PATENT OR TRADE SECRETS: WHICH OFFERS BETTER PROTECTION?

By Rose Njeru,David Opijah Thursday, February 20, 2020
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Spurred by the rapid growth of technology, many businesses have come up with inventions aimed at giving them a competitive edge. With these inventions comes the risk of having commercially valuable information misappropriated by competitors. To counter this risk, it is imperative that businesses deploy the avenues available in law in Kenya to protect their interests and enforce their rights. That said, choosing the best avenue can pose a dilemma for businesses, which have to decide between deploying patents or trade secrets. This article explores the benefits of each of these modes of protection and the factors to consider when making a selection.

Patents: legally safer but strictly regulated

Patents grant an inventor exclusive rights to their invention for a limited period, being 20 years in Kenya. Under the Industrial Property Act (2001) (the Act), to qualify for patent protection, an invention should be new, involve an inventive step and be industrially applicable. Owing to these exclusionary rights, and the resultant danger of monopoly and unfair competition, inventions such as discoveries, scientific theories and mathematical methods are excluded from protection under patent law.

Patent applications in Kenya can be filed with the Kenya Industrial Property Institute (KIPI) or the African Regional Intellectual Property Office (ARIPO) or under the Patent Cooperation Treaty (PCT). The ARIPO application route enables the applicant to file for patent registration in ARIPO member states in Africa, if designated. In PCT member states, the Treaty affords international protection to the invention as long as it meets the threshold for patent protection in the designated jurisdictions.

Protecting inventions under patent law has several other advantages. At the outset, the monopoly granted to the inventor enables it to control competition, garner larger market shares, increase credibility, control its product pricing and attract investors. In addition, an inventor can generate additional revenue by licensing patents to third parties.

However, the benefits associated with a patent have to be balanced against the costs incurred in applying for the patent and maintaining it. Furthermore, the application process is lengthy in Kenya; depending on the administrative efficiencies of the respective registries, the process may take up to four years.

In addition, the inventor is required to disclose details of the invention when applying for the patent. Though the patent grants exclusive rights, it neither precludes third parties from filing suits challenging the patent nor prevents competitors from making the products or improving on the invention, necessitating infringement claims which are expensive.

Of concern is that a patent right may be limited by law through compulsory licensing exceptions. This occurs where a third party makes an application to the Industrial Property Tribunal for the granting of a compulsory licence without the authorisation of the patent holder. While compulsory licensing is applicable mostly in instances of public interest and is well intentioned, it may still pose a significant risk to the rights and best interest of the inventor. To retain protection in a situation where a compulsory licence is needed, the patent holder has to ensure that it supplies the product within four years. This might mean having to settle for unreasonable terms.

The most important consideration, and perhaps the most overlooked, is that the patent expires without possibility of renewal. The 20-year protection period can lapse at the point where, depending on its nature, the invention is finally producing returns for the inventor, or has garnered considerable goodwill that would consequently be eroded by the lack of protection.

To avoid the high costs and other hurdles associated with patent registration, inventors in Kenya have the option of applying for a utility model which is registrable in the country and in a number of other developing nations. The downside is that utility models offer a lower term of exclusivity, limited to only 10 years.

Trade secret: higher risk, possibly higher returns

In light of the drawbacks associated with patents, it may be more prudent for an inventor to select the trade secret route. A trade secret protects a specific form of confidential information which is commercially valuable and is treated as a secret. Examples of trade secrets include secret formulae and recipes, such as the recipe for Coca-Cola, which has famously been guarded as a trade secret for almost a century.

Whereas patents require a form of registration to validate them, the opposite is true for trade secrets. While Kenya does not have statutory protection of trade secrets, protection is granted locally by virtue of Article 2(5) and 2(6) of the Constitution and international law, which includes the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) to which Kenya is a party. Moreover, trade secret protection can be inferred from common law protection of confidentiality.

The TRIPS Agreement stipulates that the information must not be generally known among, or readily accessible to, circles that normally deal with that kind of information. Furthermore, it must have commercial value because it is a secret, and must have been subject to reasonable steps under the circumstances to keep it secret, by the person lawfully in control of the information.

The TRIPS Agreement is not explicit on how to enforce trade secrets. In practice, the most practical way to protect trade secrets is by entering into non-disclosure agreements (NDAs).  An NDA creates a contractual obligation to keep the information confidential, so it is arguably easier to enforce, having no regulatory burden for the inventor to bear. In addition to an NDA, a trade secret holder can impose conditions such as ensuring that dissemination of the trade secret is on a need-to-know basis only and implementing strict security measures around employees who have access to the trade secret.

Protecting inventions under trade secret law is a profitable option for business owners in a number of ways. To begin with, they do not have a limitation on the protection afforded to the invention, meaning that trade secrets have immediate effect and can be protected for as long as the information is kept secret. Secondly, trade secrets are cheaper to enforce compared to patents, not to mention the fact that trade secret protection does not require compliance with regulatory formalities such as disclosure of the information to a government authority.

Detrimentally, once the secret becomes public, everyone has access to and can use it at will. Further, a trade secret bears a higher threshold of proof in enforcement than a patent due to the stringent requirements put in law to qualify such information as secret.[1] The inventor bears the burden of proving not only that it have a proprietary right to the information, but that the information was disclosed in confidential circumstances. Given the risks that emanate from employee mobility, businesses need to deploy adequate safeguards to ensure that confidential information is revealed to employees on a strictly need-to-know basis.

Furthermore, there appears to be no clear judicial precedent on how evidence ought to be handled while still maintaining the confidentiality of the trade secret. This brings up a scenario where the inventor is forced to forfeit the right to maintain commercially sensitive information as confidential, and may even require the inventor to disclose even more confidential information as evidence. A legislative solution may assist in mitigating this risk, where courts bear an obligation to preserve the secrecy of an invention. This is the case in Uganda, which has a Trade Secret Protection Act (2009) and grants courts the power to make orders directing how secrecy may be preserved in court proceedings.

Finally, another disadvantage of trade secrets is that the level of protection granted varies significantly from country to country, and is generally considered weak.

So, what is better?

At the end of the day, both patent and trade secret protection are viable options for proprietors who wish to protect commercially valuable information. Before choosing which means of protection to employ, it is important to weigh the risks and benefits of each method with due regard to the nature of the invention/information, the available resources, the business model and other surrounding circumstances. Where the inventor desires complete exclusivity over the invention for an extended period of time, protection through trade secrets may be more attractive. One the other hand, where the inventor requires safety and tangible proprietary rights, patents are probably more viable.

Alternatively, it is possible to employ a combination of both avenues in protecting inventions, particularly if the innovation is complex and consists of separately protectable components. A patent-trade secret mix may serve to keep some of the commercially sensitive information confidential, thereby hedging the risk of exposure to the inventor, while the patentable component of the invention remains registered and protected. This would mean that the inventor relinquishes trade secret protection to the extent that the invention is disclosed at the point of patent application. In a patent application, it may therefore make more commercial sense to limit the disclosure made to a need-to-know basis.

[1] For example, the Court in Coco v AN Clark (Engineers) Ltd [1968] FSR 415 held that for information to qualify for protection under trade secrets:

  1. a) It must have the necessary quality of confidence;
  2. b) It must have been imparted in circumstances importing an obligation of confidence; and
  3. c) There must be an unauthorized use of that information to the detriment of the rights holder.