Ryan Hiler and Jessamine Pilcher: Patent-versus-trade-secret decision hinges on key factors

For innovative companies, the decision about whether to patent an invention or protect it as a trade secret is among the most consequential intellectual property choices such companies will make. The two regimes rest on fundamentally different legal foundations and policy objectives. By constitutional right, a patent grants a time-limited right to exclude in exchange for public disclosure. A trade secret, in contrast, derives its value from secrecy and may endure indefinitely but only so long as secrecy is maintained. For lawyers advising clients, particularly those operating in Indiana, the analysis must integrate federal patent law, federal trade secret law under the Defend Trade Secrets Act and Indiana’s enactment of the Uniform Trade Secrets Act.

The patent option

Federal patent law, codified in Title 35 of the United States code, offers inventors the right to exclude others from making, using, selling, offering for sale or importing a patented invention for a limited term, generally 20 years from the earliest effective filing date. To qualify, an invention must fall within patentable subject matter (§ 101) and be novel (§ 102), nonobvious (§ 103) and adequately described and enabled (§ 112).

The patent bargain is explicit: In exchange for exclusivity, the inventor must publicly disclose the invention in sufficient detail to show the inventor was in possession of the invention at the time of filing and enable a person of ordinary skill in the art to make and use it. Once the patent expires, the invention enters the public domain.

For companies operating in competitive markets, patents can provide powerful leverage. They create enforceable rights against independent developers, which is a critical distinction from trade secret law. A competitor who independently invents the same process or product can be enjoined and held liable for damages if the patent’s claims read on the competitor’s invention. See 35 U.S.C. § 284 (damages) and § 283 (injunctions).

Patents may also enhance valuation, attract investment and facilitate licensing.

However, patents can be expensive and challenging to obtain depending on the field of technology. The prosecution process before the U.S. Patent and Trademark Office can take years and can involve significant legal and technical expense. Even after issuance, patents may be vulnerable to validity challenges, including post-grant and inter partes review before the Patent Trial and Appeal Board. Alternatively, a patent may be challenged in court — and often is when a patentee sues for infringement. Moreover, once disclosed, the information cannot be made secret again. If the patent is denied or later invalidated, the company may have handed competitors a roadmap without securing enforceable protection.

The trade secret alternative

Trade secret protection arises under both federal and state law. The Defend Trade Secrets Act of 2016, 18 U.S.C. § 1836 et seq., created a federal civil cause of action for misappropriation of trade secrets related to products or services used in interstate commerce. Indiana has adopted its own version of the Uniform Trade Secrets Act at Ind. Code § 24-2-3-1 et seq.

Under both regimes, a “trade secret” generally includes information (e.g., formulas, patterns, compilations, programs, devices, methods, techniques or processes) that (1) derives independent economic value from not being generally known or readily ascertainable by proper means; and (2) is subject to reasonable efforts to maintain its secrecy. See 18 U.S.C. § 1839(3) and Ind. Code § 24-2-3-2.

Unlike patents, trade secret protection can last indefinitely. A classic example is the Coca-Cola formula. So long as the information remains secret and protected by reasonable measures, protection continues. There is no registration requirement and obviously no public disclosure requirement.

However, a key limitation is that trade secret law protects only against misappropriation. Independent development, reverse engineering (if obtained lawfully) or accidental disclosure without improper means generally do not give rise to liability. See 18 U.S.C. § 1839(5) (defining “misappropriation”) and Ind. Code § 24-2-3-2. For products that can be readily reverse engineered once on the market, trade secret protection may be illusory.

Indiana’s UTSA provides for injunctive relief (Ind. Code § 24-2-3-3), damages for actual loss and unjust enrichment (§ 24-2-3-4) and, in cases of willful and malicious misappropriation, exemplary damages and attorney’s fees (§§ 24-2-3-4, -5). The DTSA similarly authorizes injunctive relief, damages, exemplary damages up to two times the amount awarded for willful and malicious misappropriation, and attorney’s fees. See 18 U.S.C. § 1836(b)(3). The DTSA also includes an ex parte seizure provision in extraordinary circumstances — a potent but carefully circumscribed remedy. See § 1836(b)(2).

Importantly for Indiana practitioners, the IUTSA contains a preemption provision displacing conflicting tort and other state law claims for misappropriation of a trade secret. See Ind. Code § 24-2-3-1(c). Counsel must carefully plead alternative theories, such as breach of contract, which are not preempted.

Strategic considerations for counsel

The patent-versus-trade-secret decision is rarely abstract. It depends on the nature of the invention, the industry and the client’s business objectives.

• First, assess for a reverse engineering risk. If the invention will be embodied in a consumer product that competitors can lawfully purchase and analyze, patent protection may be the only meaningful way to prevent copying. Trade secret protection is better suited to manufacturing processes, algorithms or internal methods that are not readily observable.
• Second, consider the invention’s life cycle. If the technology is likely to become obsolete within a few years, the lengthy patent prosecution process may not justify the investment. Trade secret protection can attach immediately, provided reasonable secrecy measures are implemented including, but not limited to, confidentiality agreements, access controls, employee training and clear policies.
• Third, evaluate the strength of the patent position. If the invention is considered ineligible patent subject matter or prior art threatens novelty or nonobviousness, a patent may be difficult to obtain or sustain. In such cases, maintaining secrecy may preserve a competitive advantage without inviting scrutiny.
• Fourth, examine enforcement realities. Patent litigation is notoriously expensive and complex, often requiring expert testimony and extensive discovery. Trade secret litigation, while also intensive, may offer procedural advantages under the DTSA, including the possibility of ex parte seizure. Yet proving “reasonable efforts” to maintain secrecy is essential; lax internal controls can doom a trade secret claim.
• Finally, hybrid strategies are common. A company may patent core, reverse-engineerable features while keeping manufacturing tolerances, source code or customer data as trade secrets. But care must be taken to ensure that patent disclosures do not inadvertently destroy trade secret protection for related information.

Conclusion

There is no one-size-fits-all answer. Patents provide powerful, time-limited exclusivity in a particular jurisdiction and can exclude independent inventors, but they require full public disclosure and substantial investment. Trade secrets offer potentially perpetual protection without registration but only against misappropriation and only so long as secrecy is vigilantly maintained under federal and Indiana law.

For corporate counsel and IP attorneys alike, the choice is strategic and fact-intensive. The lawyer’s role is not merely to recite doctrinal differences but to align intellectual property protection with the client’s competitive realities, risk tolerance and long-term business goals.•

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Hiler and Pilcher are attorneys in Taft’s intellectual property group.