Patent and Trade Secret Rights Need to Be Treated Differently

If a company develops a product it thinks will be market setting, it will want to protect and monetize it as efficiently as possible—meaning it must decide whether trade secret or patent protection will best guard against potential losses if a competitor steals the product.

While a patent gives exclusive rights to the product for 20 years in exchange for public disclosure of all its secrets, trade secret protection provides indefinite protection as long as the secret sauce remains unknown and valuable.

Between 2013 and 2022, patent litigation lawsuits filed in US district courts decreased from 6,497 to 3,639. During the same period, median damages awards decreased to $3.7 million from a high of $5.6 million.

Between 2015 and 2023, the number of trade secret cases filed in federal court increased from 1,075 to 1,227. This doesn’t include state court trade secret filings, which will increase the overall number of trade secret cases. Also, patent infringement cases must be brought in federal court, but trade secret cases can be brought in state or federal court.

Trade secret litigation tends to favor the plaintiff, and damages awards continue to grow. Because of large damages awards for trade secret misappropriation lawsuits, some courts are pushing back and reducing awards made by juries. These decisions reducing or eliminating damages awards may take principles from patent law that result in an undermining of the goals of trade secret protection in the first place.

Opting to safeguard property via trade secrets protection will also cover different intellectual property interests besides patents and essentially is something that derives independent economic value from secrecy. A patent is a balance between public disclosure of useful knowledge in exchange for a limited right to exclude others from use. Patent infringement is strict liability, and no intent on the part of the defendant is necessary for the plaintiff to recover monetary damages.

Patent damages reflect the value of the right to exclude through a reasonable royalty payment or loss of plaintiff’s expected profits. Trade secret misappropriation occurs when a trade secret is acquired by improper means or if a trade secret is disclosed without authorization. Trade secret misappropriation requires a conscious bad act by the defendant.

One remedy for trade secret misappropriation not available in patent litigation is the disgorgement of the profits obtained by the defendant through the misappropriation. It is the “best measure of damages” (along with any plaintiff lost profits) in a trade secrets case.

To obtain these damages, a trade secret owner only needs to show the total sales of the defendant for products using the trade secret, and the defendant must prove why the sales weren’t tied to the trade secret. Disgorgement of the defendant’s profits for trade secret theft reflects that misappropriation generally destroys the trade secret through public disclosure.

Disgorgement of a defendant’s wrongfully gained profits approximates plaintiff’s lost profits when its trade secret is no longer secret. This is fair. Compensation for trade secret misappropriation should compensate the plaintiff for the full value of loss of the intellectual property itself.

Patent rights are different from trade secret rights, and each form of intellectual property protects different interests—disgorgement being available for trade secret theft and not patent infringement reflects this fundamental difference. Square pegs don’t fit into round holes, and trade secret misappropriation damages shouldn’t import patent damages theories.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Joseph Barber is a member in Howard & Howard Attorneys litigation group. He litigates patent, trademark, and trade secret matters.

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