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knowledge 3 August 2017 |

EU Study Highlights Importance of Trade Secrets to Innovative Firms

A study published recently by the EU Intellectual Property Office confirms that firms often use both patents and trade secrets to protect their innovations but also, and more notably, demonstrates that the use of trade secrets for protecting innovations is higher than the use of patents for most types of companies in most sectors.  The study, entitled ‘Protecting Innovation Through Trade Secrets and Patents: Determinants for European Union Firms’, analysed data concerning almost 200,000 firms operating across manufacturing and service industries for 24 EU Member States (including Ireland).  Its stated aim was to try to better understand the role of trade secrets and to look at the interaction between trade secrets and patents.

Patents and trade secrets in outline

In Ireland, innovation can be protected by various legal means, most relevantly here by patents and rights in trade secrets, confidential information and know-how.

By virtue of the Patents Act, 1992 (as amended) a time-limited monopoly of up to 20 years can be granted to an innovator in return for publication of details of the invention (eg a process or  product) covered by the patent.  However, as the study notes, “[…] when protecting innovations through patents, firms face a trade-off between disclosing information and obtaining a temporary exclusive right for commercialising their inventions”, ie a patent.  This is because, as the study observes, disclosing such information may help competitors to develop competing products. For this reason, and in light of the costs associated with patents, firms may choose instead to keep inventions confidential and not seek patent protection.

Trade secrets are a type of information entitled to protection under law, which is currently primarily enforced in Ireland through an action for breach of confidence.   This protection is, at least potentially, unlimited in time.  Trade secrets can include eg new manufacturing processes or improved recipes.  As such, information, when benefiting from such protection, can be exclusively exploited by firms for many decades.  Irish law on this topic will be subject to some change soon as a result of the EU Trade Secrets Directive 2016/943 (which must be transposed into Irish law by mid-2018 and on which the Government recently concluded a consultation exercise).  However, as outlined in our earlier briefing on this Directive, it is unlikely to bring about radical changes in Ireland. 

Study’s findings

Some of the study’s more notable findings on these types of protection are that:　  

  • Innovating firms often use both patents and trade secrets to protect their innovations.
  • The use of trade secrets for protecting innovations is higher than the of use patents by most types of companies, in most sectors and in all Member States.
  • 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.
  • Trade secrets (often without patents) are more likely to be used for process innovations and for innovations in services.

It is also apparent from the comparative tables in the study that Ireland is one of 12 EU Member States to have innovation rates above the EU average. 

The study states that it hopes that its results will provide a basis for policymakers to further develop policies in this area.  However, it also serves as a useful reminder to firms that, depending on the invention or innovation at hand, there is benefit to careful and deliberate use of a blend of patent protection and trade secrets to protect their businesses.  As such, now may be as good a time as any to review company strategy on IP protection.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.