Even though trade secret has a number of advantages, it has
some disadvantages as well. In the following scenarios, patent would be a
better option than trade secret.
1) The technology can
be reverse engineered or invented independently
If the technology can be taken in parts and be analyzed, it
is not a good idea to keep it a trade secret. One example is hardware. If Apple
wants to know how Samsung Galaxy S4’s processor works, they can take the smartphone
apart and understand exactly what’s inside. Apple can manage to produce
something very similar, and then release the new product to the market in order
to compete with Samsung. Another example is software. Reverse engineers can use
several tools to disassemble a program. If someone else has developed the
technology, he can claim ownership over it by filing a patent, even though you
are the one who first come up with it.
2) Licensing the
technology out
If the firm wants to license out the invention, it would be
harder to manage keeping the technology a secret if the licensor fails to
maintain the secret. What’s more, a licensor would be more attracted by
patented technologies since the rights are clearly defined by patents.
3) It is costly or too
difficult to maintain the trade secret
Again, using Coca-Cola as an example, the firm is really
good at protecting its secret formula. It’s known that the piece of paper
containing the recipe lies deep inside a vault in Atlanta.
“To protect the formula only a few
corporate executives know the exact recipe, and each is bound by oath not to
reveal its contents. When one of these individuals die, the others approve a
successor. These keepers of the recipe travel separately to ensure that a
single accident won't eliminate all of them.”
The amount of work required to protect trade secret can be
highly costly. Costs include restricting physical access to the secret, and a
lot of contract costs associated with the duty not to disclose. Nonetheless,
even as careful as Coca-Cola, the firm had an insider, Joya Williams, a former
secretary who was convicted of trying to selling the formula to Pepsi in 2007. Managing
employees to not disclose or sell the trade secret can be the most challenging
task.
4) Risks involved
with utilizing trade secret
The value of trade secret can be wiped out overnight once
it’s disclosed to the public. A company can easily lose its core competency if
its sales and operations are depending on the trade secret. Firms definitely need
to be extra careful regarding choosing between trade secret and patent.
Hi Tian,
ReplyDeleteThanks for sharing the analysis of trade secret and patent. Like you said in the first scenario, I feel like Coca-Cola's secret recipe can also be brute-forced by trying out all the possibilities. It is only a matter of resources and time.
Taking open-sourced software boom for example, I think trade secret is more of a thing in the past and patent not only serves the purpose of protecting intellectual property but sharing the knowledge with the society.
Hey Tian, you bring up a good point on how patents can be used for trade secrets and when they should not be used. This demonstrates the various applications patents can be used for from a corporate level. Thanks for providing the analysis of the do'd and don'ts of using patents as a trade secret tool.
ReplyDeleteGoing off of your Coca-Cola example, I think its current situation is pretty ironic. Even if Coca-Cola wants to patent its recipe, that won't be allowed, because Coca-Cola is its own prior art. The initial decision to keep Coca-Cola's recipe as a trade secret eliminated the possibility of obtaining a patent in the future. In this particular case, I think Coca-Cola made a very smart move; whereas a patent would allow 20 years of exclusivity, a well protected trade secret can remain exclusive forever.
ReplyDeleteThanks for the informative post Tian. It seems like the practical applications for employing trade secrets is very slim. I also don't think that hardware or even software has any practical use to adopt trade secrets as a methodology of innovative protection. Trade secrets only work with products and goods that are not possible to reverse engineer. For example, trade secrets would work with a new yogurt company because once the yogurt is packaged, even with the list of ingredients, it is impossible to replicate the product. That's why trade secrets are great for those types of companies. HOWEVER, my biggest turnoff to trade secrets is the fact that royalties cannot be extracted with the use of trade secrets
ReplyDeleteTrade secrets are a great idea when there is way to figure out an invention even if the public will be utilizing the product. However, I assume for things like Coca-Cola, agencies like the FDA still need to be informed of the formulation to regulate for health and safety. However, a trade secret can be harmful if obviously the secret got out. So, for device technologies, or more concrete technologies, it doesn't seem wise to make a trade secret because it doesn't take more than a few engineers to figure out how something works. As a company, you wouldn't want years and decades of hard work and lots of invested money to go to waste. So, I personally think patenting is important. However, the downside is that after the patent expires it is extremely difficult to keep others from making a similar product, a cheaper and more generic version of your previously-patented product. So, there's positives and negatives associated with trade secrets.
ReplyDeleteGreat post! Going off of the Coca Cola example, I guess a case when it is a good idea to utilize trade secrets is when the the product is able to be exclusive and not highly diversified. Take Coke for example, the corporation only really focusses on this one product, which is a soft drink that has gathered tremendous popularity and no one so far has been able to replicate it so far. Technology on the other hand does not go hand in hand with trade secrets as it is very difficult for it to be exclusive, and that is why patents are set in place to encourage investment in technology-related activities so investors/inventors are able to at least break even the cost they have put into developing the product.
ReplyDeleteComparative to your other post, patenting seems to be the more stable safe bet. Even with the quick advancement of technology, it is true that patenting allows one to make a sure profit on licensing while trade secrets relies on a lot of working pieces to fit as the "formula" must be carefully protected. Again, I do believe that it all a matter of what is more applicable for the product. If the long process and costs outweigh attempting to keep a trade secret then it is worth it!
ReplyDelete