Patent or Trade Secret: Which IP Protection Best Suits Your Innovation?

In today’s fast-paced digital economy, innovation is what sets your business apart. But without proper legal protection, even the most innovative ideas are vulnerable. This article offers a strategic comparison of the two core types of Intellectual Property (“IP”) protection: Patents and Trade Secrets, to help innovators decide which tool best aligns with their business goals, the nature of their invention, and their desires for disclosure, cost and enforcement.

The Strategic Role of IP in Innovation 

While innovation strengthens a company’s competitive position in the market, it also increases the risk that the innovation itself may be exposed or misappropriated. IP protection turns intangible assets like technology, formulas or processes into legally recognized property, allowing businesses to safeguard and commercialize them. Among various IP types, Patent and Trade Secret are the most relevant for tech and business innovations. Choosing the right one can affect your product’s time-to-market, valuation, and legal standing. The pressing question is: Which tool is the right option to protect valuable intellectual assets? Is it a Patent? Or Is it a Trade Secret?

patent law

Patent: How It Works, Its Benefits, and Limitations

Patent is an exclusive right granted by the state to an inventor for their invention in the field of technology for a certain period, both to personally exploit the invention or to authorize others to do so.1

Based on the above definition, we can understand that an invention refers to a specific idea to solve a technical problem, which can be in the form of a product, process, method, system, or specific use.2

How does Patent Protection Work?

Patents are granted through formal registration with the government, involving administrative and substantive examinations before approval and publication.

To qualify for patent protection, an invention must meet the criteria of (i) novelty, meaning it has not been disclosed to the public3 except under limited exceptions within the last 12 months (e.g., exhibitions or academic disclosures); (ii) inventive step, meaning it is not obvious to someone skilled in the field;4 and (iii) industrial applicability, meaning it can be consistently applied in a commercial or technical setting.5

To obtain either a Simple Patent (for practical inventions involving simple technological developments) or Patent (granted for more complex inventions), applicants are required to submit technical documents (description, claims, drawings) to the Ministry of Law and Human Rights.6

Once granted, patent holders have exclusive rights to use, license, and prevent unauthorized use.7 A registered patent or simple patent remains in force as long as the right holder (or licensee, if applicable) pays the annual fees, thereby avoiding expiration of rights and potential debt obligations.

Advantages of Patents

Legal protection and exclusivity: Provides exclusive rights to an invention for a specified term.
Commercial value: Patents can be sold, licensed, or used as collateral to secure financing.
Company valuation: Enhances credibility, especially for tech-based companies.
Infringement prevention: State recognition and legal enforcement mechanisms, including through commercial court litigation.

Limitations of Patents

Disclosure: Details of the invention become accessible, risking post-expiry replication.
Complex and costly process: Substantive examination and formal registration involve time and financial investment.
Time-bound protection: Limited to 10 (for a simple patent) or 20 (for a patent) years, non-renewable.
Ongoing maintenance: Annual fees are required to keep the patent active.

Trade Secrets: Definition, Mechanism, and Legal Protection 

A trade secret is defined as information that is not generally known in the field of technology and/or business, has economic value due to its usefulness in business activities, and is kept confidential by its owner.8

Protectable trade secret information includes production methods, processing techniques, marketing strategies, or other commercially valuable information unknown to the public.

To receive legal protection, the information must meet three criteria:9

Secrecy – Not publicly known.
Economic value – Provides a business advantage.
Reasonable efforts to maintain secrecy – Such as NDAs, limited access policies, encryption, IT monitoring, and internal confidentiality policies.

How does Trade Secrets Protection Work?

Unlike patents, trade secrets do not require registration or publication. No registration is needed; protection arises as long as the information has an economic value and its secrecy is maintained with reasonable protection (e.g., NDAs, restricted access, etc.).

However, for transaction purposes such as licensing or transfer of rights, trade secret agreements can be recorded at the Directorate General of Intellectual Property (“DGIP”) to be enforceable against third parties.10

Trade secret holders have exclusive rights to:11

use the information internally.
license it to third parties.
prevent unauthorized use or disclosure.

Licensing and Transfer of Trade Secrets

In addition to using trade secrets internally, owners may choose to commercialize their protected information through licensing or transfer agreements. Under Trade Secret Law, ownership may be transferred via inheritance, grants, wills, or written contracts.12 Trade Secret holders also have the right to grant licenses to others to use their confidential information.13 To ensure legal enforceability, all transfers and licenses must be registered with the DGIP and published in the official Trade Secret Gazette. This is a voluntary registration system that requires a one-time fee, with no annual maintenance fees.

It’s prudent to include confidentiality terms and potential remedies in the agreement to strengthen protection. In case of misuse or unauthorized disclosure, the trade secret holder may:

file a lawsuit for breach of contract.
seek civil remedies under trade secret law; and
pursue criminal sanctions if the disclosure was intentional and unlawful.

Public Disclosure and Loss of Trade Secret Protection

The essence of a trade secret lies in its secrecy. If the confidential information becomes publicly accessible without proper safeguards, it may no longer be considered a trade secret under the law. Once a trade secret enters the public domain, its owner generally loses all exclusive rights to control its use and disclosure.

As such, trade secret protection cannot be enforced against third parties if the information has been made public, even unintentionally. This underscores the importance of implementing strict internal controls, contractual protections, and ongoing monitoring to prevent any leakage of confidential information.

Advantages of Trade Secrets

Unlimited duration: Protection remains in force as long as confidentiality is maintained.
No formal registration is required: Avoids costly and time-consuming procedures.
Covers non-patentable innovations: E.g., recipes, formulas, or non-technical know-how.
Greater flexibility: Usable without disclosure.
No annual maintenance fees: If registered with the DGIP, only a one-time registration fee is required.

Limitations of Trade Secrets

No protection against reverse engineering: No infringement occurs if others legally discover the information independently.
Enforcement complexity: It is difficult to prove infringement without solid documentation or contractual protection.
Risk of Internal leakage: Protection depends heavily on internal controls. Once exposed, protection is lost.
Not ideal for easily replicable technologies: If an invention can be easily reverse-engineered, a trade secret may not be the best option.

Case Study: DuPont vs. Kolon Industries

The dispute between E.I. DuPont de Nemours (“DuPont”) & Co. and Kolon Industries Inc. (“Kolon”) is a compelling example of how IP protection strategies can significantly affect a company’s legal standing and long-term competitiveness.

Case Overview

DuPont is the manufacturer of Kevlar, a high-strength para-aramid synthetic fiber widely used in defense, industrial, and safety applications. The technical know-how behind Kevlar’s formula, production process and development was protected through strict confidentiality measures and was therefore qualified as a trade secret under U.S. Law, given its commercial value and DuPont’s efforts to keep it secret.

Kolon Industries, a South Korean competitor, sought to develop a rival product known as Heracron. Between 2006 and 2009, Kolon unlawfully obtained DuPont’s proprietary information through Michael Mitchell, a former DuPont employee who unlawfully disclosed confidential documents related to Kevlar.

In 2009, DuPont sued Kolon for an alleged theft of trade secrets. The case was brought before the U.S. courts. The initial judgment awarded damages of nearly USD 1 billion. However, in the decision of the United States Court of Appeals for the Fourth Circuit, No. 12-1260, dated April 3, 2014, the appellate court initially ordered a retrial due to procedural issues. The case ended in 2015, when Kolon pleaded guilty to criminal conspiracy to steal trade secrets before the retrial was held and agreed to pay a total of USD 360 million, comprising USD 85 million in criminal fines and USD 275 million in civil damages to DuPont.14

What If Kevlar Had Been Protected by a Patent?

Although the case centered on trade secret misappropriation, a question arises: Would the outcome have been different if Kevlar had been protected by a patent instead?

Under Indonesian Patent Law, a patent grants exclusive rights for a specified term, 20 years for standard patents, or 10 years for simple patents. However, in exchange, the inventor must publicly disclose the technical information of the invention through the patent registration system.

Even though a patent provides a more straightforward burden of proof, since the claims must be clearly documented and publicly available, obtaining patent protection may take some time from its filing date to being officially protected. As for a trade secret, the owner can claim it as a trade secret as long as the owner can prove that all the elements of a trade secret are fulfilled.

Further, for a patent, upon expiration, the information enters the public domain, legally allowing others to use it without authorization. In contrast, the Indonesian Trade Secret Law allows technical or commercial information to remain confidential and legally protected for as long as reasonable efforts are made to maintain its secrecy (e.g., non-disclosure agreements, access restrictions, etc.). There is no time limit, provided the confidentiality is not breached. As with many trade secret cases, proving misappropriation often hinges on actions that are difficult to trace and substantiate, making enforcement more complex than with patents.

In DuPont’s case, the trade secret strategy offered long-term competitive advantage. However, once a former employee leaked the information, the legal protection was effectively lost. Had DuPont’s internal access control systems been stronger, the legal shield of trade secret protection could have remained intact.

Key Takeaways from the Case

This case highlights important strategic considerations:

Trade secrets are suitable for protecting technical know-how or formulas that companies intend to keep confidential indefinitely. However, their effectiveness relies heavily on internal protection and secrecy management.
Patents, while limited in duration, offer strong legal certainty and are more easily enforce through formal legal mechanisms. Patents are ideal for inventions intended for broad commercialization and public disclosure.

Strategic Considerations: Choosing Between Patent and Trade Secret 

Neither option is inherently “better”; it depends on what you’re protecting and how you intend to enforce your rights, and the specific circumstances of your case. Here’s a quick comparison:

Aspect	Patent	Trade Secret
Nature	Public, formal registration required	Confidential, no formal registration required
Duration	Fixed (10/20 years), Non-renewable	Unlimited, subject to secrecy maintenance
Procedure	Registration and substantive exam	No registration (except for license recording)
Cost	Filing and annual maintenance fees to be protected	No filling and maintenance fees required, but it requires internal security
Risk	Becomes public after expiry	Once secrecy is breached
Enforcement	Easier due to state registration	Depends on proof of secrecy measures

Your Innovation, Your Strategy

Don’t think of patents vs. trade secrets as an opposing choice. Some companies even use both, patenting core inventions while keeping the surrounding processes confidential.

What matters most is strategic alignment:

Will you commercialize broadly or focus on a niche?
Are you prepared to disclose, or is secrecy more important?
Do you need enforceability or flexibility??

For tailored advice on protecting your innovations, feel free to reach out to ADCO Law.

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About ADCO Law:

ADCO Law is a law firm that offers clients a wide range of integrated legal services, including commercial transactions and corporate disputes in a variety of industry sectors. Over the course of more than a decade, we have grown to understand our clients’ industries and businesses as well as the regulatory aspects. In dealing with business dynamics, we provide comprehensive, solid legal advice and solutions to minimize legal and business risks.

From Upstream to Downstream, We Understand Your Industry. In complex transactions and certain cases, we actively engage with financial, tax, and environmental specialists, accountants, and law firms from various jurisdictions to add value to our clients. Our strong relationships with Government agencies, regulators, associations, and industry stakeholders ensure that our firm has a holistic view of legal matters.

ADCO Law is a Proud Member of the Alliott Global Alliance (AGA) in Indonesia. Founded in 1979, AGA is one of the largest and fastest-growing global multidisciplinary alliances, with 215 member firms in 95 countries. As a law firm, we also believe in regeneration. To stay abreast of business changes and stay relevant, our formation of lawyers is comprised of the top graduates from Indonesian and international law schools.

Contact our Business Development team for further information:

Alvin Mediadi, Business Development Manager, Indonesia

alvin@adcolaw.com