A patent protects new and useful invention whereas trade secret protects valuable and secret information. Patent gives the patent holder a right to exclude others from making, selling, using or importing the invention. Whereas the trade secret protects only from the misappropriation. Patents are used to protect any invention that is novel, non-obvious, and commercially applicable. Under patent laws, an invention is novel if it is new, and non-obvious if it is creative and unique. It must be commercially applicable or useful for it to qualify for a patent. Utility, Plant, and Design patents constitute the categories under which the United States Patent and Trademark Office (USPTO) awards patents. Thus, patents may be used to protect new designs, machines, processes, and plants. Bluetooth, GPS etc are some examples of patented technologies. Trade Secrets give you IP Rights over a piece of confidential information. The eligibility criteria for trade secrets are that the information must be commercially valuable, it must be known to a select few, and steps must be taken by the holder to prevent it from leaking. There are two categories of trade secrets- technical information and customer information. The former includes business & financial details, product designs and formulas, unique computer codes, and manufacturing processes. Lists of clients, their consumption behaviour, marketing and business plans, and pricing information are covered under the latter category. The secret formula for making Coca-Cola, stored in a vault at their facility in Atlanta is a popular example of a trade secret.
Filing for and registering a patent is a long and tedious process. It entails submitting an initial application, publication, and a thorough and substantive examination by experts before the grant of a patent. The patent drafting process must follow stringent requisite guidelines for it to be considered by the patent office. A fee is associated with each step of the filing process and is mostly a considerable amount. Once approved, a yearly renewal fee is applicable in order to maintain the patent for its validity of 20 years. In contrast, in patent vs trade secret, the requirements and fees involved in trade secrets are minimal. Protecting a trade secret only involves the signing of confidentiality agreements or NDAs that are fairly inexpensive to draft. There is no authority where one must register the trade secret unlike patents or pay any associated fee. There is no time limit to the validity of trade secrets which stay in force so long as there are no confidentiality breaches.
Both patents and trade secrets are IP Rights that protect your invention and give you an exclusive monopoly over its usage. Both can be used to protect manufacturing processes and other similar categories. But that is where the similarities end in patent and trade secret. Below we enlist the difference between the two:
1.In the case of independent development, patent protection emerges stronger than trade secrets. A patented invention cannot be replicated or reproduced under any circumstances without infringing upon the patent. The patent owner is eligible to demand damages in case a competitor is found using or selling their invention in any manner without prior permission.
For trade secrets, the protection is only extended to an unlawful breach of information. If a competitor recreates the product/formula/process and independently develops their own version then trade secrets offer no legal security unless a breach is proved. The rival company could also patent the invention thereby shutting out the original inventor!
2. For companies looking to earn revenue from their invention by licensing, patents again emerge as the stronger candidate in offering suitable protection. The licensing agreement clearly defines the terms and conditions related to validity and infringement.
When licensing trade secrets there is always the fear of loss of exclusive control over the information and a disregard of contract by employees to leak the secret. Also, for the licensee, it is difficult to trust that the information is truly confidential and hence commercially valuable.
3. Cost is easily the biggest advantage trade secrets have over patents. Patent documents and filing is a very technical process that demands expenses right from inception. Drafting the patent, and filing it are complicated tasks that are usually outsourced to hired professional firms.
Then there is the patent maintenance fee that must be paid till the patent protection lasts. Trade secrets on the contrary are free from the registration or approval process. Any confidential information that meets the eligibility criteria may be declared as a trade secret with immediate effect. There is no additional fee of any kind involved in declaring or maintaining trade secrets.
4. The time period is another important distinguishing factor. If your invention is immune to technological innovations and you want to retain it in the long-term then trade secrets offer better protection as they last forever (unless breached), unlike patents which are valid only for a period of 20 years.
5. The level of disclosure in patent vs trade secret is a crucial factor to consider. Trade secrets rest heavily on the non-disclosure aspect. This keeps their information secret and unavailable to competitors. Patents on the other hand require full disclosures to be published as part of the filing process. While a business rival cannot copy this disclosure and create a product, it does offer strategic insights as well as a creative inspiration to improve on the patented product or develop a better one.
The idea of trade, and what makes trade valuable for societies, has evolved beyond simply shipping goods across borders. Innovation, creativity and branding represent a large amount of the value that changes hands in international trade today. How to enhance this value and how to facilitate the flow of knowledge-rich goods and services across borders have become integral considerations in development and trade policy.The TRIPS Agreement plays a critical role in facilitating trade in knowledge and creativity, in resolving trade disputes over intellectual property, and in assuring WTO members the latitude to achieve their domestic objectives. The Agreement is legal recognition of the significance of links between intellectual property and trade. "Intellectual property" refers to creations of the mind. These creations can take many different forms, such as artistic expressions, signs, symbols and names used in commerce, designs and inventions. Governments grant creators the right to prevent others from using their inventions, designs or other creations — and to use that right to negotiate payment in return for others using them. These are “intellectual property rights”. They take a number of forms. For example, books, paintings and films come under copyright; eligible inventions can be patented; brand names and product logos can be registered as trademarks; and so on. Governments grant creators these rights as an incentive to produce and spread ideas that will benefit society as a whole.
The extent of protection and enforcement of these rights varied widely around the world; and as intellectual property became more important in trade, these differences became a source of tension in international economic relations. New internationally-agreed trade rules for intellectual property rights were seen as a way to introduce more order and predictability, and to settle disputes more systematically.
The Uruguay Round achieved that. The WTO’s TRIPS Agreement is an attempt to narrow the gaps in the way these rights are protected and enforced around the world, and to bring them under common international rules. It establishes minimum standards of protection and enforcement that each government has to give to the intellectual property held by nationals of fellow WTO members.
Under the TRIPS Agreement, WTO members have considerable scope to tailor their approaches to IP protection and enforcement in order to suit their needs and achieve public policy goals. The Agreement provides ample room for members to strike a balance between the long term benefits of incentivising innovation and the possible short term costs of limiting access to creations of the mind. Members can reduce short term costs through various mechanisms allowed under TRIPS provisions, such as exclusions or exceptions to intellectual property rights. And, when there are trade disputes over the application of the TRIPS Agreement, the WTO’s dispute settlement system is available.
As in the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS), the starting point of the TRIPS Agreement is basic principles. And as in the two other agreements, non-discrimination features prominently: national treatment (treating foreign nationals no less favourably than one’s own nationals), and most-favoured-nation (MFN) treatment (not discriminating among nationals of trading partners). National treatment is also a key principle in other intellectual property agreements outside the WTO. The TRIPS Agreement has an additional important general objective: intellectual property protection should contribute to technical innovation and the transfer of technology. Both producers and users should benefit, and economic and social welfare should be enhanced, the TRIPS Agreement says.
The second part of the TRIPS Agreement looks at different kinds of intellectual property rights and how to protect them. The purpose is to ensure that minimum standards of protection exist in all WTO members. Here the starting point is the obligations of the main international agreements of the World Intellectual Property Organization (WIPO) that already existed before the WTO was created:
Some areas are not covered by these agreements. In some cases, the standards of protection prescribed were thought inadequate. So the TRIPS Agreement adds significantly to existing international standards.
Copyright usually refers to the rights of authors in their literary and artistic works. In a wider sense, copyright also includes ‘related rights’: the rights of performers, producers of phonograms and broadcasting organizations. During the Uruguay Round negotiations, members considered that the standards for copyright protection in the Berne Convention for the Protection of Literary and Artistic Works were largely satisfactory. The TRIPS Agreement provisions on copyright and related rights clarify or add obligations on a number of points:
The TRIPS Agreement ensures that computer programs will be protected as literary works under the Berne Convention and outlines how databases must be protected under copyright;
It also expands international copyright rules to cover rental rights. Authors of computer programs and producers of sound recordings must have the right to prohibit the commercial rental of their works to the public. A similar exclusive right applies to films where commercial rental has led to widespread copying, affecting copyright-owners’ potential earnings from their films; and
It says performers must also have the right to prevent unauthorized recording, reproduction and broadcast of live performances (bootlegging) for no less than 50 years. Producers of sound recordings must have the right to prevent the unauthorized reproduction of recordings for a period of 50 years.
A trademark is a sign or a combination of signs used to distinguish the goods or services of one enterprise from another. The TRIPS Agreement defines what types of signs must be eligible for protection as trademarks, and what the minimum rights conferred on their owners must be. It says that service marks must be protected in the same way as trademarks used for goods. Marks that have become well-known in a particular country enjoy additional protection.
A name or indication associated with a place is sometimes used to identify a product. This “geographical indication” does not only say where the product comes from. More importantly, it identifies the product’s special characteristics, which are the result of the product’s origins. Well-known examples include “Champagne”, “Scotch Whiskey”, “Tequila”, "Darjeeling" and “Roquefort” cheese. Using the indication when the product was made elsewhere or when it does not have the usual characteristics can mislead consumers, and can lead to unfair competition. The TRIPS Agreement says members have to provide ways to prevent such misuse of geographical indications. For wines and spirits, the TRIPS Agreement provides higher levels of protection, i.e. even where there is no danger of the public being misled. Some exceptions are allowed, for example if the term in question is already protected as a trademark or if it has become a generic term. The TRIPS Agreement provides for further negotiations in the WTO to establish a multilateral system of notification and registration of geographical indications for wines, which was subsequently extended to include spirits. The question of whether to negotiate extending this higher level of protection beyond wines and spirits is also being discussed in the WTO.
Industrial design is generally understood to refer to the ornamental or aesthetic aspect of an article rather than its technical features. Under the TRIPS Agreement, original or new industrial designs must be protected for at least 10 years. Owners of protected designs must be able to prevent the manufacture, sale or importation of articles bearing or embodying a design which is a copy or substantially a copy of the protected design for commercial purposes.
The TRIPS Agreement says patent protection must be available for eligible inventions in all fields of technology that are new, involve an inventive step and can be industrially applied. Eligible inventions include both products and processes. They must be protected for at least 20 years. However, governments can refuse to issue a patent for an invention if its sale needs to be prohibited for reasons of public order or morality. They can also exclude diagnostic, therapeutic and surgical methods, plants and animals (other than micro-organisms), and biological processes for their production (other than microbiological processes) from patent protection. Plant varieties, however, must be protectable by patents or by a special system (such as the breeder’s rights provided in the conventions of UPOV — the International Union for the Protection of New Varieties of Plants) or by both. The TRIPS Agreement describes the minimum rights that a patent owner must enjoy, and defines the conditions under which exceptions to these rights are permitted. The Agreement permits governments to issue “compulsory licences”, which allow a competitor to produce the product or use the process under licence without the owner's consent. But this can only be done under specific conditions set out in the TRIPS Agreement aimed at safeguarding the interests of the patent-holder. If a patent is issued for a process invention, then the rights must extend to the product directly obtained from the process. Under certain conditions alleged infringers may be ordered by a court to prove that they have not used the patented process.
An integrated circuit is an electronic device that incorporates individual electronic components within a single ‘integrated’ platform configured to perform an electronic function. The protection of layout designs of integrated circuits (“topographies”) in the TRIPS Agreement is provided through the incorporation of the Washington Treaty on Intellectual Property in Respect of Integrated Circuits, a treaty that was concluded under the World Intellectual Property Organization in 1989, but has not yet entered into force. The TRIPS Agreement adds a number of provisions: for example, protection must be available for at least 10 years. In practice, layout designs of integrated circuits are commonly protected under patents.
Undisclosed information includes trade secrets and test data. Trade secrets must be protected against unauthorized use, including through breach of contract or confidence or other acts contrary to honest commercial practices. Such protection is conditional upon the information being secret, having commercial value and reasonable steps having been taken by its owner to keep the information secret. Test data submitted to governments in order to obtain marketing approval for new pharmaceutical or agricultural chemicals must also be protected against unfair commercial use and disclosure. Extended transition periods continue to apply to least developed country members (see section below on transitional arrangements).
One way for a right holder to commercially exploit his or her intellectual property rights includes issuing a licence to someone else to use the rights. Recognizing the possibility that right holders might include conditions that are anti-competitive, the TRIPS Agreement says that under certain conditions, governments have the right to take action to prevent anti-competitive licensing practices. It also says governments must be prepared to consult each other on controlling anti-competitive licensing practices. More generally, the TRIPS Agreement recognizes that right holders could use their rights to restrict competition or impede technology transfer. The Agreement gives governments the right to take action against anti-competitive practices. In certain situations, the TRIPS Agreement also waives some conditions required for the compulsory licence of a patent in cases where the government grants the compulsory licence in order to remedy a practice determined to be anti-competitive.
In order for the protection of intellectual property rights to be meaningful, WTO members must give right holders the tools to ensure that their intellectual property rights are respected. Enforcement procedures to do so are covered in part III of the TRIPS Agreement. The Agreement says governments have to ensure that intellectual property rights can be enforced to prevent or deter violations. The procedures must be fair and equitable, and not unnecessarily complicated or costly. They must not entail unreasonable time-limits or unwarranted delays. People involved must be able to ask a court to review an administrative decision or to appeal a lower court’s ruling. The TRIPS Agreement is the only international agreement that describes intellectual property rights enforcement in detail, including rules for obtaining evidence, provisional measures, injunctions, damages and other penalties. It says courts must have the right, under certain conditions, to order the disposal or destruction of goods infringing intellectual property rights. Wilful trademark counterfeiting or copyright piracy on a commercial scale must be subject to criminal offences. Governments also have to make sure that intellectual property rights owners can receive the assistance of customs authorities to prevent imports of counterfeit and pirated goods.
Developing country members in particular see technology transfer as part of the bargain in which they have agreed to protect intellectual property rights. The TRIPS Agreement aims for the transfer of technology (see above) and requires developed country members to provide incentives for their companies to promote the transfer of technology to least-developed countries in order to enable them to create a sound and viable technological base.
While the WTO agreements entered into force on 1 January 1995, the TRIPS Agreement allowed WTO members certain transition periods before they were obliged to apply all of its provisions. Developed country members were given one year to ensure that their laws and practices conform to the TRIPS Agreement. Developing country members and (under certain conditions) transition economies were given five years, until 2000. Least-developed countries initially had 11 years, until 2006 — now extended to 1 July 2034 in general. In November 2015, the TRIPS Council agreed to further extend exemptions on pharmaceutical patent and undisclosed information protection for least-developed countries until 1 January 2033 or until such date when they cease to be a least-developed country member, whichever date is earlier. They are also exempted from the otherwise applicable obligations to accept the filing of patent applications and to grant exclusive marketing rights during the transition period.
The main forum for work on the TRIPS Agreement is the Council for TRIPS, which was created by the WTO Agreement. The TRIPS Council is responsible for administering the TRIPS Agreement. In particular, it monitors the operation of the Agreement. In its regular sessions, the TRIPS Council mostly serves as a forum for discussion between WTO members on key issues. The TRIPS Council also meets in “special sessions”. These are for negotiations on a multilateral system for notifying and registering geographical indications for wines and spirits.
The preamble to the TRIPS Agreement calls for a mutually supportive relationship between the WTO and WIPO as well as other relevant international organizations. Cooperation between the WTO and WIPO covers notifications of laws, technical assistance and implementing the TRIPS obligations that stem from Article 6ter of the Paris Convention for the Protection of Industrial Property. The WTO also coordinates with a wide range of other international organizations, in particular as regards the organization of symposia, training activities and other events on intellectual property and trade and how these relate to other policy dimensions, such as public health and climate change. There are a number of state-backed financial schemes designed to assist companies with the cost of innovation, notably R&D Tax Credits and R&D Grants. However, putting together an application for either relief can be a tough process and there are many pitfalls, which is why you should use a highly skilled R&D tax relief firm such as ourselves. Myriad Associates (developers of the Tax Cloud portal) is on hand to help with every aspect of putting your R&D tax relief claim together. From our initial meeting to crafting the perfect narrative report, right through to completion our team of R&D tax relief specialists and accountants are proud of their 100% success rate in getting Irish businesses the reliefs they deserve. Why not try out our Tax Cloud portal for businesses and see what you could be owed, or call our Dublin-based team on +353 1 566 2001. Alternatively, please use our contact page and we'll be pleased to get back to you. Intellectual Property Rights (IPRs) are the institutional regulations that enable innovation by creating the incentives to invest in research and development (R&D). Innovation and Intellectual Property. Innovation means doing something new that improves a product, process or service. Many innovations can be protected through intellectual property (IP) rights.
Inventions are the bedrock of innovation. An invention is a new solution to a technical problem and can be protected through patents. Patents protect the interests of inventors whose technologies are truly groundbreaking and commercially successful, by ensuring that an inventor can control the commercial use of their invention. An individual or company that holds a patent has the right to prevent others from making, selling, retailing, or importing that technology. This creates opportunities for inventors to sell, trade or license their patented technologies with others who may want to use them. The criteria that need to be satisfied to obtain a patent are set out in national IP laws and may differ from one country to another. But generally, to obtain a patent an inventor needs to demonstrate that their technology is new (novel), useful and not obvious to someone working in the related field. To do this, they are required to describe how their technology works and what it can do. A patent can last up to 20 years, but the patent holder usually has to pay certain fees periodically throughout that 20-year period for the patent to remain valid. In practice, this means that if a technology has limited commercial value, the patent holder may decide to abandon the patent, at which point the technology falls into the public domain and may be freely used.
In addition to recognizing and rewarding inventors for their commercially successful technologies, patents also tell the world about inventions. In order to gain patent protection for their invention, the inventor must provide a detailed explanation of how it works. In fact, every time a patent is granted, the amount of technological information that is freely available to the general public expands (see Using and Exploiting Patent Information tutorial). WIPO is making this and other IP-related information freely available to the public through its global databases. The largest of these – it is also one of the largest in the world – is PATENTSCOPE. It contains over 50 million patent applications that can be searched free of charge. The aim in making this information widely available is to spark new ideas and promote more innovation, and also to help narrow the knowledge gap which exists in developing and least developed countries.
A patent is a private right that is granted by a government authority. It only has a legal effect in the country (or region) in which it is granted. So inventors or companies that want to protect their technology in foreign markets need to seek patent protection for their new technologies in those countries.
WIPO’s Patent Cooperation Treaty (PCT) is designed to make the process of obtaining patent protection in up to 152 different countries easier and less costly.
Within a year of filing for patent protection in their own country, inventors can set in motion the process of obtaining patent protection in each of the markets in which they wish to sell their technology by filing a single international application via the PCT. This offers many potential advantages:
Any rights granted using the PCT flow from the initial filing date of the national patent application.
Users benefit from a common set of rules and regulations which have been agreed upon and are followed by all 152 members of the Treaty. This means there is a high level of legal certainty and no nasty surprises.
The full cost of obtaining patents in multiple countries – which can be quite high – are deferred by up to 18 months. This means that applicants have an opportunity to test the market or to attract new business partners.
Users of the PCT automatically benefit from an assessment which gives informal (non-binding) feedback on the patentability of their technology. This can be very helpful in shaping a company’s patenting strategy.
The WIPO Academy offers a free distance learning course that covers the basics of the PCT in 14 modules. Successful participants earn an electronic certificate upon completion of the course.
Patents recognize and reward inventors for their commercially-successful inventions. As such they serve as an incentive for inventors to invent. With a patent, an inventor or small business knows there is a good chance that they will get a return on the time, effort and money they invested in developing a technology. In sum, it means they can earn a living from their work.
When a new technology comes onto the market, society as a whole stands to benefit – both directly, because it may enable us to do something that was previously not possible, and indirectly in terms of the economic opportunities (business development and employment) that can flow from it.
The revenues generated from commercially successful patent-protected technologies make it possible to finance further technological research and development (R&D), thereby improving the chances of even better technology becoming available in the future.
A patent effectively turns an inventor’s know-how into a commercially tradeable asset, opening up opportunities for business growth and job creation through licensing and joint ventures, for example.
Holding a patent also makes a small business more attractive to investors who play a key role in enabling the commercialization of a technology.
The technical information and business intelligence generated by the patenting process can spark new ideas and promote new inventions from which we can all benefit and which may, in turn, qualify for patent protection.
Patent information can be mapped, offering policy makers useful insights about where technology R&D is taking place and by whom. This information can be useful in shaping policy and regulatory environment that allows innovation to thrive.
A patent can help stop unscrupulous third parties from free riding on the efforts of the inventor.
Other intellectual property rights
Copyright protects artistic expressions like music, films, plays, photos, artwork, works of architecture and other creative works. The term “creative works” is defined very broadly for copyright purposes, such that copyright may be used to protect functional texts such as user guides and product packaging as well as works of art. Design rights protect the shape and form of a product, i.e., what it looks like (whereas the functionality of a product – how it works – is protected by a patent). Companies invest a great deal of time and money in coming up with new and attractive designs that seduce consumers into buying their products. Design is now widely recognized as a key determinant of commercial success. Trademarks are signs that are capable of distinguishing the goods or services of one enterprise from those of others. Trademarks are indispensable tools in today’s business world. They help companies expand their market share and they help consumers identify the products they want to buy in a crowded market place. Trade secrets can be used to protect the “know-how” of a business. Essentially, laws relating to trade secrets mean that some people (e.g., a company’s employees) may have a legal duty to keep certain information confidential (see Eight steps to secure trade secrets).
An invention can be protected as a trade secret or through a patent. Many businesses use trade secrets to protect their know-how, but there are downsides in doing this. From the company’s point of view it may be risky because once information is disclosed legitimately (e.g., if someone else works out how an invention works), it will no longer be protected. And from a public interest viewpoint, trade secrets are less beneficial than patents because they do not involve any sharing of technical information.
Understanding the Key Differences. One of the primary advantages of closed innovation is the protection of intellectual property (IP). By developing and fostering ideas within the organisation, companies can maintain tighter control over their inventions and trade secrets, reducing the risk of potential IP theft by competitors. Innovation is the driving force behind sustainable growth, prosperity, and competitive advantage. Essentially, it is the process of developing and implementing new ideas, technologies, or strategies to create value and enhance an organisation's ability to meet market demands. However, not all innovation processes follow the same approach, and recognising the key differences between these approaches can significantly impact a business's success. Open innovation and closed innovation are two contrasting strategies that organisations utilise for this purpose. Open innovation involves collaborating with external partners, such as academia, customers, and other firms, to pool knowledge and resources, thereby creating a vast spectrum of possibilities for fostering new ideas. In contrast, closed innovation relies on internal Research and Development (R&D) efforts to generate proprietary solutions, safeguarded by strict intellectual property rights to maintain competitiveness. The purpose of this blog post is to delve deeper into the intricacies of these two approaches, analysing their advantages and disadvantages, and offering expert insights to help businesses make informed decisions in choosing the most appropriate approach for driving innovation and growth. By doing so, we aim to empower organisations with the knowledge required to navigate the ever-evolving world of technological advancements and marketplace disruptions, ultimately leading them towards sustainable success.
Open innovation is a modern approach to innovation management, which promotes the flow of knowledge, ideas, and intellectual property both within and outside an organisation's boundaries. This paradigm shift encourages collaboration and exchange between external partners – such as universities, research institutes, suppliers, customers, and even competitors – and internal teams to fuel the innovation engine. Open innovation leverages external sources of creativity and disruptive thinking to develop new products, services, and business models that drive growth. There are several key advantages to adopting open innovation. Firstly, it provides access to a vast pool of external ideas and expertise, which can significantly enhance an organisation's problem-solving capabilities. By collaborating with external partners, companies can tap into diverse perspectives, leading to the development of innovative solutions that may have been impossible to conceive from a solely internal viewpoint. This can result in breakthrough innovations that differentiate businesses from their competitors and provide a competitive edge in the marketplace. Another advantage of open innovation is the potential for reduced R&D costs. By utilising external resources and ideas, R&D projects can be carried out more efficiently and at a lower cost. Furthermore, the risk associated with innovation is spread across multiple parties, minimising the financial burden on a single organisation. Numerous companies have successfully implemented open innovation strategies, reaping the benefits of collaboration and shared knowledge. For example, Procter & Gamble's 'Connect+Develop' programme actively seeks out external partners to co-create new products and business models. Through this open approach, P&G has introduced over 35% of their new products over the last decade. Similarly, IBM's 'InnovationJam' initiative brought together over 150,000 people from 104 countries to tackle major technological challenges, resulting in the development of ten new business opportunities worth nearly $100 million. In conclusion, open innovation offers businesses the opportunity to unlock untapped potential through collaboration and exchange, fostering a diversified approach to problem-solving that enables breakthroughs and propels growth.
Closed innovation, often considered the traditional approach to research and development, refers to a company's internal management and execution of its innovation processes. This involves utilising in-house resources, such as company employees, internal research and development departments, and proprietary technology, to create and commercialise new products or ideas. In contrast to open innovation, closed innovation does not involve collaborations with external entities, including customers, competitors, and research institutions. One of the primary advantages of closed innovation is the protection of intellectual property (IP). By developing and fostering ideas within the organisation, companies can maintain tighter control over their inventions and trade secrets, reducing the risk of potential IP theft by competitors. Closed innovation also allows businesses to exert greater control over the overall innovation process; they can define project parameters, allocate resources strategically and tailor new concepts to align perfectly with company strategy and objectives. Additionally, closed innovation can foster a sense of internal competitiveness among employees, driving them to develop unique and creative solutions to problems, without the influence or input of external parties. This can lead to an environment that nurtures the growth and development of proprietary breakthroughs. Several companies have successfully implemented closed innovation strategies. For instance, Apple Inc. is renowned for its reliance on internal resources and expertise, which has helped them maintain a competitive edge in the consumer electronics market. Apple's development of their own processors, such as the A-series chips used in iPhones and iPads, demonstrates their commitment to a closed innovation model. Another example is Procter & Gamble (P&G), who, prior to embracing open innovation, relied heavily on their extensive in-house research and development capabilities. P&G's historic success in creating innovative products, such as Tide laundry detergent and Crest toothpaste, can be attributed to their closed innovation strategy. In summary, closed innovation allows companies to maintain tighter control over their intellectual property, manage the innovation process effectively, and align projects with their strategy. Notable examples, such as Apple and Procter & Gamble, have demonstrated the potential benefits that this approach can provide in driving business growth and success.
Open innovation is an approach that emphasises collaboration and the sharing of ideas and resources beyond a company's boundaries. It involves seeking external expertise, partnering with suppliers, customers, or even competitors to solve problems or develop new products and services. Proponents of open innovation argue that it leads to faster innovations, reduced costs and allows access to a larger pool of talent, ideas and intellectual properties. However, the downside of this approach includes the risk of losing control over proprietary information and potential legal issues related to intellectual property. On the other hand, closed innovation is based on the belief that companies should rely solely on their internal resources and capabilities to generate all innovations. This approach emphasises secrecy, intellectual property protection and self-reliance. Advocates for closed innovation argue that it enables companies to maintain control over their innovations and protect their competitive advantage. However, disadvantages include the potential for limited creativity due to the lack of external input, inefficiencies in R&D processes, and the risk of technological obsolescence. To determine which innovation approach is best for your business, consider the following factors: your company culture and values, industry dynamics, competition level, available resources, and desired innovation outcomes. For organisations that value collaboration, are operating in highly competitive industries, or lack the necessary internal resources, open innovation may be the best choice. Alternatively, for businesses that prioritise secrecy and protection of intellectual property, closed innovation may be more suitable.
In conclusion, open and closed innovation offer distinct advantages and challenges, and selecting the most appropriate approach depends on the unique context of your business. By carefully considering the factors outlined above, organisations can make informed decisions to drive innovation and growth.
This blog post delved into the crucial distinctions between open and closed innovation, highlighting how these two strategies impact the way companies maintain their competitive edge. As we have seen, open innovation encourages businesses to engage in collaborative efforts, leverage external resources, and foster a more adaptable, fluid system. In contrast, closed innovation focuses inward, prioritising proprietary knowledge, full ownership and control, as well as independent problem-solving. To make an informed decision regarding the most suitable option for a business, weighing the advantages and disadvantages of each approach is essential. Open innovation boasts benefits such as reduced costs, diversified perspectives, and accelerated innovation cycles. These can prove invaluable, especially when operating in dynamic environments. On the other hand, closed innovation maintains strict control over intellectual property and streamlines research and development, potentially leading to breakthroughs that competitors may struggle to replicate. The importance of understanding the differences between open and closed innovation cannot be overstated. It is crucial for businesses to determine which approach best aligns with their overall strategy, organisational culture, and specific industry norms. Ultimately, this decision may directly impact a company's capacity for growth, long-term success, and market leadership. By understanding the nuances of each approach and how they align with a firm's objectives, business leaders can adopt the most appropriate innovation strategy to optimise their organisation's competitive position in the market. In summary, developing a clear grasp of open and closed innovation strategies is critical to making informed choices that reinforce an organisation's capacity for success in today's rapidly evolving business landscape. As companies strive to secure a leading edge and foster sustainable growth, assessing the merits and drawbacks of each framework is indispensable in shaping an approach tailored to the unique needs of an organisation.
