Trade Secrets vs. Patenting: What's Best for AI Technology

We are living in the era of digital revolution, and artificial intelligence (AI) is undoubtedly one of its most transformative technologies. As AI continues to infiltrate numerous industries and redefines the way we live and work, safeguarding AI technology has become a critical concern. Trade secrets and patents are two primary means by which businesses can protect their technological assets. But, the question arises, which is the most suitable protection strategy for AI technology – trade secrets or patents?

This article will delve into the complex world of trade secrets and patents, focusing on their application to AI technology. We’ll explore their definitions, discuss their pros and cons, and provide real-world examples. We’ll then delve into the legal perspective, as well as key factors to consider when choosing between these two intellectual property protection options for your AI technology.

#1. Understanding Trade Secrets

Trade secrets refer to confidential business information that provides an enterprise a competitive edge. The World Intellectual Property Organization (WIPO) broadly defines trade secrets as any information that is secret, has commercial value because it is secret, and has been subject to reasonable steps to keep it secret.

Trade secrets encompass a wide array of information, such as manufacturing or industrial secrets and commercial secrets. In the context of AI, a trade secret might encompass proprietary algorithms, machine learning techniques, datasets, or other unique aspects of an AI system that differentiate it from competitors.

Examples of trade secrets in AI

One of the most prominent examples of a trade secret in AI is the Google search algorithm, which includes elements of machine learning and natural language processing. It is kept as a trade secret because disclosing the exact algorithm would not only risk imitation by competitors but also expose the system to manipulation by third parties.

Similarly, several source codes and research by Tesla is protected by keeping it as a trade secret.

Pros and Cons of using trade secrets for AI technology

The main advantage of trade secrets is that they offer unlimited protection duration as long as the secret remains undisclosed. They are also less costly than patents, as they do not involve registration costs or maintenance fees. Furthermore, trade secrets do not require the public disclosure that is mandatory for patents.

However, trade secrets come with their downsides. The most significant disadvantage is that once a trade secret is publicly disclosed, intentionally or unintentionally, its protection is lost forever. Moreover, a trade secret does not protect against independent discovery or reverse engineering.

#2. Understanding Patents

Patents are a form of intellectual property rights that grant inventors exclusive rights to their inventions for a limited period, typically 20 years. They are issued by the patent office of a specific jurisdiction (e.g., United States Patent and Trademark Office in the US) to inventions that satisfy the criteria of novelty, inventiveness (non-obviousness), and usefulness.

In the realm of AI, a patent could be granted for new and non-obvious AI technologies such as novel machine learning algorithms, AI hardware, or unique applications of AI in specific industries.

Examples of patents in AI

One notable example of AI-related patent is IBM’s patent which provides for computational models for exploring the associations between drug side-effects and therapeutic indications (US Patent No. 9,536,194).

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C. Pros and cons of using patents for AI technology

Patenting AI technology offers several advantages. The primary benefit is the monopoly right it confers on the patent owner to exclude others from making, using, selling, or importing the patented invention for a specified period. It can also serve as a valuable asset, enhancing the company’s market value and attracting potential investors.

However, patents also have their shortcomings. Obtaining a patent can be a costly and time-consuming process that involves rigorous examination. It also requires public disclosure of the invention, which may expose the technology to competitors. Plus, the fast-paced evolution of AI might render some patented technologies obsolete before the patent term expires.

#3. Trade Secrets vs. Patents

A. Comparison of trade secrets and patents

Comparing trade secrets and patents, it’s clear that both offer unique benefits and pose different challenges. Trade secrets can protect AI innovations indefinitely but offer fragile protection. In contrast, patents provide robust protection but only for a limited duration and at a higher cost.

The choice between trade secrets and patents often boils down to the specific circumstances and strategic considerations of each business.

B. Considerations in choosing between trade secrets and patents

Several factors may influence the choice between trade secrets and patents for protecting AI technology. These can include the nature of the AI innovation, the business model, and market conditions, among others. For instance, if the AI technology can be easily reverse-engineered once in the public domain, a patent might provide stronger protection.

C. Insights from industry experts

Industry experts often recommend a balanced approach that combines both trade secrets and patents to protect different aspects of AI technology. For instance, companies might patent tangible technological innovations while maintaining key algorithms or datasets as trade secrets.

#4. Legal Perspective

A. Legal viewpoint on trade secrets and patents for AI

From a legal perspective, both trade secrets and patents are recognized forms of intellectual property protection, each with its own legal considerations. Patents require detailed public disclosure and are subjected to rigorous examination before they are granted. Once a patent is issued, any unauthorized use of the patented invention is an infringement that can be legally challenged, providing a clear legal recourse.

Trade secrets, on the other hand, do not require public disclosure or governmental approval. However, their protection is inherently uncertain. For instance, if a trade secret is independently discovered or reverse-engineered, the protection ceases. Furthermore, legal remedies for trade secret misappropriation can be less straightforward than for patent infringement.

B. Current laws and regulations affecting the choice between trade secrets and patents

Laws and regulations also play a vital role in determining the choice between trade secrets and patents. For example, the eligibility of AI technologies for patent protection can vary between jurisdictions.

While the United States Patent and Trademark Office (USPTO) and European Patent Office (EPO) have provided guidelines for patenting AI technologies, the interpretation and application of these guidelines can be subjective and unpredictable.

Furthermore, the trend towards stronger trade secret protection laws in some jurisdictions, like the enactment of the Defend Trade Secrets Act (DTSA) in the United States, can tilt the balance towards favoring trade secrets.

#5. Factors to Consider When Choosing Between Trade Secrets and Patents

A. The Nature of the AI Technology

Understanding the technical aspects of the AI technology is crucial. For example, if the technology can be easily reverse-engineered or independently discovered once it is on the market, a patent might be a better choice. On the other hand, if the technology includes elements like a unique dataset that would be difficult for competitors to replicate, maintaining it as a trade secret could be beneficial.

B. Your Business Model

Your business model is another vital consideration. If your business strategy involves licensing the technology to third parties, patent protection might be more advantageous. Conversely, if your business advantage depends on unique know-how or data that doesn’t need to be shared, maintaining those as trade secrets could provide a competitive edge.

C. The Scope of the Protection You Need

The scope of protection needed is another critical factor. Patents offer a broad scope of protection, enabling you to prevent others from using, selling, or manufacturing the patented technology. However, this protection is geographically limited to the countries where the patents are granted and has a limited lifespan, typically 20 years from the filing date.

On the other hand, trade secrets can potentially offer indefinite protection, as long as the secret is not disclosed. But the scope of protection for trade secrets is narrower and more uncertain; you can’t stop competitors from independently developing or reverse-engineering the technology.

D. Long-Term Business Goals

Long-term business goals should also guide the decision between trade secrets and patents. If you aim to be a market leader and create barriers to entry, a patent might be the right choice. However, if your strategy involves continual innovation and maintaining proprietary knowledge in-house, relying on trade secrets might be more appropriate.

E. Cost and Time Considerations

When we talk about the costs associated with patents, we need to consider the overall expenditure of obtaining a patent. The process involves multiple stages, each having its own set of fees and procedures. The initial filing fee for a patent application is just the beginning. There are also search fees, examination fees, post-grant fees, and maintenance fees to be considered.

In addition, patent litigation can be astronomically expensive, should someone infringe on your patent or challenge its validity. On average, patent litigation can cost anywhere between $1 million to $3 million and could even go up to $10 million for high-stakes cases. Moreover, if you intend to patent your technology in multiple countries, you have to apply and maintain the patent separately in each jurisdiction, adding to the cost.

Trade secrets, on the other hand, do not incur such costs, but they require investment in security measures. This includes secure systems to store and transmit the secret information, training employees on maintaining confidentiality, and regular auditing for potential leaks. It’s also important to note that trade secrets can be difficult to enforce. If a trade secret is leaked or stolen, you might need to spend a significant amount in legal fees and damages to rectify the situation.

F. Level of Innovation in the AI Technology

The level of innovation is also a factor to consider. Patents are only granted for inventions that are novel, non-obvious, and useful. In the case of AI technology, it might be challenging to prove these criteria, especially given that AI often involves algorithms and models that could be deemed as abstract mathematical theories, which are not patentable in many jurisdictions.

Conversely, trade secrets do not require any such criteria. Any information that provides a competitive edge can be protected as a trade secret. However, if the AI technology is easily replicable or reverse-engineerable, the protection offered by trade secrets might be insufficient.

G. Market Competitiveness

In an increasingly competitive AI market, having a strategic advantage can be crucial. Both patents and trade secrets can offer that, albeit in different ways. Patents can be an effective way to secure a monopoly over an AI technology, allowing you to exclude others from using it for a period of 20 years.

This could be particularly beneficial if you’re operating in a market where there’s a lot of competition, as it can deter competitors from entering your space.

On the other hand, trade secrets can also provide a competitive edge by keeping your valuable information away from competitors indefinitely, as long as the secret remains intact.

This could prove useful if you’re operating in a rapidly evolving market, where the value of a technology might diminish over a short period, and thus, the long process of acquiring a patent may not be worthwhile.

H. Legal Enforcement and Disputes

The decision between trade secrets and patents should also factor in the potential for legal disputes and the subsequent enforcement challenges. Patents offer a robust legal framework to protect your AI technology, but they also attract more attention, and therefore, potentially more disputes. Patent disputes can be costly, time-consuming, and can even result in the loss of the patent rights in the worst-case scenario.

In contrast, trade secrets are not subject to public scrutiny like patents, reducing the chance of disputes. However, if a trade secret is leaked or stolen, legal action can be taken under the trade secret laws.

Yet, it’s worth noting that legal enforcement of trade secrets is often more challenging than patents, as it requires proving that the secret was indeed confidential, that it held commercial value, and that reasonable measures were taken to protect it.

I. Future Development Plans

Your decision between trade secrets and patents should also consider the future development plans for your AI technology. If you foresee significant advancements or iterations for your AI technology, you might prefer the flexibility of trade secrets.

This is because once a patent is filed, any improvements or modifications that fall under the scope of the original patent would also need to be patented separately to enjoy protection.

On the other hand, if the AI technology is already fully developed and no further iterations are expected, patenting might be a more suitable option. A patent provides a solid protection for your technology, barring others from using it without your permission for up to 20 years, thus allowing you to fully exploit its commercial potential.

Wrapping it up

Deciding between trade secrets and patents for protecting AI technology is a complex decision that should take into account multiple factors. Both have their distinct advantages and disadvantages, and the choice between the two is highly dependent on the specific circumstances of your AI technology, your business model, and the market in which you operate.

Trade secrets can offer indefinite protection and are less expensive and time-consuming to maintain, but they require ongoing secrecy measures and can be lost if the secret is revealed. On the other hand, patents provide a robust level of protection and the right to exclude others from using the patented AI technology, but they require public disclosure of the invention, are expensive, time-consuming to acquire, and only last for a specific period of time.

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Frequently Asked Questions

#1. What is a trade secret in the context of AI technology?

A trade secret is confidential information that gives a business a competitive edge. In the context of AI, this could be a unique algorithm, training data, or machine learning techniques that are kept confidential within the organization. Trade secrets don’t require any formal registration and can last indefinitely as long as the secret is maintained.

#2. What is a patent in the realm of AI technology?

A patent is an exclusive right granted for an invention, which provides the patent owner with the exclusive right to decide how – or whether – the invention can be used by others. In the context of AI, a patent could be obtained for a unique and novel AI algorithm, system, or method.

#3. What types of AI technology can be protected by trade secrets or patents?

AI technology that can be protected by trade secrets includes proprietary algorithms, techniques, and training data that give a business a competitive advantage. For patents, the AI technology should be novel, non-obvious, and have a useful purpose. This could be a unique machine learning model, a novel method of collecting or processing data for AI, or an innovative AI system architecture.

#4. What are the costs associated with protecting AI technology with trade secrets or patents?

The costs of protecting AI technology as a trade secret mainly involve the cost of maintaining the secrecy, including secure data storage, restrictive employment agreements, and potential litigation if the secret is misappropriated. Patent protection, on the other hand, involves costs for patent filing, prosecution, maintenance fees, and potential litigation to defend the patent rights.

#5. How long does protection last for trade secrets and patents?

Protection for trade secrets lasts as long as the secret is kept confidential. Once it’s revealed, the protection ends. Patents typically last for 20 years from the filing date, after which the patented technology enters the public domain.

#6. How does the nature of AI technology influence the decision between trade secrets and patents?

The decision often depends on the specific characteristics of the AI technology. If the technology involves unique algorithms or models that can be easily reverse-engineered once the product is in the market, patenting might be the best option. But if it involves proprietary data or methods that are not publicly revealed in the product, then trade secret protection may be more appropriate.

#7. Can I protect my AI technology with both trade secrets and patents?

Yes, it is possible to use a combination of trade secrets and patents. For example, you could patent a unique machine learning algorithm while keeping the training data as a trade secret.

#8. What role do long-term business goals play in choosing between trade secrets and patents?

Long-term business goals are crucial in this decision. If your goal is to maintain a long-lasting competitive edge, trade secrets could be the best choice. But if you aim to gain a strong market position with a unique, innovative product that could be reverse-engineered, then obtaining a patent could be more beneficial.

#9. How does the level of innovation in AI technology affect the decision between trade secrets and patents?

The level of innovation could greatly affect the decision. Highly innovative AI technologies that can easily be reverse-engineered might be better protected by patents. On the other hand, incremental or less visible innovations might be more suitably protected as trade secrets.

#10. What legal enforcement challenges are there with trade secrets and patents?

Enforcing trade secrets can be challenging as it requires proving that the information was confidential, that it provided a competitive advantage, and that it was misappropriated. Patent enforcement can also be difficult and costly, as it requires a patent infringement.

Trade Secrets vs. Patenting: What’s Best for AI Technology