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More survey results regarding the value of trade secrets as compared to patents -- No. 18

In the last blog I recited extensive findings from a 2003 IPO survey to the effect that 88% of the corporate respondents considered trade secrets as their really important intellectual assets. Interestingly, Dennis Crouch in his March 12 blog, offers a summarization written by James Bessen and Michael Meurer of their recent book Patent Failure. In it they note that

“Surveys also find that in most industries (pharmaceuticals are the exception!) R&D managers report that lead time, goodwill, trade secrecy and other means of appropriatia are more effective than patents in obtaining returns on their R&D investments (Levin et al. 1987, Cohen et al. 2000). For this reason, it is not surprising that survey research also finds that most inventions are not patented (Arundel and Kabla 1998, Cohen et al. 2000). On average, large European firms applied for patents on only 36% of product innovations and 25% of process innovations.”

Their answer to the obvious question “Why don’t patents reliably encourage R&D and growth?” is that “it is hard to sustain patent laws and institutions that make patents work like property.” That is an abstruse answer, to say the least, because patents do work like property because they are property. A better answer is that patents are not the be all and end all, as was recognized in the 2003 IPO survey, because they have limitations and weaknesses, i.e. strict patentability requirements, early publication and invent-around opportunity. And that is not all because the existence of three dozens of reasons for invalidity or unenforceability of patents cannot be overlooked. Likewise, other attrition factors for patents exist, such as:
  • getting a patent and getting an enforceable patent are two different things,
  • the average patent life is only five years due to non-payment of maintenance fees,
  • enforcing a patent is a daunting and expensive task,
  • only limited coverage is obtained in foreign countries, etc.
Still it is very important to go the patent route but it should be complemented by trade secret protection for collateral know-how to assure a fall-back position a la Pizza Hut decision, where patents were invalidated on summary judgment on on-sale bar grounds but the complementary trade secrets were validated after trial.

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This page contains a single entry from the blog posted on April 1, 2008 10:00 AM.

The previous post in this blog was 2003 IPO Survey Results -- No. 17.

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