Patents versus Trade Secrets

Startups often obtain patents to attempt to protect their intellectual property.  From what I have seen, obtaining patents on core IP is considered “good housekeeping” by most VCs and startup lawyers.  However, I recently saw an instance where a company decided not to file a patent on a specific piece of technology because they viewed it as a trade secret.  In other words, had they filed the patent, the information could have allowed others to duplicate the functionality through alternative methods.  So, they decided not to file a patent.  I realize this is only one datapoint, but I wonder how often this sort of thing comes up.


  1. Rarely. The problem with trade secrets is that you are betting on your ability to actually keep something a secret. In today’s world, that’s pretty hard to do. What trade secrets imply is either that it’s exceedingly difficult to copy your process or that no one can discover it in the first place. But if someone does, that’s it – they can copy you without restriction.

    The classic trade secret example is the formula for Coke. If they patented it, they’d have received protection for the length of the patent and then would be relying solely on brand power. Because no one has managed to decompile the formula (at least not perfectly), they have both unique product and brand power creating defensibility.

  2. Especially in software these days, as fivyearstoolate notes, trade secrets is a poor IP protection mechanism. You can usually find an alternative way to do things that is sufficient. The exceptions usually only pertain to profoundly fundamental advancements to algorithms where one might, say, perform some function many times faster than we knew how to before.
    And in business process patents, it’s hard to call them “fundamental” in my book…

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