IP Management and Trade Secret Protection for SMEs

IP Management and Trade Secret Protection for SMEs

The words Trade Secrets in an opening black leather briefcase to illustrate proprietary information or intellectual property

Small and medium enterprises (SMEs) need to protect and appropriate their trade secrets effectively as part of their overall IP management strategies. By default, firms rely on trade secrets to protect their innovations, especially since they can be protected for an unlimited duration and formal registration is generally not required. Survey evidence (see Annex) consistently shows that firms view trade secret protection as more valuable than any other form of intellectual property protection, and across all sizes. However, the nature of trade secrets makes it vulnerable to misappropriation and theft, resulting in negative financial impact on firms and the economy.

Firms need to be increasingly vigilant and proactive in managing the threat of trade secret theft, misappropriation and the adverse economic implications it creates in order to achieve their strategic, operational and financial goals. It is important for firms to have proper protection mechanisms to safeguard their trade secrets. Firms can learn how other firms protect their trade secrets through case studies.

The most successful SMEs combine formal and alternative protection mechanisms strategically based on their needs, resources and business environment (Friesike 2011; Neuhäusler 2012). Business context, market environment, degree of research intensity, and type of innovation are prime considerations in the formulation of an IP management strategy, including the extent to which secrecy and other complementary strategies will be relied upon (Neuhäusler 2012). Firms should develop their IP management strategies along the lines of (i) appropriating their ideas and investments, bringing them to the market; (ii) using IP rights to signal their value to stakeholders and competitors; (iii) protecting their IP interests when collaborating with external parties; (iv) avoiding infringement of third-party IP rights and ensuring the freedom to operate (Brant and Lohse 2013).

Patents as a registered IP right provide an important signal to market participants and can be used as a tool to collaborate with other companies. However, SMEs should conduct a cost-benefit analysis prior to the decision to patent. Depending on circumstances, the perceived value of a patent as a means to derive licensing or other revenues, to influence the behaviour of competitors or to retain competitive advantages, may be outweighed by the cost of enforcement and potential litigation. In addition, other appropriation strategies would be required for sectors with fast product cycles or for service innovations related to an existing technology solution since little or no protection may be offered by patent protection (Hsieh et al. 2011).

SMEs can also combine the use of registered IP rights protection with other appropriation measures. For example, patents could be filed for part of an invention with trade secrets protecting the most important know-how of the invention (Dupré & Smith 2011). SMEs could rely on secrecy earlier in the process and increasingly file for patents as it enters commercialisation (Thomä & Bizer 2013). SMEs could protect a new technology by filing for patents, disclosing follow-on approaches through defensive publication to prevent competitors from patenting the invention, blocking their freedom to operate. SMEs could also combine defensive publication for a core invention with secrecy which protects technological details that optimises the solution, effectively preventing competitors from patenting the invention and protecting important know-how of part of the invention (Friesike 2011).

Where collaboration with competitors is required, SMEs could choose to rely on trade secret protection, conduct the collaboration within strict parameters and rely on lead time simultaneously, since there is the risk of technology leakage to competitors and losing control over the innovative process (Friesike 2011).

Effective IP management strategies should be employed by SMEs to appropriate their trade secrets alongside other complementary IP rights successfully, taking into consideration the need to protect their trade secrets as well. If a firm is unable to appropriate its IP, competitors may imitate its offerings without significant investment. Trade secret protection provides a mechanism for firms to capture the benefits of their inventions after undertaking costly and risky innovation investments. Firms should also be kept abreast of the various practices to protect their trade secrets effectively. Firms that fail to anticipate the growing threats of trade secret misappropriation and take necessary measures to protect their trade secrets face the risk of losing market share and falling behind their competitors.

[This article is contributed by the Intellectual Property Office of Singapore. The full paper can be found here]