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Manage your Intellectual Property in Mainland China, HongKong, Macao and Taiwan

Choosing Between a Patent or Trade Secret - Part I

Background/Case

An Italian auto-parts company had a new component which they thought would be particularly popular in the Chinese market. They were determining whether to keep the technology as an invention patent or a trade secret.

On the one hand, if they took measures to protect the technology as a trade secret the SME would not have to disclose the technology, reducing the ease of infringement of their invention, which could potentially save them significant costs in enforcement of their rights, as well as the costs associated with applying for a patent or responding to any invalidation requests raised against their patent. Moreover, provided the secret was successfully kept, there would be no term of protection for their use of the technology, and it could be kept worldwide without the need for patenting in different jurisdictions.

On the other hand, a patent right would represent a strong and stable right for the period which the patent was granted (20 years for Chinese invention patents), provided the invention met the requirements for patenting (novelty, inventiveness, usefulness) and was successfully granted, the SME could rely on the invention patent as grounds for bringing legal action if others used the technology. Moreover, if the invention was kept as a trade secret, if the inventive step could be detected or reverse engineered, the SME could leave themselves open to their invention being effectively ‘hijacked’, with the risk of their own invention being patented by another individual.

The SME assessed the part and determined that its technical solution likely could not be reverse engineered, and they had taken steps to hide the technical solution by enclosing it within the part which could not be dismantled and so was difficult to detect. However, as the majority of their other products were patented, they felt more comfortable with the stronger rights conferred by patenting over the vigilance needed to guard a trade secret, so decided to apply for a patent in China for the new part. They applied for a design patent to cover the shape of the part, as well as for an invention patent to cover the technical solution.

Unfortunately, soon after their product came to market, one of their long-term clients encountered a company at a trade fair selling what appeared to be an infringing product with the same technical solution which significantly undercut the SMEs product.

 

Action Taken

The SME conducted an investigation into the suspected trade fair infringement. They purchased notarised samples of the product at the fair to use as future evidence, and then brought a complaint directly at the fair with the IPR desk who removed the infringing products. The samples clearly infringed upon their design patent, and after analysis, the product appeared also to have infringed upon their invention patent.

The SME hired an experienced investigator to find out more information regarding the factory, through this analysis they were able to gain valuable evidence to bring a court case against the infringer. After a lengthy litigation they were successful in bringing a claim for infringement and were awarded an injunction and damages against the infringer, however the SME was disappointed by the level of damages awarded given the time and money spent on enforcement and the scale of the infringement. In future, they plan to take steps to keep similar inventions as trade secrets to prevent infringement, and protect the appearance with a design patent to give them a basis to take action against infringers copying the appearance of their products.

 

Lessons Learned

  • Where technical solutions cannot be reverse engineered and the secret can be effectively held, holding inventions as trade secrets can be an effective cost-saving strategy for SMEs that also protects against bad faith infringement.
  • Patenting inventions allows SMEs to bring infringers to account where they infringe on such technology, however patent litigation is expensive and lengthy, especially when infringers appeal.
  • Although damages in Chinese patent litigation are increasing, they are still low compared to other jurisdictions.
  • Design patents can be a good strategic option used to protect the appearance of products whilst keeping the technology as a trade secret.
  • A combination of patents can make it easier to bring action against an infringer.
  • Trade fair complaints are a fast and effective way of dealing with infringement on the spot.
  • Experienced investigators are often necessary for gathering evidence for patent litigation.
  • Evidence should be notarised to be admissible in court.

 

Further reading from the World Intellectual Property Organisation on the importance of using trade secrets as a strategy for SMEs: https://www.wipo.int/wipo_magazine/en/2017/06/article_0006.html