By J. Gary McDaniel, TCV Growth Partner. In today’s world, having a strong intellectual property portfolio is one of the keys to maintaining competitive advantage. That portfolio is typically a mix of patents, trademarks, copyrights, and trade secrets. Today, I want to talk about maintaining a balance between patents and trade secrets.
Patents are great. They allow you to prevent competitors from utilizing your technologies and innovations. After all, who wants to spend valuable resources to develop a new technology only to have another company come in and profit from your hard work.
There are some drawbacks to patents, however.
First, patents are very expensive. Especially so if you want to have global coverage. The costs of patent prosecution and maintenance in multiple jurisdictions can add up quickly. This is a big problem for start-up and early-stage companies. They don’t have a lot of money and yet they rely heavily on IP to protect themselves against their much larger, fully entrenched competitors.
Second, patents are designed to “teach” people, including your competitors, exactly what you are doing and how you are doing it. Unfortunately, once your competitors know what you are doing, they can begin working on ways to get around your patent. Because of this, a couple of large companies that I have worked for in the past, chose to keep their IP as trade secrets rather than to patent them. They reasoned that, because their technology was complex, that it would take their competitors longer to figure out what they were doing than it would take them to learn from the teachings of any patent they would file and find ways around that patent. Is there a patent for the formula for Coca-Cola? No. The company has closely guarded their recipe as a trade secret for generations…maintaining a competitive advantage for much longer than the life of any patent!
However, there is a definite need, particularly for smaller companies to patent. This is because most small companies need to raise money to fund their growth. And, investors want to make sure that the company’s IP has been secured. They don’t want to invest in a company only to see a competitor jump in and beat you at your own game. It’s generally pretty simple - no IP, no investment.
So, the question is, what to do? A strategy that I have successfully employed in the past is a hybrid strategy. You should definitely patent your core technology. This will provide the protection that both you and your investors require to maintain your competitive advantage. However, as you go about the business of commercializing your technology, you will learn many subtle things along the way that can make your product or technology better and/or less expensive. I like to keep these kinds of improvements as trade secrets. This strategy has allowed me to keep my patenting costs down and at the same time to keep my competitors guessing as to exactly what it is that I am doing.
Naturally, if you develop some real game-changing or disruptive improvements, you should certainly consider patenting those innovations. However, keeping a well-thought out mix of patents and trade secrets can be a very effective strategy.
By J. Gary McDaniel, TCV Partner