Trade Secrets vs. Patents

The Coca-Cola story

Many inventors and entrepreneurs wonder about the substantive difference between patents and trade secrets. A brief look back at the inception of the Coca-Cola Company and its initial marketing of its now world famous beverage will prove a useful starting point.

In 1880, upon developing its secret recipe for the world’s first soft-drink, the Coca-Cola Company was presented with a dilemma of sorts. It needed desperately to protect what it had just developed, yet patent protection would only provide security for 17 years (the statutory period of protection for a US patent). While the benefits of strong patent protection for 17 years seemed appealing, the down-side was that the secret recipe would be publicly disclosed, and would be free for anyone to duplicate once the patent expired. Coca-Cola’s secret formula would have entered the public domain in 1897.

While such protection might have been sufficient for a typical product of average market life span, the founding members of the Coca-Cola Company had the foresight to see that this was no average product - this was a product that had a potentially infinite market life. Accordingly, it required the longest lasting protection available - protection that simply was not afforded by a patent.

After kicking around various ideas, the executives at Coca-Cola determined that their needs might be best served if they did not publicly disclose the recipe, and instead retained it as a trade secret. A trade secret is a plan, process, formula, or any other valuable information not patented but which gives its possessor a competitive trade advantage as long as it is kept secret.

A trade secret differs from a patent in several important ways. First, trade secret protection lasts for as long as the secret is kept confidential. If the secret is never publicly disclosed, it will never lose its protection. If the secret is uncovered by means of industrial espionage, disloyal employees, theft or the like, the owner of the secret has legal recourse against those who misappropriated the secret, or anyone who procured it through such impropriety.

Of course, trade secret protection has its negative aspects also. Unlike a patent which protects against intentional and unintentional copying a trade secret does not afford protection in the event that someone else independently develops your formula, recipe, etc. In Coca-Cola’s case, this meant that while there was protection against the intentional misappropriation of the secret recipe, there was no protection available in the event that someone managed to successfully duplicate the recipe by legitimate means.

The executives at Coca-Cola weighed these factors, and determined that they had the means to keep the recipe for Coca-Cola completely secret. Thus they chose not to file a patent. This proved to be a brilliant move, as the Coca-Cola Company managed to keep the recipe a complete secret until the mid 1980’s when they were forced by a Delaware court to disclose it to their adversary during civil litigation. Had Coca-Cola instead chosen to obtain patent protection back in 1880, the recipe would have been disclosed a mere 17 years later, rather than almost 100 years later. The company’s huge success might very well have hinged on that important decision made by a handful of risk taking executives back in 1880.

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