A SaaS Company’s Nightmare

by: Natalie Giroux

Recently I was having a conversation with the CEO of a SaaS company. We talked about their business, their technology, and their IP strategy; I was alarmed to discover that they were about to put all of it at risk. 

To give you a little background, the SaaS company has a unique IoT device combined with advanced innovative artificial intelligence data processing executed on a secure cloud server. They have several patents (issued and pending) covering the IoT devices. In our discussion, the CEO was mentioning that they are about to file a patent covering the detailed AI algorithms running on the cloud. In my mind, several questions started to form. Alarm bells started going off. This organization was about to invest a large sum of money in patent protection that would ultimately expose its technology! 

A common myth is that patent protection is more valuable than trade secret protection. Many SaaS organizations fall into this trap and end up spending unnecessarily on patent protection when trade secrets would not only be more cost-effective but would also provide better protection. I was more than happy to share with this CEO why trade secrets would be a better IP strategy.

We first discussed the technology looking at the IoT and the cloud-based AI components. Reverse engineering is a crucial consideration when deciding whether to protect a product with patents or trade secrets. Reverse engineering is legal as long as the product containing the innovation is obtained legally. Since the IoT devices can be legally purchased and reversed engineered, patent protection is ideal for this aspect of their offering. The cloud-based AI innovation, however, cannot be legally reverse-engineered. To access the innovation, someone would have to hack the server or access the development environment illegally, making trade secrets a wiser choice for protection. 

I shared with the CEO more about the benefits of trade secrets, specifically, when, where, and for how long a trade secret can provide protection. Trade secrets give you immediateworldwide protection for an indefinite period, as long, of course, that you can keep it secret. There is no cost to maintaining a trade secret other than the additional security measures you will need to implement to keep your secrets safe. Trade secrets require management, so naturally, we talked about that next.  

Trade secrets can be as valuable as a patent. In some cases, they can be more valuable than a patent as long as you make an effort to catalog them properly. As an example, I asked the CEO to think about the value and longevity of the Coca Cola recipe. A recipe that has been kept secret for over 100 years. To make sure a trade secret is not unveiled, stringent cybersecurity and HR processes must be implemented and enforced. 

To protect your trade secrets, cybersecurity measures to protect the company’s and employee’s WIFI, computers, phones, gateways, and network communications have to be very solid and continuously upgraded to meet the highest standards. Also, development environments must be configured such that an employee only sees the source code that is required to perform their work. 

Human resources processes are another consideration that must be implemented to protect your trade secrets. For example, all employees should have access to basic IP training, so they understand the importance of IP and maintaining the trade secret. Things like wiping off whiteboards and avoiding technical discussions in public are just a few pieces of IP literacy that should be well understood and followed. During the off-boarding of an employee, they should be put on notice that they have worked on trade secrets that cannot be disclosed or used in their next employment. 

Disclosing a trade secret, even inadvertently, can have disastrous consequences so it is imperative to take every possible measure on an ongoing basis to protect them. Taking a closer look and refining your cybersecurity and HR practices can help. 

When sharing this information on trade secrets, it became clear that it would be a better option, but where was the nightmare in this scenario? I shared with the CEO the consequences of filing a utility patent for their innovation – they would potentially be giving away their technology to competitors and putting the longevity of the organization at risk! 

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Here is what I shared with the CEO: Using a utility patent to protect your SAAS invention gives you a monopoly only in the countries you can afford to obtain a patent. To file and obtain patent protection, you are required to disclose the best mode in sufficient detail to be implemented by someone skilled in the art. But the key threat here is that the patent application is published 18 months after filing. The details of your application are then available worldwide to anyone who wants to build and sell your invention in any country where you could not afford to obtain protection. If that’s not enough, once granted, the protection provided by a patent expires, generally after 20 years, at which point it is available for anyone to use free of charge. YIKES!

At the end of our discussion, the CEO was happy that I provided their organization with a more cost-effective approach to IP that provided better protection. Since trade secret protection does not involve high drafting and prosecution fees, you can see substantial cost savings. Bring this up with your patent agent before agreeing to draft a patent application. It is something we always consider with our Virtual Intellectual Property Management (VIPM™) clients.

Do you want to disclose your innovation or keep it a secret? It depends on the situation, but worth considering. We’d hate for you to experience any nightmares. 

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