It could be a better mousetrap or a radius gimlet point anti-stripout screw, but you’ll want to make sure you get credit for making it. But how do you decide whether to take Door No. 1 (patent) or No. 2 (trade secret)?
One of your employees has come up with a new product or process with the potential to transform your company. And your bottom line.
It will position your business head and shoulders above your competitors, as long as they can’t capitalize on the idea, too.
Now what do you do?
To keep your competitive edge, you have two choices:
Apply for a patent, a process that gives you exclusive use but can cost up to $30,000, take five years to complete and become a public document.
Keep the discovery to yourself as a trade secret.
As it turns out, patent vs. trade secret depends a lot on your industry.
Most manufacturers almost automatically take critical discoveries through the patent process because their inventions can easily be reverse-engineered: Smart competitors can take the product apart and figure out how to make the same thing.
Patents give businesses exclusive rights to discovery for up to 20 years, but they also put the discovery into the public domain for everyone to see.
Phil Behrenwald, president of J.L. Clark Co. in Rockford, said patents protect Clark and the company’s customers. J.L. Clark makes specialty packaging for bubble gum, ointments, black pepper, tea, batteries, even film.
“Everything we make goes on a shelf somewhere for people to buy,” he said. “Patents are critical to protect us and our customers from having people infringe on it.”
Behrenwald said the company routinely finds itself in court on patent-infringement cases. “We’ll go a couple of years where we don’t have any, but then there are years we’ll fight three or four of them.”
J.L. Clark, which employs about 400 people in Rockford, is one of the area’s busiest in terms of receiving patents.
And companies that make more complicated parts are quick to patent because of the fear of reverse engineering.
Sean Carlini and John Frana of Rockford Acromatic Products Co. received a patent in 2006 for a constant velocity universal joint, widely used in front-wheel drive cars. Rockford Acromatic’s product is for all-terrain vehicles demanding a much more durable CV joint.
Carlini, the company’s director of product development, said the company automatically went for patent protection. Rockford Acromatic was started in Loves Park in 1948 and has six patents to its credit. The company has about 110 employees at its Beacon Street headquarters.
“We’ve always felt someone would be able to reverse-engineer the stuff we do anyway,” Carlini said. “We’re not dealing with highly complex designs. Some parts have some complexity, but most are fairly simple assemblies. We’ve felt the patent process was worth the protection.”
Since 2000, corporate inventors in Boone, Ogle and Winnebago counties have received 44 patents for such things as lip balm dispensers, candle cans with formed safety bottoms, and spice containers with tear strips.
The major advantage of a trade secret is that the only costs are in guarding the secret. The legal protection on a patent eventually expires. But a trade secret lasts until someone else invents the same thing and either patents or publishes it.
The area manufacturers who have to decide between patent and trade secret most often are aerospace suppliers, such as Woodward Governor Co. and Hamilton Sundstrand Corp.
Hamilton Sundstrand is an interesting study of how decisions change under different ownership.
When Sundstrand Corp. was independently owned, local inventors might receive up to 38 patents in a single year for the aerospace giant, according to a Register Star database of local patents dating to 1996. After the company was taken over by United Technologies Corp. and folded into Hamilton Sundstrand, the number of patents won by local inventors dropped to as few as eight and jumped to as many as 22 in one year. Residents in Boone, Winnebago and Ogle counties were a part of 16 patents won for Hamilton Sundstrand in 2006 and 2007 and five through May 2008.
Under United Technologies, the company is much closer to the vest in the patent process.
“Patents can be very telling about the strategic and technological direction of a company,” said Bill Kroll, director of systems and engineering at Hamilton Sundstrand. “There are a lot of factors that go into our decisions. We may have agreements with our partners. We may be in highly competitive situations on a particular piece of intellectual property and may want to keep it secret.
“In some cases, we’ve had technology that served us well for a long time, but the application had moved into aftermarkets and we wanted a patent to protect us.”
Aftermarket parts are replacements made by companies other than the original manufacturer.
What differentiates Hamilton Sundstrand from Rockford Acromatic is the size of the finished product. Competitors can’t buy a military aircraft and break it down to reverse-engineer the components, and commercial aircraft are covered by proprietary agreements.
Leydig, Vogt & Mayer Ltd., which has offices in Chicago, Washington, Seattle and Rockford, specializes in intellectual property law. Jim Robertson, an attorney with the firm, often consults with clients on applying for patents.
“Anytime you are performing a process where the only people who will know exactly how it’s done are people in the room, it’s oftentimes (a question) of whether to patent or not,” Robertson said, citing food and chemicals as industries that keep a lot of trade secrets.
At Thermo Fisher Scientific, whether to patent a process or product is a routine question.
Thermo Fisher is the parent company of the Rockford plant formerly known as Pierce Biotechnology. The 240 workers there do protein research in products used by academic, biotech, pharmaceutical and governmental research agencies.
This decade, local employees have won 11 patents for Thermo Fisher, with such exotic names as “formulations for fluorogenic peroxidase assays” and “direct detection of histidine tagged biomolecules on electrophoretic gel.”
“One of the first things we look at is if it is big enough or new enough to be worth the expense of getting a patent,” said Alan Doernberg, senior counsel of intellectual property. “Then you look at the nature of the product. Could one of our competitors buy the product and figure out the ingredients? If they can, then there’s really nothing to keep secret. You either patent it or you don’t.”
Alex Gary can be reached at firstname.lastname@example.org or (815) 987-1339.
2008 slow-going for local patents
After climbing for two straight years, the number of patents won by local inventors dropped sharply through May.
The Register Star developed a database in 2006 of patents won by residents in Boone, Ogle and Winnebago counties, using the U.S. Patent & Trademark Office’s searchable Web site, to see whether local companies are sufficiently investing in research and development.
Patent activity dropped since the 165 patents issued in 1999, the high point in the past decade, to 107 issued in 2005. The drop came when the number of patents nationally exploded as companies spent millions protecting intellectual property in a practice known as “defensive patenting.” In 2004, the U.S. Patent Office issued 181,000 patents, compared with 99,000 in 1990, according to a BusinessWeek article from January.
The number of local patents increased, though, to 144 in 2006 and 157 in 2007, the highest total since 2001.
From January through May, 51 local patents have been granted, compared with 72 during the first five months of 2007. It’s important to note that patent activity is a reflection of research and development done in the previous two or three years: The patent process takes up to five years, sometimes longer.
As an example, Stephen Schroeder of Belvidere was part of a team of researchers to receive a patent in February for preparing liquid compositions for N-L-phenylalanine 1-methyl ester in food and beverage systems. They applied for the patent in July 2001.
The most famous trade secret ...
... is the formula for Coca-Cola. The formula, also referred to by the code name “Merchandise 7X,” is known to a few people and kept in the vault of a bank in Atlanta.
The people who know the secret formula have signed nondisclosure agreements, and it is rumored that they are not allowed to travel together. Until 1991, Coca-Cola was not sold in India because Indian law required trade-secret information to be disclosed. The soft drink became available there because India changed its laws regarding trademarks.