Trade secrets can be patented

Confidentiality and Patents: Supplement or Substitute?

New study on the relationship between trade secrets and patents: Patents and trade secrets are used in addition.

Although they are of great economic importance, trade secrets have been little researched and their relationship to patents is often misinterpreted. The present study sheds light on this topic and draws on representative data at company level from the European Community Innovation Survey (CIS). CIS covers around 200,000 companies in the European manufacturing and service industries.

The study was carried out in 2016 by the European Union Intellectual Property Office (EUIPO) through the European Observatory for Infringements of Intellectual Property Rights in cooperation with the Center for European Economic Research (ZEW) in Mannheim. The study paid particular attention to the interaction between patenting and secrecy as well as the performance effects of the selected protection strategy, not only at the company level, but also at the level of individual innovation.

While earlier analyzes often viewed trade secrets and patents as mutually exclusive substitutes, the present study tries to highlight the complementary role of the two protection methods.

The main results of the analysis are:

  1. Innovative companies often use both patents and trade secrets to protect their innovations.
  2. In most branches of the economy and in all member states, most types of companies use trade secrets more often than patents to protect innovations.
  3. The use of both trade secrets and patents is most likely among those firms that do independent research or development, invest heavily in innovation, and when an innovation is new to the market. In the case of innovations that are only new to the company, trade secrets are preferred.
  4. Patents are more likely to be used (exclusively or in combination with trade secrets) when the innovative product is a material good rather than a service.
  5. Trade secrets (often without patents) are more likely to be used for process innovations and for innovations in services.
  6. Trade secrets (exclusively or combined with patents) are probably used to maintain or improve the competitiveness of innovations by companies that are involved in open innovation practices, such as research collaborations, especially with geographically distant, non-European partners.
  7. In markets with pronounced price competition, there is a tendency to prefer trade secrets to patents. In markets with pronounced quality competition, on the other hand, there is a tendency to use both trade secrets and patents. This is related to the findings mentioned in point 5. Pronounced price competition is typical for goods markets, where opportunities for product differentiation or innovation are rare and margins can be improved through innovation in the cost or process area.

As with all econometric analyzes of this type, the authors of the study also warn here with regard to the interpretation of the findings. The findings of this study reveal relationships between certain characteristics of the companies and the markets in which they operate, as well as their choice of protection strategy. This should not be construed as definitive evidence of cause and effect relationships. What is needed to determine the causal factors more clearly is better data and more research.

The study is available for download here.

20th July 2017