1 May 2013Jurisdiction reportsMitzi Coertzen

Patent or trade secret?

While not always a simple decision to make, consideration should be given to certain factors when assessing a potential route of protection.

According to the Patents Act, a patent shall allow the patentee (for the duration of the patent) to exclude other persons from making, using, exercising, disposing of, or offering to dispose of, or importing the invention, so that the patentee shall have and enjoy the whole profit and advantage accruing from the invention. In South Africa, as in many other jurisdictions, a patent is granted for a period of 20 years, from the date of filing the patent application.

“ONCE USED, ALBEIT IN SECRET, THE POSSIBILITY OF LATER OBTAINING A PATENT FOR THE INVENTION WOULD BE DESTROYED AS THE NOVELTY REQUIREMENT WOULD NO LONGER BE MET.”

The first factor to consider is that a granted patent is enforceable against any third party. On the contrary, keeping a trade secret is done on a contractual basis. A trade secret relies on the conclusion of confidential, restraint of trade and/or non-disclosure agreements (NDAs) between parties, in order to ensure that the trade secret is not disclosed to the public.

If a trade secret is discovered legitimately, for example through reverse engineering or independent research and development activities, the trade secret would become known and would be unenforceable against such parties using the trade secret’s subject matter.

Article 39 of the Agreement on Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS), to which South Africa is a signatory, deals with protecting undisclosed information and sets out three general requirements that undisclosed information should meet in order to prevent the information from being disclosed, acquired or used by others dishonestly.

The general requirements for protecting trade secrets are that the information:

1. Is secret, in the sense that it is not generally known among, or readily accessible to, persons within the circles normally dealing with the kind of information;

2. Has commercial value because it is secret; and

3. The person lawfully in control of the information has taken reasonable steps to keep it secret.

Unlike the above, the legal requirements of novelty and inventiveness that an invention has to meet in order to be patentable are stricter than the general requirements covering trade secrets in TRIPS. Keeping a trade secret is preferred when an invention falls short of the patentability requirements of novelty and inventiveness, while still meeting the general requirements of trade secrets.

Further, the Patents Act precludes certain types of inventions, such as business methods, from being patentable. However, should there be commercial value, such a non-patentable invention could also be protected by using a trade secret.

Patents are granted for 20 years from the application’s filing date. Thereafter, the invention will fall into the public domain, as a patent is a published document. Although a 20-year expiry term would not apply to trade secrets, a person or company faces a substantial risk in keeping a trade secret.

Once the confidential information becomes known, the trade secret status will be destroyed. The possibility of claiming damages from a person disclosing the confidential information, for example by breaching an NDA, does exist, but may be a time-consuming and cumbersome process.

Financial considerations may also play a role in deciding between patenting and keeping a trade secret. While it initially may appear financially more taxing to pursue patent versus trade secret protection, the cost and effort of keeping information confidential by using NDAs, employment contracts, restraint of trade agreements or interdicts, may sway the balance in favour of patents. That is, if the invention patentable.

Once an invention is used in South Africa, secretly and on a commercial scale, the Patents Act regards such invention as prior art. Once used, albeit in secret, the possibility of later obtaining a patent for the invention would be destroyed as the novelty requirement would no longer be met.

In light of the above, one can appreciate that patents offer a stronger form of IP protection, for a fixed period of time, which is enforceable against any third party in South Africa. A trade secret, on the other hand, is a weaker form of protection that is only enforceable between parties, but which can last forever.

The decision between patents and trade secrets is a business decision, based on various legal, financial and other considerations. Professional legal advice should be sought when assessing the various factors mentioned above.

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