Ask the expert: Some clarity on trade secrets versus patents

A reader asks what the difference is between trade secrets and patents, and whether trade secrets are ever formally documented. Our expert, H. Henry Heines of Townsend and Townsend and Crew LLP, offers a primer on trade secrets and provides in-depth answers.

By M. Henry Heines, Townsend and Townsend and Crew LLP -- Electronic Business, 8/7/2007

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Question: How do trade secrets differ from US patents? Are trade secrets ever formally documented?

Expert answer from M. Henry Heines, partner, Townsend and Townsend and Crew LLP

Trade secrets are established by an agreement between two parties in which the first party conveys information to the second and the second, in turn, for receiving the information and being allowed to use it, agrees not to publish the information or otherwise disclose it to anyone who is not a party to the agreement or is not similarly bound by a separate agreement. 

The agreement can be specific, as in the case of a formal contract between two parties, such as a manufacturer and a distributor or an inventor and a testing laboratory, or nonspecific, such as a general clause in an employment contract or employee manual. The obligation to keep the information secret extends only to the information conveyed and typically does not extend to the same information if that information comes from an outside source that is not under the same obligation. A trade secret can have whatever duration the agreement calls for (a clause in an employment contract can even extend for a specified period of time beyond the termination of employment, and it often does), and it may even extend indefinitely.

A trade secret ceases to be a trade secret, however, as soon as the obligation is violated and the information is made public. The agreement by which the trade secret is created or conveyed can also call for termination of the trade secret if it is ever discovered (during the term of the agreement) that the secret was publicly known or available either before or after the agreement took effect.

Trade secrets and patents: how they differ

A patent differs from a trade secret in various ways. First, the essence of a patent is the dissemination of information—that is, making information available to the public in exchange for a legally enforceable right to exclude others from practicing the invention embodied in the information. Thus, patents and published patent applications are readily available to any member of the public.

Second, a patent is enforceable over anyone who infringes it (within its territorial bounds), regardless of whether the infringer obtained the information from the inventor or patent owner or from an independent source or developed it entirely independently.

Third, a patent is a formal document issued by a government agency—the US Patent and Trademark Office (PTO)—after a rigorous examination, and a US patent is enforceable only against infringing activity in the United States and its territories or possessions. To obtain patent coverage outside the United States, you must apply for a patent in the particular jurisdiction—for example, individual countries such as Canada, Mexico, Japan, and regionalized patent authorities such as the European Patent Office—in which you want coverage.

Fourth, patents tend to have scopes of coverage that extend beyond the experimentation (or working examples) of the inventor, because patents can be drafted to claim the central concept of an invention and all implementations that would logically flow from that concept.

Last, patents are enforceable for only a limited period of time and cannot be renewed. Although they can lose their enforceability before their statutory expiration date, the statutory expiration date is 20 years from the original filing date of the application on which the patent was granted (although this can be extended if there were delays in the grant of the patent that were the PTO's fault).

Are trade secrets formally documented?

As for formal documentation, a trade secret that results from the conveyance of information under a contract is typically formally documented and labeled as a trade secret, but other trade secrets may not be but are no less enforceable—formal documentation is not a requirement for every trade secret. 

Trade secrets are not enforced by any government agency (unlike a patent or copyright), but a civil penalty for violating a trade secret can be obtained in a court of law and can lead to monetary damages or an injunction against the violator.