets instead patents because they cannot get full value for their invention’s worth. The earlier stated example of offering royalties in such cases may actually solve the problem. Thus form the inventors perspective trade secrets are still the best option for protection(Hosteny, 1999).
Leveraging patents and trade secrets
Most inventors have the challenges of deciding whether to use trade secrets or patents in protecting their inventions. As reviewed throughout the paper trade secrets provide the best option of protection for the inventor though this may not favor the consumer in some instances. However, it is good to reckon that not all inventions are best protected by trade secrets. Despite their appeal, trade secrets may not be the best option for products that can be easily reverse engineered (Graham, 2006). If released in to the market competitors can easily examine them and make similar products without any legal infringement. Thus such products are best protected by patents. Additionally, this may lead to some one else patenting the invention and exclusively using it in which case you have to also buy the license or patent. However, if the invention produces products similar to those in the market and no one can notice the difference except for let us say durability, then it is alright to maintain the trade secret because people cannot tell the difference which may lead them to reverse engineer it.
This is applicable to products that can be reverse engineered but their disguise of similarity may prevent that occurrence. Therefore considerations on leveraging involves considering benefits and downsides of both patents and trade secrets-in which case as explained the trade secrets override the patents from any inventors point of view (Graham, 2006). This leaves the consideration to the product or process type basis. If the process or product is easily reverse engineered then the best option is to patent it. The business approach may also act as a determining factor. If your business is a research and invention business concerned inventing and then licensing the technology to others, because you have no means of using it commercially then the patents again take preference. In cases where your business is operating in a mature market and your only competitive advantage is in-house research and invention then the trade secret option is the best option (Graham, 2006).
Conclusion
Patents and trade secrets provide the chief means of protecting invention. However, they differ in preferences rates. Patents have a cost of acquisition that may be high, a long time of acquisition, a limited legal period, potential losses from piracy, a possibility of another party inventing round the invention to come up with similar but different results and the possibility of not attaining the best possible returns for invention. Despite the fact that they safely protect inventions and provide exclusive rights, these disadvantages make them least attractive compared to trade secrets. The trade secrets offer exclusive rights if well protected, ensure one reaps maximum benefits of invention, require not time and monetary investment in acquisition and thus make them the best option in most cases. The only down-side is the possibility of disclosure which can however’ be countered by the use of non-compete and non-disclosure laws. Conclusively, trade secrets remain to be the best option for any inventor except for a few cases because of their greater benefits to the inventor.
References
Clift, L. (2010), Patents-What can be patented, advantages and disadvantages, retrieved on 18th November, 2010 from http://www.suite101.com/content/patents–what-can-be-patented-advantages-and-disadvantages-a239473
Graham, S. J. M. (2006), Leveraging your intellectual property: Trade secret versus patent protection, retrieved on 18th November, 2010 from http://www.fredlaw.com/articles/ip/inte_0607_mjsg.html
Heels, J. E. (2002), Patents versus trade secrets, retrieved on 18th November, 2010 from http://erikjheels.com/?p=156%20Joseph%20H%20%281999%29
Hosteny, N. J. (1999), Patent or Trade Secret: Which one is best? Retrieved on 18thNovember, 2010 from http://www.hosteny.com/archive/hosteny%2008-00.pdf
Jentz, A, G. and Miller, L. R. (2009), Fundamentals of Business Law: Excerpted Cases, 2ndedition, Cengage Learning
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