Trade secrets are essentially of two kinds. On the one hand, trade secrets may concern inventions or manufacturing processes that do not meet the patentability criteria and therefore can only be protected as trade secrets. This would be the case of customers lists or manufacturing processes that are not sufficiently inventive to be granted a patent (though they may qualify for protection as a utility model). On the other hand, trade secrets may concern inventions that would fulfil the patentability criteria and could therefore be protected by patents. In the latter case, the SME will face a choice: to patent the invention or to keep it as a trade secret.
Some advantages of trade secrets include:
Trade secret protection has the advantage of not being limited in time (patents last in general for up to 20 years). It may therefore continue indefinitely as long as the secret is not revealed to the public.
Trade secrets involve no registration costs (though there may be high costs related to keeping the information confidential).
Trade secrets have immediate effect.
Trade secret protection does not require compliance with formalities such as disclosure of the information to a Government authority.
There are, however, some concrete disadvantages of protecting confidential business information as a trade secret, especially when the information meets the criteria for patentability:
If the secret is embodied in an innovative product, others may be able to inspect it, dissect it and analyze it (i.e. "reverse engineer" it) and discover the secret and be thereafter entitled to use it. Trade secret protection of an invention in fact does not provide the exclusive right to exclude third parties from making commercial use of it. Only patents and utility models can provide this type of protection.
Once the secret is made public, anyone may have access to it and use it at will.
A trade secret is more difficult to enforce than a patent. The level of protection granted to trade secrets varies significantly from country to country, but is generally considered weak, particularly when compared with the protection granted by a patent.
A trade secret may be patented by someone else who developed the relevant information by legitimate means.