Trade Secrets: They’re Often Comprised Of Many ‘Pieces’ Of Intangible Assets

Michael D. Moberly   August 9, 2010

Figuratively speaking, but quite realistically, the ‘birth certificate’ of every patent should state that its origin exist in the form of a (trade) secret.  If that (patent) ‘birth certificate’ does not convey a clear and unequivocal portrait of asset (idea, innovation) secrecy, the inventor and/or entrepreneur can likely anticipate incurring significant, if not irreversible and costly bumps and challenges along the long and tedious road aiming toward the issuance of a patent.

It’s essential then, perhaps more so today that anytime before, that inventors and entrepreneurs fully recognize that the basis/foundation of what they’re seeking to patent, is frequently comprised of numerous ‘pieces’ of human, structural, and relationship capital, ala intellectual capital, ala intangible assets! 

Credibility to the above message lies in the increasingly knowledge-based global economies, wherein 65+% of most companies value sources of revenue, and future wealth creation today are directly related to intangible assets, (that percentage is significantly higher for early stage, start-ups, and entreprenerial based companies).  

Thus, the view, which I advocate, is that all patents must literally start life as a (trade) secret and should be taken quite seriously, particularly in today’s increasingly aggressive, globally predatorial, and ‘winner-take-all’ business transaction environments in which the only real way ideas and innovation can be effectively protected, is by keeping the information secret and that secrecy begins at its point of conception. 

Management teams, boards, and certainly inventors and entrepreneurs must recognize that any type – form of disclosure, inadvertent or otherwise, in which key information is treated in other than a secret context, preferably in accordance with the six requisites of trade secrecy, can reduce and/or significantly impair the assets’ projected value, if not negate its trade secret status altogether and possibly adversely affect its patentability. 

Some additional key points to consider relative to trade secrecy are:

1. Trade secret protection extends only to confidential relationships and does not prevent independant development by a competitor, i.e., the ease and/or difficulty a competitor will likely encounter to ‘reverse engineer’ (the secret) is a consideration in both achieving and sustaining trade secrecy status.

   a. If the protected information is not readily ascertainable and cannot be easily reverse engineered, then an ‘invention’ can generally be protected by trade secrecy, so long as, again, economic-competitive advantage is derived from (sustaining) the secrecy of the information.

2. Trade secrets, unlike patents, can be licensed forever and the trade secret licensee can be obligated to pay royalties for the (trade secret) license even if the information enters the public domain.

3. There are no subject matter constraints imposed on trade secret protection so long as the information provides an economic – competitive advantage derive (rooted) in its continued secrecy, in other words, both technical and non-technical information can constitute a trade secret.

   a. Trade secret protection in the U.S. can extend to most any information that can be (1.) used in the operation of a business, (2.) has sufficient value, (3.) can afford a company actual or potential economic (competitive) advantage over others, and (4.) providing it remains secret.

   b. Also, (1.) negative know how, i.e., what doesn’t work is protectable as a trade secret, and (2.) novelty, usefulness, and non-obviousness are not applicable to trade secret protection as they are in seeking patent protection.

Lastly, it important for inventors, management teams, and boards to recognize that if patent issuance – protection is uncertain, but a decision is made to pursue it anyway, once a patent application is published, trade secrecy rights (options) are lost. 

(This post was inspired by the work of R. Mark Halligan in an article published in the July/August 2010 issue of ABA’s Landslide, titled ‘Trade Secrets v. Patents: The New Calculus’.)

The ‘Business IP and Intangible Asset Blog’ is researched, written, and produced by Mr. Moberly to provide insights and additional and sometimes alternative views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at [email protected].

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