Patent Reform 2026 in the USA, Should Your Company Patent Inventions or Keep Them As Trade Secrets?

Patent reform in the USA has moved from a slow-burning policy debate to an urgent boardroom question. The Patent Eligibility Restoration Act (PERA) and related §101 reform bills are reshaping the boundaries of what can be patented, while the rapid commercialisation of artificial intelligence is generating entirely new categories of inventions that sit uneasily within existing frameworks. For general counsel, heads of R&D, startup founders, and in-house IP managers, the convergence of legislative uncertainty and evolving enforcement dynamics demands an immediate reassessment: should your company file patent applications, potentially subject to shifting eligibility standards, or preserve innovations as trade secrets under the Defend Trade Secrets Act (DTSA) and state law?

This guide provides a practical, decision-first framework to answer that question.

If you read one thing from this article, take away these three points:

• File now for high-value, reverse-engineerable inventions. If your innovation can be independently discovered or reverse-engineered, a patent application, especially a provisional, remains the strongest defensive move, regardless of reform outcomes.
• Trade secrets are the better path for non-reverse-engineerable processes and AI model weights. Where secrecy can be maintained and enforcement is practical, trade-secret protection avoids §101 eligibility risk entirely and offers indefinite duration.
• Monitor patent litigation 2026 developments closely. Injunction availability and post-grant challenge dynamics are shifting, the calculus on whether to enforce a patent or rely on trade-secret remedies may change materially within the next legislative session.

What Is PERA (Patent Eligibility Restoration Act), and What Changes Does Patent Reform USA Bring?

The Patent Eligibility Restoration Act is the most significant legislative effort in over a decade to rewrite 35 U.S.C. §101, the statute governing which inventions qualify for patent protection. Originally introduced as S.2140 in the 118th Congress by Senators Tillis (R-NC) and Coons (D-DE), PERA was reintroduced with bipartisan, bicameral support in the 119th Congress. According to a May 2025 press release from Senator Tillis’s office, the bill aims to “restore American innovation” by overturning a series of Supreme Court decisions that narrowed patent eligibility.

At its core, PERA would eliminate judicially created exceptions to patent eligibility, the “abstract idea,” “law of nature,” and “natural phenomenon” doctrines developed through cases such as Alice Corp. v. CLS Bank (2014) and Mayo Collaborative Services v. Prometheus Laboratories (2012). In their place, the bill proposes a streamlined statutory test: an invention is eligible for patent protection unless it falls within a narrow set of expressly enumerated exclusions. The Congressional Research Service (CRS) has described this approach as a fundamental shift from the current multi-step judicial framework to a legislatively defined bright-line standard.

Industry observers expect the practical effect to be a significant expansion of what can be patented, particularly in software, diagnostics, and AI, sectors where eligibility rejections have become routine under current case law. However, as Holland & Knight noted in January 2026, the reform debate remains deeply polarised between innovators who want broader protection and technology companies and generic drug manufacturers who argue that wider eligibility will invite more litigation.

Key Legislative Timeline

How §101 Patent Eligibility Reform Changes the Baseline

Under current law, 35 U.S.C. §101 provides that “any new and useful process, machine, manufacture, or composition of matter” is eligible for patent protection. In practice, however, the Supreme Court’s two-step Alice/Mayo framework has created significant uncertainty. Step one asks whether a claim is “directed to” a judicial exception (abstract idea, law of nature, or natural phenomenon). Step two asks whether the claim recites an “inventive concept” sufficient to transform the exception into a patent-eligible application. The CRS has documented how this framework has led to inconsistent outcomes, with similar inventions receiving different eligibility determinations depending on the examiner, the art unit, or the court.

PERA’s proposed statutory test would replace this judge-made doctrine. Instead of asking whether a claim is “directed to” an abstract idea, the reformed statute would focus on whether the claimed invention as a whole falls within one of a small number of explicitly excluded categories. The likely practical effect will be a reduction in the number of §101 rejections at the USPTO and a narrowing of eligibility-based invalidity defences in litigation. For patent applicants, this means that claims previously rejected as “abstract”, particularly software method claims and data-processing algorithms, may become patentable.

Early indications suggest that the reform would also affect claim-drafting strategy. Under current practice, patent prosecutors often draft claims with heavy structural or physical-step limitations designed to survive the Alice two-step test. If the reformed statute narrows the grounds for eligibility challenges, practitioners may be able to draft broader functional claims, particularly for computer-implemented inventions. This shift would have significant implications for patent portfolio valuation and enforcement leverage.

How Will 2026 Patent Reform Affect Software and AI Inventions?

Bottom line: Software and AI patent applications have been among the hardest hit by the current Alice framework, with USPTO rejection rates for business-method and software-related applications remaining elevated. If PERA passes, patent eligibility reform would likely reopen the door for claims directed to machine-learning training methods, neural network architectures, and AI-driven data processing techniques that are currently characterised as “abstract ideas.”

For companies developing AI systems, the critical question is whether to file patent applications now, securing an early priority date even at the risk of a §101 rejection, or to wait for legislative clarity. Industry observers expect that filing provisional applications now offers the best risk-adjusted strategy: provisionals establish priority, cost relatively little, and can be converted to full applications once the legislative landscape stabilises. Companies should also consider that AI model weights and training data are often better suited to trade-secret protection, while the system architecture and hardware integration layers may be appropriate for patent claims.

Medical Diagnostics and Biotech, Eligibility Impact

Action for counsel: Diagnostic method claims, such as those correlating biomarker levels to disease states, have been severely constrained since Mayo. Reform under PERA could restore eligibility for these claims by removing the “law of nature” exception as a freestanding bar. Biotech companies that shelved diagnostic patent applications following Mayo should reassess their portfolios and consider refiling where claims can be supported by the reformed eligibility standard. However, until the legislation is enacted, reliance on trade-secret protection for proprietary diagnostic algorithms and clinical-correlation databases remains a prudent parallel strategy.

Patent Litigation and Injunction Landscape After Patent Reform USA

The enforcement side of patent reform USA is just as consequential as the eligibility changes. Patent litigation in 2026 is shaped by two countervailing forces: the potential expansion of patent-eligible subject matter (which could increase the volume of enforceable patents) and the ongoing scrutiny of patent quality through post-grant proceedings at the Patent Trial and Appeal Board (PTAB).

If PERA broadens eligibility, industry observers expect a near-term increase in patent filings and, subsequently, in enforcement actions. Companies that have relied on §101 invalidity defences in litigation, particularly in the software and financial-technology sectors, would lose a powerful early-stage tool for dismissing infringement claims. The result could be longer, costlier litigation cycles and a greater emphasis on prior-art defences under §§102 and 103.

The injunction landscape adds another layer of complexity. Since the Supreme Court’s 2006 decision in eBay Inc. v. MercExchange, permanent injunctions in patent cases have required a four-factor equitable analysis rather than an automatic presumption. In practice, injunctions are granted less frequently to patent holders who do not practise the patented invention, a dynamic that disproportionately affects non-practising entities. For operating companies, however, the availability of injunctive relief remains a critical enforcement tool, and reform is unlikely to change the eBay framework directly.

Injunction Practice, Federal and State Nuances

Forum selection remains a key tactical decision in patent litigation 2026. Certain district courts, notably the Western District of Texas and the District of Delaware, continue to handle disproportionate shares of patent cases, and each has developed distinct approaches to preliminary and permanent injunctions. Companies evaluating whether to pursue patent enforcement should assess injunction likelihood on a circuit-by-circuit basis.

For trade-secret claims, the enforcement landscape is different but equally nuanced. The DTSA provides a federal cause of action, but most states have also adopted some version of the Uniform Trade Secrets Act (UTSA), with meaningful variations in remedies, statute-of-limitations periods, and the availability of exemplary damages. In states such as California, where employee mobility protections are strong and non-compete agreements are generally unenforceable, trade-secret litigation requires particularly careful evidence preservation and access-control documentation. Counsel should evaluate both federal and state options when designing enforcement strategies for DTSA trade secrets.

Post-Grant Validity Challenges and IPRs

The PTAB’s inter partes review (IPR) process remains the most commonly used mechanism for challenging patent validity after issuance. IPRs are decided on a preponderance-of-the-evidence standard, which is lower than the clear-and-convincing standard applied in district court litigation. If PERA narrows eligibility-based challenges, industry observers expect petitioners to shift their strategies toward prior-art-based invalidity arguments in IPR proceedings, potentially increasing the complexity and cost of post-grant defence.

Trade Secrets vs Patents, A Decision Framework for 2026

The question of whether to patent or keep an innovation as a trade secret is not new, but patent reform USA has injected urgency into the analysis. The following five-step framework provides a structured approach for general counsel, IP managers, and startup founders evaluating their options.

Step 1, Nature of the invention: Can the innovation be reverse-engineered from the commercial product? If a competitor can purchase your product and determine how it works, trade-secret protection offers no meaningful defence. A patent, by contrast, provides enforceable rights regardless of independent discovery.

Step 2, Market lifetime and speed to market: Patents provide approximately 20 years of protection from the filing date, but prosecution can take three to five years. Trade secrets last indefinitely, as long as secrecy is maintained. For innovations with short commercial lifespans (under five years), trade-secret protection may offer faster and cheaper coverage.

Step 3, Regulatory and disclosure requirements: Certain industries require public disclosure as a condition of regulatory approval. Pharmaceutical companies filing with the FDA, for example, must disclose detailed information about drug composition and manufacturing processes. In these contexts, patent protection is often the only viable strategy because the information will become public regardless.

Step 4, Enforcement capacity and employee mobility risk: Trade secrets are only as strong as the measures taken to protect them. Companies with high employee turnover, distributed workforces, or operations in states that limit non-compete enforcement (such as California) face elevated risks of trade-secret loss. Patent protection eliminates this vulnerability by creating enforceable rights that are not dependent on secrecy.

Step 5, Cost-benefit and exit/monetisation strategy: Patents are transferable assets that can be licensed, sold, or used as collateral. They enhance company valuations in M&A transactions and provide clear signals of innovation to investors. Trade secrets, while valuable, are harder to quantify in due diligence and difficult to transfer without complex contractual arrangements.

When to Patent, Pros, Cons, and Examples

Should my company patent an invention? Patent protection is generally the stronger choice when the invention is reverse-engineerable, when the company operates in an industry with mandatory disclosure, or when the innovation has significant licensing or monetisation potential. Specific examples include hardware devices, manufactured compositions of matter, and novel mechanical processes where a competitor could independently develop the same solution. A patent strategy for startups seeking venture funding is also typically advisable, as investors value the clarity and enforceability of issued patents over trade-secret claims.

The key drawbacks are cost (prosecution and maintenance fees can be substantial), the requirement for full public disclosure, and, under current law, the risk of §101 eligibility challenges for software and AI-related claims. If PERA passes, the eligibility risk diminishes significantly.

Why Use Trade Secrets Instead of Patents?

Bottom line: Trade secrets are optimal when the innovation cannot be reverse-engineered, when the company can implement robust confidentiality measures, and when the commercial value of the innovation is likely to extend beyond the 20-year patent term. Classic examples include manufacturing processes (such as chemical formulations and food recipes), proprietary algorithms, and customer lists.

Under the DTSA, trade-secret holders can bring federal claims for misappropriation and seek injunctive relief, compensatory damages, and, in cases of wilful and malicious misappropriation, exemplary damages up to twice the actual damages. State-law claims under UTSA variants provide additional, sometimes overlapping, remedies. Effective trade-secret programmes require documented access controls, employee onboarding and offboarding protocols, non-disclosure agreements, and regular audits of information-security practices.

Hybrid and Phased Strategies

In many cases, the optimal approach combines both protections. A company might file a provisional patent application covering the system architecture of an AI platform while maintaining trade-secret protection over the underlying model weights, training data, and hyperparameters. Defensive publications, disclosures that create prior art without seeking patent protection, can prevent competitors from patenting obvious variations while preserving trade secrecy over the core innovation. This phased approach gives companies flexibility to escalate to full patent prosecution if the legislative environment becomes more favourable.

Patent vs Trade Secret, Quick Comparison

Sector-Specific Guidance, Software, AI, Pharma, and Hardware

Software and AI: For companies building machine-learning models, the strongest patent reform USA strategy is a split approach. File narrow patent claims on novel system architectures, hardware-software integrations, and unique data-pipeline configurations where the inventive contribution can be articulated without disclosing the model itself. Maintain trade-secret protection over model weights, training datasets, and hyperparameter tuning processes. As Day Pitney observed in April 2026, this hybrid approach “offers the broadest coverage while minimising §101 exposure.”

Pharmaceuticals and biotech: Patent protection remains essential for composition-of-matter claims, which are typically not subject to §101 challenges. Generic drug manufacturers and industry coalitions such as the United for Patent Reform coalition have raised concerns that broader eligibility could extend patent monopolies, but for innovator companies, robust patent portfolios remain the foundation of commercial strategy. Companies should monitor reform language for any carve-outs that might affect method-of-treatment or diagnostic claims specifically.

Hardware and manufacturing: These sectors are generally the most straightforward candidates for patent protection. When the manufacturing process is reproducible and the product will be commercially viable for a decade or more, patents provide durable, enforceable rights. Trade secrets may still be appropriate for specific production techniques or supplier relationships that are not publicly disclosed through the product itself.

Practical Checklist and Decision Flow for Counsel and Startups

Use the following checklist to guide your patent-vs-trade-secret decision for each invention in your pipeline:

• Reverse-engineerability assessment. If the innovation can be determined from the commercial product, prefer patent protection for high-value inventions. If it cannot, evaluate trade-secret suitability.
• Regulatory disclosure check. If regulatory approval requires public disclosure of the innovation, patent protection is the only viable long-term strategy.
• §101 eligibility screening. For software, AI, and diagnostic claims, assess eligibility risk under current law. If risk is high, consider filing a provisional application to preserve priority while monitoring PERA developments.
• Employee mobility audit. Evaluate the enforceability of non-compete and non-disclosure agreements in the jurisdictions where key personnel are located. In states with weak non-compete enforcement, patent protection reduces leakage risk.
• Cost-benefit analysis. Compare estimated prosecution and maintenance costs against the revenue-protection and monetisation value of a patent. For early-stage companies, provisional applications offer a cost-effective bridge.
• Trade-secret programme review. If choosing trade-secret protection, confirm that access controls, NDA coverage, information-security policies, and employee training programmes meet DTSA and state-law standards.
• M&A and licensing readiness. If exit or licensing is a near-term objective, prioritise patent filings, issued patents are significantly easier to value and transfer than trade-secret portfolios.

Immediate action item: File provisional patent applications for your highest-priority, at-risk inventions before the next round of committee votes on patent eligibility reform. Simultaneously, implement or update employee NDA programmes and conduct an access-control audit for all trade-secret-protected information.

Conclusion, Navigating Patent Reform USA with Confidence

The patent reform USA landscape in 2026 presents both risk and opportunity. For startups, filing provisional applications on core inventions while building robust trade-secret programmes offers the best balance of cost efficiency and protection. Mid-market companies should conduct portfolio-wide eligibility audits, identifying claims that may benefit from PERA and inventions better suited to trade-secret status. Enterprise organisations with global IP portfolios should integrate U. S. reform scenarios into their prosecution-strategy planning and prepare litigation teams for a potential shift away from §101-based defences. Regardless of company size, the immediate action steps are clear: preserve priority through provisional filings, strengthen internal trade-secret controls, and engage experienced IP counsel to model the impact of legislative change on your specific portfolio.

The window for proactive positioning is narrow, companies that act now will be best placed to capitalise on whatever form patent eligibility reform ultimately takes.

Sources

1. Congressional Research Service, Patent-Eligible Subject Matter Reform: An Overview
2. Congress.gov, S.2140 / Patent Eligibility Restoration Act
3. Senator Tillis Press Release, Reintroduction of Patent Eligibility Restoration Act
4. Ropes & Gray, Patent Reform in the Pipeline (March 2, 2026)
5. Holland & Knight, Patent Eligibility Reform: Everyone Has an Opinion (January 6, 2026)
6. Day Pitney, Patents vs Trade Secrets (April 7, 2026)
7. IPWatchdog, Patents vs. Trade Secrets (2025)
8. USPTO, 35 U.S.C. §101 Patent Subject Matter Eligibility
9. United for Patent Reform