Shark Tank and Trade Secrets

On a recent episode of Shark Tank, the hosts quizzed the idea presenter about patent coverage for her new soap product.  She said she had none, but was pursuing trade secret protection instead.  It seemed to me, an IP practitioner, that she had likely attempted to obtain patent protection, but was having problems in that regard.

Patent protection on a product is the strongest protection you can obtain to prevent others from copying your success.  The idea presenter seemed to have a lot of word-of-mouth attention on her product, and said that her soap was different because it included 63 ingredients along with a loofah. It would be relatively straightforward to get a patent that required 63 separate ingredients, but any infringing product would require the inclusion of all 63 ingredients (or perhaps a smaller but still large number of them if the patent claims were crafted broadly).  But broad patent coverage on soap would be tricky to obtain.  As a patent practitioner, I have well learned that consumer products of this sort have a lot of “prior art,” i.e., previous inventions and products out there that would prevent broad patent coverage. You cannot patent something already known or close versions of them.

Hence, she needed to follow a different approach.  The inclusion of 63 ingredients in her soap makes it unique, and her customers pay a higher price than regular soaps.  Instead of patenting, trade secret protection can accord her some level of protection against someone stealing the recipe or such.  For example, assuming that all of her 63 ingredients, her manufacturing equipment, her methods and know how are kept as secret as possible, then trade secret protection would apply to her proprietary techniques.  Since she sells the product, however, some aspects may become known, e.g., governmental requirements for listing ingredients.  Nonetheless, her proprietary production techniques may remain secret.  The ingredients and process of making of Coca Cola have remained a secret for over a hundred years.

Trade secrets cover secrets, i.e., something not generally known; otherwise, how could you call it a secret? Processes, recipes, client lists, and other sensitive data and information can constitute a trade secret.  Also, trade secrets require the holder to treat the secrets as a secret, i.e., confidentially.  If not, then the secret is deemed out and anyone can duplicate.  Measures must be taken to maintain secrecy, such as restrictions on access, confidentiality clauses, locks and the like.  Failure to treat sensitive subject matter appropriately as secret can void your allegation of trade secret misappropriation, such as where a competitor visits your plant.  Steve Jobs toured Xerox’s facilities and walked away with the crown jewels, i.e., Xerox’s new paradigm for computing, which became Apple’s.  Breweries, for example, are vulnerable as plant visitors can easily swipe a surface for the proprietary yeasts and other ingredients used.

When I was a junior attorney, Procter and Gamble were marketing Duncan Hines cookies, the processing of which was covered by patent.  Nabisco, Frito Lay and those naughty Keebler elves were charged with patent infringement.  Evidence in that case involved trade secret misappropriation through subterfuge, e.g., trespass to observe the processing techniques and theft of ingredients.  The case settled on the courthouse steps, but the facts of the case were quite entertaining.

Trade secret laws are State and federal in nature, and there are much stronger economic espionage acts to cover the theft of trade secrets.  The United States loses countless billions of dollars each year due to trade secret theft.  With the Internet and cybertheft, cyberwarfare (and cyberterrorism), the realms of trade secret theft are virtually boundless, as incredibly sensitive national secrets, institutions and infrastructures are vulnerable to hacking, whether for fun, mischief or maliciousness.  Confidential data lists, such as Target’s and others’ customer lists, are trade secrets and highly valuable. Proper trade secret protocols and heightened security are a requisite.

Thus, trade secrets can be quite valuable.  However, it is best to patent wherever possible.  Although the Shark Tank idea presenter’s innovation, customer lists and other data may not lend themselves to patent protection, trade secrets can accord some protection for those innovations not meeting the stringent requirements for patent.  However, our Constitution advocates the promulgation of information instead of hoarding new ideas.  The patent system, for example, requires the publication of the full invention (and processes) in exchange for the patent, thereby ensuring the release of that information into the public domain, albeit at a short-term cost.  That is the patent bargain.  In a struggle between patent and trade secret, the patent system is most likely to prevail.

The sharks know the value of a good idea and they prefer patent protection.  The soap lady, although having a great product, did not have patent protection and did not get an offer.

I should add that other intellectual properties could apply to help the innovator.  For example, copyright protection may be used to protect code and visual aspects.  A good trademark can engender considerable interest in a product also, garnering good will and market share, which, of course, is music to a shark.