Protecting Business Method Innovations: Patents Aren't the Only Way
By Gregory S. Hopper, CEO, Netanium Strategic Consulting, LLC
April 1, 2006
Innovations take many forms, including ways of conducting business. As executives, we know that protecting our innovations
is vitally important, and most of us automatically assume that means patents. However, there is another method of protection
that may well be both less expensive and better for your business: trade secrets.
Here is a somewhat alarming fact about patents: They don’t give you the right to do anything with an innovation. A
patent merely gives you the right to keep others from using it. In fact, there may be patents held by others that preclude
you from using your invention (so-called “blocking patents”.)
Patents are a popular form of intellectual property protection, and for good reason. For many innovations, like pharmaceuticals,
consumer products, and many others, patent protection is great. In the United States , an inventor is granted the exclusive
right to their invention for a period of 20 years from the date of filing the application.
But there are downsides. First, in exchange for that exclusive right, you must disclose how to build and use your innovation
– the polar opposite of keeping it secret. Second, a patent is expensive and time consuming to obtain, with costs ranging
from around $15,000 for a US patent to over a quarter-million dollars for international protection. Third, a patent may take
four or more years to issue – during this time, the patent is “pending”, but unenforceable. In today’s
high-velocity world of business, the competitive edge provided by an innovation may disappear in four years. Lastly, patents
are horrendously expensive to enforce; estimates place litigation costs at $1M to start a case. A further risk in litigation
– besides losing – is that a patent may be disallowed upon review. This risk may be higher with business method
patents due to the relatively scarce body of case law. (Business method patents have only been allowed since a court decision
in the late-1990’s.)
A trade secret is confidential information about your business that is valuable by the very nature of being secret and that
you make efforts to keep secret. (KFC’s “23 herbs and spices” is a trade secret, for example.) The courts
have upheld “formulas, patterns, plans, designs, physical devices, processes, software, and know-how” as trade
secrets. Like a patent, a trade secret is a form of intellectual property, and can be licensed or sold to others. If stolen,
you can litigate.
Trade secrets have no duration – they last as long as they are valuable and you keep them secret. They have little
to no expense, although you may wish to retain an attorney to draw up Non-Disclosure Agreements for your employees and key
partners. And most unlike patents, trade secrets are just that – secret!
Protecting Intellectual Property is a key element of sustaining your points of differentiation. Keep trade secrets in your
IP toolbox.
This article does not contain legal advice. For more information regarding Intellectual Property law, please consult an
attorney.
UPDATE: April 8, 2006
Trade secret protection can cover technology innovations as well. In the April 17, 2006 issue of BusinessWeek, the magazine
(page 20) honors Walt Gillette. Mr. Gillette is "the same man who provided the technical and intellectual inspiration behind
every Boeing jet since the mid-1970's", according to the article.
In the late 70's, he (and his team, who he credits frequently -- one of the marks of a true leader, in my opinion) figured
out how to attach more powerful engines to the 737 (then a short hop aircraft) to enable cross-country flight for a small
airline named Southwest. Interestingly, they found "five features that no one had used in such a combination. It let us
shove a big nacelle [housing for the engine] really close to the wing." They went on to sell more than 5,000 of those planes,
which far exceeded the 300 units originally projected.
Those five features remain Boeing trade secrets -- they were not patented.