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Intellectual property protection versus trade secrets

There is a well known, multinational beverage company that is reputed to have foregone the patent process and keeps its beverage recipes under extremely tight security. Why would anyone want to do this when there are protections in place?

Limits on Registering your Intellectual Property

There are several types of intellectual property, most of which can be registered with the Canadian Intellectual Property Office. The best known protections are copyright, trademarks, and patents. Registering your IP is usually to your advantage. You have full rights to your creation, which means that no one else can directly benefit from your IP without your permission. It is also easier to protect your IP in other countries. However, there are reasons you might not want to register your IP.

• Intellectual property protection has a time limit. The time limit varies depending on the type of IP, but it can be renewed for a fee. Unless you are diligent about renewing, your intellectual property will eventually lose its protection. The time limits exist to give you the opportunity to establish dominance in the market without stifling innovation or culture. If you do not register your IP, it is yours exclusively, for as long as you can keep it a secret.

• Intellectual property becomes public knowledge when it is registered. Public knowledge promotes innovation. For most types of IP, exposing it to the public does not matter. Literature is meant to be read, performances to be seen, and designs to be used. A trade-mark exists to identify your business and its products to the public. While a new patent can be a process, recipe, or a technique, revealing it to the public can have an impact on your ability to compete even though it is protected.

Trade Secrets — an Alternative to Registering your Intellectual Property ↑ top of page

A trade secret is any information that is important to your business but not readily available to the public. Some intellectual property, such as a client list, cannot be registered. Keeping it as a trade secret is the only way to protect it. You might also have IP that is eligible to be registered, such as a manufacturing process or a recipe, but is more useful to you when it is kept as a trade secret.

Trade secrets are legally protected in Canada. If you disclose your trade secret in confidence to someone else, they have a legal obligation to keep the secret. If someone learns your trade secret through illicit means, you have a right to damages if the trade secret is exposed.

• For example: You enter into a business alliance with another company. You have to reveal a trade secret to your new partner in order for the alliance to work properly. Your partner has a legal obligation to keep your trade secret and not act on it beyond the framework of the alliance. This obligation extends past the duration of the alliance, as long as your trade secret remains a secret.

Limits to Trade Secret Protection ↑ top of page

There is a limit to this protection, though. Once the trade secret is made public, anyone can act on it.

• A third party can reveal the trade secret. Your trade secret can be revealed by someone else's illegal activity or someone else can come up with the idea independently.

  • Example 1: A hacker breaks into your network and steals some documents with your trade secrets. These documents are posted onto the Internet. Your alliance partner is no longer obligated to keep from using your trade secrets, even though you never had any intention of publicly revealing that information.

  • Example 2: Your trade secret is a recipe. A cooking magazine, published on the other side of the country, publishes your recipe. No one involved in writing the article knew anything about your recipe. It was developed independently. Your trade secret is now public and available for anyone to use.

• You reveal the trade secret. You could reveal it by accident or on purpose. If you accidentally post your sensitive documents on your website, anyone who knows your trade secrets can act on them.

• Someone else can try to patent your trade secret. A requirement for getting a patent is showing that the idea is new. Since your trade secret is not registered, someone else could try to patent it. It would be up to you to show that the idea is yours and that you were using it before the patent application was made. In the meantime, you may not be able to use your trade secret. At the very least, it would not be a secret any more, forcing you to start a patent application of your own.

Confidentiality ↑ top of page

The most common trade secrets are between an employer and employee. In some situations, as an employer, you must reveal some or all of your trade secrets to your employee in order for that person to be effective. Your employee has an obligation to not use your trade secret for personal profit beyond the limit of your working relationship. In other words, your employee cannot use your trade secrets to start a side business.

Some trade secret obligations continue after the employer/employee relationship ends. Some trade secrets do not. From the example used above, a former employee is not allowed to use your secret recipe for profit. On the other hand, if the former employee is hired by another company in the same field as yours, the former employee can still use skills learned and some knowledge gained while in your employ.

• For Example: The former employee is put to work by your competitor developing similar technology to what you are researching. The former employee is allowed to use knowledge acquired in your employ concerning which research paths work and which are dead ends.

IP Protection or Trade Secret ↑ top of page

You have a decision to make about your intellectual property. Should you seek IP protection, such as obtaining a patent, or should you keep it a trade secret?

The advantages of a patent are:

• You have guaranteed protections from a patent.
• Even though your IP becomes public knowledge when it is registered, you have exclusive access to it.
• You can easily register your patent in foreign countries, once it is registered in Canada.
• A trade secret is much riskier than a patent. You have exclusive use of the trade secret as long as you can keep it a secret. Keeping the secret can be very difficult. There are numerous ways that it can be revealed to the public. If this happens, you lose any exclusive rights you had to that property.
• Not all countries respect trade secrets the way they respect patents. The Canadian Security Intelligence Service warns that corporate espionage is a normal activity for some countries. You need to be very careful to protect your secret if you export.

On the other hand, there are valid reasons to keep the idea a trade secret, including the following:

• You could lose your competitive advantage when you make the IP public by applying for a patent.
• If you neglect to renew your patent, or cannot afford to renew it, you will lose your exclusive rights to your IP.

Weigh the pros and cons carefully before deciding whether to formally register your intellectual property or keep it a trade secret.