Last month, the EUIPO published an interesting report titled “Protecting innovation thru trade secrets and patents: determinants for European Union firms” (“the Report”). Seven findings have been included in Executive Summary, and in this post I will dig into the three findings I find most interesting (No. 2, 4 and 5 in the Report).
“The use of trade secrets for protecting innovations is higher than the use of patents by most types of companies, in most economic sectors and in all Member States”
Upon first reading, I didn’t find this very surprising. Namely, virtually all companies have some kind of trade secrets like e.g., sales or related data, but only some companies are innovative enough to be granted patents even if they would apply. But what surprised me somewhat was that Finland (where I reside and practice law) was the country where trade secrets would be used the most compared to all other countries in Europe (page 28 of the Report). I found this surprising, since while every serious IP lawyer must know trade secret law, the topic is not widely debated in Finland. In Finland, as in many other countries in the world, trade secrets law is still the “Cinderella” of IP.
Based on the Report, large companies typically utilize both trade secrets and patents on a larger scale compared to SMEs. Nevertheless, Finnish SMEs are the heaviest users of trade secret protection in Europe, based on the report (page 30 of the Report). Namely, a staggering 76,8 % of Finnish SMEs use trade secrets to protect trade innovations according to the Report. Innovative SMEs in Finland use trade secrets 2,5 more than patents. This may of course be rooted in several different factual and legal aspects. By way of example, patents are of course more expensive and the threshold may not always be met (e.g., novelty and inventive step). Also, patents have a fixed term (20 years), while trade secrets do not.
“Patents are more likely to be used (alone or in combination with trade secrets), when the innovative product is a physical good rather than a service”
This conclusion makes sense. Since a product patent can be very effective as an exclusive right, patenting a product could be a quite appealing alternative. Also, you can’t necessarily keep a product as a trade secret once you’ve put it on the market. And if you could, this would likely be quite expensive, since you may have to tweak and tighten your internal company policies quite a bit to keep anyone from disclosing the contents of the product. And then you need to enforce them.
However, the comparison to services in this finding appears somewhat misplaced. A service on the other hand is not very easily patentable in the first place. And the scope of protection may be quite slim, even if a patent would somehow be granted. I am not sure whether a service as such would qualify as a trade secret either. Perhaps some components of the service yes, but the service per se?
“Trade secrets (often without patents) are more likely to be used for process innovation and for innovations in services”
In the above finding, a comparison to processes would perhaps have been more fruitful. But process innovation is nevertheless discussed in the report, and it was found that trade secrets are more likely to be used for process innovation. This also makes a lot of sense, since processes may not be as easy to discover or even reverse engineer, which is why you may be able to keep the process as a secret. Conversely, patent protection for processes as a main rule only covers the process – if you don’t use the process, you usually don’t infringe.
All in all, I found the study quite fascinating and recommend you to read at least the Executive Summary if nothing else. You can read the whole Report here.