Platt Perspective on Business and Technology

Keeping innovation fresh – 10: patents, trade secrets and the protection of innovative value

Posted in strategy and planning by Timothy Platt on March 18, 2012

This is my tenth installment in a series on innovation, and more specifically on serial innovation and the development of ongoing new sources of unique value propositions within an organization (see Business Strategy and Operations – 2, postings 243, 246 and 248-253 and 255 for parts 1-9.) I have been discussing a range of issues revolving around the relationships between innovation centers and industrial research facilities on the one hand, and main marketable-business lines responsible for product development, production, marketing and sales on the other.

In Part 9: involving and connecting to the marketplace I added in marketplace-derived insight and particularly as this would aid in identifying and connecting to new markets and consumer demographics when seeking to commoditize new innovations and even disruptively new ones that could form the basis for building new blue ocean strategy business opportunities. That specifically and directly opened up a new area of discussion that I will be focusing on here: safeguarding control and exclusivity of those new and emerging innovations so as to maximize their value to the creating business that they can offer. And with that I turn to the issues of patent and trade secret approaches to securing and safeguarding sources of proprietary value.

My goal in this posting is not to provide tutorials on either patent law or on trade secrets and their legal definition and standing. I would recommend the Wikipedia links that I included for these terms (see above) as starting points for that, and simply note that a great deal of information is available online for anyone who would pursue those topics in greater detail. My goal here is much more focused and specific, on how pursuit of these approaches to protecting intellectual property rights would impact on the innovation center and on the larger business organization to which it feeds new sources of value.

I would start this with discussion of patent rights and with a list of orienting questions and issues:

• Who owns what? What in the most general terms would an innovation holder seek to include intellectual rights protection for in a patent filing?
• What of that could be claimed to be a novel innovation and patentable? Put slightly differently, what of that would most likely be sustained as patentable for including and being based upon new and unique intellectual property?
• How innovative does an innovation need to be, and in what ways do innovations have to prove their merits and their marketable value to qualify for patent protection – in practice and when a patent is challenged? This is only partly a question of defining the current state of the art that would specify what would fall outside of patent coverage and what would be deemed new and unique. This also involves both the need for expertise that only the parties involved in a patent dispute might hold, and the all too common absence of third party, disinterested expertise when patent coverage claims and patent violation claims go to court. I note here that the state of the art at the time of a patent’s filing is what counts here when determining what is new and novel, and patentable.
• Patents are filed and awarded in specific jurisdictions and even when treaties specifically cover recognition of patent protections across boundaries, production facilities are everywhere. More specifically, there are seemingly always jurisdictions in which patent rights law are not enforced and where knock-offs can safely be made and marketed – and where intellectual property rights infringements are rampant and permitted.
• Next I add the issue of the duration of patent protection and the issue of competing products that are similar enough to take market share but different enough so as not to meet threshold standards of patent violation. Even absent legal violation of patent protected intellectual property rights, how long can a given type or category of patent be expected to offer the protection of exclusivity of ownership?
• Finally, I turn back to the issue of our increasingly global business community and marketplace: whose patent laws apply? This has become an important issue in an increasingly global economy with globally interconnected production systems and globally dispersed marketplaces, and certainly with the advent of online marketplaces and online market demographics that would define reachable communities of potential customers.

Now consider trade secret approaches to securing and maintaining exclusive intellectual property rights for in-house generated innovations. And I begin this by asking a simple seeming question. What would you protect using trade secrecy and why use this approach rather than seeking patent protection?

• Trade secret-based protection, at least in principle lasts as long as you can keep the proprietary information so protected a secret. That may mean brief protection at most, of your sequestered intellectual property or it may mean protection and exclusive access and control that lasts far longer than any patent law protection could provide.
• Trade secret-based protection does not call for special up-front costs as apply when entering into any legal proceedings. Patent protection on the other hand can be expensive and even without having to ward off potential patent rights infringement challenges.
• You can trade secret protect anything. You do not have to prove or defend claims of uniqueness or novelty.
• When you file a patent application you publically state the details of your innovation, and in levels and types of detail that would be sufficient to duplicate it. Patent protected innovations are at least in principle protected from third party duplication, but some jurisdictions as noted above do not respect patent law and allow free and unfettered counterfeiting and the production and sale of knock-offs. But more than that, a detailed model of what is protected can serve as a basis for developing alternative products that are similar enough to capture market share from the patent holder, but different enough so as not to meet patent infringement standards. This same issue applies to trade secret protected innovations, but for them anyone seeking to produce similar alternatives would have less necessary information to start from in their development process.

With that last bullet point in mind I note that the early histories of both the automobile and aviation industries were shaped in significant part by the ongoing development of new innovative ideas and inventions – that could not be successfully defended under patent law because competing innovators kept coming up with new versions that were just different enough so as to qualify as novel innovations in their own right. For aviation this pattern goes back at least as far as the Wright brothers. They sought to own and control the budding aviation industry through patent protection mechanisms but they kept fighting costly, long-drawn out court battles against people and businesses they claimed were infringing on their patents – just to lose and again and again. They never did capture control of this industry or of the marketplaces they helped give birth to, at least on their own and competitors such as Curtiss took significant market shares as they innovated around the Wright brothers’ patents and eventually took their inventions over.

Coca Cola – a quintessential trade secret protected innovation was matched with time by a seemingly endless run of alternative cola beverages and with time it has simply become one of the crowd, even if it is one with massive name recognition and marketplace hold. Colonel Harland Sanders and his Kentucky Fried Chicken with its 11 secret herbs and spices is still formally protected and its recipe is maintained in house as a trade secret too. There are, of course, many fast food fried chicken alternatives on the market in competition that seek to capture market share and in some cases with substantially similar products. When a trade secret’s protection of exclusivity fades this does not generally mean legal battles or costs unless the owner of a trade secret sees grounds for challenging a competitor for engaging in industrial espionage and direct theft of proprietary business information.

These and related factors and considerations would go into any decision as to what should be protected as novel intellectual property. And I add these factors and the potential issues they raise would also play a role in determining what to move from innovation center development into product development and production, and from there to the marketplace.

With that, I turn to an issue that has at least been in the background for much of the discussion of this series – the valuation of innovation and of innovative proposals that would be brought to the transition committee for possible development in the main market-facing business’ lines. As a foretaste of that discussion I add here that much of what I will be writing about in my next installment in this series is going to be based on a line of reasoning I presented in my series Mining and Repurposing of Raw Data into New Types of Knowledge (in Macroeconomics and Business and see particularly Part 4 of this series with its axiomatic model of information valuation.)

You can find this and related postings at Business Strategy and Operations – 2 (and also see Business Strategy and Operations.)

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