By John E. Matheson, Director of Legal Policy-Asia Pacific, Intel Technology Asia Pte. Ltd.
One of our co-founders, Dr. Robert Noyce once said; “Don’t be encumbered by history. Go off and do something wonderful”. This simple philosophy has stuck with Intel for decades and even today, it motivates Intel employees to break the mold, take appropriate risks and push the boundaries in everything we do.
Intel is a company built on innovation and as a long term investor and innovator in India we have been looking for ways to share our experiences with SMEs who are interested in breakthrough innovations. On Saturday, October 19th, Intel in collaboration with the National Law School of India (Bangalore) delivered a day-long program on Innovation & IP for MSMEs (which I refer to as “SME” for short). In this blog, I would like to share with you the practical tips we were able to provide to the SME audience who attended on how they can create more innovation through robust IP management practices.
We were privileged to receive a strong message of support from Shri K.H Muniyappa the Honorable Minister of State and Minister of MSMEs and at the opening ceremony, a senior representative from the Ministry, joined us to explain the many Government schemes that are available to subsidize the cost of patent filing for small companies in India. This seemed to be very comprehensive and linked naturally to the objectives of our program in teaching IP and Innovation to Indian SMEs.
Our NLS host, Prof. Ramakrishna set the scene for our presentations with a background paper in which it was stated that; “SMEs make up 40% of the workforce but only 22% of the GDP”. This productivity gap suggests there are ways to help SMEs increase their innovation and productivity capabilities through training and sharing experiences. It is true that, compared to SMEs, big companies have greater resources and can afford to probe new business opportunities by using revenue generated from their core businesses. But SMEs have other advantages, particularly in their speed of decision-making and ability to change direction and identify new opportunities. In our program, we set out to share our experiences while keeping them relevant to SMEs looking to move up the value chain. The commentary below is an outline of the key points from the program.
The Experience of Tejas Networks
To help get the context right, we started the business part of our program by showcasing the work of Tejas Networks, a Bangalore-based startup founded in 2000 which has grown into a leading provider of optical transport solutions for telco’s and enjoys a substantial international customer base. Tejas’s CTO, Dr. Kumar N. Sivarajan, made some very impactful observations which really set the scene for our in-depth training on trade secrets and patents:
- From the outset R&D was done in-house but with little emphasis on patent protection as the company was more focused on getting a foothold in the market. However, Tejas soon realized that patents were the most effective way of protecting their innovations so they started to build a patent filing program.
- Aggressive patent filing didn’t really start until the company tried to raise money and the bankers asked the big question; “Where are your Patents…?”.
- Citing a survey showing that 54% of respondents found that “a patent” significantly changed the companies’ fortunes, Dr. Sivarajan explained; – “the company found that when we were raising money, it was essential to highlight the value of our IP, “almost nothing else will work”.
- When they were raising funds, the finance people always asked them how many patents they had and often asked the question; “what prevents anyone else copying your products”?
- Although the patent program was extremely important to the company, Dr. Sivarajan said that, “Sometimes it is better to keep things secret…” [meaning that there are cases where keeping information as a “trade secret” within the company can be a better strategy than applying for a patent]. This is typically the case when the trade secret relates to a process or internal procedure which does not need to be disclosed as part of the sale of the product.
The Culture of Innovation
Next, we shared our corporate philosophy on innovation and tried to put it in a context that would be useful for an SME. An essential part of this is in creating what we call, “the Culture of Innovation”, where we adopt internal processes that encourage and reward engineers to continually push the boundaries in finding new solutions. There are many facets to this but here are a few of the key points:
- Encourage informed “risk taking”. Intel rates this so highly that risk taking is elevated to one of our “core values” along with others, which include “discipline” and “customer orientation”. Because Intel employees are rated by their performance to core values, they are encouraged to take informed risks.
- “Fail early and fail cheap”. This can be read as part of the risk taking value and encourages employees to test the viability of new ideas as early as possible so they don’t waste money on dead ends.
- Systemic Innovation Engagement Models. This is a big subject but includes the use of specialized tools designed to lead to breakthrough technologies along with idea “harvesting,” where time is set aside to brainstorm on problem solving and moving from ideas to reality.
- Recognition and reward. An important part of the culture of innovation is to ensure that we recognize the breakthrough work that gets done so that engineers feel properly rewarded and their peers acknowledge them accordingly. This can be done in multiple ways, including inventor recognition when patents are accepted for filing (Intel has an “Inventors Wall of Fame” at our Bangalore campus) and additional remuneration for patents that are filed in targeted areas.
Learning to Preserve the Power of Trade Secrets
In this section of the training we explained why trade secret protection is so important in today’s environment, we shared some of Intel’s internal procedures, and we gave some practical guidance on the systems SMEs need to put in place to truly harness the power of trade secrets. Here are some of the key points:
- In the digital world, information can be moved (and misappropriated) globally in seconds. Although it is often necessary to have broad access to data to allow employees to do their jobs, unfettered access is a bad corporate policy that shouldn’t be adopted just because you have a small and collegiate environment. The most powerful (and sometimes most difficult) to adopt when a company is small is a “Need to Know” policy. Take the example of a start-up that develops a sports drink that starts to get traction in the market. If there are 10 key ingredients, is it really necessary for all employees from the CEO down to the mail room clerk to know what they are? You need to ask the key question; how many people really need to know the formulae to do their job? Often the answer is a surprisingly small subset of your team!
- When we think of trade secret theft, it is often in the context of press reports about international espionage. However, for most companies, the biggest threat of trade secret loss comes from their biggest asset, i.e, their own employees. In the U.S, 85% of trade secret cases that reach the higher courts involve misappropriation by current or former employees of the company.
- Do you really understand how much information is capable of being treated as a trade secret? At the top end of this spectrum, the answer is often obvious, particularly if you have developed a new product or a new process to manufacture something. However, at the other end, the answers are often far from obvious and include any non-public information that gives you an advantage over your competitors. Once you are able to understand the value of trade secrets in this context you will appreciate that internal information such as a simple product quality test or even a customer list or supplier pricing may be only known to you. If so, such information gives you a market advantage and needs to be protected.
- Unfortunately, for many SMEs, effective internal procedures to protect trade secrets are not adopted until there is some event that triggers a change. For example, when the company has to get its house in order to raise money, encounters commercial success or, worst case, after an incident where an employee has walked out with their “secret sauce.”
- SMEs are often at the highest risk when they have a small employee base and are yet to adopt internal procedures to properly classify and protect their trade secrets. If you understand the threat, the solutions may be easier than you think! These include:
- An employment agreement which specifies that all IP is owned by the company
- A Non-Disclosure Agreement (“NDA”) that protects the company’s trade secret information, even after the employee leaves the company.
- A classification system that appropriately identifies or marks information as “Top Secret”, “Confidential”- or whatever system the company chooses (there is no single right way to do this- the most important point is that trade secret information is identified and properly protected).
- Training and monitoring to ensure the procedures for the different information classifications are complied with.
- The protection of trade secrets should be incorporated into a wider compliance program supported by “Tone from the Top”. The company’s leaders must themselves be role models of compliance and then the example they set will influence the right behaviors throughout the company.
Effective Use of the Patent System
Patent law is a complex area which for even the lawyers can be an impenetrable maze of technical jargon and evolving case law, but in the hands of an engineer/inventor often breaks down to some basic and intuitive principles. Any product or process involving an inventive step which is new and non-obvious, may be patentable.
As Dr. Sivarajan told our audience of SMEs, developing a patent portfolio was the critical inflexion point that enabled Tejas Networks to get funding and develop the successful business model it enjoys today. He acknowledged, however, that when a company is just getting started, filing patents is not always a top priority. This is a decision that each company needs to make depending on its business model. For some innovations, patent protection is the best way to help the company defend its business from imitators.
The patent system is too big a topic to attempt to summarize in a short blog, but here are a few practical tips that Intel’s IP lawyers were able to share with our SME audience;
- Patent applications need to be filed before an invention is publicly disclosed because companies don’t have the option of waiting to see if their innovations will enjoy commercial success before committing funds to filing. For companies new to the patent system this is probably the biggest trap they fall into. There are some narrow exceptions (for example, the U.S has a 12 month grace period), but SMEs should assume the “absolute novelty” rule applies and their invention should not be disclosed before a patent application is filed.
- An important gloss on the absolute novelty rule is that a disclosure of an invention made pursuant to an NDA is not a public disclosure. This means that the SME is able to explore outsourcing options or make selective sales pitches to NDA customers while preserving patentability rights to an invention.
- For a newly established SME who is focusing on getting its business model working and generating cash flow, dealing with patent attorneys and the patent system is not always a welcome task. Taking this on will require a culture change that has to be lead by management. This means that inventors need to be encouraged to exercise the effort to protect their innovations in a timely manner and rewarded appropriately when they meet success.
- The patent/trade secret mix should not be overlooked. Remember that your ultimate goal is to secure a market advantage by building your own IP portfolio. Whether that is done substantially through filing patents or by protecting your trade secret information will depend on your business model but, for the overwhelming majority of tech companies a successful IP portfolio will include a combination of both patents and trade secrets.
Don’t Forget to Have Some Fun…
I was so gratified to see a group of Intel employees spending their weekend time working with an audience of SMEs to talk about IP & Innovation. They volunteered to do it because it is important and it’s something that Intel cares about. We are now looking to take our program to other cities in India to spread the word on how to foster innovation through adoption of robust IP management practices. We want to encourage SMEs to push the boundaries of creativity and technology in the same way that Intel has done.
What better way to close this blog than with a short clip of one of our own inventors enjoying the “Rock Star” treatment that so many inventors deserve.