What are the Drawbacks to a Trade Secret?

When you have a choice between obtaining patent protection and maintaining a trade secret, you should carefully consider the drawbacks of protecting your discovery only by secrecy.

Disclosure: Obviously, secrets can be broadcast, accidentally (a misrouted fax or email), out of innocent ignorance, or on purpose. Although you may be able to sue for damages someone who reveals your trade secret, once the cat is publicly out of the bag, it’s impossible to stuff it back in. Your trade secret is gone. Its value is lost.

By obtaining a patent, you broadcast your knowledge, but you receive, for a time, the right to decide who besides you, if anyone, may use it.

Independent Discovery: If you had a novel idea, or went about researching and developing a solution to a problem facing your business, anyone else might do the same. Since there is no overriding protection for an idea, or for its implementation, there is little you can do about someone who, independently, comes upon the same knowledge you did — unless, as first inventor, you obtained a patent.

Limited Commercial Value: One of the important sources of value to be derived from intellectual property is the ability to license it or sell it repeatedly. Unlike real property that can only be sold by you once, intellectual property is a replicable, potentially limitless resource. Copyrights are divided and sold in pieces and are licensed over and over for use in any number of different contexts, and works protected by copyright are reproduced repeatedly and sold until no one wants copies any more. A trademark on, or a service mark identifying, a product, is often a large part of the value of that product and the basis of repeat purchases, and a successful trademark can be licensed to others. A patented device can be made and sold many times over, a patented process can be used again and again, and the right to make a patented device, or to use a patented method or process, can be non-exclusively licensed to as many as want that right. Also, trademark licenses, in particular, but also patent licenses and sometimes copyright licenses, form the basis of business franchises. Licensing fees, royalties, and commissions derived from these intellectual properties can be a continuing source of income for as long as you maintain your rights in them.

A trade secret can be licensed both by itself and as part of a franchising arrangement, exclusively or non-exclusively. The difficulty with licensing your trade secret is your loss of direct control of it. The more extensively you license a trade secret, the more people who have it at greater distance from you, the less control of it you have, and the greater the opportunity for accidental disclosure and malicious misappropriation.