Trade Secret Royalties

Overview

Trade secrets can take the form of any process, device, business plan or set of information which derives independent economic value from its secrecy and is subject to reasonable efforts to maintain its secrecy. As such, trade secrets represent a form of intellectual property right that can be used as an alternative to a patent or to cover unpatentable technologies and business know-how.

Often considered to be less important than patents, trade secrets actually cover 90% of new technology and are included in over 80% of technology transfer agreements.

Trade Secret Licensing

Trade secrets are often preferred to patents by businesses, as there is no application process, no public disclosure of information, no strict novelty stipulation and no subject matter limitation. In addition to these benefits, trade secrets may be licensed indefinitely.  Even in the case that a trade secret is disclosed and becomes public information, trade secret licensees must continue to pay royalties as specified in their licensing contracts.

Trade secrets may be licensed by themselves or in conjunction with related patents in a hybrid license.  When a patent associated with a hybrid license expires, royalty payments for associated trade secrets stop as well, unless otherwise specified in the license contract.

Trade secrets are different from the other types of intellectual property in that two or more individuals or entities may be entitled to trade secret rights for the same technology.  This is possible so long as each party discovered or created the technology independently and each keeps it secret.

When assessing the value of a trade secret, it is useful to assess: the value of the information to the owner’s business and to competitors’ businesses; the strength of the owner’s secrecy protections; the extent to which the information is known outside the owner's business; and the ease with which others could properly acquire or duplicate the information.

Related Articles

IPHandbook: Trade Secrets and Trade Secret Licensing

Trade Secrets Homepage: Trade Secrets Defined

Trade Secrets Homepage: Trade Secret Licensing

Chilling Effects: Trade Secret FAQ