Invention protection: the decision to patent or rely on a trade secret

Invention protection: the decision to patent or rely on a trade secret

Invention protection: the decision to patent or rely on a trade secret

A common but complex problem facing businesses seeking to commercially benefit from an invention is how to protect the invention for their own use. This can be achieved through the grant of a patent or by keeping the invention a ‘trade secret’.

Product inventions may be complex, but often the best inventions are simple fixes to common problems. An example of a very simple, and highly useful invention, is dental floss. This technology acted as a platform for the invention of prefabricated floss holders to make flossing easier for those with arthritis. Process inventions involve ways or methods of achieving a particular result. Examples of process inventions include a new way of synthesising a chemical that produces less toxic by-products or a use of an existing drug for a different medical purpose.

A patent is only granted to an invention that satisfies specific criteria, and so some inventions may not be eligible for this type of protection. Recipes and methods for human reproduction are good examples of inventions that cannot be patented in Australia. On the other hand, inventions that are easily copied may be difficult to keep secret and so an inventor may seek patent protection.

A patent must be registered with a patent authority, and this requires that the invention be published to permit access by the general public. In return, the grant of a patent provides the patentee with a monopoly that prohibits others from exploiting the invention (unless authorised by the patentee) for the term of the patent.

Alternatively, an inventor may keep their invention a trade secret by maintaining confidentiality of the details (or even the existence) of that invention. The differences between the two are significant; and once an inventor elects a form of protection, it is generally impossible to change to the other. It is for this reason that inventors (with the assistance of legal advice), must carefully consider each, including strengths and weaknesses, to ensure that they make the right choice for their invention.

One such inventor facing this issue is Andrew Marks, a viticulturist continuing his family legacy by producing premium wines in Victoria’s Yarra Valley. Inspired by a love of gin, Mr Marks decided to adapt his winemaking skills to produce one of Australia’s first artisan, small batch gin under the Melbourne Gin Company (MGC) label. MGC uses a unique approach to combining botanicals. Unlike other gin makers who distil a combination of botanicals concurrently, Mr Marks extracts the flavours of botanicals individually, allowing unique flavour combinations to be developed and refined. 

Given the nature of Mr Marks’ invention, he will need to consider whether to protect it by way of a patent or trade secret.

Patent requirements

Patents give inventors a legally enforceable monopoly over the exploitation of inventions that generally lasts a maximum of 20 years (provided renewal fees are paid).

To obtain a patent in Australia, the inventor must satisfy the Patent Office that the invention[1]:

  • is of a type recognised as being patentable (a ‘manner of manufacture’);
  • is novel (new when compared with information publicly available);
  • involves an inventive step (has at least one feature that is not ‘obvious’ to a person with skills and common general knowledge in the relevant field of the invention);
  • is useful (serves some (even a very minor) purpose); and
  • has not been secretly used by the inventor (or someone else with their authority to do so) in Australia before the priority date of the invention claimed.

Patent application process

A patent specification is a formal document that precisely identifies the invention in individual ‘claims’ and provides detailed information about how to make or use the invention. A ‘provisional application’ may be submitted to the Patent Office to secure a ‘priority date’. This is the date at which the patent criteria is assessed. It is important to obtain an early priority date to minimise the amount of publically available information (‘prior art’) that can be used to object to the grant of a patent.

For a patentee to enjoy the benefit of a priority date originating from a provisional application, a ‘complete specification’ must be filed within 12 months of the filing of the provisional application.

The Patent Cooperation Treaty allows for a centralised system for applying for patent rights in countries or regions that are parties to the treaty.

The patent specification is disclosed to the public. In consideration for that disclosure, and provided a patent is granted, only the inventor (or those that the inventor authorises) will be able to ‘exploit’ the invention until the patent term ends (or lapses if renewal fees are not paid).

Once a patent specification is filed, an examiner at the Patent Office will review the specification and decide whether the invention claimed meets the patent eligibility criteria. If the application is accepted, in Australia the accepted specification is published and an opportunity provided for third parties (often the inventor’s competitors) to oppose the application. Assuming the application is not opposed, the application will then proceed to grant. After grant, and assuming no third party proceedings are commenced, the patentee is only required to pay annual renewal fees to maintain the patent during its term.

Rights of patentees

Once a patent is obtained, the patentee is rewarded with a monopoly in relation to the invention. This extremely valuable right ensures that the patentee has the exclusive right to exploit the invention during the life of the patent. This means that they can exclusively:

  • make, hire, sell, use or import the product;
  • use the method or process; or
  • authorise another person to do any of the above (whether or not a fee is charged. Often a patentee (particularly universities) will license their invention to others for a fee rather than exploiting the invention themselves).[2]

Careful drafting of a patent specification can ensure protection of not only a patentee’s present commercial embodiment of their invention, but also modifications to that embodiment, providing the patentee with a breadth of protection around their commercial activities. Any unauthorised exploitation of the invention may be contrary to law and the patentee may sue the alleged infringer for patent infringement. These proceedings can be resolved in negotiations between the patentee and the infringer, and may result in the grant of a (paid) license and/or payment of a sum of money to the patentee.

If the matter proceeds to trial and the patentee is successful, the court may order remedies, including the payment of compensation or an account of profits; and the granting of an injunction to prevent continued exploitation of the patent.

For more information about patents, visit our website and download our IP Essentials Handbook of Patents in Australia. You can contact one of our patent attorneys to discuss whether a patent is a suitable form of protection for your invention.

Trade secrets

An equitable doctrine of confidence exists in Australia (as well as other common law jurisdictions) to protect trade secrets and other private information. The law responds to unconscionable conduct of individuals who use confidential information without the consent of the confider.

The commonly accepted requirements for the protection of a trade secret under the equitable doctrine of confidence are:[3]

  1. The information must have the ‘necessary quality of confidence’.[4] This means that information, once it has entered ‘the public domain’, will not have the necessary quality to be protected by this doctrine.[5]
    • The ‘public domain’ refers to information that is ‘generally accessible’[6] and can be considered to be ‘public property and public knowledge’[7].
    • Information constructed from publicly available materials may possess this quality if something new results from the application of the various parts.[8]
    • For example, a cake recipe located in a published book would be considered to be public knowledge and not capable of protection as a trade secret. However, if that recipe was altered to incorporate a secret ingredient or special method of preparation, it is possible that the new recipe (if kept secret) could have the ‘necessary quality of confidence.’[9]
  2. The information must have been imparted ‘in circumstances importing an obligation of confidence’.
    • These circumstances exist if the ‘reasonable man standing in the shoes of the recipient of the information would have realised upon reasonable grounds that the information was being given to him in confidence.’[10]
    • Examples of circumstances which may import an obligation of confidence include:
      • where the person receiving the information is required to sign a confidentiality agreement;
      • where a document is sealed and marked ‘confidential’; and
      • where commercial or industrial information is disclosed for a common purpose, such as a joint venture.[11]
    • An obligation can also be imposed where information is not provided to the recipient willingly, such as where confidential information is ‘improperly or surreptitiously obtained.’[12]
    • Equity recognises the following as circumstances importing an obligation of confidence:
      • ‘obviously confidential’[13] documents such as a diary (or perhaps a draft patent specification);
      • ‘secrets of importance to national security’[14]; and
      • ‘the activities of eavesdroppers and the like.’[15]
  1. There must be an unconscientious use of that information.[16]
    • This could mean that the party receiving the information uses it for its own benefit, for example, by selling an item based on that information in competition with the party that ‘owns’ the confidential information.
    • This could also include introducing the information into the ‘public domain’, for example, by publishing it on the internet.
  2. In terms of loss or damage suffered by the plaintiff, it is generally accepted that it is not necessary to demonstrate any such harm as a consequence of the breach of confidence. However, in practical terms, damages will not be available where there is no loss to be compensated.

Defences to a claim that disclosure of a trade secret amounts to a breach of confidence

Even if the three elements above are satisfied, trade secret protection can be lost, and not all disclosures of trade secrets will amount to a breach of confidence. Accidental disclosure (in certain circumstances) may rob the information of the ‘necessary quality of confidence’. Alternatively, a deliberate disclosure in circumstances that do not import the obligation of confidence will not be afforded protection as a trade secret.

A trade secret may also be ‘discovered’ by a third party by way of ‘reverse engineering’.[17] For example, the design and formulation of a new battery could be discovered by a scientist disassembling the battery and performing chemical tests on the reactants inside. Although these experiments could enable a scientist to discover the confidential information necessary to manufacture the battery, no action based on the doctrine of confidence would be available to the battery’s inventor.

The action is not available because the information was not imparted to that person in circumstances importing an obligation of confidence. This means that the scientist has not ‘breached’ the inventor’s confidence, and so there is no unconscientious breach of confidence that gives rise to an action.

Trade secret disclosure may also be defended on the basis that the information was disclosed ‘in the public interest’.

Remedies for breach of confidence and patent infringement

A court will generally award similar remedies for a breach of confidence as they would for an infringement of a patent. In both cases, the intention behind the grant of these remedies is to restore the plaintiff to the position they would have been in had there been no breach of confidence or patent infringement.

The most common remedies awarded are:

  • damages (financial compensation for loss); or
  • an account of profits (a sum of money that seeks to ‘disgorge’ the profits made by the defendant to be paid to the plaintiff); and
  • an injunction (to restrain the defendant from using the information or infringing the patent).

It should be noted that whilst an injunction can be granted alongside another remedy, a plaintiff must elect to receive damages or an account of profits.

Making the right choice for your business

Advantages of patent protection

An important benefit of the patent system is that it encourages creativity and inventiveness. By limiting the terms of patent protection, society is able to use that invention in the foreseeable future. In the meantime, the invention disclosed in the patent can be used as a springboard for future inventions (either by the patentee or others).

Whilst the duration of a patent is limited and the process of obtaining patent protection potentially more expensive – though the costs of maintaining confidentiality through upgrades to software and other security measures cannot go unmentioned – patents are more easily maintained than trade secrets.

In particular, a patent generally cannot be exploited without the authorisation of the patentee even if someone ‘reverse engineers’ or independently arrives at the invention, whereas a trade secret is lost if a person works backwards from the invention to discover the confidential information. This is both because the steps for producing the invention can be found in the publicly available specification – and so there is little point reverse engineering the invention – and because the exploitation of an invention (even in this manner) without the permission of the patentee will infringe the patent.

A further advantage of a patent is that unauthorised use of the invention will not invalidate the patent, whereas a public reveal will preclude the continued enforceability of a trade secret. Therefore, a patentee retains their ability to sue an alleged infringer, as well as other parties. The threat of legal action may be sufficient to stop an infringer from continuing its actions.

Advantages of trade secret protection

The most significant benefit of trade secret protection is that it can exist in perpetuity if the inventor can successfully maintain confidentiality. Patent protection lasts for a maximum of 20 years (up to 25 years in the case of a pharmaceutical invention), after which anyone is permitted to use the invention.

Another key benefit of trade secret protection is that it can protect information without the need to satisfy the qualification requirements of the Patents Act. A patent specification is prescribed to become ‘open to public inspection’ 18 months after the earliest priority date claimed, unless a request is made by the applicant for publication to occur earlier.[18] After publication, any information contained within an application can no longer be considered confidential. Hence, the applicant will lose any trade secret protection they may have otherwise had over that information. 

Unlike reliance on a patent, a trade secret does not require the inventor to apply to an authority to obtain protection. As long as information about the invention is confidential and only imparted to others in circumstances importing an obligation of confidence, the equitable doctrine of confidence will apply to that information. Since a trade secret is not a registrable right, an owner of intellectual property rights may avoid registration costs which would be present if they were to seek patent protection.

As a separate patent is required in each country in which protection is required, the cost of obtaining and maintaining patents across multiple jurisdictions can be significant.

An important decision

In terms of the protection of Mr Marks’ gin-making process, assuming that he is the first to produce gin in this way, he has developed a method or process invention and potentially also an invention in the product produced by that process. The process itself has been partially disclosed by Mr Marks to advertise the properties of the premium product to consumers. Depending on the detail of the method, this process may not qualify for patent protection, on the ground that the invention does not involve an inventive step when compared with information publicly available.

With that said, Mr Marks may not have a commercial desire to seek a patent for his discovery. There is an advantage in being first to market with a product, and this may be a sufficient advantage for Mr Marks to be competitive in the market for gin. Mr Marks may also consider that the specific process and detailed ingredient selection techniques and treatments that lead to the unique and highly regarded flavour of his artisan gin would be difficult and potentially impossible to reverse engineer. If this is the case, Mr Marks may decide that he does not require the monopoly that would be afforded to him through patent protection. In doing so, he may avoid costs involved in obtaining a patent, while continuing to maintain protection of all the information he has kept confidential by means of a trade secret. Furthermore, the secrecy of his recipe may add to the mystique surrounding his product, which can lend itself to marketing opportunities (an opportunity exploited by other food and drink businesses, such as Coca-Cola Amatil). 

It is also important to consider that there are some types of inventions that are precluded from being patentable, as previously discussed. In relation to gin, the Australian Patents Act provides the Commissioner of Patents with the discretion to refuse to accept an application directed to a food substance that is a mere mixture of known ingredients.[19] Although careful drafting by a skilled patent attorney may obviate this discretion, the presence of this provision in the Patents Act may limit the scope of protection obtainable for this particular invention.

Whether you elect to protect your invention by means of a trade secret or with a patent is significant. This is not a decision that should be made lightly, and legal advice is recommended. The decision is fact dependant, and relevant considerations include:

  • the type of invention (certain inventions cannot be patented);
  • whether the invention is of a type that could be kept confidential (some inventions are easily reverse engineered);
  • whether you intend to authorise others to use the invention and generate income through the grant of licenses (this is difficult to achieve with a trade secret as it involves disclosing the invention to more people); and
  • financial considerations (obtaining and protecting a patent can be costly, so too is ensuring that a trade secret is kept confidential through the use of secure IT systems and other security measures).

Carefully considering these factors will ensure that owners of intellectual property make the correct decision, and are able to enjoy protection of their inventions. For more information about patent and trade secret protection for inventions, visit our website or download our IP Essentials Handbook of Patents in Australia. You can also contact one of our DCC expert patent attorneys or intellectual property lawyers to discuss the protection of your invention.

Davies Collison Cave would like to thank our seasonal clerk Darci Bucheli for her contributions in writing this article.

[1] Patents Act 1990 (Cth) s 18(1).

[2] Patents Act 1990 (Cth) Schedule 1 – Dictionary, definition of ‘exploit.’

[3] Coco v AN Clark (Engineers) Ltd [1969] RPC 41 (Megarry J) (Coco). These requirements were endorsed by Gleeson CJ in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199.

[4] Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413, 415 (Lord Green MR).

[5] AttorneyGeneral v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109, 282.

[6] AttorneyGeneral v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109, 282.

[7] Coco v AN Clark (Engineers) Ltd [1969] RPC 41, 46 (Megarry J) citing Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413, 414-5.

[8] Coco v AN Clark (Engineers) Ltd [1969] RPC 41, 47 (Megarry J).

[9] Though it should be noted that there is no requirement that the confidential information is in some way ‘inventive.’ See Ansell Rubber Co Pty Ltd v Allied Rubber Pty Ltd [1967] VR 37, 49 (Gowans J).

[10] Coco v AN Clark (Engineers) Ltd [1969] RPC 41, (Megarry J).

[11] Coco v AN Clark (Engineers) Ltd [1969] RPC 41, 48 (Megarry J).

[12] Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 (Gleeson CJ) citing Commonwealth v John Fairfax & Sons Ltd (1980) 147 CLR 39, 50 (Mason J).

[13] Attorney-General v Guardian Newspapers Lt (No 2) [1990] 1 AC 109, 281 (Lord Goff of Chieveley).

[14] Attorney-General v Guardian Newspapers Lt (No 2) [1990] 1 AC 109, 281 (Lord Goff of Chieveley).

[15] Australian Broadcasting Corporation v Lenah Game Meats (2001) 208 CLR 199, 255.

[16] It no longer appears to be the case that the use of the information is to the detriment of the party to whom the information relates. Rather, the Full Federal Court in Smith Kline & French Laboratories (Australia) Ltd v Secretary, Department of Community Services and Health (1991) 20 IPR 643 at 656 noted that ‘unconscientious use’ of the information is required such that the court can conclude that ‘the confidence reposed has been abused.’

[17] Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413n (Lord Greene MR); Mars UK Ltd v Teknowledge Ltd (1999) 46 IPR 240, 256 (Jacob J).

[18] Patents Act 1990 (Cth) s 54;Patent Regulations 1991 (Cth) r 4.2(3).

[19] Patents Act 1990 (Cth) s 50(1).

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