The Secret Value of Patent Filings and Trade Secrets

Tips for protecting your inventions with patents, trade secrets and confidentiality agreements

Q.  My product is patent pending. I've found that contract manufacturers won't sign confidentiality agreements because they fear it will limit their future growth. Do I have to wait for a patent to be awarded or is there some way I can still market my product without getting it stolen? What protection does my patent pending status give me?  I don't want to just give away all the secrets and just get a thank-you.

A.   I hate to say it, but the kinds of devious competitors who infringe on patents and copy trade secrets are not likely to send you a gracious thank you note for your innovative work! 

And you are wise to be cautious about protecting your best ideas in the marketplace through confidentiality agreement initiatives and patent filings.  Intellectual property lawyers and litigators are kept very busy these days filing law suits against companies that infringe on patents or attempt to "work around" patents to gain a competitive edge.

Unfortunately, your patent application won't provide the safeguards that you are looking for today.

Cy Hersch, a partner with the Summit Law Group says "Intellectual property protection by a patent does not start until the actual grant of a patent. There is no formal legal significance of a pending patent application other than the date of filing. This date is important for establishing right of priority against similar invention patent filings." 

So should you wait to pursue suppliers and customers until a patent is awarded? Probably not.  Today it may take several years for the U.S. Patent and Trademark Office to issue a patent on your invention.  Plus, all markets move quickly.  Your technology advantage is more likely to appeal to potential investors, customers and business partners today, than several years from now.

In the interim, Hersch recommends that patent filers mark product drawings and other patent-related documents as "confidential information."  You can also take steps to learn more about the ethics of potential suppliers and choose manufacturers that don't produce and market goods directly to your target customer base.

Another way many companies establish more immediate intellection property rights is through trade secrets.  Trade secrets can include product formulas, patterns, programs, techniques or methods that may have some commercial value independent of the product or service that is offered for sale to customers.  Some states have even recognized customer and supplier lists as trade secrets. 

But as Hersch notes, "A trade secret is different than a patent.  Patents are disclosed publicly.  With a trade secret you don't have to do any filings but you have to take considerable procedural care in identifying and maintaining the secrecy of intellectual property.  If a business owner doesn't take these protective steps then it isn't viewed as a trade secret by the courts."

Some action steps companies can take to maintain trade secret status include limiting lower-level employee access to trade secret information; obtaining non-disclosure agreements from employees, taking extra password and firewall measures to safeguard information kept in electronic format; or placing printed information in off site safes.  It's also worthwhile to develop written internal company procedures on how a company protects its secrets from customers, unauthorized employees and competitors. 

Here's one last tip.  Employers should highlight to staff members what exactly it considers as trade secret information.  Often just asking employees to sign a general confidentiality and non-disclosure agreement may not be enough to demonstrate the company's intent to safeguard trade secrets.   Remember, employees can run off with valued trade secrets just as easily as outside competitors.

Write to Susan Schreter at susan@takecommand.org for great funding tips for startup entrepreneurs and small business owners of any age and business building interest.

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